Behind the bank

N rock

What a bank run looks like: UK

More on the banks. And your money.

As you may know, enough people worried about BMO on Monday to drive the stock down 3% in one session. The options market flooded with about 25,000 orders to sell shares short. The puts beat the calls by a margin of 13.

Some people, believing the web-based rumours that I told you to ignore, took their money out of the bank and stuck it in others. Only Beemo knows how much cash moved.

If anything, this should remind us that banks are financial intermediaries. They do not take your cash and put it in a safe room with a honking big lock and then pay you interest. Instead they accept your money and give it to other people in the form of mortgages, loans, lines and a host of other products. The bankers make money on the spreads.

That means a run on a bank in which 95% of the deposits have been turned into loans, is a recipe for disaster.  This should surprise nobody. But it does. Which always surprises me. (Take a look at the picture above, when this happened a few months ago to Britain’s Northern Rock Bank.)

Some visitors to this blog asked about deposit insurance and what protection Canadians have in the event of a bank collapse or, for that matter, the insolvency of an investment dealer holding your investment funds or a mutual fund company with your retirement nestegg. So, let’s take a minute and review that. Then a couple of comments. First, this:

So much for blog terror: BMO profits jump
5,500,000 shares trade - up 6.8%

Regarding your bank accounts.

CDIC will only insure deposits in Canadian funds, payable in Canada and for term deposits of five years or less. Your limit is $100,000 and it covers money in savings or chequing accounts, GICs, money orders, traveller’s cheques, bank drafts or accounts which hold funds for property taxes or mortgages.

Of course, you can exceed the hundred grand in a number of ways. For example, an account in your name is insured, plus one in your spouse’s name, and a third one held jointly. Or money in a trust account for your kid has its own insurance, as does an RRSP or a RRIF – to a max of $100,000.

But not insured: Mutual funds, stocks, marketable bonds, T-bills or any debentures or debt issued by governments or corporations. Also SOL is anything in US dollars or other currencies.

So, what happens with your investment portfolio? After all, the big banks all own brokerages – like BMO Nesbitt Burns – so it’s logical to believe trouble with one might mean grief with the other. Here’s where CIPF comes in, an insurance scheme set up by the investment industry.

This is intended to cover securities that you might lose, plus cash balances, if a broker or dealer, discount brokerage or other accredited company goes paws-up. You have 180 days to make a claim, which can be for a million bucks.

As with deposit insurance, you can goose that coverage fairly easily. For example, a general account can be insured for $1 million, and then a separate account can cover retirement savings for another million (on a combined basis). Joint accounts are also covered, but the percentage proportion is added to each person’s general coverage.

And as of four years ago, there’s another plan run by the mutual fund business. The MFDA-IPC gives investors some recourse if a fund company kicks. Like the CIPF, you can claim a million for a general account and still have an equal amount for registered retirement plans.

BTW, the total paid out to investors of failed investment firms over the last 40 years amounts to a mere $36 million. See what a boring country this is?

Obvious point: If you hand over money to an investment outfit, ensure it’s part of CIPF. This is a lesson learned the hard way by Earl Jones victims. That guy was operating as a financial advisor with absolutely no credentials – and yet people entrusted their life savings to him.

Another one: CDIC has got to get with the game and dramatically increase its coverage. A hundred grand just doesn’t cut it anymore. In the US, the FDIC provides $250,000 worth of coverage each on a range of accounts. Some countries, like Ireland, have insured every dollar deposited at every bank. If Ottawa is quite convinced our banks are the best in the world (which we’re incessantly told), then what’s the problem? Cough it up, Jim.

Finally: No major Canadian bank is going to fail. Earnings this week may be lousy, and stockholders may get beat up for a while, but no depositors will be left on the sidewalk. There is no longer a government in the developed world ready to tolerate a bank failure in which public liabilities go unmet. If you don’t know that by now, you’ve not been paying attention.

This is also why I’ve been saying financials strike me as one of the safest sectors in which to invest. No limit now to the public money which would be shovelled in.

This means, of course, you might wish to stick that put, and long a call.


Garth's latest podcast is here.


#1 aspen on 08.24.09 at 11:08 pm

At present I have over the insurable limit in 4 separate accounts In BMO. I expect it will still be there on Tuesday evening when I return home. I have been dealing with the Bank of Montreal since 1953. I see no reason to stop. Thanks Garth for all the great advice. I have been paying attention. I have put of a real estate purchase for up to 2 years because I think you are absolutaly right. There are no guarantees in life , but I think you have the best handle in what is going on. Thank you for keeping up your blog. Garth, I have never warmed up to being a Liberal, but I would sure feel more comfortable with you as “Finance Minister”. Good luck in the coming election. If I lived in your riding, you would have my vote.

#2 nonplused on 08.24.09 at 11:41 pm

if a big bank in Canada were to fail, the government would bail them out as in the US and England. It will require more borrowing, which will be bad for everybody long term, but we are all going down together. No individual major entity will be allowed to fail outright. It will be absorbed by higher taxes and down the road inflation.

#3 dd on 08.24.09 at 11:47 pm

And again,

Why are banks apart of your portfolio? What type of business model will they have if the worlds needs to delever?

#4 Albertaboy on 08.25.09 at 12:21 am

A hundred grand just doesn’t cut it anymore. In the US, the FDIC provides $250,000 worth of coverage each on a range of accounts.

The problem with the FDIC is that they have covered the customer savings of so many US banks they run the risk, for the first time in their 80 plus year history of running out of cash. Their reserves are low and will, no doubt, require a bailout from the government (ie taxpayer).

#5 Munch on 08.25.09 at 1:10 am

You are very sure that there will be no bank failures in Canada, Mr Turner!

Munch is not so sure!

Munch thinks that these things have happened before, and they can happen again.

Munch will not side with Mr Turner on this one.

Munch awards Mr Turner a score of {ripping open gilt-edged envelope} 5 out of 10 for today’s missive.

Thanks fer listening


#6 Happy Renter in North Van on 08.25.09 at 2:29 am

You know, for someone who seems to want to reassure people about the stability of the Canadian banking system, you seem to want to scare the bejesus out of them…

Hey, I’m just another person offering an opinion…

#7 JOJO on 08.25.09 at 3:25 am

However Garth,
What is your prediction for stock market TSX ?
Still 15% gain left on the banking stocks to be historicly
top high. Soon we can see this amaizing top price,So what after that?

#8 Mike (Authentic) on 08.25.09 at 3:49 am

If there is one thing I’ve learned from this bear market rally is you can’t stop a heard of lemmings from doing somthing illogical to your way of thinking. So, if a bank run is going to happen, it’s mob logic.

Thus, you better get your money out of BMO first thing this morning when they open. Put it in another bank or save it for 2 weeks and see what happens to BMO. I’d be taking my money out.

While the CDIC will insure you money if BMO fails, does anyone want to wait months (years in some cases) to get your money back? With BMO paying .01 to .8% interest is the risk of your money at BMO REALLY worth the reward?

BTW: Since CDIC was created in 1967, 43 member institutions have failed.

Food for thought.


#9 Don't Believe the Hype on 08.25.09 at 7:12 am

Watch the movie “It’s a wonderful life” for a quick lesson on how a bank works ;-) as Jimmy Stewart explains to the angry mob where all the money is.
Of course that was before deposit insurance existed (presumably).

#10 The 'VULTURE' on 08.25.09 at 7:21 am

Hello, Anyone Out There?????

According to the 2007 Annual Report, CDIC has $1.6 billion CAD in assets to meet insurance claims on failures. This amount represents 0.34% of total eligible deposits at member institutions. (source:

Royal Bank of Canada with $365 billion in deposits
Bank of Nova Scotia with $288 billion in deposits
Toronto-Dominion Bank with $276 billion in deposits
Bank of Montreal with $232 billion in deposits
Canadian Imperial Bank of Commerce with $232 billion in deposits. (source:

List of financial collapses since 1967 (source:

Commonwealth Trust Company 1970
Security Trust Company Limited 1972
Astra Trust Company 1980
District Trust Company 1982
AMIC Mortgage Investment Corporation 1983
Crown Trust Company 1983
Fidelity Trust Company 1983
Greymac Mortgage Corporation 1983
Greymac Trust Company 1983
Seaway Mortgage Corporation 1983
Seaway Trust Company 1983
Northguard Mortgage Corporation 1984
CCB Mortgage Investment Corporation 1985
Canadian Commercial Bank 1985
Continental Trust Company 1985
London Loan Limited 1985
Northland Bank 1985
Pioneer Trust Company 1985
Western Capital Trust Company 1985
Bank of British Columbia 1986
Bank of British Columbia Mortgage Corporation 1986
Columbia Trust Company 1986
North West Trust Company 1987
Principal Savings & Trust Company 1987
Financial Trust Company 1988
Settlers Savings and Mortgage Corporation 1990
Bank of Credit and Commerce Canada 1991
Saskatchewan Trust Company 1991
Standard Loan Company 1991
Standard Trust Company 1991
Shoppers Trust Company 1992
Central Guaranty Mortgage Corporation 1992
Central Guaranty Trust Company 1992
First City Trust Company 1992
First City Mortgage Company 1992
Dominion Trust Company 1993
Prenor Trust Company of Canada 1993
Confederation Trust Company 1994
Monarch Trust Company 1994
Income Trust Company 1995
North American Trust Company 1995
NAL Mortgage Company 1995
Security Home Mortgage Corporation 1996

The CDIC’s assets are insufficient to pay for the failure of any of the 14 biggest banks in Canada (CDIC annual report 2007, p 23), where Canadians have most of their money. In this eventually, CDIC would have to tap the financial markets for additional funds or receive the required additional funds from the Government of Canada. It is not clear whether the Government of Canada is legally bound and obliged to rescue a crown corporation such as CDIC, but there is a tacit assumption that failure to do so would be unfeasible politically. (source:

Is it Time to wake up???….before its too late????……….

#11 lgre on 08.25.09 at 7:24 am

BMO up 6.9% for Q3, no dividend cut.

#12 Cash is King on 08.25.09 at 7:39 am

$557 million profit for this quarter. Dividend remains unchanged. U.S. profits down.

Please back away from your local branches front door. Tear down your tent. Time to move on to the next “insider, I was right about Lehman and I’m right about this” blog.

#13 Confused and... on 08.25.09 at 7:42 am

The limit of 100,000$ for each account?
If I have:
a chequing account
a saving account
a joint saving account

then I am safe for 300,000$ with CDIC, right?


#14 MrC on 08.25.09 at 7:47 am

All is well at BMO this morning. No dividend cut and profits rise to $557m.

At this point, there is no story here. Looks like some of those bloggers guessed wrong this month.

#15 JFoo on 08.25.09 at 7:59 am

BMO profit rises to $557-million

#16 cashman on 08.25.09 at 8:40 am

I see the elite bankers and their political pawns are back at again! Their ensuring that the ‘system’ is sound, but don’t forget, the elite bankers OWN the very system we are suppoesed to put our faith in. Folks, believe me when I tell you that we are getting set up for the 1 world gov’t. Alot of you will say that’s conspiracy talk and don’t listen to him. Well, the facts are the facts. How could all the international banks go belly up at the same time, when for over 100+ years they have been making money hand over fist and now they say “we’re bust”. I don’t belive it and i was not born yesterday. Especially when the Rothschilds and their band of merry men are controlling the central banks and the IMF. Go figure

#17 ASpencer from Canada on 08.25.09 at 8:58 am

Helped by a spike in trading revenue and lower loan-loss provisions, the Bank of Montreal came in ahead of analyst expectations with third quarter net income of $557-million, up 6.9% from a year ago.

Canada’s fourth largest bank announced provisions for credit losses of $417-million, comprised of $357-million of specific provisions and a $60-million hike in general provisions, down from $484-million which was made up of $434-million of specific provisions and a $50-million increase in general provisions.

BMO also announced a 70 cent dividend on its common shares for the fourth quarter, unchanged from the previous quarter.

The bank reported a Tier 1 capital ratio of 11.71%.



We might think you were less of a flake if you’d STOP YELLING! — Garth

#18 X on 08.25.09 at 9:08 am

Low Rates possibly into 2011?

#19 X on 08.25.09 at 9:09 am

Garth any thoughts on the HVTP’s run by the big banks….doesn’t it make for a two tiered stock market?

#20 Mike (Authentic) on 08.25.09 at 9:22 am

I’m glad that BMO didn’t fall (or the sky for that matter).

What we can be thankful to “the BMO issue” is we know how close we all are to economic problems and stability disruption in this recession.

We know anything over $100k CDIC limits our money isn’t safe. We know banks can be unstable, we know Canada/USA does indeed have really big economic worries, even if it’s our guts telling us so and not the media or the gov’t.

Something is wrong with the economic system, we know that. We see it outside of Bay Street.

Hopefully we just got another shot at putting our financial safety in order. I know I will take this opportunity and do that myself.


#21 The 'VULTURE' on 08.25.09 at 9:39 am

Go to your accountant today and ask him what 1 + 1 equals?

If he says what do you want it to equal, hire him to run your corporation because he can fool the best of us!

#22 POL-CAN on 08.25.09 at 9:40 am

And the first one out of the gate is:

Bank of Israel Raises Key Rate, First Bank to Act

Governor Stanley Fischer increased the lending rate to 0.75 percent, the Jerusalem-based central bank said today in a statement, after keeping it at a record low since March. Two of 12 economists surveyed by Bloomberg forecast the increase, while the rest expected Fischer to hold the rate steady.

#23 Calgary_rip_off on 08.25.09 at 9:54 am


Below is the link to one of those foreclosures. Some of the readers in the energy sector think things are going downhill in Calgary. I still dont see it. Its only temporary before houses increase in price again.

If bonds are sold and interest rates go up only then will houses drop from their incredible “values”.

Perhaps if enough people vacate the city I’ll be out of my emergency health care job.

Here’s the link: This house is decent, but way overpriced for what it is. Expect 5 offers by noon today and 20 realtors at the open house.

#24 Crash on 08.25.09 at 10:03 am

I think the CDIC $100K insurance limit is set because somebody somewhere knows if it were any greater than this that the CDIC could be at great risk for failure. This low limit also tells me CDN banks are not as stable or strong as is being made out.

#25 PTDBD on 08.25.09 at 10:05 am

It’s a Disneyland recovery :-) going forward :-)

So, now that we have a recovery, and banks are making a profit….can we go back to “mark to market” accounting instead of mark to fantasy.

#26 Lawrence on 08.25.09 at 10:09 am


Your recent attempt to undermine BMO and by extension other Canadian Banks, with no basis in fact, other than rumor blogs is an illustration of how far you have fallen.

You continue with your blog posts but you diminish yourself inexorably with each posting. As a former MP, it is both sad and amazing to see you flounder. Each post seems a little more desparate than the last. You are like the gambler that has lost his “touch” but keeps pulling the VLT looking for the “big one”.

Then learn to read. Two days ago I said the bank was stable and the US web ‘alert’ was crap. Last night I suggested the stock was worth owning. It is now up 4%. — Garth

#27 KoreaKonnection on 08.25.09 at 10:18 am

#23 Re: Calgary Foreclosures

Just cause it’s a foreclosure, don’t believe it will sell for a higher price than it should. Sure they draw interest, but any realtor can run the numbers and show what the house is worth. Add to that the stigma of being a grow op like many are, and they don’t move like you’d think.
BTW, the reason why foreclosed houses are often overpriced is because of the bank that is selling it. The selling realtor can suggest a listing price, but the bank will make the decision on what price it’ll be listed at. I also happen to know that at least one of the banks in Calgary is being much more flexible with the price at listing. Guess they are tired of waiting for months for the overpriced ones to sell.

#28 Azza on 08.25.09 at 10:19 am

BMO profit jumped on loans. Isn’t it what that bloger said how bank manipulated its books? I’m not sold on BMO as of yet. Massive dividend payout is the cash out of the door. Some people jumped the gun and removed who know how much money from BMO. That combination can still be lethal. Let’s wait a month or so and see where we are.

#29 Taking It All In... on 08.25.09 at 10:19 am

Just to put it out there, credit unions insure 100% percent of deposits and are backed by the government in BC (although who knows if this means anything in the current economy). Their equivalent to the CDIC is the CUDIC. This way you don’t have to be concerned about the $100,000 cut off and moving your money into different accounts.

#30 homeinboca on 08.25.09 at 10:21 am

Ha, this blog is a joke, you have lost all credibility with me as a forecaster. Your call that there would be a run on BMO was preposterous anyways. The Fed’s would never allow that to happen.

A paid off home is the foundation of financial security and all you do is advise people to sell and rent so they can help their landlords pay off their mortgages and get rich. I hated renting, landlords are all a bunch of …..

*Sigh.* — Garth

#31 Crash on 08.25.09 at 10:23 am

And here’s what I woke up to this morning:

Is recession over for ordinary Canadians? The great Mark Carney speaks…

#32 lgre on 08.25.09 at 10:37 am

I don’t see the stock market going down anytime soon, there will eventually be a pull back at some point as there always is but nothing drastic. The doomers are right in what they assessing but the game is rigged so the rules don’t apply. In the last 6 months I played the market cautiously and therefore lost 6 figures of gains by being conservative and believing that we actually have a free market. Big mistake.

Out of all the doom sites I read..Garth is the only guy who has it right, although some on here don’t know how to read, he has always said that the markets will rise..I disagreed and paid the price..

#33 FY on 08.25.09 at 10:53 am

“This is also why I’ve been saying financials strike me as one of the safest sectors in which to invest. No limit now to the public money which would be shovelled in.”

Sorry, Garth. That’s a leap of faith or logic. No one disputes the fact as an institution, no bank would be allowed to fail. But that’s not the same thing as the equity shareholder (or in some cases, the preferred share holders, and bond holders even) might be wiped out.

A case in point: citi bank or Fannie and Freddie. In the latter case, the preferred shareholders were wiped out in addition to the equity shareholder.

So you’d better explain better why the banks are great place to invest (or perhaps you meant to deposit money) ?

Regarding to rumors yesterday – the shorts were not betting BMO would go belly up as an institution, but it may wipe out or seriously damage the equity shareholder.

Unfortunately, most general public do not understand the distinction between the institution and the equity investment. “There is no way Citibank would go belly up” became their sad investment story. Wrong!

#34 pbrasseur on 08.25.09 at 10:54 am


Canadian banks are making piles of money as the spread between the BoC rate and lending rates is widening. In Canada banks are not on the front line, the CMHC is. Only a CMHC failure could trigger a bank failure and that’s not likely to occur since the CMHC is backed by the taxpayer. A lot of things would need to happen before a Canadian banks gets in trouble.

#35 J Walker on 08.25.09 at 11:08 am

homeinboca wrote “Ha, this blog is a joke, you have lost all credibility with me as a forecaster. Your call that there would be a run on BMO was preposterous anyways. The Fed’s would never allow that to happen.”

not sure if you’ve been paying attention, but Garth said the BMO rumours were baseless…get a clue.

#36 Blobby on 08.25.09 at 11:17 am

Lots of people who read this blog dont seem to be actually able to read.

Which is kinda ironic really.

#37 Mel on 08.25.09 at 11:19 am

So you made your decision to run again. Best of luck!

#38 Industrial Guy on 08.25.09 at 11:22 am

If you want a clear visual on the unemployment situation in the U.S. , just follow this link.

Since Canada’s economy is tied to consumption in the U.S. …. we may have to wait for a few years for our situation to change.

#39 Evangeline on 08.25.09 at 11:28 am


((Out of all the doom sites I read..Garth is the only guy who has it right, although some on here don’t know how to read, he has always said that the markets will rise..))

Do you think the stock market will keep rising if the housing bubble crashes?

The real estate market will correct, not crash – a 15-20% decline, not 40-50% plunge – and it will take long months to unravel. Yes, there will be some effect on stocks, but not dramatic. The impact on 2009 homebuyers, however, will be something else. — Garth

#40 brett on 08.25.09 at 11:45 am

financials are not safe, the bailouts can only go so far, after the maximum amount of suckers are in, the banksters will collapse the system, then when the “assets” are near worthless, the banksters will buy them back. Just look what happened in the states with lehman AIG and WaMu, while Goldman sachs made off like bandits. banks fail, banksters get richer, taxpayers pay taxes.

#41 Men With Hats on 08.25.09 at 11:50 am

Now hear this idiots . Garth stated unequivocally that BMO was rock solid .
It was American bloggers that were stating a run on the bank was inevitable .
Learn how to read .

#42 Dawn in Calgary on 08.25.09 at 11:51 am

#23 — yep, they’re even happening in my neck of the woods. I figure it’s a trickle, and the flood will be in the winter.

#43 Calgary_rip_off on 08.25.09 at 12:04 pm

Boca: “A paid off home is the foundation of financial security and all you do is advise people to sell and rent so they can help their landlords pay off their mortgages and get rich. I hated renting, landlords are all a bunch of …..”

There isnt any financial security as you put it. Yes renting is horrible. It is also horrible to obtain a mortgage for a house priced at double what it is worth. There is not an answer to the buy vs. rent equation. There are too many variables. What is appropriate to ask the correct questions pertaining to each situation.

1)How long do you intend to live there?
2)Is the neighbourhood safe?
3)Do you think the people living in that locale are decent?
4)Do you have a secure job?
5)Do you like the house?
6)Does having flexibility of renting appeal to you more than being saddled with a mortgage?

the list goes on……

#44 I AM I on 08.25.09 at 12:06 pm

#16, I totally agree. Create a financial crisis until it gets over the top (including the real estate crash) … and then offer a solution – The Amero North American currency (or whatever they decide to call it). Same with 9/11. Create a reason to invade the Middle East, and have people willingly give away more of their personal freedoms in the process. Brilliant.

Question: was anyone here asked their opinion on the North American Union when they voted?

Didn’t think so …

#45 Peter Wiener on 08.25.09 at 12:10 pm

#42 Dawn in Calgary

Could you give us a little background on this property plwase so that we can gauge the relative sanity / insanity level of the pricing in Calgary currently?

Is this house in a what is locally considered to be desirable area? Does the price seem high / low for the area given the house’s location and amenities or do you think it reflects an urgency to sell?

The construction looks to be pretty much middle of the road, or perhaps it is good / bad for that area. Have you perhaps been by it – is it in disrepair or ready to move in? Any additional info would be helpful to allow us to gauge a bit of what’s going on it your neck of the woods.

#46 Men With Hats on 08.25.09 at 12:20 pm

On Monday, August 24th, at noon, Dan Amoss will expose the biggest banking lie of the past 64 years. Given the past 21 months of market action — that’s no small claim. If recent mainstream headlines make you believe that banks have weathered the storm. You better think again. Dan’s caught another major bank he thinks is lying about being able to pay their massive $1.5 billion dividend scheduled for 2009. He believes this bank’s using every shady accounting trick possible to hide losses from their shareholders.

Does Don Amos look even remotely like Garth Turner ?
No .
He is the guy who was beaking off about Canadian banks .

#47 kc on 08.25.09 at 12:23 pm

Ignore housing RE for a minute, now step back and take a hard look at the future promises of N. America’s plight:

1. Both US and Canada’s leaders (economists … ???) state we have entered “Green Shoots”, however, these statements get muddled with the words “a jobless recovery” In both countries middle class jobs have been GUTTED over the past 20 years (off shore … or buyouts and IPO’s then dumped and profits taken) usually purchased with borrowed monies.

1.a – ask yourself how can there be this super “the end is near” recovery with out placing middle class workers back to work?

2. This debt bubble is not causing the pain here in Canada (yet) as it has decimated the US. Why? easy, the bottom hasn’t fallen out of the Canadian way of life. However, given the job losses that have occured in the last 12 months, these feathers from the dead roosters are slowly making their way to earth. this is only a matter of time as UIC starts to run out and the poor plant worker who once made 25.00 an hour is forced to sign up onto any 8.00 an hour job just to try and make payments. The middle class jobs are gone.

2.a – Payments on personal debts get harder to meet.

3. Examine what is going on in your community. How many shuttered buildings are for sale/lease? and how many stores look deserted or empty tills?

3.a – The money trap of circulated dollars is winding down as credit is maxed out.

4. Toss in RE and the bubble. Banks show on their balance sheets all this high priced and over leveraged debt, and from great accounting tricks, they can get away with writing these debts into gains. (gotta love free markets and ENRON accounting).

4.a – And this brings us to the greatest scam of them all. Sell when others are buying. with the decimation of jobs, cooked books and personal savings near zero, except for the suckers who invest in RRSP’s, bonds, funds, this invention or that… who is prepared to keep paying (buying promised paper) when the “new” dollars need to keep flowing in every month. But who is going to be restocking these dollars as “good jobs” are lost with the new jobless recovery?

I see a strong pull back coming because these lieing balance sheets are a game of “kep your eyes on the magic ball”


#48 Peter Wiener on 08.25.09 at 12:30 pm

# 32 Igre

Don’t be so hard on yourself. Most people got beat up pretty badly on the way down and for being too conservative on the rebound.

What, you are supposed to turn on a dime and invest the last of your money in the very market that whacked your portfolio by 40%? C’mon, be fair, what would it be like now if the spiral continued downward – would you like to turn to your family and say I doubled down and lost …the house…or your kid’s future education …. or our family security. You have tried to be prudent, and if you have dependants especially and are not a market guru, then you probably did what was right for you.

People forget that Bear Stearns and Lehman and others were LEGENDARY firms that disappeared OVERNIGHT – hardly an environment to encourage you to buy financials. What about those that bought GE – ALL THE WAY DOWN – at 30, at 24 at 18 at 15 thinking it was over and getting in too early.

Put in in perspective, hindsight is always 20 /20 and besides, do you think this is over? Not by a long shot and you’ll get other opportunities in future, probably not quite as juicey, but well profitable nonetheless. Patience and timing – remember the market is NOT your friend.

#49 My_view on 08.25.09 at 12:33 pm


Thanks for that BMO insight, it made for some great 2 days. Thanks a million. Keep em coming! And to all the posters who called Garth out on this, gimme a break, if anything he reassured this blog-sphere nothing would happen, however if you are a savvy investor, oh well, to each their own.

Now can you smell the USA R/E bottom?

#50 D from London, ON on 08.25.09 at 12:35 pm

#5 – Munch

Prior to reading your post I agreed with Garth that there ain’t no way no gubernment in Canada is gonna let no bank fail…

However, I read your post and see that for once you don’t agree 100% with Mr. Turner on this one. I was aghast! If it’s possible for you to have a different opinion from those expressed in Garth’s posts, then ANYTHING IS POSSIBLE! BMO might fail after all!

lol :-)

#51 jess on 08.25.09 at 12:40 pm

To have more power to control price and be flexible with inflation ,wouldn’t this make for more uncertainty ?
Aug. 25 (Bloomberg) — The Federal Reserve must make records about emergency lending to financial institutions public within five days because it failed to convince a judge the documents should be exempt from the Freedom of Information Act.
Congress temporarily increased FDIC deposit insurance to $250k in October 2008. This increase from $100k was set to expire at the end of 2009. On May 19th, Congress voted to extend this coverage another four years to 31 Dec 2013. On 1 Jan 2014, the standard insurance amount will return to $100k per depositer for all accounts expect IRAs and other particular retirement accounts. These retirement accounts will remain at $250k per depositer.

#52 Joshua on 08.25.09 at 12:47 pm

People interested in forclosures isnt always a good investement because poor money management sometimes indicates a poorly taken care of house.

Also, Garth I know you’ve specified this before but you just said to a previous blogger the “The impact on 2009 homebuyers, however, will be something else.” Could you briefly elaborate on that?

Also, predicting that the housing market will drop another 15 to 20 %, do you think it would be better to buy at that time considering that the interest rates may be a lot higher than they are now.

To me buying now with a good down payment and a low interest rate while paying at an accelerated biweekly method may be a better idea. Calgary houses are high now but nothing like in Toronto.

#53 lgre on 08.25.09 at 12:53 pm

“Do you think the stock market will keep rising if the housing bubble crashes?”

I’m in agreement with Garth, RE is not crashing in most parts of Canada, a correction yes. The market will be affected with a pullback since emotion is the only thing driving it, as we have witnessed over the last 6 months.

#40 brett on 08.25.09 at 11:45 am

“the banksters will collapse the system, then when the “assets” are near worthless, the banksters will buy them back. ”

I have heard this argument for a year now, the banksters have an interest of getting maximum value for their money, therefore if stocks do plunge, they will regain their worth once again as they always do, as long as the companies are worth while investments in the first place.

#54 Dawn in Calgary on 08.25.09 at 12:55 pm

#45 – Peter

Could you give us a little background on this property plwase so that we can gauge the relative sanity / insanity level of the pricing in Calgary currently?

This property is the lowest priced in a very well off fairly new community in Calgary – Tuscany. It is only the lowest priced because it’s a judicial sale – there are pictures of the interior on the listing.

In my own experience, within the last four months, I’ve seen four houses on my street for sale – three have sold for list around $420k. One was priced for the 2007 market by an older couple who tried to list at $510k, dropped it to $499k, and didn’t get a speck of interest. It’s off the market right now.

My brother bought his place (same community) four years ago for $280k. A house down the street (same size, same view), was listed on Friday at $500k.

We rent a 4 brd/3bath for $1600 that would probably list for $450k, but I wouldn’t pay more than $280k for most of the houses in the community. They’re nice, but they’re all the same.

#55 char on 08.25.09 at 1:22 pm

#13 -your deposits beyond 100k are only covered if they are in separate ‘entities’, some banks (not cibc) own various trust and mortgage cos, so ask to separate your deposits.

Thanks #10 for that research !

The trouble with a higher limit on deposit insurance is depositors will be less inclined to scrutinize how their banks lend out money; they’ll believe they are safe. Ireland with no limit has had the biggest real estate bubble, and their economy is suffering a huge collapse. And we know about the US.

#56 Munch on 08.25.09 at 1:22 pm

#50 – D from London, ON

Yeah, yeah!

I call it as I see it!

Most of the time, I happen to agree with Garth, and it is not often that I disagree with Mr Turner :o)

Gnome sane?

Rgds, Munch

#57 steven rowlandson on 08.25.09 at 1:30 pm

Hello Garth.
The situation looks fugly, very fugly. $60 billion plus federal deficits, lack of cash in the banks to cover obligations and its very unclear as to whether or not any gold or silver is held by the banks to cover certificates, the bank of canada has no gold, probably no silver either. Very fugly indeed.
Well one things for sure its not as if no body knew it could happen… Anyone with 2 eyes, a brain and a computer could find out the truth and yet those who said something were dismissed as conspiracy theorists and nut bars. I could probably offer some good advice on how to fix the problem but its doubtfull such advice would be appreciated let alone followed.

Perhaps Canadians have to find out the hard way.
One thing though any solution I could put foreward would not be painless and would take time to work through. That means no quick miracles and no politics as you all know it.
Basicly I would have to be the sum total of canadas government so that only I made all the policy and law and imposed the same moral and fiscal discipline on canada as I do on myself. For canadians that is the poison pill they would not choose to swallow. They would have to give up their political system and they would have to live according to their abilities and expect no goodies, subsidies or bail outs from the treasury. I suspect that if I had my way the government of Canada would be about as small or smaller than it was in 1867. That is the magnitude of the cuts I’d have to make to free up enough money to kill the national debt with out using the printing press and even at that it would take at least 20 years assuming no trouble from the people. How does this help the banks? It reliquifies the banks by debt repayment. What the banks do with the cash is their problem. As you can imagine Garth what I would impliment to fix the problem would not be fun but the alternative will be far worse. Brace your selves people my ideas will be rejected.


#58 moneyan on 08.25.09 at 1:40 pm

A few minutes again, I saw that on a live chat hosted by Simon Johnson, senior fellow Peterson Institute, on the Washington Post, a few minutes ago.

“Montreal, Canada: Simon;

In a previous answer, you note that spotting bubbles is hard, so we need a financial system that won’t collapse when bubbles do.

Looking around the world, who has a sophisticated financial system that can withstand a 1/3 drop in housing prices?

Simon Johnson: Montreal: (definitely the last answer!) We will find this out soon enough. Probably no one is currently able to handle this, but that just means we should all design stronger systems. ”


#59 Peter Wiener on 08.25.09 at 1:46 pm

# 54 Dawn in Calgary

Thanks, I did look at the pictures in the mls ad, but pretty hard to tell from their small size.

If I follow your info correctly, are you saying that your brother’s house has therefore gone from around 280 k to an asking price of 500k in that neighbour hood in 4 years?

What would you (someone who has a good idea of value I gather in that you are renting) pay for that house then, just 280k and have you considered ‘low-balling’ an offer or does it just not make sense to you given the sub 3$ gas price, given Calgary is a ‘gas’ town? Any comments appreciated, got a buddy out there I’ve been trying to get to sell (has all of his $ in his condo 22 years which still will fetch what I think is crazy money and no pension ). Thanks again for the analysis.

#60 Peter Wiener on 08.25.09 at 1:49 pm

# 52 Joshua

That’s what a real house inspection is for regardless if it is a distress sale or not.

#61 David on 08.25.09 at 1:56 pm

The CDIC coverage limits seem academic with a national savings rate of around 1%. Even if a family has a spare million or two to divide and split, most of those surplus funds would be unlikely to be invested in an account yielding a paltry 0.25%. The deposit limits might as well be set at $ 1 Billion for all it matters. I call this addressing a problem without a need. I do not see long line ups at the bank to buy long term CDs or make savings accounts deposits. Coverage might make a difference when the era of zero interest free money is over, but for right now, I remain doubtful.
Federal guarantees did not save the S&Ls in the USA from insolvency and there is no reason to believe, those guarantees will work any better this time around. Back in 1990 I had an account with a California financial institution in Newport Beach, California. It went insolvent and my funds were simply transferred to another institution that was subsequently bought by yet another financial group. All the while I was covered by an FDIC guarantee as a Canadian no less. My point is that institutional failure does not mean personal financial loss. Good assets and liabilities get bought up and the bad ones get put on the public books.

#62 dd on 08.25.09 at 2:16 pm

#53 lgre

….I’m in agreement with Garth, RE is not crashing in most parts of Canada, a correction yes….

However he does say it will be one of the worst investments for years to come.

#63 dd on 08.25.09 at 2:20 pm


“This house is decent, but way overpriced for what it is. Expect 5 offers by noon today and 20 realtors at the open house.”

Sure it is overpriced. Put in a low bid offer anyway.

#64 john on 08.25.09 at 2:22 pm


A 15-20% correction. That’s what you were predicting last year. The RE market has increased since last year and you are holding onto 15-20%. If that were to happen now it would bring you back to the prices last year. This makes no sense.

We will resume the correction in force before the mortgage giveaway. — Garth

#65 lgre on 08.25.09 at 2:37 pm

#48 PW – I agree with everything you said, but I just had the after the fact syndrome..bought some stocks very low like BMO at $26.xx and sold for a few bucks more, now when I log into my brokerage account and I see it at $50+ I cringe…lol.

#66 timbo on 08.25.09 at 2:40 pm

Then learn to read. Two days ago I said the bank was stable and the US web ‘alert’ was crap. Last night I suggested the stock was worth owning. It is now up 4%. — Garth

spread a rumour and buy on the downside caused by the panic. Damn some people made money over the last couple of days…lol

Update: Now BMO is up 7%. — Garth

#67 nonplused on 08.25.09 at 2:44 pm

Natural Gas just broke the $2.00 mark at AECO. Bye bye Alberta.

Bye bye trade surplus too. Although we will probably still have a trade surplus with the US, the collapse in price of one of our major exports can’t help.

The storage fields are all full 2 months early, so I think we are going to shut in. The total storage inventory for Alberta is technically over capacity. That gas goes in, but probably doesn’t come back out. They can’t just keep injecting. So if exports and prices don’t pick up the oil patch will have to start shutting in.

Lower production plus lower prices equals bad news in the oil patch.

Also expect Alberta’s deficit, already forecast to be the largest ever, to balloon on the lower gas prices.

#68 $fromA$ia "Garths Nugget Boy" on 08.25.09 at 3:00 pm

Garth , can you trust the Canadian Banks? Maybe we should wait till interest rates have no choice but to go up and intro of HST for you to be right.

#69 lgre on 08.25.09 at 3:02 pm

“However he does say it will be one of the worst investments for years to come.”

yes, it has become an over valued asset IMO.

#70 Dawn in Calgary on 08.25.09 at 3:22 pm

#59 – Peter

If I follow your info correctly, are you saying that your brother’s house has therefore gone from around 280 k to an asking price of 500k in that neighbour hood in 4 years?

That is correct. That was the 2006-2008 bubble we are still experiencing that most believe is now the norm.

What would you (someone who has a good idea of value I gather in that you are renting) pay for that house then, just 280k and have you considered ‘low-balling’ an offer or does it just not make sense to you given the sub 3$ gas price, given Calgary is a ‘gas’ town?

For the Judicial Sale? I would offer $250k given that there is no attached garage (a must for me in this climate) — My brother’s place has a double garage and an unobstructed mountain view (less the transformers running down the path behind those houses). The transit line will be within walking distance to this community so it would be reasonable, even in a ‘gas’ town.

But then again, I bought my first house in Nova Scotia in 1999 for $72k. Second house in Moncton (complete with pool and apartment) for $114k – my expectations are a bit skewed. I wouldn’t pay $300k for a house, period.

#71 OttawaMike on 08.25.09 at 3:39 pm

I recently deposited the proceeds from my house sale into a Scotiabank money market fund(temporarily) which pays a magnificent .75% interest. I asked the teller for their 5 yr. mortgage rate and it was 5.25%.
So do the math, banksters are making some of the best spreads in history.

Central guarantee Trust folded in the late 80’s and was absorbed by TD. My first home purchase was funded by Central Guarantee and I sold the house during the banks failure. Unfortunately the mortgage paper survived the transfer but my IRD penalty for getting out of the mortgage was lost in the shuffle and I saved around 1000 bucks.

Another banking anecdote: Prior to my ’05 divorce I was in good shape financially, paid off house, 6 figures in various investments, gold visa, all at Scotia.
When I called their 800 line a rep answered within 20 secs. of punching in my account #. After my fortunes declined it sometimes took 10 mins. to talk to a rep.

Now that I have a 6 figure balance again, you guessed it: about a 20 sec. wait. I asked the bank about it and they openly admitted that low net worth customers wait longer. Not to worry though they won’t be keeping my money for much longer. I’ll take the 10 min. wait over their crappy returns anytime.

#72 Dawn in Calgary on 08.25.09 at 4:03 pm

Re: #71 Scotiabank

I was talking to them today as well. One of their financial advisors was frothing to sell me their GIC’s — they’re running a ‘deal’ right now — 15 month @ 1%. Or I could go 4 years for 3.1%.

Or I could just cash it all in and take it to Vegas and have a helluva 40th birthday party. At least in Vegas I’d have fun.

Or get 5.8% on BMO preferred, or 8% on a Canada real return bond, or… — Garth

#73 Coho on 08.25.09 at 4:07 pm

Paul Grignon has put together two excellent videos called Money as Debt, and Money as Debt II.

Well worth watching…

Money as Debt (5 parts)

Money as Debt II (8 parts)

It is frustrating that so many have turned a blind eye to, or are in denial about such exploitative practices by wishing the present system to survive…

I guess for those of us who have very little material wealth it is easier to accept the financial doom but many with more substantial assets find ways to rationalize the legitimacy of the current system because they don’t want to lose what they have regardless of the system by which “gave” them their wealth. Whatever giveth can taketh away…

That is why people who think that governments or soldiers give them their freedoms are misguided. True freedom does not exist in this world. Man made institutions on this planet come between people and true freedom as well as their God. We’ve heard the saying, “the lord giveth and the lord taketh away”. On this level a more accurate description would be, “the central banks along with their enablers, the so-called governments of the people, giveth and therefore can and will taketh away when it suits them.”

#74 Lookinin on 08.25.09 at 4:08 pm

This just in, from my “trusted” realtor in Penticton. Why did I listen to Garth? I could still be riding this rocket. Now I’m going to be viewed as the big-time loser. What a dummy, I am.


Market update Aug 2009:

The recession is over?

July 2009 was one of the busiest on record with the most homes SOLD for any July in history. Does that mean the recession is over, not necessarily but it is a good indication that the turn around is close at hand. All indicators suggest a leveling out of the economy with some increased employment and stability in other sectors of our markets.

Whether this is the turning point or not this fall or winter will be the best time to consider a purchase of a Real Estate investment. It may be a first time purchase, a time to move up or down size, or a purchase of an investment property. The interest rates for these types of purchases has never been so good.

Investment properties are excellent investment with good rental incomes and low interest rates. Now is the time to buy don’t be caught saying I could have! I should have!

#75 Calgary Rip off on 08.25.09 at 4:21 pm


Thanks for feedback as always. Talked over the above listed house with my wife. She wasnt impressed or interested in the place. We were thinking of offering $250K, but given your advice of the fact that job losses are mounting(unfortunately) and that gas prices for the heating type are plummeting, Im not in any hurry to have the bank as the landlord. My wife has a fabulous business sense and because she has owned a house before I listen to her. She’s a bit older than me, so that helps too. She didnt seem too enthused, and I figure Ill be working until im dead(no retirement) so Im not in any hurry to buy one of these houses.

Nonplused and Dawn: Great posts.

Mr. Wiener: How could any sensible person pay double for a place? That doesnt sit well with the psyche. Unfortunately there are many people residing in Calgary that are strapped financially. Its funny, Im a young dude in my 30’s working with people in their late 40’s, mid and early 50’s and these people are always worried about their money. It’s funny, they snap up as much as on call as they can get. What’s with this, didnt they purchase their house when it was around $110K and they’re strapped financially? WTF? Not saying they’re not entitled to free choice, it always seems that with most people if there isnt any debt, they better find something to spend on, like a fancy car, or the fake granite in the big house. Something. Like my wife always tells me about my spending habits, if the world were like me, all of the economies would implode because I dont buy on emotion. :) If i did, there would be electric guitars on every floor and pianos keyboards everywhere, gotta have something to compose instrumentals on. :)

If anyone out there reading Garth’s blog has inside info on the Bank of Canada’s future decisions regarding bonds and interest rates, please say something.

#76 john on 08.25.09 at 4:34 pm


$400,000 house today will be how much after the correction has bottomed?

RE is a local commodity. Thought you’d know that. — Garth

#77 Samantha on 08.25.09 at 4:48 pm

With apologies in advance to “Forrest Gump”

Life is like a field of green shoots, you just never know what you’re going to get.

Repackaging toxic debt

from Aug 24/09

and regarding Canadian Banks and derivative exposure, an interesting article:

and from Nov 09, concerning credit card debt:

“As the debate unfolds about whether — and how much — securitization drove up penalties, analysts are bracing for an acceleration in credit card losses. Already, delinquencies are at their highest point in six years. Defaults, triggered when banks give up on collecting bad loans, are rising rapidly, too.

By the end of 2009, banks are likely to write off a record amount — up to $96 billion, or about 10% — of all credit card debt, says Innovest Strategic Value Advisors, a research firm that was among the first to predict the mortgage meltdown. The credit card market is a fraction of the size of the mortgage world, but its collapse could threaten some issuers’ solvency and make it harder for others to absorb financial shocks, says Gregory Larkin, a senior analyst at Innovest.

“Mortgages were simply the first storm to make landfall,” Larkin says. “Credit cards are next.”

#78 Evangeline on 08.25.09 at 4:56 pm


((The real estate market will correct, not crash – a 15-20% decline, not 40-50% plunge – and it will take long months to unravel. Yes, there will be some effect on stocks, but not dramatic. The impact on 2009 homebuyers, however, will be something else. — Garth

Thanks for clearing up my misperception about a real estate ‘crash.’ I think the decline you speak of will be localized; I’m thinking of buying in my beautiful hometown of Fredericton, N.B. where the military, government and universities keep the economy humming. Frederictonians also seem to think that there will be a real estate correction of 15%-20% over the next few years — but a correction upward. (If I do buy there, I won’t be taking a mortgage.)

All the best with your political aspirations.
I say that with mixed feelings because your blog has become a must read for me; I am impressed by how generous you are with your wisdom.

You are kind. I will cast a spell on Fredericton for you, home of my fav restaurant, BrewBakers. — Garth

#79 Evangeline on 08.25.09 at 5:08 pm

In Toronto there are lots of ads taped to lampposts for painters, apartments for rent, housekeeping services, etc. But today I saw a taped-on ad unlike anything I’ve seen before. In St. Clair-Forest Hill, scrawled in black felt-tip: Luxury home with elevator for sale. Must sell. Please call …

Also, while waiting for the streetcar, the guy next to me was chatting on his phone with someone who had just been laid off.

#80 Denis on 08.25.09 at 5:19 pm

Garth … What are your thoughts on pushing for something similar in Canada?

Personally, I’d like a deeper look into the conditions of “Other Assets” and their involvement with CMHC’s NHA-MBS program.

#81 dd on 08.25.09 at 5:37 pm

#67 nonplused

…Natural Gas just broke the $2.00 mark at AECO. Bye bye Alberta….

Dont be silly. Yes short term it is not good. However the way to fix lower gas prices is with lower gas prices. Wells are being shut in, capital projects stopped, and the layoffs continue. This will all lead to above normal gas prices in the future.

Of couse when oil reaches $200 barrel it will be a different story. Natural gas will rebound even if there is an abundance.

#82 dd on 08.25.09 at 5:42 pm

#66 timbo

…Update: Now BMO is up 7%. — Garth…

And will fall 10% the next day because neverousness in the market. Society is over leveraged and banks will need to start selling assets and deleveraging. Consumers are maxed out. Where is the growth for these businesses?

#83 CSECT.LTORG on 08.25.09 at 5:51 pm

#42 Dawn in Calgary –

There’s no accounting for architectural taste either. The front windows on that thing look like a tumor.

#84 Nostradamus jr. on 08.25.09 at 5:56 pm

Garth, why haven’t you advised all those rich GTA homesellers to relocate elsewhere….like, to Canada’s Cote d’Azure, West Vancouver, (North Van too)…Canada’s safest & only truly gated community.

Nostradamus jr.

#85 Nostradamus Le Mad Vlad on 08.25.09 at 6:01 pm

#16 cashman on 08.25.09 at 8:40 am — “. . . the elite bankers and their political pawns are back at again! Their ensuring that the ’system’ is sound, but don’t forget, the elite bankers OWN the very system [they created]. . .”

#44 I AM I on 08.25.09 at 12:06 pm — “. . . Create a financial crisis until it gets over the top (including the real estate crash) … and then offer a solution . . . Same with 9/11. Create a reason to invade the Middle East, . . . anyone here asked their opinion on the North American Union when they voted? Didn’t think so …

#71 OttawaMike on 08.25.09 at 3:39 pm — “. . . [Bank] pays a magnificent .75% interest. I asked the teller for their 5 yr. mortgage rate and it was 5.25%. . . . banksters are making some of the best spreads in history.”

#47 kc on 08.25.09 at 12:23 pm — ” The middle class jobs are gone. . . . Payments on personal debts get harder to meet.”

One thing always leads to another. The crash of 2000 conveniently led to 9-11, taking peoples’ attention spans of the economy by focusing them elsewhere, then carried over to low interest rates, housing bubble is still imploding, manufacturing and other well paid jobs have been outsourced which ties in with the decline of the western “empire”, not over by any stretch of the imagination.

Not too long ago, there was talk about the ‘bulldozing’ in parts of cites (such as Detroit) as ‘make-work projects’. The talk has died down a little, but it may be time for a new 9-11, and it may happen either in the US or Iran (the US has messed Iraq up pretty good).

The WH, 24 Sussex Drive, 10 Downing St. and the politicians within them are only covers for the elite, so —
“The interesting issue, we believe at this moment to look at, is that in a parallel universe not more than eight years ago President Bush was sinking in the opinion polls just as President Obama is. The country was starting to lose faith in him. The media was mocking Bush he was away on his month-long vacation in Crawford, Texas. Then on 9/11, just a few weeks later it all changed and people started looking up to Bush to lead them against the war on terrorism and his popularity escalated. The same thing may happen now with Obama.”
The Fraser Institute is not always correct in its assumptions, but nevertheless the average Cdn. family now pays 45% in various taxes, and that will no doubt increase.

With the introduction of the HST next year, the net wealth of most ‘ordinary’ Cdns. looks as if it will diminish even further. —

#86 Bonnie N BC on 08.25.09 at 6:21 pm

Okay so much for the blogosphere run at BMO. More interesting is the stunning budget deficit of Alberta announced today (official tomorrow). Not surprising but always stunning.

I was born in Calgary so I do have a vested interest in family and friends on the eastern side of the Rockies.

Now what my friends? Apparently, it’s bust again. For all the spin over the “the West is in” did you ever question the wisdom of drill baby drill or in you case mine baby mine?

If you want to be be blue eyed sheiks at the very least you should have joined OPEC. At least your profits would have been greater in the short term.

Silly rabbit, you too are part of a global recession.

Now, instead of being an Albertan first come join the Canadian Confederation – we need to talk.

#87 Eduardo on 08.25.09 at 6:59 pm

Why did you censor my post Garth? It did not break any of the rules of the blog.

The blog is about issues, not me. — Garth

#88 john m on 08.25.09 at 6:59 pm

Interesting the effect on BMO stocks with just a rumour,it tells me not a lot of people are not buying Harper and companies b.s. and it also shows the abundance of fear in where we are heading and the mistrust in the banking system.

#89 Virgil on 08.25.09 at 7:03 pm

Smart! Blogs come handy these days! 7% in just 2 days! Not bad! Again: a small number taking advantage of the heard.

#90 jess on 08.25.09 at 7:06 pm

Wouldn’t all the reforms and loophole closing make the privates wait and see before buying a dead bank?

July 22, 2009
NASAA Statement on Court Decision in Equity-Indexed Annuities Case
“The court’s decision represents a victory for investors in that it supports the core legal position of the SEC and NASAA that equity-indexed annuities are securities and should be regulated as such under the federal securities laws.

“We are confident that the SEC will move expeditiously to resolve the procedural issues highlighted by the Court. The sooner the rule becomes effective, the sooner the SEC can begin addressing the fraud and abuse that is taking place in the sale of EIAs, using the regulatory tools available under the federal securities laws.”

additional reforms of the hedge fund industry, including granting the SEC authority to require hedge funds to disclose their portfolios, including positions, leverage amounts and identities of counterparties, to the appropriate regulators; and appropriating the necessary funds to ensure that the regulators are sufficiently equipped, in terms of personnel and technology, to provide meaningful analysis of this data and to exercise proper oversight over hedge funds.

#91 Devil's Advocate on 08.25.09 at 7:17 pm

Like I am going to believe anything a bank has to say about their financial position. Smoke and mirrors most likely, even stodgy conservative Canadian banks. It’s higher up where the real rot exists. Banks are simply the street purveyors of this crack cocaine economy. Fiat notes are the wares of this elaborate ponzi scheme.

What rotten foundation was the cause of the US bank failures? In Canada that we have but five major players provides no greater stability than the US banking system. There is a reason banks are kept small in the US. But the banking industry found way around that. Larger financial corporations not subject to the regulation using those small regional banks as their street purveyors. In Canada we just bypass that middle step to one degree or another.

So you will hear great things of the Canadian banking sector meant to lead you to believe we are better than they. We are not. Our banks are driven by the very same motivations as those of the US and England… profits. The only difference is that our banks wear a kinder, gentler mask with which to deceive.

Give it some time… News will come that we are no better.

#92 WaitandSee on 08.25.09 at 7:29 pm

you are talking about a 15-20 % correction,
even in Vancouver ???


No, it’s different there. Try 30%. — Garth

#93 Live Within Your Means on 08.25.09 at 7:34 pm

Or get 5.8% on BMO preferred, or 8% on a Canada real return bond, or… — Garth

Hi Garth – I’m a very naive investor. Did a search yesterday on Canada real return bond & no where did I see any returns anywhere near 8%. Can you elaborate, please, for we novices. TIA

Learn the difference between coupon payment and yield. — Garth

#94 Men With Hats on 08.25.09 at 7:40 pm

From a 8.2 billion dollar predicted surplus to a 6.9 billion dollar deficit,in less than a year .
They do things differently in Alberta .

#95 RISTO on 08.25.09 at 8:08 pm

Garth, there is a disconnect with your argument. If bad times are ahead of us, with rising unemployment, reduced consumer spending and declining home prices, why would anyone want to own a bank stock??? Sure, they won’t fail but for heavens sake, where will the earnings come from? They have been diluted like crazy and if inflation comes as you expect, say bye bye to cheap money and say hello to more write downs and bankruptcies.

I respect your right to be paid to speak on behalf of financial advisers that make a living from selling investment products, but the message here seems to be getting down right contradictory. I agree with your premise regarding real estate. I sold mine last summer and am happy about it. If we are correct about the economy and real estate, the only place Canadians ought to have their money is in short term debt and precious metals.

Keep it real Garth.

Banks made money over the last quarter. So much for your argument. Regarding my opinions on this blog, nobody pays me for them. Not even you. — Garth

#96 Peter Wiener on 08.25.09 at 8:11 pm

# 70 Dawn from Calgary

Thanks for your input. It will give me some ammunition when I try to get him to sell again, but he should really know better having lived there 50 odd years and seen some commodity cycles.

I guess I have a hard time with the prices out there also because of a lot of ‘frame’ construction I have seen that didn’t look that sturdy. Also, the ‘infill’ homes seemed to have their privacy somewhat compromised.

Like you, I remember when you could buy in Ontario smaller cities like Guelph, Kitchener, Brantford, London, Cambridge, by a rule of thumb that someone arrived at (probably after a few drinks). The price of a bungalow in those locales on a standard 40 x100 lot, in town, solidly middle class neighbourhood could be bought for the list price of a NEW Mercedes top line 2 door convertible (380 sl, 450 sl, 500sl type models). More and you overpaid, less and you were in deal territory – but allowances were added to or subtracted from this notional value for a bigger lot, dble garage, etc.

I know it sounds dumb, but it made some sense because it reflected inflation, change in our dollar’s puchasing power parity, exchange rates, earning power, . etc. ,etc. I guess it was figured to be the cost of an expensive toy. This relationship more or less held up until about the past 10 years or so where housing started to outpace the M-B car price very significantly and has never looked back. Like I say, maybe dumb, but it was fairly accurrate for more than three decades or so it seemed. A new M-B convertible would be about 145 to 155 k I guess with all taxes in – a bungalow cost twice that now I guess, but didn’t have the amenities that new homes do now.

#97 David Bakody on 08.25.09 at 8:27 pm

Well Garth news from the mighty US of A is that their are going to allow their National Debt Rise to $20 Trillion by 2020 a whopping $9 Trillion more than it is now! Housing is up (from whatever) and they say things will get better ….. and most if not all say it will be paid for by increasing taxes ….. So let’s look at some easy numbers …. An American Style GST/VAT say 8% on a GDP of $14 Trillion would be an added $1.12 Trillion in revenue and would do no more harm than the GST/VAT did ….. a population of 350 million plus a projected 50-100 million in the forthcoming years will only add more revenue …. the government prints it, gives it the people and they spend even more while the very rich and government collect it back ….. what a game can be played by a county that polices the world with over one million in uniform and control the most sophisticated weapons ever invented. As you have stated Mr. Turner no President is going to know as another Depression President when he controls the National Mint ….. and the old saying of play big or stay at home was invented in the US of A!

#98 john m on 08.25.09 at 8:36 pm

The Real World>>>The number of Canadians collecting regular Employment Insurance benefits jumped 5.1 per cent in June, according to Statistics Canada.

About 816,000 Canadians collected EI benefits in June, up 39,500 from the previous month.

The largest percentage increases came in Alberta, British Columbia and Newfoundland and Labrador, Statistics Canada said

#99 dd on 08.25.09 at 8:45 pm

#74 Lookinin

….Whether this is the turning point or not this fall or winter will be the best time to consider a purchase of a Real Estate investment. It may be a first time purchase, a time to move up or down size, or a purchase of an investment property. The interest rates for these types of purchases has never been so good….

Sure the rates are good. GOD they are great. But is the investment property cash positive at double the rates?

#100 Calgary Crash on 08.25.09 at 8:53 pm

Mike(authentic) said….

“you better get your money out of BMO first thing this morning when they open.”

Could we be a little less dramatic?

What’s your next prediction? I’ll do the opposite.

#101 Peter Wiener on 08.25.09 at 8:54 pm

# 75 Calgary Rip Off

I wasn’t saying somebody should buy at double the price of a few years ago, I was just surprised that askings were so high in view of the commodity cycle fundamentals out there and what I thought I understood to be a significant retrenchment in prices there in the past 18 months or so.

I’m not sure of your point re the older folks you work with spending money, but I think alot of it has to do with self worth issues. It certainly seems to everywhere else I go in urban Canada. In fact it is pretty sad, but look at it this way, it lets you know about some peoples’ emotional shortcomings pretty quickly so you can keep your interaction with them to a minimum. Also I think those that grew up without a lot are scarred by that and are made to feel inadequate in adulthood all over again if they can’t “keep up”. Also, some people just can’t think critically (do math or cost/benefit analysis) and some don’t want to. Just my opinion.

#102 timbo on 08.25.09 at 8:54 pm


“—–Update: Now BMO is up 7%. — Garth…

And will fall 10% the next day because neverousness in the market. Society is over leveraged and banks will need to start selling assets and deleveraging. Consumers are maxed out. Where is the growth for these businesses?”

You could be right but bank debt socialism is here and banks will not be allowed to fail up here. Too few. My comment was to the fact that a rumour ran to try and force a bank run or suppress a stock price to make a quick buck when the truth is revealed.

No more bubbles, only panic selling and buying puddles. (people seem to pee when money is in danger).

#103 john on 08.25.09 at 9:13 pm

Okay Garth. A $400,000 home in Woodbridge today will be worth how much once the RE correction has bottomed?

Whatever it sells for. — Garth

#104 Not Garth on 08.25.09 at 9:50 pm

Hi Garth.

I love your blog. I agree with about 90% of what you write about (I’m a bit of a gold bug (and energy/commodities/interest rates (inflation)). I’m in Vancouver and astounded by what is going on. Flabergasted. Discombobulated, some might even say. So, when you posted above about Vancouver being different, I had to stand out and shout YES YOU ARE RIGHT (if not a tad conservative with your downside estimate)….but can you help a fella out (a fella with oodles of finance/economic background, but who’s married to (but I just want a house like my friends)), and provide some backdrop as to how you see the Mother of all Bubble Real Estate Markets (Vancouver) bursting (how/when could this play out in the months ahead)?

Many many many thanks. Your are helping to keep me (and my bretheren, there are a number of us folk who likewise view the world through clear coulored glasses) sane during this incredible period.

Thank you.

#105 Eduardo on 08.25.09 at 10:00 pm

“this blog is about issues not me”

This blog is about how you present the issues, take some accountability for what you say.

Are you the blog police? — Garth

#106 john m on 08.25.09 at 10:02 pm

#103 john on 08.25.09 at 9:13 pm

Okay Garth. A $400,000 home in Woodbridge today will be worth how much once the RE correction has bottomed?———-buy one and find out firsthand :-)

#107 Not Garth on 08.25.09 at 10:03 pm

Garth, I’m serious – you need to write your views on Vancouver’s crazy market – this should be the litmus for all other Canadian overpriced markets – how do you see the crash playing out (oops, I mean correction).

Dude, I’m practically begging you for your in-depth thoughts (ok, take out the ‘practically’ and re-read this).

Waiting on your thoughts/analysis – in desperate need (this massive dead cat bounce is sooooo frustrating).

OK, deep breath – all better now….

#108 contrarian on 08.25.09 at 10:16 pm

Great prediction on BMO.
They announced today nothing that would fit the picture you painted over the weekend and thus far.

I think “The Strategy” would be to do the exact opposite of what you say.
BMO’s stock price was up today. And I don’t see any runs on banks………in Canada or anywhere for that matter.
I also don’t see your book on the shelves of my local Chapters anymore. Good for them!

Sold out, dude. Say, did you bother to read the post above, or are your lips tired? — Garth

#109 Not Garth on 08.25.09 at 10:24 pm

Eduardo – get out of the way.

Let Garth share his very much in demand views on how Vancouver will correct 30% (and make this economist much happier in the process) as we go forward.

Get off your horse Eduardo (no, I did not say get off on your horse, keep it clean amigo).

#110 john on 08.25.09 at 10:34 pm


What amount do you think a $400,000 home in Woodbridge will be worth after the RE correction hits its bottom?

#111 Republic_of_Western_Canada on 08.25.09 at 10:36 pm

#91 Devil’s Advocate –

Not only a


#112 Jake on 08.25.09 at 10:51 pm

#105 Eduardo, no one is making you come here……unless you really are a member of the blog police. I doubt it though. I’m sure we still have a few months before the blog/thought police actively patrol this site. Thought criminals beware, they are coming. We’ll know they have infiltrated this blog when Nostradamus Le Mad Vlad mysteriously stops posting. That’s when I’ll know it’s time to enter my bunker.

ps. Garth, my offer to run alongside your pope-style Garth mobile when you return to office is still on the table. I will gladly take a flesh wound for you.

I was planning on using my bullet-proof bike. But thanks. — Garth

#113 North Van Dude on 08.25.09 at 10:54 pm

#107 Not Garth

You might consider me one of your brethren. I am currently renting a house for $2000/month. Good location, decent house, most amenities I want (it could be a bit larger). Even with a significant downpayment we’re talking 40%, there is not much I could find in this area that would cost me only $2000 a month. If I did, it would be a semi or attached home or a condo.

You sound frustrated. What is the need you have that is not being met?

Ask yourself- how does this delaying of correction in Vancouver affect you? I have “owned” 3 homes in Vancouver prior to moving to Europe (where no one cares if you own your home), and now am happy to rent. Yes, i get the occasional pangs of housing lust, but I just remind myself it is all an illusion. I am much happier not owning right now, for many reasons, not the least of which is never spending a dime in Home Depot or Rona.

IF you have lived in Vancouver for more than a few years, then you are aware of their love for fads. Having no culture of their own, Vancouverites are like adolescents who jump on every fad that comes to town, and housing is no different. They take whatever is in fashion to the extreme, and in this case the WW housing bubble has been turned up to 11 in the Lower Mainland. It’s also that way because there are not many $100k+ paying jobs in the city, and so keeping the bubble going is a great way for many homeowners to make income. They just keep taking out HELOCs and equity out of the home (you would be surprised by how many people have spent more than 50% of the rise in their home’s assessed value since their purchase)

But the cracks are showing. I left my job in May this year (at a software company in vancouver) and everyone I spoke to about it was jealous- they wished they could walk away, but they can’t, because they need 2 incomes and a basement suite to pay for their $875,000 house, which they can enjoy from the time they get home from work and the time they go to bed on weeknights and a bit longer on the weekends (if you are sleeping comfortably in your own bed it doesn’t really matter what the house is like). It is no exaggeration that much of the offices you see downtown are filled with people who don’t want to be there and are only there to pay the mortgage, which for many people is another 25 to 35 years of servitude.

Like others have said above, many of those of whom you might now be envious for their home are actually struggling to make it every month.

#114 Iam Theuser on 08.25.09 at 10:57 pm

When I look back on all these worries, I remember the story of the old man who said on his deathbed that he had had a lot of trouble in his life, most of which had never happened

Sir Winston Churchill

#115 Blobby on 08.25.09 at 11:18 pm

@107 – imho garth isnt really here to offer advice, he’s here to explain market conditions to us so we can formulate our own opinions. After all, we are all grown ups! We dont need people to tell us what to do, do we?

As for vancouver – people keep saying “vancouver is different” and i’m beginning to realise it is. See when they quote jobless numbers and average wages.. they’re not taking into account drug dealers and the like… Which (being the gun crime capital of canada) we know there are many of.

So who knows how much drug/gun money is tied up in vancouver real estate? There’s a hell of a lot of money being laundered…

Speaking of which – ever noticed how much prime real estate is being used downtown for internet cafe’s holding 16 computers, usage for which charged at $1 an hour? That’s a maximum of $16 an hour they’re bringing in for a property in prime area of downtown? Think about it…

#116 dd on 08.25.09 at 11:24 pm

#102 timbo

…banks will not be allowed to fail up here….
True. However I really can’t see their business model working going forward. Which really means are their shares really worth the money? We have seen how all the banks have made profits in the last five years but in reality it was some of it was a head fake. Profits of yesterday do not equal cash inflow today.

#117 Jake on 08.25.09 at 11:28 pm

Here is a must watch clip regarding the state of the economy and the parasitic relationship that will impede the hoped for recovery.

Sorry for the gigantic link.

#118 Eduardo on 08.25.09 at 11:39 pm

“are you the blog police”

No, but you obviously are. You’re therefore no better than any other blog who censors people with contradicting opinions.

Contradict all you want. Just stay on topic. And I’m not it. — Garth

#119 Eduardo on 08.25.09 at 11:41 pm

If you guys saw my post you would see I’m not trying to be the blog police. I was presenting an editorial on how Garth prepares his posts as it relates to the topics of the day.

Tell the judge. — Garth

#120 john on 08.25.09 at 11:48 pm


Quanto puo essere una casa in Woodbridge con un vallore di $400,000 dopo e caduto il marketo di casa al piu basso levello?

#121 sold in 2007 on 08.26.09 at 12:01 am

Both are in the desirable NW area of Calgary,Tuscany is a better area but country hills is closer to the deerfoot.

Houses like this were about 110k in 1997. 142k got you an attatched double garage and 1450 square feet on a better lot and a better location in countryhills, Brand new.

Are they a good deal? I think not but god help us if they are. They are very small houses with 600 square feet on each level no garage and low builder grade finishing. Anyone considering a move to Calgary this is what you get for 300k

#122 Davinci on 08.26.09 at 12:07 am

Wow. so what you are saying Garth is banks do not create money out of nothing to loan it to people they use the deposits for loans.


It’s this world wide ignorance that will be the death of us all.

Got Gold?

#123 Not Garth on 08.26.09 at 12:09 am

Great post NVD – do you post on chipman’s site?

#124 nonplused on 08.26.09 at 12:50 am

#81 dd

I don’t share your solace in layoffs and capital cancelations. That means in the future, if prices rebound, volumes will be down so revenue is still down.

I am also not sure what drives up gas demand without an uptick in manufacturing. If Ford isn’t building as many cars, they aren’t melting as much steel. If they aren’t melting as much steel, they aren’t using as much gas. The drop in prices has been demand lead (i.e. demand has fallen), so even a return to higher prices at lower production levels is bad news for the patch. It will take a real recovery to bring this thing back.

I know a lot of peak oil & gas proponents think that prices will rebound anyway as declines set in. That may well be, but unless someone has a job to buy the gas at the higher prices that will just trigger a new round of demand destruction.

This is, ultimately, bad news for Alberta. Even if prices recover, when they recover, it will mean lots of lost revenue between now and then.

Hopefully they recover sooner than later but at this point I don’t understand what would drive it.

And what happens when all those rigs are ‘lying down’, as they say? Unemployed rig hands don’t buy monster trucks and the knock on of that trickles down….

At this point it will take a winter that will freeze Jesus to the water to save gas prices in the medium term horizon. But gas demand is weather dependant, and so it will be volatile.

#94 Men With Hats

Oh come now, everyone is in trouble. Alberta gets a double whammy though because so much of the government’s revenue is based on royalties and gas prices are in the tank. PS we produce a lot more gas than oil.

Farmer Ed (aka Stupid Stelmach) thought energy prices would never go down again.

We can’t raise taxes enough to cover the difference of course because incomes are falling, so we are doubly screwed.

#125 Mike (Authentic) on 08.26.09 at 3:17 am

100 Calgary Crash (to me) “Could we be a little less dramatic? What’s your next prediction? I’ll do the opposite.”

Position your finances in case the BMO like bank problem comes again and really does happen. Pay down your debts, do not get “suckered” into cheap money and the “back to normal, mission accomplished we are out of the recession” economy talk.

Oh, and the Blue Jays will win the next World Series.


#126 Mike (Authentic) on 08.26.09 at 3:25 am

“Natural Gas just broke the $2.00 mark at AECO”

NG prices sound like a historical low, wouldn’t it be a good time to buy NG companies or shares in it then?


#127 dd on 08.26.09 at 8:03 am

#125 Mike (Authentic)

“NG prices sound like a historical low, wouldn’t it be a good time to buy NG companies or shares in it then?”

Yes, if you have tons of patience. Natural gas is not like oil … it can’t be moved as easily therefore it is a local commodity. About 30% of NG is used in the utility sector, however, prices are also down because of lower industry demand.

#128 dd on 08.26.09 at 8:14 am

#123 nonplused on 08.26.09 at 12:50 am

…I am also not sure what drives up gas demand without an uptick in manufacturing….
True, however in 2008 there was tons of gas around and still the price followed oil up. Fundamental were not driving the gas market then.

…Hopefully they recover sooner than later but at this point I don’t understand what would drive it…
For the short term I think it will be oil that will drive the natural gas demand (less than five years). If the peakest are correct $150 barrel oil is just around the corner. NG will be a cheap alternative, even at $5 – 7 bucks. Even at this price solar starting looking great.

#129 Jonathan on 08.26.09 at 8:24 am

WOW have home prices, at least their asking prices, shot up to record highs. I can’t believe that people in Mississauga start 2 bedrooms at $500K. Towns start at $350K. Gimme a break!