Reckoning

NP1

All 148,000 tons of the Queen Mary 2 hulked beneath my hotel room window as I made my way down to a packed ballroom in Halifax. It was an auspicious night. So much to talk about. Once again, we’re on the cusp of change.

In the past 24 hours, the ground has shifted.

At the same time Australia was raising its prime rate, Ottawa was launching a new series of Canada Savings Bonds paying 0.4% – the lowest rate since 1946. You may know that the Auzzies, like us, have a housing bubble. At least they did until yesterday.

That rate jump set off a chain of events, sparking an equity rally on the belief that advancing interest rates presage more economic growth. But this came as the US dollar was losing altitude on a rumour OPEC nations might reject the faltering currency as payment for oil (later denied). That caused a mad rush of money from greenbacks into anything else – gold, the loonie, crude. All jumped higher.

And just to underscore a shifting of the financial tectonic plates came a report from TD economists stating what this blog has said for some time: There’s a train wreck coming as higher rates meet housing prices.

Of course, they’re bankers. They said it obtusely: “The (Bank of Canada’s) view at the moment is that the recent resurgence in real estate is temporary, but if it does not moderate in the coming year — or worse still if price growth accelerates — it could lead to an earlier and more substantial tightening in policy than currently anticipated.”

Translation: If you recently bought a house with nothing down and a 3% VRM, start freaking. If you’ve been waiting for the right moment to lock up your mortgage, it was yesterday. If you think the Australians put smarter people in their central bank than we do, pull up a chair. The bubble pricking contest has just begun.

But, as the tiny people swarming on the QM2’s deck started to stream down steps and onto Lower Water Street, things got even more interesting.

Another bunch of economists, this time at CIBC, had a shocking report on the impact of our dirt-cheap interest rates coming off their laser printers over at CCW. In the last six months, Canadians have done exactly what the manipulative political gods had hoped, and borrowed our brains out. Personal debt has risen by $44 billion and is growing at the rate of 7% a year – ten times more than inflation and six times faster than wage gains.

Mortgage arrears have doubled since mid-2007, at the same time as lines of credit have also doubled and payment delinquency has shot higher. Worse, we are now as screwed as Americans are. More, actually.

Said economist Benny Tal: On the whole, overall household debt increased by 3.4 per cent while personal disposable income declined by 0.2 per cent, resulting in a higher debt-to-income ratio. Household debt is now 140% of income, up from 131% a year earlier. This figure is moving in the opposite direction than in the United States, where the ratio has fallen for the last two quarter.

And just to underscore what a bitch well-it-seemed-like-a-good-idea-at-the-time debt can be, Global TV and the National Post went bankrupt.

I hope things are getting clearer now for everyone.

Debt is out of control. Real estate’s a bubble. The BoC waited too long. And out there, a commodity-fuelled, dollar-scared wave of money threatens to sweep our currency higher on a gush of rising global interest rates that will not be Canada-friendly.

Heading back to my room, I saw the tide was out, and the world’s largest ocean liner loomed a little lower above Pier 21.

We all have a voyage ahead.

House hunting
What bubble?:
Asked $380,000. Sold for $550,000.

129 comments ↓

#1 Steve on 10.06.09 at 9:31 pm

Hi Garth,

Nice post. Just wondering if you think variable and fixed rates will go up sooner then July 2010? I am trying to hold off my wife on buying a home but she is running out of patience. We have 280K saved up and are looking at a 320K range home in Durham Region. I know as soon as rates start rising, housing sales will slow down and we can get a more reasonable price. Your thoughts are appreciated.

Tie her down. — Garth

#2 Stretch from over yonder on 10.06.09 at 9:36 pm

What a different much difference a day makes!

The new salvation is a Saving Account!

It has begun…………

#3 Gord In Vancouver on 10.06.09 at 9:43 pm

Thanks for posting while you’re on the road and busy, Garth. Even though you’re probably tired and short on time, you continue to provide us with quality material.

We all have a voyage ahead.
_____________________________________

That’s a very polite way of stating it to overly optimistic/extended people.

#4 JO on 10.06.09 at 9:50 pm

How interesting Australia’s move was. I have been expecting a sensational turn of events in the markets for the last couple of weeks. Australia’s move might be the start of the next phase of the crisis. My predictions for the next 9-12 mts:
1) A USD scare over the next month or two drives gold up to $ 1060 + / – 20, and the SP500 should top under 1120. It could rollover any day, but me thinks 1120 is basically it.
2) Stocks come down very hard and very fast in a scary crash type move lasting anywhere from 5-6 weeks to 3-4 months. Min target – 700 points, possibility is in 500s.
3) Gold and oil and most other commodities crash hard into second half 2010. Gold under 700, oil under 30 in the second half 2010. Cad $ at or under 60 cents.
4) One cannot rule out a shocking rate rise by the Fed during the initial phase of the USD scare (next few weeks)…I think the USD will not crash and burn just yet…that will come yes, but not this time..in fact, i think it is much more likely the USD suddenly bottoms above 71 on USD index and starts a sensational rally up to at least 95 or so. Australia or any other nation raising rates caused existing trends of selling the USD to buy higher yielding currencies to worsen..the second the Fed raises or the markets come down hard, the USD will explode higher and trap the investors who sold it short. The US bond market will likely come down in price hard to..expect to see sharply higher rates by mid 2010 in the US..very bad for bonds and housing and the economy at large.
5) Canadian RE crashes at least 20 and probably 30 % over next 18-24 mts..given the extreme sentiment and record valuation, the fall should be the fastest and hardest in history.
6) World enters the second “dip” of the recession/quasi depression and the economy dips harder into around late 2011..deflation more likely than inflation with a suddenly strong USD.

Crazy predictions ? Of course..but there are many reliable signs that we will seen a extraordnary set of events from late 2009 through about August 2010 or so.

JO

#5 Nostradamus jr. on 10.06.09 at 9:52 pm

Garth Garth Garth,

…It isn’t over till the fat lady sings.

Nothing will replace the U.S. Dollar…nothing.

…Good u are not pumping Gold.

At just the right moment…say after Oct 16th…expect a decision or an event to crash the stock markets causing everyone back into the U.S. Dollar.

Nostradamus jr.

#6 ValueHunter on 10.06.09 at 9:52 pm

Garth, as interest starts to climb, shouldn’t the stock market head the other way?

Not in the short run, but historically you are correct. The Canadian market, however, is overwhelmingly commodity-fed. — Garth

#7 dd on 10.06.09 at 10:01 pm

#123 robert on 10.04.09 at 7:02 pm,

Robert, you were mentioning about commodities. However, you forgot to include supply and the US dollar in your talk.

#8 Sam on 10.06.09 at 10:09 pm

and what about this one ..?!!??! – toronto Star report

http://www.yourhome.ca/homes/realestate/article/705878–red-hot-real-estate-shatters-price-record

#9 dd on 10.06.09 at 10:13 pm

#5 Nostradamus jr.

…Nothing will replace the U.S. Dollar…nothing…

Over the short run true enought, however, I wouldn’t want to be holding US assets without some kind of CDN dollar hedge.

#10 The Great Gazoo on 10.06.09 at 10:14 pm

This will be a wild ride.

The issue is real cash, and right now it is not in bonds, but overflowing into commodities (hence record gold, rising oil and CAN$). Bond market is big time peeved off that they are getting little returns in comparison to commodities and Australian interest, they want more action and the Harper, Obama debt drowning governments will be in tough.

As a segway, I think everyone at my work laughed as in each of our mail boxes we were given brochures for canada savings bonds, funny that happened today on all this news.

Rates may explode if the competition for real cash gets ugly.

#11 dd on 10.06.09 at 10:18 pm

#4 JO

…3) Gold and oil and most other commoditis crash hard into second half 2010….selling the USD to buy higher yielding currencies to worsen…

Your logic doesn’t add up. IF the USD is a flight risk then oil would prob go up.

#12 Chaostrology on 10.06.09 at 10:21 pm

Meanwhile back at the ranch,

The City of Vancouver is now solely responsible for the cost of the Olympic athletes village, the over-run and now a very real possibility of a huge negative equity investment and a crap load of slightly used condos that it may have to house homeless people in.

Not to worry, it’s only over by a measly 246 MILLION DOLLARS!

The good news is thast because the condos were finished on time, the developer will receive a 1 MILLION DOLLAR BONUS! Yaayyyy!

Lord love a duck, it’s not going to end well.

#13 Shawn Allen on 10.06.09 at 10:22 pm

Canadian’s ran there debt up another 7% on average in the last year as CIBC reported.

I wonder how much of that is due to unemployed people running up credit cards and lines of credit?

If you lose your job it can be very hard to cut back especially with so many fixed payments each month. In that situation if you have a line of credit you probaly use it to keep the mortgage current, and the kids fed. What choice do they have really?

Banks are going to see a LOT more bad debts before this is over, I suspect.

#14 AO on 10.06.09 at 10:24 pm

Perhaps your best blog yet Garth
The picture is not looking as gleeful as Central Bankers in Canada and the US having been trying to convince us of lately.
On top of everything you wrote, don’t forget the tension biulding in the middle east as a result of Iran. I’m half way through reading Matthew Simmons 2005 book “Twilight in the Desert”, which is a super good read and paints a very veiled picture of secrecy which may (scratch…input DOES)hide the fact that the 5 major producing oil fields in Saudi Ariabia are and have been facing serious challenges with falling well pressure and higher water cutting.
If Iran’s oil exports get scratched due to conflict there is serious doubt wether the Kingdom can play swing producer again and up it’s daily production to meet the world demand.
I think your dollar parity forecast is correct and in the short to intermideate term we may be suprised at how much higher the petro CDN dollar can go.
Proper Planning Prevents Piss Poor Preformance (the 5 P’s to live by).
Continued best of luck to you in your election campaign Garth.
From an Albertan (who has sold his house and is debt free)
Thanks

#15 nonplused on 10.06.09 at 10:27 pm

Sounds like a recovery to me.

Someone has got to pull the reins of CMHC. They are going to break this country. They should be doing their calcs on the 5 year rate, not 3%. They should not be insuring “zero equity ever” mortgages with 35 year ams. There needs to be some sort of a down payment. If you can’t put 5% down, you probably can’t afford it. And buyers have to feel they are parting with some money, or it distorts the purchase decision.

If we get a foreclosure problem here it will go straight to CMHC. Let’s pray the government doesn’t have any trouble floating the bonds to back them or we’ll have a default-interest rate feedback loop.

Canadian banks should side step most of it though, as I hear more than 90% of new mortgage origination is of the CMHC backed variety. Their problems will originate in the commercial sector, which is under great pressure. Rents in downtown Calgary are down to the $25-30 range, and the Bow and 8th Avenue Place are not even buttoning in yet. Heck, the elevator shaft still has 30 stories to go.

Apparently, state side the concept of not paying your mortgage and just living rent free in the house until they get to you is working out better than planned, as banks use tarp funds to stay solvent and do not foreclose. If they foreclose, they have to sell the property and declare a loss. So they are waiting for the housing market to recover and sitting on the bad loans. I read the number of mortgages 2 years behind is on the rise. 2 years! That’s a lot of free rent. When word of this gets out to the masses, anyone underwater on their mortgage is just going to stop paying. A banking crises can’t be far behind, and FDIC is already out of money.

Where the US goes, so goes Canada, with a lag. Always has, always will. We send 80% of our exports there, and it will take years to develop alternate markets. You can’t just reroute natural gas. Oil is a little easier if the railway capacity already exists but it doesn’t. Automobiles? Ya right. They can’t even sell their own. Aluminum? Maybe. Gold? That’s pretty easy because there isn’t much. Wheat? Already done. Beef? Transporting by boat is difficult and cruel. That leaves things like plastic pellets and copper. I suppose the Chinese will always have use for more of that. But the chief bottleneck no matter what we try and send east or west instead of south will remain the rail capacity. Maybe we can ship it through the states?

Gold is up because the US dollar is down. No matter what anyone says, the chief role of gold in human history has always been as a currency. It’s the original cash. That’s why it doesn’t pay any more yield that the bills in your pocket. Like other currencies in today’s world, it has a floating exchange rate, so yes, it can decline precipitously, be manipulated, or fall out of favor if stronger alternatives are available. Right now with the US dollar under pressure, gold is seeing a bid. But I don’t expect it’s going to the moon unless the US dollar collapses completely (which isn’t out of the question). It will trade in some sort of relation to what’s happening to the dollar.

#16 American Expat & Future Canadian on 10.06.09 at 10:33 pm

Hello Mr. Turner,

Great presentation in Halifax tonight…you have inspired me to venture back into the market…will be opening a TFTA with an online brokerage tomorrow and loading up on financial, energy and commodity stocks. I think you are right on the money when you said that “the bubble pricking contest has just begun…” It wouldn’t be long before all of the other industrialized countries will also have to follow suit to prevent the flight of money from their shores. Already this evening the Telegraph in the UK ran a story on how the average Brits can take advantage of Australia’s interest rate hike. (http://tinyurl.com/yc9lpsg) Talk about hot money on the move. My question for you is how long do you think Mark Carney can hold out before he is forced to also raise rate? Are we talking about weeks or months? And will politics (meddling from Mr. Harper and Mr. Flaherty) be able to delay the rate hike here in Canada?

#17 Jeff Smith on 10.06.09 at 10:37 pm

Wasnt there a recent discussion at the G20 about using the IMF global currency (SDR) or something to replace the US dollar? The special drawing right if adopted in large scale would see the US dollar diminish in importance.
It is still scary though to see a run on the US dollar, I am sure we won’t be unscathed by it, since they are just south of our border

>#5 Nostradamus jr. on 10.06.09 at 9:52 pm \
>Garth Garth Garth,
>
>…It isn’t over till the fat lady sings.
>Nothing will replace the U.S. Dollar…nothing.

>…Good u are not pumping Gold.

>At just the right moment…say after Oct 16th…expect a
>decision or an event to crash the stock markets causing
>everyone back into the U.S. Dollar.

>Nostradamus jr.

#18 Onemorething on 10.06.09 at 10:38 pm

Agree that we have another flight to risk back into the USD during the next dip. Just sold my Aussie and Swiss Francs slowly into the USD. I rode this wave last time, it worked well, will do again.

The Aussies pulled the trigger to quickly but someone had too raise rates. I have been looking for RE in Aus for years after the biggest bloody bubble in the world occurred in this country.

If timing is right, when I see my Bro in Law on the Gold Coast next spring, I’ll start looking! INLAND!

#19 AO on 10.06.09 at 10:39 pm

Re: JO and predictions of USD strength

I can see only one fundamental reason for the USD to strengthen…it’s army.
Don’t underestimate precious metals…the safe heaven run has just begun.
Sorry Garth that’s one place where I can’t agree with your views of strengthening paper currincies. Yes some will gain as some weaken over time, but until the general puplic supports and demands a government to inflict higher interest rates and to shrink the government and civil services by 50%, government (especially the US) will always take the easy route of borrowing more money to fund deficits. Problem is of course you’d be silly to loan money to government as inflation will highly outpace government bond rates. Foriegn lenders have there own problems which will soon take center stage. Leading to the easiest answer borrow from the Central Bank (read CREATE).
We need NOW a smaller government. They and us need to understand government intervention in free markets does not create a strong economy. Leave that to the people who think specifically about the intrical details of thier businesses (Small Business Owners), the real creators of wealth in the world.
Of course cutting government will bring/extend on the recession, but I for one would rather deal with this issue now then let it fester and get worse to the point where it will cause a massive scale collapse of trade and societies.
Bring it on!

#20 Brad on 10.06.09 at 10:53 pm

There is nothing wrong with rising loonie. If you cut out the usual political crap about “protecting” selected industries, you will realize that rising loonie is good for the responsible people – the savers. It is bad for overleveraged, overindebted idiots who bought what they couldn’t and shouldn’t afford.
For once, one politician could have a little bit of common sense and realize that a strong loonie is a good loonie.

#21 luc on 10.06.09 at 11:10 pm

> Global TV and the National Post went bankrupt

However BC papers such as Vancouver Sun and The Province are not under bankruptcy protection and they can keep pumping RE infomercials.

#22 T.O. Bubble Boy on 10.06.09 at 11:20 pm

Wow – a government willing to try and pop the RE bubble to save its citizens from their own debt and housing addictions… where can we get one of those?

Here is the most bizarre article of the day:
http://www.winnipegsun.com/news/canada/2009/10/06/11324971-sun.html

The “news” bits in this article astound me:

1) The headline: ‘Tories boast solid economic record’… like somehow re-inflating a housing bubble, doubling down on mortgage purchases from the banks, spending $1-2 million per job to bailout GM, and wasting 10-15 years of debt paydowns in a single year is solid?

2) Flaherty received a Finance Minister of the Year award! Was that actually the “Finance Minister of the Year in Canada” award? Was the Zimbabwe Finance Minister a close second?

3) Ruby Dhalla will cross the floor to the Conservatives. Didn’t they just leak the details of her nanny-gate scandal? Is she so desparate to afford a giant home for illegal nannies to clean that she’d switch parties in hopes of keeping Harper/Flaherty around and interest rates near zero? Is Brampton really shifting towards the Reform/Con party?

#23 Gord In Vancouver on 10.06.09 at 11:22 pm

Socialist Vancouver Mayor Forced To Become A Real Estate Pumper

Although the mayor has no choice, this scenario will alienate his base, who want affordable housing.

http://www.news1130.com/news/local/more.jsp?content=20091006_161819_6192

#24 Ghost of Tom Joad on 10.06.09 at 11:25 pm

The Latest Signs Of Complete Economic Meltdown Phase 2 Begins:

http://neithercorp.us/npress/?p=167

#25 Bobby G on 10.06.09 at 11:34 pm

watch the charts
http://quotes.ino.com/chart/?s=NYBOT_DX&v=dmax&w=1&t=l&a=100

1. 200d average will level out
2. US dollar will cross avg and start heading up
3. everything else get on an elevator down

#26 Rich in Calgary on 10.06.09 at 11:35 pm

I saw an article earlier today describing the country’s resistance to a stronger recession. It indicated that it was due to the relatively stable banks, demand from China for resources, and the billions of stimulus spending by the government.

Sounds like Canada, but the article was in reference to Australia.

We saw what happened today after the interest rate was raised there, so I guess that this is a glimpse of what will happen when Canada follows suit with our own interest rate.

#27 InvestX on 10.06.09 at 11:57 pm

Australian media report:

Rate Rise Won’t Hurt Housing: Ray White

The increase in the official interest rates shouldn’t hurt the housing market, real estate group Ray White says.

Ray White joint chairman Brian White said the Reserve Bank of Australia (RBA) had made it clear the near record-low interest rates of three per cent had been an emergency measure during the global financial crisis.

“This 0.25 per cent rate rise was expected,” he said.

“I think we can afford a couple of interest rate rises and the confidence in the economy and the real estate market will override any concerns about where rates are headed.”

Full article:
http://au.biz.yahoo.com/091007/2/29261.html

#28 vantown on 10.07.09 at 12:26 am

Here’s some simple math for those of us who have been waiting (and waiting, and waiting) to buy.

Higher interest rates are supposed to put downward pressure on prices, like nothing else has, right? And we’re all waiting for lower prices, right?

Well, say you have $3000 per month to spend on a mortgage. Today, if you can get a 4% rate, and put say $200K down, you will be able to borrow for a house with a purchase price of about $770K.

So say the interest rates double, as has often been suggested here. We’re at 8%, and prices have gone down. But they have to go down 23% just to keep the payments the same as they were at the lower rate. So the same house will be more expensive per month if prices dip “only” 20% and you get an 8% mortgage rate.

Who really thinks prices are going to go down more than 23%? Honestly? Even in Vancouver, that would be like the bloody Titanic. I mean, last year when prices went down 10-12% you would have thought it was the end of the world.

Am I missing something here? Doesn’t it all come down to monthly budget, all other things (i.e., your job) being equal? We’re waiting for interest rates to save us, but at the same time depending on a massive resultant correction just to allow us to be able to buy the same property for the same monthly payment.

#29 Munch on 10.07.09 at 12:40 am

Beautifully written Garth!

Really!

Just like your books!

Speaking of which … {furious koffing} … did I win?

Yet?

Already?

The dissonance is killing me!

#30 Nostradamus Le Mad Vlad on 10.07.09 at 1:10 am

#5 Nostradamus jr. at 9:52 pm — “…say after Oct 16th…expect a decision or an event to crash the stock markets causing everyone back into the U.S. Dollar.”

Hi Nostradamus. A week or two back, I mentioned a link from rense.com, which stated the October Surprise would not be financial, as the extremely-well-to-do were feasting on sheeple’s emotions, becoming ever richer while said sheeple were staring at the Dark Side Of The Moon (abyss).

I also said (check it out on Bing or Google) that the US adds US$1 mln. to their debt every six seconds, so care to elaborate what may happen after Oct. 16? Could be another 9-11 to distract sheeple’s attention away from the economy.
——
“In the past 24 hours, the ground has shifted. . . . All jumped higher.” Which causes sheeple to panic wildly, as that is what they meekly do when coming up against the unknown — they don’t know how to act any better.
——
Maybe a new currency? — http://smallsizeurl.com/currency/

Credit card delinquences in the US rose to a record as the fee fighting continues. Anyone recall the pic of Obama, supposedly bowing to one of the Sheiks not too long ago? http://smallsizeurl.com/obama/

Seems he is under orders from others, trying awfully hard to sell America off, piece by piece for a half decent price. These — http://smallsizeurl.com/502/ and http://smallsizeurl.com/time/ — are further pieces of the puzzle.

With China’s banks deliberately defaulting on derivatives — http://smallsizeurl.com/china/ — and this — http://smallsizeurl.com/505/ ! — sumtin’s gonna blow!

#31 Tom J. on 10.07.09 at 1:44 am

The City of Vancouver says there won’t be any Olympic-sized profits coming from the troubled Olympic Village in False Creek.

The project — once forecast to yield millions of dollars in profit — is instead mired in multimillion-dollar cost overruns, according to a consultant’s report released Tuesday.

Vancouver Mayor Gregor Robertson said the best-case scenario is that the city will break even on its sizeable investment.

“The market has been through a very positive comeback,” said Bob Rennnie, president of Rennie Marketing Systems.

“When you look at it, if the city had to invest money somewhere, and Millennium had to invest money somewhere, it’s a pretty safe place. So I believe we will be ok,” Rennie said.

Rennie said more than one third of the 263 units have been sold to date.

He plans a major sales launch for May 2010 once VANOC has finished with the Olympic Village.

*At $2,000 a square foot. Wanna bet we have some frantic people trying to get out of their pre-buy?
For this, you get to live next door to the doorway to one of North America’s largest Slum, on one side and the view of GM Place and the Skytrain on the other. That is, if you get a view suite. The other side view is a Steel cable plant.

The World has gone bananas.

http://tinyurl.com/yej9u52

#32 CJ on 10.07.09 at 1:53 am

Garth, I enjoyed that post and generally agree with your ideas about debt and real estate. However, this passage puzzled me:

“If you think the Australians put smarter people in their central bank than we do, pull up a chair. The bubble pricking contest has just begun.”

Are you saying that

(1) Australian central bankers really are smarter than their Canadian counterparts

(2) Australian and Canadian central bankers are equally smart

(3) Australian and Canadian central bankers are equally dumb, or

(4) Canadian central bankers are smarter than Australian central bankers.

This passage’s meaning may be obvious to you and to most readers, but I can’t figure it out. Please advise.

#33 slopetester on 10.07.09 at 2:09 am

GOLD AND ECONOMIC FREEDOM, by Alan Greenspan, 1966: http://www.usagold.com/gildedopinion/greenspan.html .. “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

#34 KJ on 10.07.09 at 2:55 am

Garth, Can you provide me with some advice? Just sold a condo bought for $512 K in 2005 for $800 k. Now sitting on the cash and don’t know what to do with it. Have moved to Norway for portions of next 2 years. Watching the dollar tank re. the Norwegian Krone. Is it too late to put a huge wad of CAD or USD into Kroner? What do you suggest I do with the liquid assets for short/long term?
Thanks so much,
Canuck in Oslo

#35 Peter on 10.07.09 at 3:27 am

Add the HST in BC and Ontario, TV Tax, New GRRF for Cell Phone Users, Now, Property tax increase, Govt wants some paycheque money from you too…Workers, employers face EI premium hikes: report

http://www.theglobeandmail.com/report-on-business/workers-employers-face-ei-premium-hikes-report/article1313890/

#36 Daystar on 10.07.09 at 4:26 am

Yeah, Austraila’s point hike. Sounds like they’ve begun a voyage back to sanity for the same reasons its needed here. :

http://www.dailytelegraph.com.au/business/rate-rise-takes-heat-out-of-home-market/story-e6frez7r-1225783531224

And the TD story from our now bankrupt national paper.

http://www.financialpost.com/story.html?id=2071732#ixzz0TB1KDfSs

Looks like we are finally publically dialing into the risks of rapid asset inflation during a record low interest rate environment. Hopefully Canadians can start waking up as to just why such self serving rapid asset inflationary policies were taken by the federal government to begin with. Its scandalous and before its over, will hurt alot of Canadians.

#37 Tanya on 10.07.09 at 5:46 am

I’d be in a tight spot next year if rates went up a lot. But not as tight as my sister Maya since I took some good advice and Maya just wanted in to the housing market no matter what. I read Gail Vaz-Oxlade every day and she http://www.gailvazoxlade.com/blog has been saying the same thing for ages now but only a select few are listening to her. Seems nobody likes a pessimist and everyone just wants to think the bad news is over.

#38 ca on 10.07.09 at 6:17 am

Garth —

Do you have a guesstimate as to how low the U.S. dollar will fall over the next 5-10 years?

Are you a comedian? — Garth

#39 Future Expatriate on 10.07.09 at 6:24 am

#5 – “Nothing will replace the U.S. Dollar…nothing.”

Why? Because the rest of the world loves Americans and are queueing up to finance their Mideast wars?

Because the other countries of the world don’t have the means to completely destroy the dollar by refusing to deal in them for oil or anything else?

What is America going to do to prop up the dollar, attack Japan, China, Russia, Saudi Arabia (who WAS at that meeting, of course) and anyone else who refuses to prop it up?

As if. American Empire is finished, and it is about time. Obama had his chance to put things right and he didn’t even try where it really counted. Because he was a liar from day one.

Enough. The world has had enough.

#40 Future Expatriate on 10.07.09 at 6:26 am

We have a voyage all right… on the Titanic.

Hopefully Canada will be able to get the lifeboats away from the USA Titanic in time.

#41 pbrasseur on 10.07.09 at 6:49 am

Australia was one of the least affected country during this crisis, normal that they would raise rates first. Enventually everyone will follow. Rates may not climb that quickly as the poor job market (among others) will slow inflation.

This is called a recovery, this is normal, and IT IS A GOOD THING.

#42 David Bakody on 10.07.09 at 6:49 am

As I called around Halifax for a Thanksgiving Brunch it became clear quickly ….food prices are not only up they are way up …. last brunch out Easter there was a slight increase and less selection …. but these prices are way up. Simple put 4 for a 100 bucks plus tip now 3 for a 100+ plus tip. Garth mentioned in a past post how interest rates will rise and many will never know until it hits them ….. perhaps it all starts with food. Just think all those empty stainless steel appliances … only of show and those granite counter tops with peanut butter stains! Off to find a quiet Tim’s no need to share sad news. Kinda sorry I did not give up a scheduled meeting to run over to the good ode Nova Section Hotel ( Westin) Garth but I made your last visit and the impromptu meeting was most enjoyable.

#43 Kash is King on 10.07.09 at 7:12 am

Boy, the world sure could use a miracle.

Something like a quattuordecillion dollars worth of gold/silver/plat/pal & gems to back the world’s currencies?

Something like that coming on board would be welcomed right about now.

#44 pbrasseur on 10.07.09 at 7:12 am

Regarding the USD:

First, althought I don’t like “shoot the messenger” types of argument it is worth noting that the article that made so much noise predicting de “de-dollarization” of the oil market was written by a notorious anti-american.

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

Things being what they are I’m sure the point of view is shared by many in the Arab world and elsewhere, mostly for ideological reasons. But for now at least it makes absolutely no economic sense. For one thing China which depends on a strong dollar have zero interest in seeing a demise of the dollar, for years they have been working at propping up the USD and maintaning their own currency low. Second the Arab countries and others are much too weak to force such a change.

The reality is that the “weakness” of the USD is a sign of strenght of the US economy. As the recovery begins investments are flowing to areas percieved as riskier such as Europe and emerging markets, it also props up commodities prices. None of that is unsusual or surprising and the drop in the USD is actually a good thing for the US economy.

The recovery has begun, that’s what’s going on.

#45 Vancouver Island Bound on 10.07.09 at 7:41 am

Dear Garth:

Thank you for your blog. It has created a helpful forum for many of us. If I may, I would like to ask for feed back from the bloggers about living on Vancouver Island.

We are thinking of leaving Ontario for Vancouver Island at retirement, in a couple of years. If we did, we would obviously be trading off a relatively less expensive city life for the higher costs of country living (limited public transpo, higher food costs, etc).

But we have always loved the outdoors, we are by now tired of small apartments and we would also like a gentler climate.

We will have a self-directed pension. We did not make a bundle in RE; we had been away from it during the boom. We now rent but would eventually buy again at the right price; possibly something of quality, but plain and small. We are not “high fliers”, just ordinary people.

We would appreciate if bloggers who know Vancouver Island told us what they think of our idea.

We are not specially interested in Victoria. But would love to receive suggestions of beautiful but convenient places for the scouting trip we plan for next month or later (if we like a place in the poor season…., we might avoid disappointment later).

We are avid photographers of flowers, insects etc…and a bit adventureous. However, we think that in uncertain times, it would be wiser to stay in Canada then to “expatriate”.

#46 RS on 10.07.09 at 7:45 am

Garth,
I just wish this whole thing would hurry up and crash! I tired of trying to save me friends.

#47 steven rowlandson on 10.07.09 at 8:20 am

Hello Garth.
If you or your readers use the following link and have a read it will teach them the folly of trusting banks with gold or silver. As for my previous attempt at posting it really solves nothing if you try to censor it. Hidden truth is still truth. The only thing you can accomplish is to hide the truth and that prompts the question. What are you trying to protect? And why?

Steven

http://canadiansilverbug.blogspot.com/2009/01/on-going-silver-certificate-default.html

#48 somecatchphrase on 10.07.09 at 8:23 am

Here is a little gem for the day:

“mass democracy and inflation go together, as surely as thunder and lightning”

Source:
Inflation and the French Revolution: The Story of a Monetary Catastrophe

http://mises.org/story/1504

#49 Tim TodlleHeimer on 10.07.09 at 8:31 am

Canada interest rate to rise, TD leak

http://ca.news.finance.yahoo.com/s/06102009/6/finance-hot-real-estate-prompt-canada-rate-hikes-td.html

#50 X on 10.07.09 at 8:35 am

re #28

as per your example….if you buy now…and then in a few years are paying a 8% rate…then it would be a lose-lose situation…

#51 dave99 on 10.07.09 at 8:48 am

#28 Vantown,

I think there is one critical thing you are missing. A house price is NOT determined by the interest/mortgage rate.

It is actually determined by the laws of supply and demand, although the interest/mortgage rate admittedly influences the supply/demand.

Going further, in your post you focused exclusively on the demand side (vis-a-vis the affordability). And you also presumed a linear relationship between affordability and demand. I think you’re find the sensitivity to mortgage rates is not linear.

Remember also that at any given point, only a small number of the total housing supply is on the market, and there are only a small number of buyers. With 9 sellers and 10 buyers there is upward pressure on prices. With 10 sellers and 9 buyers there is downward pressure.

With prices dropping, many owners who had not planned to sell will become concerned and will attempt to sell. Similarly, many buyers who had planned on buying will wait and refrain from buying.

#52 Calgary_Rip_off on 10.07.09 at 9:12 am

“There’s a train wreck coming as higher rates meet housing prices”

Another relaxing post for Calgarians. Maybe this new reality will put the delusion of grandeur for crap shacks into the grave on the bald prairie.

Still, it looks like there’s a lot of shack crap to go along with the ill planned roads in Calgary.

And more unemployed(like my wife’s friend who was forced into selling after a divorce and now she has to live in a shelter). And then there is the working homeless because rentals are too expensive.

Maybe just maybe the new coming interest rates will crush the current acceptance of prices at DOUBLE their true value. “Calgary housing is undervalued”<<<that statement obviously needs an enema, a purging of you will into the sewer system of Calgary where it belongs.

#53 Nostradamus jr. on 10.07.09 at 9:30 am

Ten Simple Reasons why the dollar remains the world currency…

(from Mish)

1) Oil is priced in dollars.
2) Oil trades in Dollars and Euros right now in spite of the pricing unit being dollars. OPEC has recently admitted this fact.
3) Clearly oil does not have to be priced in Euros to trade in Euros, or for that matter priced in Yen to trade in Yen. The same applies to any major currency.
4) Neither Venezuela or Iran hold any dollar reserves. To the extent that either is taking trades in dollars, there is clearly nothing forcing them to hold dollars. By extension there is nothing forcing any OPEC country to hold dollars if it doesn’t want to.
5) It takes less than a second for Forex trades to take place. 24 hours a day, 7 days a week, one can sell any currency they want and buy any other currency.
6) The above logic applies to any currency and any commodity.
7) Nothing is stopping anyone at any time anywhere from selling dollars for whatever currency they want to hold. Nor is anything stopping anyone anywhere at any time from selling any major currency for U.S. Dollars.
8) Because currency conversion is instantaneous no one has to hold U.S. dollars to buy oil, copper, gold, iron, lead, wheat, soybeans, or anything else.
9) Dollars are held (or not held) for reasons totally unrelated to pricing unit. Some of those reasons are political, some are based on sentiment, some on trade patterns and trade relationships, and some to suppress the value of local currencies to improve exports.
10) Currencies float and so do the price of oil and commodities. Pricing oil (or any other commodity) in Euros will not cause a price change in dollars. Look at gold which is simultaneously priced in everything as proof.

#54 BDG YYC - WTF??? on 10.07.09 at 9:37 am

#44 pbrosseur …

Wow … truly Darwin Award winning “stuff” !

#55 Jim on 10.07.09 at 9:37 am

Vancouver Olympic Village $130 million in the hole
http://www.vancouversun.com/business/Vancouver+Olympic+Village+million+over+budget+report/2072466/story.html

Our incompetent city councilors who did not communicate enough with the developer and who were part of the stupid decision of trying to make money in the real estate industry instead of trying to run the city should step down or be fired. The weasel Sam Sullivan should also be taken to task, and I wouldn’t be surprised if our corrupt, arrogant, mean-spirited Premier was somehow involved. There should be an investigation and these people should be sued. These condos will hit the market at the worst possible time.

Jim

#56 Davinci on 10.07.09 at 9:38 am

On my video blog someone asked a question that I want to share with the greater fools.

“I’m sick and tired of hearing this message.
If all of you are so tired of this monetary system then what do you suggest?
we can’t just abolish it, then what happens? that is something that no one has ever thought about.
and don’t start proposing the old school exchange of goods. it is an ancient system. ”

I answered…

‘Not old school, but a gold and silver standard that your founding fathers stated IS law.

It is law like gravity. You can go against it with out equipment the FACT remains, falling is not flying. Because you are human you can choose to believe you are flying but you are not.

Thus you can choose to believe paper is money and the fall will take longer but the fact remains, you are falling to your financial demise.

You must understand that before you can understand the solution.’

You see the mind can deny reality but reality remains an absolute outside of your mind forever. As a human you do have a choice, believe in the goodness of men with a printing press or the absolute of gold in the same hands of the men with the printing press.

The choice is yours.

#57 kc on 10.07.09 at 10:11 am

Yesterday I said about “pension funds” as companies go tits up. here is a classic example of how much of a SCAM these pie in the sky ideas are. The only 100% guarateed pension is in politics. (right Garth?) Another one that is legaly binding is severence pay and these owed monies usualy work out to pittences on the dollar if any cents are given at all.

Ex-Nortel workers plan march in Toronto

http://www.vancouversun.com/business/Nortel+workers+plan+march+Toronto/2071897/story.html

TORONTO — Former Nortel workers worried about losing a government-backed pension fund will march on Queen’s Park to protest Wednesday.

“The workers are worried the Ontario Pension Benefits Guarantee Fund (OPBGF), which pays pensioners up to $1,000 per month, is headed towards insolvency. Experts say the fund could collapse under the pressure of a large bankruptcy.”

here is the kicker of the story….

“I’d love to be able to say that I could (guarantee it),” McGuinty said. “I can’t.”

when these over stuffed political screws end their term and sign off on thier “pension” us tax payers need to get out our score cards and see if these assholes are worth thier golden watch…

cheers

ps… this is the tip of the iceberg, expect many many more claims… only the lawyers get any money as they sue this one or that one….

#58 Clevergirl on 10.07.09 at 10:18 am

Vantown says: “So say the interest rates double, as has often been suggested here. We’re at 8%, and prices have gone down. But they have to go down 23% just to keep the payments the same as they were at the lower rate. So the same house will be more expensive per month if prices dip “only” 20% and you get an 8% mortgage rate…Am I missing something here? Doesn’t it all come down to monthly budget, all other things (i.e., your job) being equal? We’re waiting for interest rates to save us, but at the same time depending on a massive resultant correction just to allow us to be able to buy the same property for the same monthly payment.”

Vantown – yes, you are missing something: if you borrow $570k today at 4% and your monthly payment is $3k, which is the max you can afford – then what happens to you when interest rates rise to 8% five years from now, and your monthly payment is more like $5k a month? Where will that leave you? Probably selling your house at a loss just to save yourself.

If you wait and buy the same house after a price decline of 20%, and borrow at 8%, then you are carrying a lot less debt, and 5 years from now you are in the same house for $3k a month, with far less exposure to future interest rate risk.

#59 Bill-Muskoka (NAM) on 10.07.09 at 10:20 am

Garth,

John Ralston Saul points out (‘The Collapse of Globalism and The Reinvention of The World’ pages 98-107) the root cause of the problem and how, again, we are going down a road like a train out of control because of arrogant ideology. Here are a few history lessons and insights that people, and above all governments, had better start paying attention to.

In 1971 Nixon tried to. escape part of his financial problems by devaluing. That was a form of debt abrogation or default. He then tried to inflate his way out of the oil crisis. In 2004 the American government again devalued to deal with several problems, including debt in the form of foreign holdings in American dollars.

Every Western country has at some point escaped some of its obliga­tians by somehow abrogating its contractual responsibilities. That’s how you relaunch an economy. As far the private sector, bankruptcy is the mast common way of escaping debt. That’s what happened in the 1930s. Debt was destroyed in order to free national balance sheets. In that case,
it was a messy and massive destruction. Today governments have created a legal status of interim bankruptcy, which allows corporations to dispense with lender and employment rights without losing their corporation. All they have to do is reorganize themselves. The Third World debt situation could at any time have been erased in just such a calm and orderly manner. Commentators would paint out that many of these indebted nations have incompetent, self-serving governments and don’t deserve such an opportunity. But surely that is also. the case of many troubled corporations. The characteristic of Globalization is that it will do for the private sector what it won’t do for the public.

Now consider this Aleksandr Herzen, speaking a century ago to a group of anarchists about how to overthrow the czar, said, “We think we are the doctors. We are the disease.”

And regarding how things have been and are being handled he is prophetic in noting The Third World debt crises, as seen from within the West, are all about pretending no mistakes have been made in managing the problem. The refusal to simply deal with it is always presented in a cool, detached yet concerned way, all from a utilitarian point of view. The other does not really exist. This problem is just an unfortunate matter of contractual obligations.

Actually, in the case of the forty-one most impoverished nations, the money is mainly owed to international institutions controlled and financed by the G7. So there is no complex conundrum involving commercial banks and the deposits of little oId ladies in Dusseldorf or Columbus.
The stolid Western pretence of cool, detached utilitarianism is an almost exact reflection of the way the same civilization justified forcing the opium trade on China far 130 years. Respect for trade, debt, contracts and the market must unfortunately trump disease, suffering and social order. To make this logic less painfully obvious, small chari­table programs are offered up in order to demonstrate the West’s desire to help, without fundamentally changing the situation.

History, again, teaches a lesson that shall be repeated until it sinks in and today we see the results of following the Globalism ideology like blind lab rats. In the West people talk more about whose fault all of this is than about the effects of the situation. There is an enthusiastic focus on the increas­ingly dysfunctional nature of these non- Western regimes. Franklin Roosevelt in the early 1930s simply said: “Social unrest and a deepening sense of unfairness are dangers to our natural life which we must minimize by rigorous methods:’ Eventually unrest elsewhere will be dangerous to Western societies, as well as to those in which it originates. Today we are fighting two unnecessary wars due solely to the corporate globism persistance. we have a a War on Terrorism which was brought about by pushing people too far. Stop and consider why the WTC was the target two times? Because it represented the Temple of Globalism’s Money Changers. It was the equivalent of bombing Mecca or the Vatican to destroy the perceived enemy.

And that is the central point of the developing world debt crisis. It has now gone on for a quarter-century. There have been ups and downs. The number of countries not properly servicing their debts is today about the same as it was during the Second World War, when so many nations were out of commission. There have been endless meetings over the last twenty years. The G7 has gone over the situation again and again. Mrs. Thatcher opened the 1984 London Summit saying, “There are no easy or painless solutions, but we can set out ways both in which the commercial banks and the international financial institutions can help and in which the debtor countries can ease their own problems….[T]he problem is manageable.” It wasn’t manageable. It was then, as it is now, a matter of leadership.

The entire situation is religious in origin, having inculcated the masses to a ideology that precludes human reality. Saul points this out in saying Those who preach Globalization can’t seem to tell the difference between ethics and morality. ethicswould lead us tosolve this problem by simply cancelling the debt. Morality is a weapon of religious and social righteousness. Moralism is usually the last step in the decline of a civilization. Globalism from its very beginnings shoved ethics to the side in favour of morilism. why? Perhaps because it inherited such a strong moral righteousness from the original free trade movement.

So far the West has imposed on its former colonies a rigorously mortal approach to debt – one which it has rarely applied to itself.

As it pertains to Canada here is wisdom to consider The enthusiasm behind trade agreements is so strong that there never seems to be an opportunity to sit back and coolly evaluate their impact. As long as trade grows, we are said to be on track. It was a pity, for example, that shortly after the Free Trade Agreement between Canada and the United States in 1989 – the biggest bilateral trade relationship in the world – the Canadian government lost its conviction that the deal would work or work fast enough for their political purposes. So mysteri­ously, the Canadian dollar was devalued from 89 cents US to 63 cents US. Of course it wasn’t done abruptly, as Washington had done in 1971 and again in 2004. No one even acknowledged this was happening. If asked, officials would have protested that the changes related to inflation targets, not trade. Others would say 89 cents was an overvalued level, and they would probably have been right. Smart businessmen joked that at 89 cents the deal would fail, and at 70 cents it was irrelevant. Statisticians would point out that as the dollar sank, imports had grown along with exports, thus disproving the devaluation argument. But exports grew faster. And the mechanisms of production and trade changed because the cheap dollar meant Americans, flush in their own booming economy, could snap up Canadian corporations at a 30 percent discount and then convert binational trade into tax-strategy movements.

Whatever the conscious or unconscious combination of reasons, the dollar was devalued and trade grew. For more than a decade it was impossible to know if this was due to the accuracy of trade theory or to goods made cheap by a low dollar.

As Pogo said ‘We has found the enemy and they is us!’

#60 kc on 10.07.09 at 10:22 am

and while I am on the subject of over priced stuffed shirts…. here is a great one…. want to feel VIP as you suck a pint and watch the golden O show’s hockey games?

remember these games are “supposed to be” for the good of the game…. well fine and dandy if you can afford the price of admission….

Molson’s Hockey House the place to toast Canada’s game in style

http://www.vancouversun.com/sports/2010wintergames/Molson+Hockey+House+place+toast+Canada+game+style/2072808/story.html

“It will cost $500 a day to get in — or $8,500 for a 17-day pass that includes a private box. Both prices include all the food, beverage and entertainment you can take in at the Olympic hockey hospitality venue.”

This “olympic” sized party is going to give BC an Olympic sized hang over. I refuse to even call myself a hockey fan anymore because when the game allowed high priced prima-donnas to enter the team canada i figured that is pure bullshit. let the up and comer new talent represent our country. I hope we CHOKE it will look good on us.

#61 Onemorething on 10.07.09 at 10:36 am

#28, you are missing some other key items in a deflationary scenario matched with unemployment, add jobs which will never come back, strong CAD which will hurt anyone (any business exporting) 23% will be a split in the bucket for VAN if a downward spiral takes hold in RE.

Add the HST, add new RE purchase fees, take a 20% haircut in salary IF YOU DO KEEP YOUR JOB.

Take a hard look at what you after tax income might be and start from there! Not the other way around!

Start adding it all up brother and see why kicking back renting and watching the circus is the ultimate seat in the house, but hey, none of the above could happen to you! You Canadian, your different, your country will take care of you.

Even the FED’s and REG GOVN employees will take a 15-25% haircut!

Good Luck!

#62 Munch on 10.07.09 at 10:43 am

Who won the PRIZES yesterday?

I am SURE it was me, and Garth is just pllaying a PRANK on me by making me WAIT!?!

Yes, yes! That’s it!

{drumming fingers on the VASTNESS of Munch’s mahogany, brass inlay desk}

#63 Bill-Muskoka (NAM) on 10.07.09 at 10:51 am

Just to clarify what I said and Saul said. Here is one paragraph properly annotated. I missed an HTML closure.

The entire situation is religious in origin, having inculcated the masses to a ideology that precludes human reality. Saul points this out in saying Those who preach Globalization can’t seem to tell the difference between ethics and morality. Ethics would lead us to solve this problem by simply cancelling the debt. Morality is a weapon of religious and social righteousness. Moralism is usually the last step in the decline of a civilization. Globalism from its very beginnings shoved ethics to the side in favour of moralism. Why? Perhaps because it inherited such a strong moral righteousness from the original free trade movement.

So far the West has imposed on its former colonies a rigorously mortal approach to debt – one which it has rarely applied to itself.

#64 kc on 10.07.09 at 10:56 am

now i have heard of it all…..

CALGARY – A high-profile downtown condo project has announced a unique program to spark sales.

Anthem Properties, developer of the Waterfront highrise condo project in the downtown Eau Claire district, says it will buy the existing home of anyone who purchases a selected Waterfront residence.

http://www.vancouversun.com/business/Developer+Calgary+condo+homes+from+buyers/2077645/story.html

Do you want fries with that??

#65 Devil's Advocate on 10.07.09 at 11:07 am

Yep… the economy has recovered and doin’ just fine…

“The Port Townsend Paper Family of Companies and its Crown Packaging division are announcing intention to wind down production at the Kelowna corrugated box manufacturing facility, located on Enterprise Way, by year’s end. The change is anticipated to affect approximately 50 local employees.”

http://www.castanet.net/edition/news-story-49977-1-.htm#49977

#66 AO on 10.07.09 at 11:10 am

I would like to challenge the idea of a recovery beginning, especially in the US.
The largest issue we are facing is extreme levels of DEBT. How can we have a meaningful recovery if debt is not being eliminated. Spending (borrowing/creating) money by governments is only increasing our national debt levels which will have to be paid back via either taxation (yah right) or inflation (more defaulting to come).
And I’m sorry but the idea that the USD will strengthen in real terms if and when markets crash again does not make sense. Maybe it strengthens in relation to the Pound or the Yen or Euro, but in real terms all paper currencies will continue thier loss of purchasing power as governments spend spend spend.
We need to save. And after a period of contraction and deflation (which can be a good thing as the cost of living drops) we will hopefully have real savings to invest into our economy.

#67 Devil's Advocate on 10.07.09 at 11:11 am

RE: Crown Packaging Shutdown…

It’s not the 50 Crown employees who are being put out of work, it’s the lack of demand which precipitated it. It’s not like we’re importing cardboard from other markets causing competition for Crown. It’s the lack of demand for those manufactured goods Crown provides packaging for that has caused a lack of demand for Crown’s product – cardboard boxes. This mulitplies UP the food chain.

#68 Jim on 10.07.09 at 11:12 am

Vancouver Olympic Village 130 million in the hole
http://www.vancouversun.com/business/Vancouver+Olympic+Village+million+over+budget+report/2072466/story.html

Thanks to our incompetent city councilors

Jim

#69 taylor192 on 10.07.09 at 11:47 am

#28 vantown

I think your math is wrong:
$500K @ 4% over 35yrs = $2213/mn
$388K @ 6% over 35yrs = $2212/mn
$312K @ 8% over 35yrs = $2216/mn

If rates go up 2%, buying power goes down 23%
If rates go up 4%, buying power does down 38%

Now I’ll agree with you that I don’t think we’re going to see a huge pop in the Vancouver market, yet I think we’ll see a steady decline and a LONG flat period. Why? Look at graphs of Vancouver real estate prices, after each bubble popped, it flattened out for 6 (1981-1987), 2 (1990-1992) and 7 (1995-2002) years.

http://activerain.com/image_store/uploads/5/4/3/6/7/ar121096804076345.jpg

#70 Bill-Muskoka (NAM) on 10.07.09 at 12:12 pm

Amazingly, almost unbelievably, we now read Bankers owe world an apology: HSBC

The chairman of banking group HSBC says bankers owe the world an apology.

Stephen K. Green, speaking in an interview with BBC television broadcast Wednesday, said the world cannot do without banks, but that bankers need to learn the lessons of the financial crisis that has rocked the world’s economy.

And the most important task for their directors, he said, is to promote a culture of ethics and integrity.

‘The industry collectively owes the real world an apology.’

#71 miketheengineer on 10.07.09 at 12:23 pm

#4 – JO —-I really enjoy reading your posts….

Question to Garth et al.

We are in the middle of a 3 year variable, right now at 1.8%. We can get a 5 year closed at about 3.9%.

Should we lock in now, or wait till after xmas, and hope the prime won’t go up. As soon as that prime moves abit, we will pay more. We over pay every month, as if the mortgage rate was at 5.85%. We have had over 1.5 years of contributing more, by almost 4%.

We are 1/2 way through our 25 years amortization, and owe about 100k. Current markets would pay about 280k right now for the home.

Mike

#72 Genghis on 10.07.09 at 12:33 pm

A story in yesterday’s New York Times that supports the view that the credit market is not exactly back to normal in the US. The Federal reserve has kept things going through intervention, however this is scheduled to start winding down in the spring 2010.
Needless to say that if the credit markets seize up again down in the US, we will be affected in Canada.

http://www.nytimes.com/2009/10/07/business/economy/07shadow.html?_r=1&ref=business

Garth, your post regarding that home selling at 45% over asking price blows my mind. Interesting to read in that story about how the rush to buy (before low interest rates go up) is in fact eating into future sales. This is yet another factor that will eventually drive down prices that I had not previously thought of.

#73 jwk (nee jwkimba) on 10.07.09 at 12:44 pm

#28 , as #69 pointed out your numbers are too low. Wih 200k down at 4%, 3 k payment would net you ~ 1M house.

But sticking with your original numbers, what you are missing is 154,000 (770k *20%) of prinicpal that you never, ever have to pay off. By buying today you are volunteering to pay an extra 154,000 in principal. For fun. Bi-weekly payments won’t make much of a dent in that one…

Try the reverse scenario – find someone who bought ten years ago at 8%. Tell them that now that rates are down, you are going to tack on extra 20% to their mortgage principal. Think they would go for that?

#74 Jack Thompson on 10.07.09 at 12:48 pm

Why Interest rates WILL NOT rise in Canada in the neaar term. Everyone take a breather. Take a 1 yr fixed at 2.08% and when you renew, enjoy a VRM at prime -.60

* Japan is Australia’s largest export market as of Feb 2009. They account for $50.6 billion in 2008 (free on board value terms). This is followed by China ($32.5 billion), Republic of Korea ($18.5 billion) and India ($13.5 billion).

* This contrasts with Canada, where roughly 70% of exports go to the U.S., a much weaker economy with fewer long-term growth prospects.

#75 S. on 10.07.09 at 1:09 pm

#39, #40 Future Expatriate

Right. The most powerful currency has always been the one supported by the most powerful military. US has, unfortunately, exposed a few weaknesses in that department. Unless they are able to pull another rabbit out of Uncle Sam’s hat and reaffirm their absolute military superiority the greenback may become increasingly unstable.
You also said: “As if. American Empire is finished, and it is about time. Obama had his chance to put things right and he didn’t even try where it really counted. Because he was a liar from day one.” I don’t know about being a liar, but inexperienced for sure. His idealistic, academic approach does not prepare him well for these turbulent times. Obama appears to be the right guy at the wrong time. His overtures to negotiate with dictatorial regimes would have been received as magnanimous when America was perceived as healthy and powerful. Now that it is seen as sick and feeble this gambit presents the US as scared so he gets no results. Bush alienated old allies, yet gained a few new ones. Obama, with his attempt to appease Russia, now presented US as untrustworthy to East Europeans, Georgians etc. What a mess. This will not end well.

#76 Bob on 10.07.09 at 1:17 pm

My current investments (totalling about $15k, started a few years ago after finishing school) are in Canadian Bond index (40%), Canadian Equity index (30%), US equity index (15%), international equity index(15%), all in an RRSP investment account at the moment. I was originally planning on doing the Couch Potato Plan, which is to essentially ignore the market fluctuations and focus on long term gains (28 now, so many years to watch it grow).

However, I am now saving a downpayment with the hope of buying within a few years (no rush, I can wait) so I’d like to grow my investments. Should I get my money out and hold cash, get more into bonds, or another alternative?

#77 robert on 10.07.09 at 1:18 pm

All these folks loaned to the gills are the goose. Their loan payments are the golden egg. Why would the Bank of Canada want to kill the goose by raising interest rates when we are on the cusp of deflation? In a deflationary environment these interest payments come back to the banks worth more than the original credit.

I think Aus misguidedly raised rates to facilitate a US Dollar carry trade. Very bad move if the Dollar is set to rally.

I follow US Treasuries closely and I invest in them. What I see today is rates are falling and Treasuries are still in an underlying secular bull market. If you are confident employment is about to turn around dramatically (Treasuries generally bottom six months to a year after employment) go ahead and bet on higher interest rates. Just remember that being right early can be very costly.

#78 just a guy on 10.07.09 at 1:21 pm

jwk…you’re forgetting something.

You say that someone is electing to pay an extra $154,000 in principal “for fun”.

How convenient to forget the five years of rent between now and then. At $2,500/mth, which seems reasonable for a house approaching $800k, that’s $150,000 over five years.

#79 Munch on 10.07.09 at 1:27 pm

{drumming fingers impatiently}

#80 Rob on 10.07.09 at 1:38 pm

Garth your still missing the point. Yes the Canadian dollar is rising, if compared to other fiat currencies. But you need to compare it to the one true money, gold. All currencies are losing ground when priced in gold. There is a currency crisis coming where all paper money will be re valued and devalued with one another. They are all falling, just at different speeds, with the U.S leading the pack. Look at the price of gold priced in all currencies, this is a long term bull market and a long term bear market for paper no matter what the government spin of the day is. And yes the governments around the world all knew what they were doing by manipulating interest rates and sucking their citezens further into debt. How better to justify their new world currency (SDR’s) which they control and print out of thin air and charge us interest to use. Sorry Garth, switching to the liberal party is not a step in the right direction. They are two heads attached to the same monster. We need a independent political party willing to tell people the truth.

Gold is not money. — Garth

#81 dd on 10.07.09 at 1:41 pm

“Canada interest rate to rise, TD leak”

Give me a break. Why? There is not fear of inflation on the horizon. Dollar is up, cost of imports down, plenty of spare capcity, and unemployment. The bank rate is not the worry but the bond market.

#82 Nostradamus jr. on 10.07.09 at 1:53 pm

” I see dead people”…..actually I see so many overseas wealthy families who have moved to the North Shore in Vancouver.

…There must now be Bazzillions of Dollars safely secured in North Shore Banks and under people’s mattresses.

All agree, the North Shore, West and North Vancouver has its own drinking water, lectricity, safety, beauty, mild climate and limited access…only two bridges and one highway from the north.

…Its like the most private gated community in Canada.

Nostradamus jr.

#83 I remembered on 10.07.09 at 2:18 pm

Back in the dot come bust every day on the computer paper “WeCompute” in Toronto they throwing numbers like, hundreds millions around like it was nothing. A domain worth 360 millions for some reason. Guess what happened to cheap money?
In today we have billions in stimulus, artificial economy, low interest rate, over bidding in housing by tens of thousands. Hello!
When you hear people spending money like a drunken sailor…watch out below…now go watch Shark Tank and learn from the pros.

#84 Jay Currie on 10.07.09 at 2:22 pm

#64 wrote “Anthem Properties, developer of the Waterfront highrise condo project in the downtown Eau Claire district, says it will buy the existing home of anyone who purchases a selected Waterfront residence.”

Cash for Clunkers comes to RE

#85 West Coast on 10.07.09 at 2:51 pm

from NP:
http://www.financialpost.com/story.html?id=2073559

Benjamin Tal, senior economist at CIBC World Markets:

“Canada is in a unique situation where we are in the best position to provide credit and Canadians are in the best position to accept that credit,” Mr. Tal said. “It’s almost a crime not to take advantage of it.”

I wonder how the last line “It’s almost a crime not to take advantage of it.” will resonate in 5 years.

I’m getting the sense that fool me twice works on us Canadians.

Mr. Tal works for a bank. That’s where they keep the credit. — Garth

#86 Davinci on 10.07.09 at 2:57 pm

#79 Rob

Garth’s whole identity and dogma is based in his mind that paper is money. If he were to admit that he was wrong he believes in the back of his head that his credibility would be zero. This is untrue.

I trust a man will to check his premises and admit his conclusions where wrong than a man repeating the same mantra to his death.

It is clear to me that Garth is nothing but a politician they can never see the light because the light of the truth blinds them so the seek comfort in the dark of ignorance and lies.

The fact remains no matter how many times Garth uses the argument “gold is not money” as if the statement alone can prove it. Yet I have provided numerous examples that it is money.

1. Banks hold it in their vaults and international settlements are done in gold if the central bank can not be trusted. They don’t use oil, they don’t use dimonds they don’t use any other real good except gold for trade.

2. For 6000 years and even today gold is used as money.

3. Wealth is not destroyed it’s transferred and paper is a wealth transfer system to those who have access to the printer.

4. When money is a real item that has value in and of it’s self, is logical as the value can not be stolen by counterfeiters such as government and banks.

5. Only real production can create more money if needed.

6. Gold is the only real item that does not tarnish, easy to identify and lasts many lifetimes.

All those real facts stairing you in the face and all you can say is “Gold is not money” as your argument for paper?

Well then, reality will be our final arbiter.

Money is a medium of exchange, which gold is not. This was your last post here since you seem unable to differentiate between attacking a viewpoint and attacking anyone who holds an opinion counter to yours. Go play with your rocks. They love you. — Garth

#87 jess on 10.07.09 at 3:22 pm

The FSA want banks in England hold more government bonds

FSA sets stricter tests for liquidity• Overhaul of rules on what kind of assets held by banks
• FSA seeking 500 banks to send weekly liquidity reports

breakdown of a bank’s finances

money markets – 47%
the riskiest form of liquidity and the one the FSA wants to turn into government bonds

bank’s cash -4%
loans granted, not used – these are loans that companies and households are yet to tap into 14%

overnight money 4%
credit rating related -11%
saver’s deposits – 11%
business deposits- 9% money place in accounts from businesses rather than households

http://www.guardian.co.uk/business/2009/oct/05/fsa-regulator-banks-government-bonds

simple definition of money market

The money market is a section of the fixed income market. It is a part of the global financial market, and is used for short-term cash solutions, often by governments and large institutions. It is considered to be low risk (safe) in relation to other options such as the stock market.”

…so then why do they label that 47% as risky?

#88 GregW., Oakville on 10.07.09 at 3:23 pm

Hi Garth, Re: US dollar drop dew to OPEC rumour.

Here’s an explanation as to why the rumour might cause such a reaction to that sort of news.
(I’ve posted this before, but if you mist it. It seems to make as much sence as any other I have heard.)

Robert Newman’s History of Oil ( 1 of 9 )
http://www.youtube.com/watch?v=kQhhrzHKMhI

#89 Vantown on 10.07.09 at 3:43 pm

dave99:

A house price is NOT determined by the interest/mortgage rate.

It seems to me that the main argument on this blog right now, from the author on down, is that increasing rates will result in decreasing prices. It’s certainly true that nothing else has had any real downward pressure on prices; all the other arguments (save a grow-op in every basement) have been exhausted.

clevergirl:

if you borrow $570k today at 4% and your monthly payment is $3k, which is the max you can afford – then what happens to you when interest rates rise to 8% five years from now, and your monthly payment is more like $5k a month? Where will that leave you? Probably selling your house at a loss just to save yourself.

If you wait and buy the same house after a price decline of 20%, and borrow at 8%, then you are carrying a lot less debt, and 5 years from now you are in the same house for $3k a month, with far less exposure to future interest rate risk.

And what if you wait and prices don’t go down, and interest rates go up? I’ve been waiting and waiting and waiting, and I now believe that this is pretty much what is going to happen: rates will go up, slowly, but will have little effect on prices. Remember that pretty much no one on these bear blogs predicted that we’d be where we are in late 2009.

taylor192:

I think your math is wrong:
$500K @ 4% over 35yrs = $2213/mn
$388K @ 6% over 35yrs = $2212/mn
$312K @ 8% over 35yrs = $2216/mn

I was calculating on 25 years, sorry. I think 35 year mortgages are insane.

#90 Dan in Victoria on 10.07.09 at 3:43 pm

Post#45 Island bound,sorry all full out here,no more room,just kidding.Depending on when you come and the weather,too bad you aren’t here right now its just beautiful.Start in Victoria head out towards Langford and Colwood,wave when you go by my place,Metchosin,stop at My Chosin cafe for breakfast,on to,Happy Valley,East Sooke,Sooke,on to Jordan River.Lots of places to explore.There maybe some surfers at Jordan River.If you decide to carry on to Port Renfrew,the road is twisty and narrow in spots pull over and let the locals go they really move. Check the gas guage make sure you fill up in Sooke,the gas station at the marina will be closed in Renfrew,but they may have moved it into town,bring cash,also CHECK the weather if we have a big rainstorm coming in it can sometimes wash the Renfrew road out.At Port Renfrew go to Botanical beach and look around if there is a large swell and wave action beware you can end up in the water and be swept out,just like that, be careful.Go through town, head over the San Jaun river bridge then over the logging truck (Deering?)bridge,turn right on the Lake Cowichan road stay on that road don’t be detouring at that time of year,Lots to see.You will arrive at Meschachie lake in about an hour.Keep in mind that this is a back road area,well used though. Pay attention the worlds largest spruce tree is on the way.Go down towards Cowhican Lake you can look around there.Head back towards Duncan,you can then turn right and head back towards Victoria over the Malahat.That will take about a day or more.Another little trip would be head up from Victoria to the Parksville turn off,go and look around Parksville then go on the old Island highway to Qualicum Beach one of my favorite places,there are parking spots along the hi way,make sure you go at low tide the sandy beach is spectacular.At the end of the beach on the right stop at the Shady rest for fish and chips(halibut)head up the hiway and you will come to the Bowser/Deep bay area I really like it around there and have a few friends there.That will get you started if you need/want more info ask.PS the realtors will just take you to sub division A,B,C and put their hand out.There are still lots of hidden “nuggets “you’ll just have to explore.

#91 MIA - Rate Increases on the way on 10.07.09 at 3:46 pm

I just got back from my banker at Scotia. I told him I was transferring funds to Australia because they have competitive rates for GICs

He confirmed that corporate headquarters have told their branches to brace for a 0.75% increase in March 2010, and then a 0.50% rate hike immediately thereafter.

He noted that there has been upward pressure on GIC rates the last two weeks, while the last six months saw downward pressure. He also pointed to a brand new 9 month CIC, which ostensibly is designed to keep your money locked up before the June 2010 expiration of Carney’s “promise.” We both laughed about the 9 month GIC.

In Vancouver, it was a one percent rate hike coupled with the apex of affordability in February 2008 which prompted a 15% decline in prices in 7 months (yes, yes, prices have gone up 9% since then). Of course back then, BC’s unemployment was half of what it is today, money was free flowing, life was good, and the thought that RE could go down was blasphemy.

#92 kc on 10.07.09 at 3:55 pm

#83 Jay Currie on 10.07.09 at 2:22 pm

“Cash for Clunkers comes to RE”

I thought what they can call it…. “condos for carports”

#93 West Coast on 10.07.09 at 3:55 pm

Rapid change:

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

“The demise of the (U.S.) dollar”

In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading.

#94 Jeff Smith on 10.07.09 at 4:20 pm

Oh yeah, have read many articles from that guy. His articles lavish subtle but endless praises for the real estate sector. He is the realty equivalent of a commie sympathizer. After reading that article I felt must buy now or be left out forever. Not! Nice try though mr. Wrong

#8 Sam on 10.06.09 at 10:09 pm
and what about this one ..?!!??! – toronto Star report

http://www.yourhome.ca/homes/realestate/article/705878–red-hot-real-estate-shatters-price-record

#95 OttawaMike on 10.07.09 at 4:46 pm

I’m surprised nobody here has not linked Charles Hugh smiths blog on why the dollar probably will not collapse:

http://www.oftwominds.com/blogsept09/dollar09-09.html

He makes a strong case in the article and it’s worth plowing through the whole thing.

#96 Future Expatriate on 10.07.09 at 4:56 pm

#53 – ONE simple reason why the US dollar WILL NO LONGER REMAIN the world’s currency:

1. The other countries of the world, INCLUDING ALLIES like JAPAN and SAUDI ARABIA, REFUSE to trade US dollars for OIL a second longer, while China proposes a RETURN TO THE GOLD STANDARD until another world currency comes to the fore.

Wipes out ALL of Mish’s OUTDATED list. A one-day paradigm shift that many people saw coming.

#97 Future Expatriate on 10.07.09 at 5:08 pm

“Gold is not money. — Garth”

Not yet. But it WILL be. The Chinese have a bit more to say about that inevitability than you or even the US does at this point, and they have the rest of the world (save GB, as far as we KNOW) onboard. Thank GOD.

From Business Week:

End of the US Petrodollar by 2018

6th paragraph.

The United States has been a rogue bully state since August of 1945, and the rest of the schoolyard has decided it’s now or never time to pile on the bully and put him either in a hospital, a wheelchair, or the morgue.

Either way the bullying WILL end. For the foreseeable future.

#98 West Coast on 10.07.09 at 5:15 pm

Looks like we’re beginning to get some of the bigger picture.

http://1.bp.blogspot.com/_pMscxxELHEg/SsdKai2JmWI/AAAAAAAAGgM/69Fd8pPGr0s/s1600-h/2007Revised.jpg

U.S. Unemployment: Worst post WWII job losses ever and no historic reason for recovery.

more at:
http://www.calculatedriskblog.com/

#99 dd on 10.07.09 at 5:39 pm

#94 OttawaMike

Interesting. If the market is calling for US dollar bear then there might be some upside.

#100 dd on 10.07.09 at 5:41 pm

#81 Nostradamus jr.

“All agree, the North Shore, West and North Vancouver has its own drinking water, lectricity,”

How you going to get food and fuel across the moat?

#101 Burls on 10.07.09 at 6:06 pm

Post #28 Vantown
Higher interest rates are supposed to put downward pressure on prices, like nothing else has, right? And we’re all waiting for lower prices, right?

Well, say you have $3000 per month to spend on a mortgage. Today, if you can get a 4% rate, and put say $200K down, you will be able to borrow for a house with a purchase price of about $770K.

So say the interest rates double, as has often been suggested here. We’re at 8%, and prices have gone down. But they have to go down 23% just to keep the payments the same as they were at the lower rate. So the same house will be more expensive per month if prices dip “only” 20% and you get an 8% mortgage rate.

Who really thinks prices are going to go down more than 23%? Honestly? Even in Vancouver, that would be like the bloody Titanic. I mean, last year when prices went down 10-12% you would have thought it was the end of the world.

Am I missing something here?

Yes, you are missing something very important here, Vantown.
If you buy the house now for $770K @ 4% fixed for a 5 year term, you’ll be fine for the next 5 years.
But then the fun begins.
5 years from now, you will find yourself STUCK with about a $710K debt on a property that is then only worth about $610K.
So you are $100K in the hole equitywise – more, if house prices dip more than 20%.
If you have to take an 8% mortgage for your $710K debt, you will be looking at about $5600/mth.
And that’s just to allow you to continue staying in the house you will never really own.

#102 artisuseless on 10.07.09 at 6:16 pm

GOLD IS NOT MONEY

It is a commodity. It floats/trades pretty much like anything else. You can’t take a sliver of gold to the corner store & buy a bag of chips. There’s not enough of the stuff in the world for it to be practical as a currency. I could go on but there’s no point. Just don’t read stuff on the internet about gold – read books.

Ignore the Paultards and other goldbots. Mish Shedlock has had some excellent posts lately debunking US Dollar doomism and there are others too:

http://globaleconomicanalysis.blogspot.com/

http://econospeak.blogspot.com/2009/09/washington-post-puffs-gold-buggery.html

Lots of people lost their shirts in the 80s believing the same nonsense about gold that is floating around now. Don’t be one of them

#103 J on 10.07.09 at 6:33 pm

I believe the credit at 7.7% rise YOY was inflation adjusted. That means it would be closer to 9.5%

Furthermore, mortgage credit is growing 12% YOY. Most other forms of credit haven’t grown nearly as fast.

#104 Onemorething on 10.07.09 at 6:39 pm

#95 Future Expat

Man, your 3 days behind the talks, it was all hype, MISH’s view on USD still stands.

#105 edm.ab.ca on 10.07.09 at 7:01 pm

Alberta issues another $500M in bonds.

http://www.edmontonjournal.com/news/Alberta+issues+500M+bonds/2078172/story.html

#106 Finanzkrise on 10.07.09 at 7:24 pm

If global stock markets crash in the coming months due to any of a number of possible triggers (disappointing corporate earnings, unexpected bailout of a major US bank, resuming US house price declines), the USD will likely rise again, both as a flight to safety, and the contraction of credit which could make US dollars more scarce and hence valuable.

If there is a credit crunch II, the time horizon for the decline of the USD or a replacement ‘reserve currency’ is probably pushed out, as the immediate problem of deflation would trump future expectations of Fed money printing and dollar devaluation.

However, those predicting near-term inflation would probably take the opposite view (bearish on USD, bullish on gold, etc.)

#107 Grantmi on 10.07.09 at 7:30 pm

Jim:

Vancouver Olympic Village 130 million in the hole

Thanks to our incompetent city councilors

What did you expect! Don’t you get it! These councilors 99% of them have no training at all in business or management.. . . They’re either ex-school teachers, or small town workers that get into power.

Totally not surprised! Thank goodness I live in the Fraser Valley! I ain’t paying for this shat!!

Move Along.. nothing to see here!!

#108 Gb on 10.07.09 at 7:54 pm

I t begins……one year latter than I expected. But nonetheless…..

The party will be over by this time next year. Replaced by a full on horror show.

Anyone who does not( did not) see this coming is not paying attention.

#109 J on 10.07.09 at 8:37 pm

The market is now reaching capitulation. Almost every last bear has reentered the market.

The landscape is now ripe for a crash. The market can’t get any more confident than this which means there is only one direction for it to head.. and that’s down.

#110 vantown on 10.07.09 at 8:39 pm

Burls:

Yes, you are missing something very important here, Vantown.
If you buy the house now for $770K @ 4% fixed for a 5 year term, you’ll be fine for the next 5 years.
But then the fun begins.
5 years from now, you will find yourself STUCK with about a $710K debt on a property that is then only worth about $610K.
So you are $100K in the hole equitywise – more, if house prices dip more than 20%.
If you have to take an 8% mortgage for your $710K debt, you will be looking at about $5600/mth.
And that’s just to allow you to continue staying in the house you will never really own.

First, you’re assuming that prices will go down 20%. They might not. I’m not saying they’ll go up. I’m not saying they won’t go down. But your argument assumes it’s a given.

Second, the operative word in your argument is “STUCK.” You seem to be saying that the only time to buy is at the bottom of the market. Who can time that? But perhaps more importantly, only someone with no planning skills or foresight would take on a mortgage in current conditions without having some substantial wiggle room.

And again, you’re presuming that rates will go up substantially, and prices will come down substantially. Worst case scenario in both respects. Yes, the sky might fall. But that’s what I was hearing five years ago, and guess what? Turns out it would’ve been a good time to buy; I’d be 20% of the way through my mortgage if I hadn’t listened to the bears.

#111 $fromA$ia "Garths Nugget Boy" on 10.07.09 at 8:43 pm

How the hell can a Canadian bank fail when they got them backed with newly printed money.

Flaherty,”not a Canadian bank has failed.”

How the hell can they fail if they are constantly being capitalized from the stock market!!!

You know how many other foreigners are investing in Canadian Bank Stocks? Sheesh. I cant beleive fellowCanadians eat this crap!

#112 J on 10.07.09 at 8:44 pm

Everyone talks about basing oil prices in a basket of goods. This will only serve to confuse investors who would have to do some fancy mathematical calculation to find out what oil is worth in their own currency, and then translate that into stock prices. Who’d want to do that?

Honestly pricing it in US dollars means nothing and adds zero value to the US currency. I can buy oil using Canadian dollars. They simply calculate my cost based on the Foreign Exchange rate. Plain and simple. I don’t have to touch a single greenback.

I repeat. It makes no difference what currency oil is priced in. – in fact it’s also currently priced in Euros and that had zilch affect on the US dollar.

Furthermore, there was absolutely no confirmation or proof that these meetings ever took place. It was an exageration and I’m sure this of all issues won’t keep Obama up at night. Seriously this was overdone.

Look for a short term rebound in the US dollar up to 20%. Deflation is here. Only 3% of investors are bullish on the US dollar. That means it has capitulated and will rise.

Those looking at wild money printing need to look at their own country, like Japan, China or Canada. We’ve printed our asses of as well. Yet we are all deflating.

They did this in the Great Depression – and things kept deflating. Can’t stop an asset crash in the long term.

#113 Jim on 10.07.09 at 8:49 pm

I tried to use fractions of an ounce of gold to pay for my double double at Tim Hortons – they didn’t seem to appreciate the joke.

#114 Jim on 10.07.09 at 8:57 pm

Canadian bond rates are pathetic. As readers of this blog know, bond rates govern mortgage rates. So for those without VRMs, a real estate bubble is not happening.

With regards to VRMs, the rates set by BoC govenor Mark Carney affect VRMs, but Carney has shown little to no desire to increase rates regardless of what (insert bank name here) economists think.

Real estate is alive and well despite all the ‘evidence’.

When the consensus is that an asset is overvalued, the consensus is always wrong.

#115 robert on 10.07.09 at 9:23 pm

#45 emigrating to Van Isle.. Every rose has it’s thorns. There’s a romantic myth about moving to the “island” that shrouds a more pragmatic reality. 1) It’s expensive to live here, it’s expensive to visit here ie Day trip to Vancouver from anywhere on the island is roughly $120 for two and vehicle, not including the ever growing wait lines for the ferries. 2) Retirees who move here are often cut off from family and friends in their home province, the familiar things that shaped their working lives. eg. When I visit my mother (in her 80’s) in a retirement home in Victoria. I cannot express how sad it is to see the newly arrived who have maybe lived here for 8-10 years, later winding up in care with no one to visit them and no one to care. It’s absolutely heart-breaking. They go downhill so quickly, sometimes the wife, sometimes the husband, because they are cut off from the community they built during their working years. 3) Despite this, the growing number of boomer expats are adding to the extended care work load and geriatric care facilities. The wait lists for basic care and housing are getting too long and are likely to get worse. BC is now entering a period of extended government debt, due in part to the Owelympic gamble, and the reality that out of province retirees are placing inordinate demands on the health care system (without adequate compensation from the Federal gov’t. and their home province.) If it’s difficult now, it’s going to get much worse with the blended HST in the spring.
4) The economic climate in BC is ugly. The resource extraction industries have collapsed leaving small single industry towns in dire straits. Property bubble has peaked, the artificial construction frenzy has subsided leaving unemployed tradesmen and contractors idled. While that does temporarily depress property prices, it means that your rural neighbours may be engaging in illicit agriculture. How close to the nearest Hell’s Angels clubhouse would you like your rural dream home to be>
My advice (as a native islander) is rent here first, don’t plunge into a dream home without really checking out the long term implications of this move. Once you up stakes and plant yourself here, it will be that much harder to re-establish yourself in a place that feels more like home when you are in your 70’s.

Bonne chance..

#116 taxpayer like you on 10.07.09 at 9:33 pm

45 Island Bound. I could go on all night with the great places to visit and explore on the western rock. Here are some real estate stats for your review:

http://www.relocationbc.com/statistics-vanisland.asp

I dont think you can go too wrong with any of the centres
along the east coast – cowichan / nanaimo / parksville /
comox/campbell river. Throw Port Alberni in the mix too.
along with ‘tweeners like ladysmith.

Why not pick a town on your visit then rent when you move out? That way you can try a few places.

#117 dd on 10.07.09 at 9:42 pm

#113 Jim

“When the consensus is that an asset is overvalued, the consensus is always wrong”

So true. That is why real estate is selling like hotcakes in most markets in the country because people think that prices will not be this low for long. So consensus is that house prices are still low.

#118 dd on 10.07.09 at 9:46 pm

#115 taxpayer

“Throw Port Alberni in the mix too”

Alberni? Are U serious? The town is half shut down. Very depressed town. Great prices but miserable winters.

#119 dd on 10.07.09 at 9:50 pm

#45 Vancouver Island Bound

Good to visit in the winter. It is not always sunny there. Beautiful place.

If you love the outdoors and want cheaper house prices … up island. Comox. Cumberland.

If you like the arts, want more people around, good transit, and can afford the prices … Victoria.

#120 S. on 10.07.09 at 11:51 pm

#114 Robert

Ain’t you right! Same thing should be said of that other retirement mecca, the Okanagan.

#121 Burls on 10.08.09 at 12:30 am

Vantown #109

First, you’re assuming that prices will go down 20%. They might not. I’m not saying they’ll go up. I’m not saying they won’t go down. But your argument assumes it’s a given.

The average house price in the Lower Mainland is 7.8 times the average income there. Sooner or later that is going to correct significantly. If interest rates weren’t at such a drastic historical low, there is no way the ratio would have gotten that high.

Second, the operative word in your argument is “STUCK.” You seem to be saying that the only time to buy is at the bottom of the market. Who can time that?

This is a non sequitur. My point is that if you buy something for $770K, you’ve got a HUGE monkey on your back that will take DECADES to get rid of – unless those 6/49 numbers come through.

But perhaps more importantly, only someone with no planning skills or foresight would take on a mortgage in current conditions without having some substantial wiggle room.

I think there’s quite a few of these folks in the Lower Mainland these days.

And again, you’re presuming that rates will go up substantially, and prices will come down substantially. Worst case scenario in both respects.

These two things are correlated and everybody knows that the temporary period of historically super-low interest rates is about to come to an end. I invite you to do the math.

Yes, the sky might fall. But that’s what I was hearing five years ago, and guess what? Turns out it would’ve been a good time to buy; I’d be 20% of the way through my mortgage if I hadn’t listened to the bears.

The fact that a housing bubble was perpetuated by the introduction of super-low interest rates as a short-term countermeasure to an unanticipated worldwide recession doesn’t show that it was a good time to buy real estate 5 years ago. Sometimes, foolish financial decisions can result in hefty gains. that doesn’t make the decisions any less foolish.

#122 Future Expatriate on 10.08.09 at 12:45 am

#101 – Sorry to cut into your stockbroking biz, BUT back in the 80’s Japan and Saudi Arabia weren’t unifying with China and Iran and Russia to completely lockout the US Dollar for oil sales.

It took the world 30 more years to figure out the US was the ultimate enemy of the entire planet and for the US to hang itself borrowing the money for its imperialist wars from China.

This is NOT the 80’s, and whether it goes out with a whimper or with the biggest bang the world has ever seen, the US Dollar AND the US are finally finished.

Anyone banking on them and against gold is the greatest fool of all.

#123 Future Expatriate on 10.08.09 at 12:50 am

#103 – Mish, is an idiot. The meeting(s) were all hype? Do you seriously expect the countries involved to ADMIT they were THERE and planning THAT?

Oh right, that’s right folks, there we were planning economic war against the US that will decimate it for decades. Where do I sign the agreement and how soon can I post it on the net?

You’re more nuts than the US. Actions speak louder than words. Just WATCH what those countries do and how fast they do it now that the cat is out of the bag.

#124 HouseBuster on 10.08.09 at 12:55 am

#111 J I repeat. It makes no difference what currency oil is priced in.
————————————————————-
WTF are you talking about??? It makes a huge difference.

Don’t post and claim to be authority on something you know absolutely nothing about.

#125 taxpayer like you on 10.08.09 at 1:00 am

Hey dd @117

Yes Pt Alberni is at least half shut down, but VI bound will be retired. Actually the joke I heard in PA was “if they
closed down this mill, people would move here!”. Still has decent amenities, close to west coast, Sproat Lake, hunting, fishing, camping and not so far off the beaten
track you cant get to Vancouver or Victoria for doctors,
shopping etc. Cheap RE too compared to other like-sized
island towns. Wetter than the east coast of the island,
but can be very warm in the summer. Hmmm. Sounds like the next leisure, financial, blah etc…….

#126 Davinci on 10.08.09 at 1:09 am

Garth said
“Money is a medium of exchange, which gold is not. This was your last post here since you seem unable to differentiate between attacking a viewpoint and attacking anyone who holds an opinion counter to yours. Go play with your rocks. They love you.”

It is your blog and I support your decision to sensor me. Attacking a view point is different from attacking a person. If you felt my statements where attacking you personally, it was not my intention, although calling you a politician was worse than calling you the N word. For that I apologize.

{For those that don’t get it and are able to read this Poli’tics: (n.) greek origin. From poly, meaning many, and tics, meaning blood-sucking parasites}

Finally, I repeat it’s OK for you to block me from posting here. Just remember only politicians hate free speech because people may point out HOW they are blood suckers.

BTW Go play with rocks? They love you? The problem with that statement is, I know gold is money, thus it assumes that you play with paper money or your bank statement and you believe it loves you. One has to assume that’s what you do and believe because I have made no such utterance about money. Also, gold is not a rock it’s a metal.

I am shocked, you have done much better in the past in insulting me. Try not to be angry when you are trying to insult someone, it helps creativity when you are enjoying it. ;)

Ah, but enjoyment can only come from being on the right side of an argument. :) lol

Have a good one. :)

#127 Mike (Authentic) on 10.08.09 at 4:53 am

Gold is not money. — Garth

Totally, fully, 100% agree with you Garth.

Some thoughts on why you can’t have a gold standard:

– In the 70’s, the gold standard ended because there wasn’t enough US gold to support each US $1. Think today how much money has been printed vs physical gold held. There would be a US civil war if people had to give up $10,000 USD to 1 ouce. So, that would be completely out of the question for the US Gov’t to bring back.

– Gold is a mineral and is natually created (renewable resource) also gold is massively recycled (%) unlike oil.

– Why gold? Why not another metal or even food? I was at the supermarket and noticed high quality meat being sold now in individual security boxes. With a world population so great, food and water will be more valuable than gold.

Just some thoughts.

Plus, I wouldn’t trade cash for gold. Just think of the weight I’d have to carry around! Plus I’d have to worry about currency exchange rates, gold prices and safety/security. No thanks.

#128 Zippy on 10.08.09 at 7:58 am

Now everyone in Canada can watch Australia and see what to expect when interest rates start to rise.

#129 Future Expatriate on 10.08.09 at 11:47 am

#126 – When you’ve burned your cash, stock certificates, and bonds to keep warm in your alley, don’t come knocking around either my nor Garth’s house looking for a handout.

You and your compatriots were warned, over and over and over and over again.

China OWNS the US. China WANTS a gold standard. China will GET a gold standard. Or ELSE.

There WILL be a gold standard. The collapsed ponzi scheme of fraudulent derivatives and the entire paper investment system DEMANDS it.

You don’t solve a problem by doing the same thing you’ve been doing all the decades that created it in the first place. You STOP WHAT YOU ARE DOING, TEAR IT ALL DOWN AND START ALL OVER AGAIN. That is the only way to TRULY fix a problem as systemic as the global financial crisis.