Money for nothing

US JOBLESS
Today: America's unemployment shocker

Cash1

OK, class, holster your weapons and pay attention.

Today we look at the economics of giving stuff away. There are usually consequences. Those of you who plan on running the economy in the future should learn from the screwups of your elders. Like the ones we have now.

A case in point is Cash for Clunkers, the desperate US program aimed at paying people to buy new cars. It’s estimated this cost Washington $7,200 for every one of the 320,000 vehicles sold – about $2.3 billion.

Of course, a consequence is that people bought cars just because the government was paying them to do so, and not necessarily because they were going to anyway. So this program brought demand forward – in effect, robbing future car sales. Another consequence: GM sales plunged 45% as soon as the program ended, helping crash the stock market by 200 points.

This is called artificial demand. Like Hannah Montana. Or empty calories.

Because you can’t live off this stuff, it has to be replaced by real demand, or one of two things happen: The government keeps pouring out stimulus, distorting the economy and feeding public debt. Or, the tap turns off and we hold on, hoping for the best. Either is a gamble.

So, what should a lowly consumer do in this environment?

Over to Alana, with her hand up, and likely a damn fine question:

Garth: We have been following your RE blog and have a question on which we would like your input. My wife and I are wondering how much of our savings we should commit to a downpayment. We are following all the rules, looking for a house priced around 400k, which is three times our income, and have about 250k saved. We are also worried about deflation, and want to remain diversified, and so are thinking we might not want to commit everything to the downpayment. Then again, we do not want too much debt. If we put it all down, the mortgage costs will be just a tad lower than our current rent, but then wouldn’t have any liquidity in case of economic shocks. If we take out a larger mortgage, our cash flow will be reduced, and we will end paying more in the long run in interest. So, what do you recommend, put it all down for a mortgage of 150k, or alternatively keep more of it for other investments/rainy day and go with say a 200k mortgage (which is as high as we are willing to go). or somewhere in the middle? Note that regardless of which option we choose, we plan to finance it with a 10-year fixed at 5.25%, and pay the entire thing off in 10 years. So, what would you recommend?

Well, first you deserve a pat on the back. You are the envy of your generation – 250 large saved, and a modest appetite for a house. Are you planning to stay long, or just visiting this planet?

Clearly if inflation hits, rates rise and mortgage costs jump, real estate values will fall and you might find you’re renewing in five years at 8% (instead of 3%) and have lost a chunk of your equity. If we get deflation, then rates advance more slowly, but real estate values fall harder. You lose even more of your equity, but mortgage renewal is less of a shock.

So here is what I’d do (which means very little): Put all your cash, the whole 250K, against the house and load up on this historically cheap debt. Stabilize your borrowing costs for the next five years and take advantage of the almost-free money the government has engineered.

Now, take out a HELOC for $100,000, and invest the money in a conservative, well-managed portfolio of cash equivalents, fixed-income and equity securities which matches your tolerance for risk. This will give you oodles of liquidity, plus a sizeable tax break, since the interest on the equity loan will be 100% deductible from taxable income. That also mean if rates rise, you don’t care, since all of your interest-only payments come right off taxes.

This approach will give you what so many people lack – diversification. Instead of having all your net worth in one asset, it’s distributed between $150,000 in real estate and $100,000 in financial assets. You now have assets of different kinds which react in different ways to those economic forces you cannot possible control or hide from. You maintain the option of raising cash quickly if you need it. You have a portfolio which can grow through inflation along with equity markets, or give you capital gains on bonds if deflation takes hold for a few years. You still own the house, but won’t be as chewed up in a real estate correction.

And you take what the government’s giving away – in this case, cheap money.

Cash from clunkers.

HOWE STREET BANNER

Garth's latest podcast is here.

83 comments ↓

#1 ALE on 10.01.09 at 10:18 pm

If after putting down 250k, with historically low interest rates, you are paying the same as rent this is a red flag. Do not buy. Houses are at their peak.

Do not invest in equities in a deflationary environment.

Invest in short term high quality bonds or stay in cash.

Garth, this might be some of your worst advice yet.

#2 ALE on 10.01.09 at 10:19 pm

I should note that most of your advice is quite good, not sure why you are recommending to purchase inflated assets (homes, securities).

#3 Shawn Allen on 10.01.09 at 10:21 pm

Cash for clunkers was a truly moronic idea.

Economists long ago wrote that you could not improve an economy by going around smashing windows to keep the glass industry busy.

I mean they actually crushed perfectly good but older cars on this program. Morons!

And as Garth said they just brought forward demand from later months. Robded Fall and Winter to pay Summer.

If private industry does this it is sometimes called stuffing the channel (Sell inventory now to your distributor to make sales look good but you pay for it later) It can be illegal.

Oh, and the car sales caused people who could hardly afford it to take on new debt. Wasn’t it too much debt that caused this whole recession? Yet these morons try to solve it with more debt.

#4 taxpayer like you on 10.01.09 at 10:38 pm

Garth says:

“This will give you oodles of liquidity, plus a sizeable tax
break, since the interest on the equity loan will be 100%
deductible from taxable income. That also mean if rates
rise, you don’t care………..”

Even if the loan interest is deductible from your taxable income, an increase in the interest rate still takes money out of your pocket. If the rate goes from 3% to 8% on the 100k HELOC, you will have to make $5K more (before tax) to pay that interest. But it is better than $5K after tax…..

#5 POL-CAN on 10.01.09 at 11:03 pm

Garth wrote:

“A case in point is Cash for Clunkers, the desperate US program aimed at paying people to buy new cars. It’s estimated this cost Washington $7,200 for every one of the 320,000 vehicles sold – about $2.3 billion.”

According to Calculated Risk:

“If Edmonds.com is correct, and total sales were 1.17 million (NSA) in August, then the tax credit only generated about 320 thousand extra sales. Of course some regular car buyers might have put off a purchase to avoid the rush in August, so this isn’t perfect, but instead of costing taxpayers $4,170 per car (as announced by DOT), the cost to taxpayers per additional car sold was close to $7,200.”

http://www.calculatedriskblog.com/2009/09/houses-and-autos-cost-of-tax-credit-per.html

So…. Each buyer got just north of 4 K which means that the cost of the program was approx 3K per vehicle.

42 % went poof.

Who got it? Gov program costs? Dealers? Manufacturers? Banksters?

Take the time to read the link above. The home buyers 8K incentive is even worse. Makes me want to scream…

“With 1.9 million first-time buyers, the total cost of the tax credit will be $15.2 billion. Divide $15.2 billion by 350 thousand, and the program cost $43.4 thousand per additional buyer. The actual number could be much higher if there were fewer additional first-time buyers than the NAR’s estimate – or if the overall cost is higher (more buyers claiming tax credit).”

#6 nonplused on 10.01.09 at 11:11 pm

How much tax will you really save on a $100,000 loan? Maybe $3,000 times your effective tax rate? So at best $1,500 per year? I guess that’s nothing to sneeze at.

If you liquidate the investments becaue you need liquidity, don’t you stil have the HELOC?

Why would you want to buy a house now if the mortgage is still going to be as much as rent, even with a huge downpayment?

House prices here are most likely to fall over the next few years as they did in the states. Why not wait a bit and see if they do?

In deflation, debt = bad, and at least in assets we seem to have deflation. A mighty spring-summer rally aside.

I still think we have continued inflation, always will with this monetary system. However, operating above that base line inflation is a series of highly leveraged asset bubbles that are going to deflate.

Even in the states, where house prices are off up to 50% in some markets, houses are still unaffordable by standard measures like 3 times family income, and thus has downside potential.

Add in all the “Alt-A” mortgages about to reset and this thing isn’t done.

I just don’t buy the argument “it can’t happen here”. It has to, eventually.

#7 nonplused on 10.01.09 at 11:21 pm

As a side note I am still skeptical of these questions from people with several hundy saved up and $200k incomes that aren’t yet in the market, coming to a site like this to get the best advice on how they should go about buying right now. It smells like someone trying to create the allusion of there being all this pent up demand out there. Don’t get me wrong, I am sure there are hundreds of thousands of people with a large downpayment and large incomes just chomping at the bit to buy, but why would they come to a site like this for advice?

September sales and prices were off in Calgary over August, as one would expect. Let’s see if the “cash for clunkers” money can keep them up, or they set a new low over the winter.

#8 ArunPillai on 10.01.09 at 11:32 pm

“Are you planning to stay long, or just visiting this planet?” I like this usage… ;-)

#9 Kanata Squirrel on 10.02.09 at 12:03 am

As my father advised me, and it took +15 years to listen too …

Pay off debt.

Everything being equal … I’m saving over 120K interest payments “doubling up” and 10% yearly payments. I know its hard but my kids still love used LEGO and I do not have to pay the banks interest payment and can focus on …. yes …. my retirement savings.

When my mortgage is up for renewal, I have so little I can tell both the banks and the man they can kiss my arse.

Garth, thanks for reminding me of what my wise, wise father told me in my 20’s.

#10 Anon - GTA on 10.02.09 at 12:52 am

Nice suggestion Garth!!!

But… R these folks really from planet Earth?

Can commit all of 250k savings to mortgage? Really?
If they managed this much savings, kinda hard to digest that much of it ain’t locked in RRSP and they can use all if it (and not just 50Gees)

#11 Thomas on 10.02.09 at 4:31 am

How a responsible media outlet (and bank) reports on rising house prices in the UK:

http://news.bbc.co.uk/1/hi/business/8286028.stm

Big contrast with the Canadian media/banks.

#12 David Bakody on 10.02.09 at 6:05 am

Remember yesterdays good news from CBC wrt the IMF telling Canada & the world just how rich y’all are and was championed by Harper/Flaherty to buy buy buy……

Well to-day’s new is:
Last Updated: Friday, October 2, 2009 | 5:49 AM ET
The Associated Press
World markets retreated Friday as weaker-than-expected reports about U.S. jobs and manufacturing deepened fears of an anemic recovery in the world’s largest economy.

No Panic here in Harper’s Canada we are still as strong as the Canadian Shield ( Fixed Election Date Election) Remember? and to prove it was reported here just yesterday ( CBC) IMF said Canada will do better than forecast! coupled with the new deal for Americans to buy Canadian. Time to add more Senators breaking the highest record ever of 27 that PM Harper broke.

Me thinks the only real cash for Clunkers is the deal Canadians got were Harper’s Elected (Ha Ha) Senators.

I think Garth Turner’s estimate wrt to a host of bad financial news just rose to 25% for it sure did not go down.

So what does this have to wirh housing and the retail business “EVERYTHING” !!!!!!!

#13 Robert1 on 10.02.09 at 7:15 am

Money For Nothing Has Us All In Dire Straights !

Now look at them yo-yo’s that’s NOT the way you do it
They go to work for the taxman all day
That ain’t workin’ that’s NOT the way you do it
Money for nothin’ and your CHEQUES are free

GM and Chrysler, now thats the way you do it
The Big Canuck banks and even CMHC
The biggest CON ever foisted upon us
Money for nothing, just stick your hand out to Flaherty.

#14 Al on 10.02.09 at 7:24 am

“If we put it all down, the mortgage costs will be just a tad lower than our current rent,”

Keep renting.

And whoever is running this blog right now, we want Garth back.

#15 Cash is King on 10.02.09 at 7:35 am

Things are soooo bad in Ontario that even the Casino’s are losing money!

http://www.windsorstar.com/business/Ontario+casinos+lost+2009/2056565/story.html

But not before the Casino’s contributed $287 mill to the province.

Who’s to blame? The usual suspects. 9/11, high $, new US passport rules, overspending of the perks (allegedly) by recently dismissed Ontario Lottery and Gaming Commissioner and the Board membes that stepped down. They forgot to include that in the article.

Only 2 years to go before Ontario wipes the Lib’s of the the face of the Ontario map.

#16 miketheengineer on 10.02.09 at 8:16 am

Garth et al:

Saturn “name” is kaput. Seems that the buyer Penske, needed a manufacturer. I guess SpringHill Tennese where they make Saturn’s was not included. I visited that facility once, spent a whole week there. One of the nicest GM facilities I ever saw. Better than Oshawa, in my opinion.

I have said for years, their are too many models, and too many manufactures. If the market shrinks 40%, then so do the models, etc. GM is going to get a whole lot smaller.

The cash for clunkers, had only one thing in mind. Get rid of as many vehicles off the market, and get people buying the “huge” surplus of vehicles on dealer lots. The lots in the USA were “bloated” with every type of car and SUV you can imagine.

I predict, that in about 2 years, once all the “surplus” is gone, and all the good used vehicles that are currently cheap, cars will become “expensive” again. Fewer models, reduced production, and the automakers wanting their good old fat profits.

Get a good used “cheap” vehicle now….while you can.

Of course, I forgot to mention, that China will have their models here soon. Once that happens, the downward spiral will increase by 10X. People will switch to the cheapest models, and hence, bye bye GM and Chrysler.

#17 mattbg on 10.02.09 at 8:18 am

Just wanted to add what I thought was an excellent essay about inflation by Theodore Dalrymple:

http://www.city-journal.org/2009/19_3_otbie-inflation.html

He is obviously not an expert on the economy, but brings his usual high quality inspection upon it.

#18 eddy on 10.02.09 at 8:18 am

i just did 2 things that 5 months ago i said i would never do- i bought new and i bought gm. i was shopping for a used work truck, but the prices were so high i just bought a new 09 silverado , in total over 11 k in discounts. they gave me the 8k mentioned in the commercials and 3k for the clunker i paid 2400 for 9 years ago. i dove off the lot for under 20k , i guess they’re giving the bailout money back to it’s rightful owners, if they buy a new gm of course. i even get an additional 300 from the feds for retire your ride

#19 HouseBuster on 10.02.09 at 8:31 am

That $4500 cash for clunkers wasn’t exactly free. It has to be reported as income on their tax returns.

#20 dd on 10.02.09 at 8:42 am

#1 ALE
#14 Al,

Garth has been preaching the HELOC for a long time. It is about diversity and tax deductions and the long term view.

#21 jess on 10.02.09 at 8:44 am

Garth, does ” top coding” go on in Canada? Over 100k salaries are published but what about the richer?

According to Bruce Judson regarding income inequality:
“Census data is inappropriate for measuring income inequality because it consistently understates the income of the wealthiest families. To protect the privacy of reporting individuals, the Census “top-codes” income, which means that no one is ever recorded as making more than about $1.1 million in a single year.”

#22 artisuseless on 10.02.09 at 8:55 am

@ nonplused – I know – where were all these entry level 100K+ jobs when I graduated?

I’m guessing perhaps inheritance played some role in the ‘savings’…

I also know people who are amazing at stretching a dollar to infinity but know nothing about finances apart from ‘don’t spend’ so they may not all be braggarts.

However, especially with the bidding wars going on in some places (it’s not clear where they’re looking to buy) and the world stock indices sliding the way they have the past couple of days, I would recommend that they just park their cash for another six months.

I know several people who are holding off selling their inflated house/condo right now hoping to get more in the spring – expect a flood on the market as well as the normal snow melt.

Interest rates will still be low and they can still follow the same basic structure only there’s the strong possibility that the house will be cheaper along with some nice, reasonably safe dividend-paying equities.

Prices in Manhattan dropped over 10% this past quarter over the previous year btw.

#23 robert on 10.02.09 at 8:55 am

The Cash for Clunkers program was also theoretically responsible for the destruction of perfectly good cars and trucks as all of the “trade-ins” were supposed to have sand run through their engines and the remainder crushed and sold for scrap. I say theoretically because I have not seen any dealers actually engaged in this “cull.” It would be interesting to know how many of the “trade-ins” end up further polluting eastern Europe or Asia.

I hope people can see this program for what it is – a perfect throwback to the policies of the so-called “Brain Trust.” At a time when many Americans were starving and wearing rags FDR was paying farmers to slaughter and bury livestock, plow under every third row of cotton and burn oranges. Now we have a situation where operable vehicles (that might have been given to those legitimately in need of a car, say to get to one of the few jobs that are left) are trashed so America’s average debt level can be increased. Just substitute car companies for farmers and O.B.A.M.A.* for FDR. Next thing you know governments will be insisting we all break each others windows.

*One big-assed mistake America.

#24 Makeorbreak on 10.02.09 at 8:57 am

“Taxpayer like you” is right. If you take a HELOC, be prepared to pay more as interests rate rise. The stock market isn’t a place to be right now. You may lose your portfolio as well.

Wait at least a year to buy. You may be able to buy your dream home ca$h.

We just finished paying down our mortgage. We had money earning next to nothing in the bank, while paying 4.65% on our mortgage. Even with the penalty, we are ahead by being mortgage-free and geez, does it ever feel good! And Garth, no, I am not going to take a HELOC to put it in the stock market.

Where did I say ‘put it in the stock market’? If you’ve paid off the mortgage, good for you. But if that means the bulk of your net worth is sitting in one house, you’re not being risk-averse, but actually increasing your risk. This can be mitigated by balancing that with a diverse portfolio of financial assets, including (as I said) cash equivalents, fixed income and equities. If you reject that thinking, you are not thinking. — Garth

#25 artisuseless on 10.02.09 at 9:08 am

@ nonplused:

Just re-read the question and I think I have to agree with you here.

Would people who are two financial ‘naif’s with lots of savings really use terms like ‘liquidity’ and ‘cash flow’?

They’d use words like ‘money for emergencies’ and with that amount of ‘cash’ – especially if part of it was from an inheritance, they’d likely have some sort of financial advisor (and would have mentioned what he/she said to them) that match the claims.

Yeah, I think you’re right – RE shill.

Either that, or I want to start seeing some PDFs of pay-stubs and quarterly statements (personal info blacked out of course).

#26 David Bakody on 10.02.09 at 9:15 am

Addendum to above:

The U.S. economy shed 263,000 jobs in September, much worse that the 175,000 economists had been expecting.

Hello need I say more:

Alana …. I can only echo Garth words … reading your post I quickly thought … Great, a person who thinks, Garth is correct, if your plan is a home , shop around a buy the right one, fine existing homes with all the landscaping and a host of other things done is worth much more and in most cases sound. Move in and personalize small projects ( paid for with cash) paying any home off in 10 years is magic, great. Once settled you can think about investments. It appears as mentioned you are a good thinker, to seek professional advice and Think, Think Think, then act and enjoy life.

Now to the “Clunkers” I belonged to organization that sold life memberships for a reduced rate …. what a bad idea that turned out to be! Sure they had upfront monies to accomplish the task (s) at hand …. but yearly cash flow dwindled and they had to raise dues and lost members and of course inflation set in. Since then I have ensured I stand and tell this story at other meeting to other clubs I belong to.

Added trouble to Obama’s plan was that he did not ensure these so called clunkers were put in one those monster crushing machines complete with threat of very stiff fines and loss of licence if any items attached items were removed prior to the sale and cars were road safe at time of sale.

#27 Calgary rip off on 10.02.09 at 9:20 am

More S$it from the Calgary Herald:
http://www.calgaryherald.com/business/Calgary+housing+market+shows+signs+recovery/2055880/story.html

Who is this good news for the unethical slime in Calgary? It just shows the majority of the people supporting the current real estate prices are AHOLES.

#28 Makeorbreak on 10.02.09 at 9:29 am

Police cars repossessed?

http://www.cbsnews.com/stories/2009/09/28/eveningnews/main5347697.shtml

#29 Makeorbreak on 10.02.09 at 9:41 am

Where did I say ‘put it in the stock market’? If you’ve paid off the mortgage, good for you. But if that means the bulk of your net worth is sitting in one house, you’re not being risk-averse, but actually increasing your risk. This can be mitigated by balancing that with a diverse portfolio of financial assets, including (as I said) cash equivalents, fixed income and equities. If you reject that thinking, you are not thinking. — Garth
——–

Thank you Garth for your comment and advice. In no way am I rejecting this thinking…except for the ‘equities’ part, but then again, we have a small part of our portfolio in equities, which give us dividends. The rest is in cash equivalents and a bit of gold.

Don’t you think that by paying off the mortgage, one has more money to save? In that case, how can one be increasing his risks?

Where is the logic in sitting on thousands (or hundreds of thousands) in one asset which has a high probability of declining in value? Replace a portion of equity with tax-deductible debt and assets which growth in value and balance the risk. You still are not thinking clearly. — Garth

#30 Nostradamus jr. on 10.02.09 at 9:50 am

You overlooked one factor Garth…location, location, location.

…There is only one city in North America where RE Prices are guaranteed to maintain or rise…Vancouver BC

Anywhere else, RE Prices will at best maintain but not rise.

Nostradamus jr.

#31 Jeff on 10.02.09 at 9:51 am

Yes, real estate is overpriced today. However, if a person can a. pay for a house in cash today, or b. put a sizeable chunk down on a house to reduce the principal substantially, then it is possibly worth it to buy at todays levels. If you can save yourself from paying interest over 25-35 years (ugghh) then even though the principal amount may look higher today, over the long term you will be ahead if you plan on living in the property for some time to realize the interest savings. If you only plan to live in it for a few years, then you will lose as prices fall near term.

#32 LS on 10.02.09 at 10:13 am

@miketheengineer
“Of course, I forgot to mention, that China will have their models here soon. Once that happens, the downward spiral will increase by 10X. People will switch to the cheapest models, and hence, bye bye GM and Chrysler.”

Not if the quality isn’t there. I asked my guide in beijing why there weren’t many chinese cars on the road (90+% korean and german), and she said the quality was so bad they only lasted for 2 years, so no one wanted them.

As for the original advice, I say screw the HELOC. Keep 50k in cash, dump everything else into the mortgage.

If they get the 10 year fixed at 5.25%, then putting money into that is like getting about 7% (considering taxes) on an investment. Do you know many places where you can get a guaranteed 7%? Didn’t think so. Every other investment has risk, paying off your mortgage doesn’t, and it offers good returns.

I wouldn’t go for the 10 year though. Go variable, and dump money into the mortgage for a year or two with all the dedication you can manage, then switch to a 5 year term. You will save a ton over that 5.25%, and I bet you could pay the whole thing off in 5-7 years instead of 10.

#33 pjwlk on 10.02.09 at 10:13 am

Camp-out Update: I drove by the new townhouse/condo camp-out again this morning, which is actually in Oakville on the south side of Dundas just west of the new mall at Trafalgar and not in Burlington as I said yesterday. (Shows you how zoned out I am while driving to work.) Anyhow, I stopped on the side of the road and took two pictures of the sales office and campers with my cell phone which I’ll try to upload later.

There are now 4 or 6 people with sleeping bags there now, it was hard to tell exactly how many from the distance I was at. It appeared to be the some of the same people camping as were yesterday. The tent now has tables in it, for what, maybe a brunch for those camped out… I don’t know.

I’m guessing the special clear walls of the tent are meant to attract attention to the buffet or what ever they have planned for it since I don’t thing those kind of tents usually come with clear walls. Very interesting indeed. I’m still wondering if they’re paid campers or not.

#34 Jonathan on 10.02.09 at 10:18 am

These letters are ridiculous – people with 250K in the bank or earning 200K a year. This is really just people bragging so when I hear this it’s a bit annoying.

90% of new home buyers are going in at 0 down and 35 years – that’s a more realistic assessment of the market. Where are their letters? – oh right they don’t come here, they are out buying.. oops.

Actually a good balance of views have been posted here. Sadly, though, the people jumping over a cliff rarely ask if it’s a good idea — Garth

#35 LS on 10.02.09 at 10:19 am

@Garth
“Where is the logic in sitting on thousands (or hundreds of thousands) in one asset which has a high probability of declining in value?”

Let’s just say that if I were to lose my job, I would much rather have a (close to) paid off home than a bunch of investments and a huge mortgage. Paying down that mortgage is the safest way to go. You might make a tiny bit more going your route, but there is big risk attached. ]

If the shit hits the fan with your income, and it just happens to not be the right time to liquidate your investments, you are screwed. With a tiny mortgage you are much more able to survive for an extended period of time without significant income.

Your comments bear no relation to mine. I recommend paying down the mortgage, and then ensuring diversification with an equity loan and a financial portfolio. True risk lies in having all your eggs in one basket – especially in days such as these. — Garth

#36 Got A Watch on 10.02.09 at 10:49 am

Hey, I just post these reports, I don’t write them. And even an economist from GS can be correct once in a while. It has nothing to do with how they trade the markets day-to-day, macro economic events like deflation, Depressions etc take years or decades to play out, during those periods the stock and commodity markets can rally and decline, several times.

Here’s a report from Canada’s own ‘Black Swan Capital’, a currency trading firm who post commentary on Howe Street. It’s a 22 page .pdf: Deflation Rising – Making the Case For A Lasting Deflationary Environmentwhich concludes “Deflation is winning.”

Feeling deflated yet?

And yes, one day, inflation will follow deflation. The $64K question ($64 Million for inflationistas) is of course, when that happens. It won’t happen one day in the middle of the night, there will be signs you can clue in to if you are watching. In my opinion it is years off yet before we see general inflation return. The velocity of money will be one key tell, right now it is moving like a dead turtle. Workers getting raises will be another, you can’t have general inflation without rising incomes, at least in a (relatively) normal economy.

Do not be fooled by prices of some commodities rising, they will respond to supply/demand, currency values and geo-politics. So we can have some consumer price inflation in some areas, even while the amount of credit and money is contracting overall in the economy. Japan is one example of prolonged deflation, Zimbabwe an example of hyper-inflation – but they are not exactly comparable to us directly, for a host of reasons too long to cover here. Thick economics books have and will continue to be written about these situations.

For those who want to dig deeper into these concepts, I recommend Australian economic radical Steve Keen, of: Debtwatch Blog. He has very clear insight, IMHO, and his thoughts are wildly out of sync with most mainstream “economists”. Of course, economics is “the science of being wrong”, but the MSM economists are almost always the most scientific about being wrong, and consistent too. Today he has a post discussing the irrational Australian real estate markets, which parallel Canada’s closely. The last 2 delusional bastions of inflation still standing, or the 2 strongest global economies, immune to others problems? Your choice. If talking to average citizens is any indicator, it’s the former, not the latter. Note the same tired catch-phrases used by bubble heads the world over.

Dianne – thx for kind words. Rosenberg is not sunny reading, but he is pretty accurate from what I have seen. If I had to choose between him and the same tired names they trot out on the MSM to talk about “economics” (as if they had real knowledge about it, LOL), well, it’s not much choice. Or you can go with the guys who never saw any of this crisis coming, now that they say it’s all over – sure, they are so keenly observant. Or not.

#31 Jeff – If that is the case, then why not rent for a few years, and buy real estate near the bottom of the price cycle, rather than now at the top? I personally know people who bought at the last top in the early ’90s, they did not “break even” on their home value till 13 years later. Not what you would call a great investment.

#37 smw on 10.02.09 at 10:59 am

#19 HouseBuster

Politicians at this stage will do almost anything to keep the perception that GDP is rising or not falling.

Its been said here by many a smart folk, they continue to steal from tomorrow for the illusion of prosperity today.

“Tomorrow” is going to be a bitch.

#38 pjwlk on 10.02.09 at 11:05 am

#30 Nostradamus jr. I’ve got to say, politely of course, that I’ve grown tired of your diatribe regarding how great Vancouver BC is. I love the place myself but to go on and on about it really only degrades the quality of the balance of your otherwise great posts.

I have a cousin who lives in Victoria and to quote her, the “Olympics are becoming a red herring that the people are getting tired of paying for”. Vancouver has it’s fair share of issues just like the rest of Canada, everyone hates the HST and your government is trying to break up what’s left of the good paying jobs to name but a couple.

I think beauty and niceties can be found in every person’s province. After all, it’s all in the eye of the beholder. We are all quite aware of how proud you are of your province, how about you giving us a chance to be proud of ours in peace?

#39 Frugalistas.blogspot.com on 10.02.09 at 11:09 am

When we bought our house a few years ago, we lived on one income and my wife and I saved the other. We ended up with $125K to buy our house, which allowed us to go to a conventional mortgage. This $125K was after-tax cash, and not locked in any RRSPs. Our small contribution room was maxed out anyway. We didn’t have to do that homeowners’ RRSP thing that people do nowadays…. though I wish I had (stock market crash).

$200K, if you are disciplined, isn’t that hard, so I applaud this couple for doing so. Enjoy the vultching!

#40 arit on 10.02.09 at 11:16 am

Robert, thanks for the short history lesson…
It is sad. Sad to destroy good cars. And the quality of many of those cars is better than those built today in America with so-called “planned obsolescence” (or is it plain bad engineering?)

Sad to burn eggs when people are starving, to dump milk when people are thirsty, to erase housing whole subdivisions when people are roofless.

When the Jews were sieged in Jerusalem by the Romans, circa 70 AD, they had a good chance of holding on, inside the well built, thick walls. They had food storage supplies to last for years. The Romans legions were outside waiting patiently.

But ‘someone’ on the Jewish side thought it’s a better idea to go outside fight the Romans, so in order to ‘encourage’ the ‘cowards’, they burnt all the Jewish food stores to the ground. As a result, all had to go outside fight the Romans or starve to death.

Obviously, all of them were massacred by the Romans, men, women and children.

History rhymes, right?

Regards

#41 wondering on 10.02.09 at 11:48 am

Alana, a mortgage broker friend of mine says that there are 10 year fixed rates at 5.03% right now. Shop around.

#42 Clobbered on 10.02.09 at 11:49 am

I want to say something that I think is being WIDELY overlooked here on a regular basis (pretty please Garth?).

In the words of McLuhan: “The medium is the message.”

And today, the medium is any issued press release from the Fed (online even). The more we debate inflation versus deflation, the more our thoughts and motives fall in line with the desired outcome: Tacit approval of technical market leadership from the central banks and other purveyors of financial wisdom.

As we debate the direction of money, with or without fanciful conspiracy theories, and watch in wonder as the regional Feds turn hawkish, comments here show evidence that we are distracted from what was plainly clear last year: the developed world’s financial sector is a destabilizing behemoth that quietly takes on suicidal levels of risk on our behalf. Did our society dare to tread further into this, or did we ignore it once our assets reflated?

Now that our umbilical link to central bank policy is reestablished, what kinds of outcomes concern us?

Inflationistas have had the reins bringing the DJI back to acceptable levels (i.e. suggesting confidence can still trump valuation), and the Fed is now able to test the waters by suggesting higher rates at the same time as deflationary stats hit the proverbial fan. And now, a predictable early October scare is unfolding to accomplish two things:

1) that Fall markets can still be volatile (bear placation), and

2) that the market can hold the weight and emerge as a phoenix yet again (bull placation).

This interplay is ideal: it suggests market efficiency and that the market is progressing. And the “market” such as it is–program trading, front running, anemic volume, and paid commercials masquerading as analyses–is in fact working again. It is moving in a way that teases dollars off the sidelines to make bets.

But we all know the truth deep down: Excess liquidity at bulge brackets is gaming the indexes, unemployment at unprecedented levels is not a simple lagging indicator, and we are searching desperately for another bubble.

Keeping that reality in mind means putting aside the search for a reductionist argument on the direction of M1, M2 or the temperament of the market makers. So what is true about the future? The truth is that we are back to dollar worship once again, and central banking is again a trustworthy autopilot. We have learned to love the bomb and get back to speculating.

My prognosis is this: In a prolonged “crisis”, I believe the Fed is perfectly comfortable with holding real rates low well into next year and the bond market will oblige as long as the prospect of doom still exists. For America, this still means inflation with regards to what matters: food and shelter (CPI be damned). It will however moderate further damage to real estate, as the Dow coasts higher due to liquidity and dollar erosion.

Unfortunately I still believe that as goes the TSX, so goes Canadian housing. Free money will drive Canadian real estate much much higher. Prognostications about a fall in value made in 2008 will be made whole, but also irrelevant: a correction will eventually happen but against a value so inflated that owners of such assets will have a sizeable equity backstop.

In imagining this, consider the prospect of vulture-buying an “executive move-up” home in San Francisco today, one of the worst-hit US cities in the real estate meltdown. The price will still have you baffled…

#43 Onemorething on 10.02.09 at 11:55 am

U3 – 9.8% U6 – 17%
Nuff Said!

#44 ClaudiusEmperor on 10.02.09 at 12:01 pm

Inflation will not come any time soon.

Fortunately we can always buy euros or swiss franks when the North-American currency starts inflating.

If I am to buy it will be in Munich, Germany, not in Canada .

#45 613 Happy where I am on 10.02.09 at 12:06 pm

How come America’s economic news – good or bad – is always paraded out for all the world to see, and yet Canadian news is largely hidden from Canadians by the media in their own country… I believe Canadians are purposely being kept in the dark about how bad things are on the global economic front or else most Canadians have their heads in the sand…

Either way, wake up and smell the coffee… its bad out there…

#46 Jeff on 10.02.09 at 12:17 pm

#34 Jonathan,
Not sure why so bitter. Garth is right. Those jumping off the cliff rarely listen to anyone except for what they read in the MSM or see on TV. They also typically know it all. I have had more discussions on real estate, the markets, and past, present, and future state of affairs and I am apparently always wrong. Yet I have six figures (several times) in liquid assets right now and zero debt (minus ~1400 on my Visa), just sitting there….I’m not bragging as you point out, but simply informing you that there are those people out there and they do alot of analyzing of the “big picture” and of those, I would bet none are “camping” out for days to grab some overpriced piece of real estate.

Garth is correct on most of his writings. I do not always agree with all of his recommendations,, I do however take them into account and see if they suit me as an individual. The key to success, Jonathan, is to listen to those who walk the walk so to speak, and pick their brains dry, then use that knowledge to your advantage.

It’s like Arnold S. He would seek out the best, shake their hand while he looked them in the eye. Learn everything he could from them, and then destroy them on stage. He seems to have done well. Just an example of many who do the same.

#47 LS on 10.02.09 at 12:26 pm

“I recommend paying down the mortgage, and then ensuring diversification with an equity loan and a financial portfolio.”

I don’t think that’s going to get you ahead though. Technically your mortgage is lower, but it doesn’t make a lick of difference cause you still have your HELOC debt.

So in your scenario, they buy the 400k house, 250k down, so 150k mortgage. At 5 year fixed they’re paying around 4%.

So now what to do with their cash coming in? Pay down the mortgage they get a guaranteed return of about 5%. Pretty damn good for guaranteed. At an income of 133k they should be able to put at least 40k/year into that mortgage, so in 5 years they should be mortgage free or damn close to it. The window of risk is very small.

Or they take a 100k HELOC, at say 3%. Now they need to average 8% return to make it worthwhile (simplified math here of course). Of course that’s possible, but not trivial, and not guaranteed. And they’re exposed to more risk from HELOC rate increases.

One thing that many people don’t consider is the stress of investing, and the resources (time or money) you need to put in to do it right. I know money is your hobby Garth, but for most of us it’s just a source of stress, which should be reduced if possible. I’d rather sleep easy at night than gamble on a potential higher return.

Interest on money borrowed for investment is tax-deductible, thus interest-only HELOC payments are 100% deductible – a significant tax-savings which increases returns. Second, you assume the real estate will rise in value, which is just rank speculation. Third, you achieve no diversification by retaining all wealth in real estate. Fourth, a smart person would no more try to maintain a diversified financial portfolio than maintain their own car or wire their own home. Your comments belie you as one who’s likely at financial risk. — Garth

#48 Bendekko on 10.02.09 at 12:32 pm

They said “we plan to finance it with a 10-year fixed at 5.25%, and pay the entire thing off in 10 years”

and Garth said “you might find you’re renewing in five years at 8% (instead of 3%).

Isn’t a ten year mortgage renewable after ten years?

#49 Men With Hats on 10.02.09 at 1:04 pm

The biggest single beneficiary of the $3 billion “Cash for Clunkers” government program so far is the Japanese automaker Toyota, according to federal figures released Friday.

Three of the five most popular vehicles purchased under the program are Toyota models: the Corolla (No. 1), the Camry (4) and the Prius (5).

Controversy over the program has focused in part on how much of the U.S. tax money will go toward stimulating business for foreign automakers.

Halfway through the program, Toyota is getting the largest share of the new purchases under the program with 19 percent, according to the figures released Friday by the National Highway Traffic Safety Administration.
ROTFLMAO
Yea, that worked .

#50 pjwlk on 10.02.09 at 1:15 pm

#48 Bendekko 10 years in this case is the “amortization” period, the period of time in which all of the principal and interest costs will be paid back to the lender.

Most amortizations are in the range of 25 to 35 years. Most mortgages have a contract “term” of 5 years and must be renegotiated every 5 years as a result.

#51 cox on 10.02.09 at 1:19 pm

quote: “Fourth, a smart person would no more try to maintain a diversified financial portfolio than maintain their own car or wire their own home.”

do you have any recommendations of people to go to? preferably someone who had their clients out of the market by mid to late ’07?

There was no need to be out of the market two years ago. A smart advisor would have done you well with a simple switch from equities to bonds. — Garth

#52 nonplused on 10.02.09 at 1:20 pm

This is happening in Spain but I wouldn’t be surprised to see it happen here or even speculate that it is already happening in the US:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aXWVn3mlVH4c

Banksters should all be thrown in jail. In this case, Spanish banks are borrowing money that the government is making cheap, which is public money by the way, so they can withhold houses from the market and make that same public pay more for them. To me, that has to be racketeering.

Only a 4 or 5% Fed funds rate can save us now. The Banksters are using the 0.25% rate to defraud the public.

#53 dd on 10.02.09 at 1:21 pm

#30 Nostradamus jr.

…There is only one city in North America where RE Prices are guaranteed to maintain or rise…Vancouver BC…

Funny. No really Nost Jr. what city is going to to rise?

Anywhere else, RE Prices will at best maintain but not rise.

Nostradamus jr.

#54 Dave on 10.02.09 at 1:47 pm

I don’t want to gloat, but my calls have been pretty accurate. I’ve been saying that after this nice rally we’ve had, be careful because we’re still in a post bubble contraction and deflation rules the day.

If you’ve done well the past seven months in equities, pat yourself on the back, and consider taking profits off the table.

However, do not buy leveraged investments, as excess cash outwards isn’t needed especially in an economic environment where the price of goods, commodities are coming down. Consider looking at the world’s central currency- the U.S dollar or gold mining stocks. People will sell equities into………. u.s dollars. Their reserve status still exists and will for at least a few years -whether you like it or not. Gold mining stocks will do well because capital costs for mining have come down (some metals and energy sources are down 50%) since pre bubble.

This is my take. I’ve done exceptionally well this year (even a turkey flies in a hurricane). Don’t bother with creative borrowing and tax write-offs to make little gains, look for the obvious.

#55 Basil Fawlty on 10.02.09 at 1:49 pm

“Cash for clunkers was a truly moronic idea.

Economists long ago wrote that you could not improve an economy by going around smashing windows to keep the glass industry busy. ”

The president of Fiat has said that if the Cash for Clunkers program is not extended in Italy, there will be a “social disaster”.
Soon we will be washing each other’s laundry as a method of increasing GDP numbers.

#56 Basil Fawlty on 10.02.09 at 2:14 pm

“…There is only one city in North America where RE Prices are guaranteed to maintain or rise…Vancouver BC”. Hopefully you are correct, however…
I call baloney! They said that in 1981 and what followed was a massive decline. I have lived in BC for 50 years and have seen booms and busts, which are the nature of a resource based economy. Now the resource jobs have decreased considerably and the largest economic driver has gone from Forestry to BC Bud. When the cheap credit related jobs; construction, roads, Olympics etc. are finished, BC will join the rest of the G-20 in the greater depression.

#57 Evangeline on 10.02.09 at 2:15 pm

#51 cox

((do you have any recommendations of people to go to? preferably someone who had their clients out of the market by mid to late ‘07?))

I’m still in quest of the same.

My invesments are currently managed by a bank-affiliated “full service” brokerage house, and I have become very cynical about their research and investment philosophy. Their high fees don’t deliver commensurate value, imo. If I had heeded my own convictions as to how things were going to play out last October, instead of deferring to the opinions of a highly paid professional investment advisor, I’d have done far better than I did.

So the first thing I’d recommend is to find an advisor or counsellor who does their research independent of any bank or product line. And when interviewing potential candidates you should ask them how they would handle your portfolio during a bear market. If they think the ‘buy and hold’ strategy is the only game in town, I’d run for the door. I was caught in the “value trap” last year and I will never let that happen again.

Any fool can make money during a bull market, it is the bear markets that separate really good advisors from mediocre ones, imo.

#58 Makeorbreak on 10.02.09 at 2:18 pm

Garth: “Interest on money borrowed for investment is tax-deductible, thus interest-only HELOC payments are 100% deductible”

Correct me if I am wrong, but don’t the investments have to be only in equities to be deductible???

No. — Garth

#59 Evangeline on 10.02.09 at 2:29 pm

#52 non plused

((Banksters should all be thrown in jail. In this case, Spanish banks are borrowing money that the government is making cheap, which is public money by the way, so they can withhold houses from the market and make that same public pay more for them. To me, that has to be racketeering

One problem with the banks is that they are hoarding much of the cash which they were infused to loosen up lending. Funny, isn’t it, that while they themselves are hoarding cash, they are signalling to the rest of us that cash is trash. I have concluded it is best to act as they do and not as they say.

#60 Evangeline on 10.02.09 at 2:40 pm

#52 nonplused

The article about what is happening in Spain was very interesting, thanks for posting it.

#61 nonplused on 10.02.09 at 2:42 pm

Bye bye Ford Canada:

http://www.theglobeandmail.com/globe-investor/ford-canadas-labour-costs-highest-in-world-source/article1309720/

And, as widely expected, take away the stimulus and the crash returns:

http://www.theglobeandmail.com/globe-investor/us-auto-sales-take-post-clunker-hit/article1308494/

I can’t understand how come economists can’t figure this out.

Nothing is fixed. I think this will be the winter of our discontent, as the coverup is exposed for what it is and the true status of the financial system is exposed.

#62 S. on 10.02.09 at 2:59 pm

I tend to agree with some of the posters here who see Vancouver as a bit different. It is the only large Canadian city with mild winter climate. It offers a lifestyle hardly equalled anywhere else in this country; ocean, mountains and lakes all within a relatively short drive. It is just about the only locality in BC where highly qualified individuals can enjoy all of the above without having to commit professional seppuku. And yes, it is one of the preferred choices among wealthy immigrants. Decent healthcare system, stable political climate and a very respectable passport combined with all the benefits of living in Vancouver (even just part time) do not go unnoticed.
I expect that property valuations there will recede but not by much; certainly they will not go back to the pre 2004 levels. Those waiting for that to happen will probably be disappointed.
And please refrain from any possible temptation to label me as anti-immigrant or racist. I am a naturalized Canadian who sees things from a slightly different angle.

#63 Grantmi on 10.02.09 at 3:27 pm

PJ

#38 pjwlk on 10.02.09 at 11:05 am #30 Nostradamus jr. I’ve got to say, politely of course, that I’ve grown tired of your diatribe regarding how great Vancouver BC is. I love the place myself but to go on and on about it really only degrades the quality of the balance of your otherwise great posts.

You’re wasting your time!! NJr is not going away! He’s like a bad case of herpes! He comes and goes… and is very annoying!!

#64 The Vulture on 10.02.09 at 3:51 pm

8)8)– Money for nothing now, yet a huge price to pay in the future and pay we will. –8)8)

Money is suppose to be one of the major scorecards indicating success in business. Money is something people used to work hard for, save and invest. People used to delay gratification when purchasing a major asset like a home or car. Now it seems people can not wait to get there hands on the ‘free money’ to go out and buy toys like houses and expensive cars even when they know full well that they can not afford the asset in the first place (and all of their credit cards are maxxed out) yet have a strong sense of entitlement that society somehow “owes them one”. Why plan ahead, save, work hard and smart, contribute to the betterment of society, delay gratification, educate oneself? When money is given away for free, what incentive is there to work hard for it or have the discipline to control the spending of it. That is someone else’s problem.
I fully understand Keynesian economics but this current economic environment that is drowning in free money…and it only seems, unfortunately, to be a desperate, futile and hopeless economic policy with disasterous consequences. What about seniors making dog food spare change on $100,000.00’s of dollars of retirement funds rotting away in banker’s vaults.
Money for nothing now, yet a huge price to pay in the future and pay we will.

#65 Downsized and Delighted on 10.02.09 at 4:11 pm

Don’t you even want to know how old this couple is Garth? Are you interested in their risk tolerance and how many years they have left to recoup any losses? And what is their motivation for buying a house – financial gain only, or do you just assume that everyone needs/wants a house? And what area are we talking about? Is your advice the same whether the couple lives in Vancouver or Moncton?

I don’t think young families should put their lives on hold (perhaps indefinitely) waiting for the big real estate downturn in order to buy a house. On the other hand, buying into this current market carries enough risk that if this couple does not have an immediate need for a house, I don’t think they should buy now, especially when their rent is so low (and assuming that they are reasonably happy with their rental).

One can pretty much predict that there will be lots of future buying opportunities for this couple.

#66 Ottawa Mike on 10.02.09 at 5:16 pm

A couple of points on the USA Cash 4 clunkers program:
A friend from Rochester participated in it. He was planning to buy a new Mini cooper s anyway and the govt. came along and gave him 4500$ for a 92 F150 that he was using to haul wood around his camp. It was not road worthy(leaky fuel tank/severe body corrosion) but met the criteria.

The only stipulation to these trade-ins was that the motor/trans be destroyed or made inoperable. The govt. received no compensation for the scrap value as contracted metal salvage dealers hauled them away. Probably because it would cost the govt. more millions$ to administer that.

The vehicles can also be parted out after the power train was destroyed.
The replacement vehicle had to have a 2 MPG better fuel economy so, contrary to popular opinion, thousands of new SUV’s were sold under the giveaway.

I have in past personally imported 6 vehicles from the USA for savings averaging 30+%.
The value of US used cars has risen so steeply it is now no longer worth the effort. Thanks to the Clunkers give away, most vehicles are the same price even before currency conversion. Check out eBay for yourself. Another hidden cost of this program that will be passed onto the poor that can only afford used cars.

I can’t wait to see how the rumoured upcoming cash for appliances program turns out. Soviet central planning at it’s best!!

#67 robert on 10.02.09 at 6:34 pm

#54 Dave

I share your lonely view on the US Dollar. Did you know there are apparently less than 3% of us right now? If I recall there were less than 3% equity bulls in March and we all know how that worked out.

I would add US Treasuries to your list. The yields are generally higher than Canadian government bonds and you get the added benefit of currency appreciation. Like most investments timing is important (they have tended to be on sale in June and July for the past few years).

Gold stocks are interesting but, from my investment perspective, are for trading only. You sound like you read/listen to Bob Hoye. He is an authority on the metals and mining stocks but is never married to them. He is bearish on the gold miners, silver and even gold through to the end of the year but says some really good prices are coming. He was bang-on in this prediction last year when the HUI confirmed a bottom in December.

As for leverage I agree it should be generally avoided. I do think however that there is a place for some of the 2x and 3x leveraged ETF’s in an aggressive portfolio once 1) trend direction is conclusively established and 2) you are in the heart of a move. These funds can be very profitable but you have to watch them like a hawk and take profits early and often.

Cheers!

#68 TJ on 10.02.09 at 6:49 pm

Once you have the Government skewing the retail market place, there IS no Free Market. Full stop.

Clash for Clunkers is an example of dumbbell Central Planning that rivals the fantastically brilliant Ethanol Program. (*Fuel for the F-150 – instead of FOOD. Please…)

You can see the meeting, can’t you?

“Heh, Ernie, we better start getting some of those Cars off the storage lots in California soon, or the State is going to tip into the Sea.
The folks don’t read or understand a car lease, much less this little beauty.
Let’s give ’em free money – and we can get ’em back in the game. Simple.

Oh, but before we set this in motion, do you know any companies that sell scrap metal….?”
One more thing, shoot, better buy more of that Toyota Stock.

Mr. Bugs Bunny, that noted Philosopher, summed it up in one of his studies Published by Warner Brothers, in Looney Toons, Part Deux – to whit: “They’re all maroons…..”.

#69 Future Expatriate on 10.02.09 at 7:10 pm

#62 “I am a naturalized Canadian who sees things from a slightly different angle.”

Amen to that… another real estate agent or investor or associated service industry, no doubt.

Vancouver housing prices will drop AT LEAST 50-60% when California legalizes pot to survive and the days of BC’s black market economy and grow-ops end and glut the market as the US starts growing its own in CA.

#70 Makeorbreak on 10.02.09 at 7:11 pm

http://www.globalresearch.ca/index.php?context=va&aid=15483

#71 HouseBuster on 10.02.09 at 7:22 pm

Guess who has the biggest car market share in China?

Yeah, it’s GM!

Some of you should check out your facts before posting.

#72 Makeorbreak on 10.02.09 at 7:28 pm

“Gerald Celente on what’s coming:

It’s going to really be an ugly scene. We are really encouraging people now to take pro-active measures and prepare for the worst. Don’t spend an extra dime.”

http://www.shtfplan.com/forecasting/gerald-celente-christmas-crash-get-ready-for-the-collapse-to-come-very-quickly_09232009

#73 taxpayer like you on 10.02.09 at 8:01 pm

14 Al and 65 downsized. While renting is an option, I dont see why this couple shouldnt consider buying. The metrics look great – 3X income, and a potential mortgage
less than rent. Now a $150K @ 5.25% over 10
years is $1600/mo so rent is like $2K? Even a
conventional $300K mortage over 25 years is about $1800/mo @ 5.25%, so the rent is roughly in line. At $130K income they still have lots over for investment.

#74 jess on 10.02.09 at 8:12 pm

UGLY unemployment chart for u.s.a.

http://www.annaly.com/blog/wp-content/uploads/2009/10/untitled-10209.jpg

#75 Vlad On The Run on 10.02.09 at 8:33 pm

As mentioned earlier, the “October Surprise” will probably not be a fiscal one, as the elite are rolling in dough, so it may well be a couple of sharp jolts to the physical side to smarten all of us up.

Fearlessly dashing forth in a one-horse open clunker to spring 2010 and beyond, the following could play a role in the economic systems of the world.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6255816/World-Bank-could-run-out-of-money-within-12-months.html

http://www.webofdebt.com/articles/imf.php

http://www.shtfplan.com/marc-faber/caution-crashcollapse-dead-ahead-say-faber-rogers-dent-and-celente_10022009

http://taxprof.typepad.com/taxprof_blog/2009/10/cbpp-debt-as-.html

On a different note . . .

http://www.globalresearch.ca/index.php?context=va&aid=15486

Comments by wrh.com, and this is just as likely to be hitched up with the following link:

“Now that the Iranian/Six Power talks have concluded with no breakthrough (Netanyahu will never accept the ‘final’ uranium refining being done in Russia as a breakthrough), we can expect an Israeli attack on Iran at any time. We need to consider what will happen next.”

Webmaster’s Commentary: “Israel attacks Iran.

“Iran counter attacks, having to go through the Americans in Iraq.

“The US declares war on Iran.

“Russia declares war on the US.

“The nukes fly.

“Israel laughs at how easily the stupid goyim are tricked (again) into killing each other off.”

(NOTE: China has not been mentioned here, and likely for a very good reason. They also have a major stake in Iran’s energy resources, and will not give it up.)

http://www.dailymail.co.uk/news/article-1217569/Ex-PM-Tony-Blair-said-brink-EU-presidency.html

The financial side does not include the sudden closing of 163 InkStop stores Friday, laying off all their staff immediately.

Unofficially, there are now 35 mln. Americans who use food stamps each month and 26 mln. have either lost their jobs or have given up looking altogether.

Winter is lurking behind the scenes.

#76 Tony on 10.02.09 at 9:49 pm

263,000 will likely be revised upwards to somewhere around 350,000.

#77 S. on 10.02.09 at 11:57 pm

#69, Future Expat

“#62 “I am a naturalized Canadian who sees things from a slightly different angle.”

Amen to that… another real estate agent or investor or associated service industry, no doubt.”

Nope, none of the above. Your cynicism is not warranted. I substantiated my reasoning with some hard to dispute facts. If you’d like to poke a few holes in my arguments I’ll be glad to learn something new. Or will you just stick with your current strategy of attacking the messenger?
Then of course there is this: “Vancouver housing prices will drop AT LEAST 50-60% when California legalizes pot to survive and the days of BC’s black market economy and grow-ops end and glut the market as the US starts growing its own in CA.” Need I say more?

#78 LS on 10.03.09 at 2:34 am

@Garth
“Fourth, a smart person would no more try to maintain a diversified financial portfolio than maintain their own car or wire their own home.”

I guess our brains are just fundamentally different then. Both of those things (car maintenance and electrical work) sound good to me. I guess I’m more the type of guy to try to do things myself instead of paying everyone else to do it.

Also, having someone else manage your investments does nothing to reduce stress. Plenty of experienced people lost their shirt (and other people’s shirts) last fall.

#79 heather on 10.03.09 at 12:06 pm

Note that in the graph at the top of Garth’s post, the more government stimulus put in place, the worse the unemployment outcome.

1. That’s because we are dealing with goverrnment inflated bubbles in 1930, 2001, and 2009, and..

2. Because the government can’t allocate resources effectively. The more they spend the more they push people into jobs that won’t be around tomorrow.

#80 Future Expatriate on 10.04.09 at 12:23 pm

#77 – You dispute that when I’ve seen estimates that 1 out of 4 houses in Vancouver are grow-ops?

Good luck to you and your real estate investments then.

As far as California legalizing pot? A done deal, just a matter of months or even weeks.

Black economies never last. And the pot one in BC is in its last and greatest bubble.

#81 S. on 10.04.09 at 5:33 pm

I wouldn’t dispute your stats as to the numbers of grow ops in Vancouver. I don’t live there and, quite frankly, that “industry” does not interest me at all. As to whether the US is about to abandon its “war on drugs”, wouldn’t bet a penny on that. But then who knows, seems like all bets are off these days… That was not at all the issue I took with your post. Here’s what bothered me. I took the time from a busy schedule to present a point of view that, although contrary to most posts on this blog, is fairly accurate. I substantiated my opinion with some basic facts. I also mentioned my background to circumvent any negative assumptions as to my objectives. All to no avail… You, rather than taking issue with my reasoning, posted a cynical comment questioning my motives: “Amen to that… another real estate agent or investor or associated service industry, no doubt.” And this is how some very good blogs get brought down. They become overwhelmed by negative comments, personal attacks and thoughtless ideology that drives away less linear thinkers. Eventually all that’s left is a group of individuals all nurturing the same thoughts: a peer support network. Great to make each other feel better but useless as far as learning anything new is concerned.

PS
I believe that Canadian real estate is significantly overvalued. A significant pullback will eventually take place and – in my humble opinion – Vancouver will hold up better than most other large cities for reasons I previously mentioned. Apart from the occurrence of significant geological events, of course.

DISCLOSURE: I do not hold any Vancouver real estate and do not stand to profit or to suffer losses as a result of housing price fluctuations in that jurisdiction. I am not involved with any industry affiliated with the real estate business. I sure as hell am not a realtor. (Overqualified for that.) Clear enough?

#82 Future Expatriate on 10.05.09 at 1:10 am

#81 – And I predict that when Obama and Schwarzenegger (BOTH closet HEAVY pot smokers) get on the same page regarding the ONLY way to save California, Vancouver real estate, and by influence, the rest of BC, will tank farther than Miami, San Diego, and Las Vegas put together because of the overnight end of the narco-economy. 50% minimum, 60% or even more maximum.

If you think that economy can survive by ONLY supplying pot to a population (Canada) the size of California, you’re sadly mistaken.

While California will have fields as far as the eye can see supplying the entire US through Big Pot (the offshoot of Big Tobacco.)

And there is nothing anyone can do about it either. As far as the US’ war on drugs; there’s no more money for prisons to continue it. ESPECIALLY in California.

Sorry about the generalization… when a blog is invaded as much as this one has by real estate pumpers, one is inclined to believe that anyone who draws the same conclusions IS one.

#83 Future Expatriate on 10.05.09 at 3:33 pm

PS. To #82

As far as the “War” on “Drugs”, the US will simply remove pot from the equation (officially decriminalize it) “to concentrate our resources on more dangerous drugs and crime.”