Lessons unlearned

Crash

Updated: A rare weekend. The autumnal leaves bathed the hills in unlikely showboat colours. Cloudless sky, thinly warming sun and – best of all – my new heated grips.

But, ride done, I returned to this:

Garth, as a long time reader of your work, I purchased, “After the Crash”. A man on the plane noticed me reading it and gave me Macleans Oct. 19th mag. on the same day, Friday, of this week. He agreed your work stimulates much thought but wanted me to see the G7 article in the magazine so that I would not feel as badly as I must of looked.

I read the book on the plane and found it to be extremely provoking.  A good historical look at all that has occurred and that may occur in the future. A well done work.

The book affected me profoundly Garth.  I know that our world has changed, is always changing but this book left me feeling I need to do more in regard to my life plans than I had intended and that if I do not, it is possible I may not survive.

This weekend has been incredibly hard to get through.   One cannot live a life without hope.  Despair can take us down as quickly as any extreme illness or cancer and that is what I have been feeling much of the weekend. At the same time I know that I need to prepare for a collapse in our economy (as you indicated) but I also need to believe that all is not a doomsday situation. (without being simply deluded)

My question to you is: in light of the article on the G7 meetings which was to have made Canadians feel more optimistic about their leaders working together to avert tragedy, do you feel any more optimistic now than when you wrote your book? Garth I realize the G7 occurred after you wrote the book and I am writing you at the end of October 2009.  Can you shed any new light on this world economic situation?

Is there much hope on the horizon and should this G7 article make any of us optimistic for a better future?

PLEASE respond to this letter.  I need some more perspective and I need some light.  My feelings of despair are too great to describe. Thank you, Wendy.

If I caused hardship on a perfect weekend, Wendy, I regret that. There’s always hope. The comment you make about ‘not surviving’ if you fail to make changes was just drama, right? If not, read more.

The book you consumed on the plane was written just before Christmas, in the swirling midst of the worst market and financial chaos of a generation. The outcome was absolutely unknown, and the parallels to the advent of the Great Depression more than disturbing. In writing it I gave historical perspective to modern events, and laid out possible paths forward – market recovery, market crisis and economic collapse. Each was matched with a suggested suite of personal actions.

Those actions still have merit, but ten months later we have a little more insight on the future. The worst outcome slipped past us. There will be no neo-depression (an event I pegged as 20% likely). Government spending, crashed interest rates, global cooperation, Obamanomics, market speculation and massive public stimulus have spared us. So put that section of the book aside. But don’t lose it.

Does that mean all is returning to normal? Like 2006?

Hardly. In fact, what’s happened since I sat to write that book has changed the world. Those who fail to see this face a legion of coming challenges. Once again, Wendy, we’re mired in debt, having learned next to nothing about the causes of last fall’s crash. Governments in Ottawa and the provinces, homeowners and families have reached new levels of indenture. Overwhelmingly, this will be the legacy of now.

For government, the consequence of vast new deficits and debt will be higher taxes, reduced spending and a sea of new financings. All those bonds will help raise interest rates for years to come, adding a new burden on those who found cheap money irresistible. That portends grief for the real estate market, car sales and Home Depot as disposable income dwindles. And since consumer spending is two-thirds of the economy, hard to see how we’ll ever grow our way out of these hassles.

Emerging from the crash, Wendy, we’re a people hooked on mortgages that won’t last, tax giveaways the feds can’t afford and the worst kind of investment behaviour. Too many have piled into the old assets, like real estate, and failed to see that the future belongs to those with liquidity, equity and flexibility.

This means, I must say, the crash isn’t over. Instead of a surgical strike to a bloated and credit-diseased economy, perhaps causing a major but short depression, this is a slo-mo unwinding of excess. Governments desperate to prevent collapse through any means may well end up making the correction last years and years, not months. Artificially cheap rates have caused a new asset bubble which must be lanced. Bailouts have extended the lives of terminal industries. And the legacy of public debt will be less private wealth.

This is serious and misunderstood, but it’s not the stuff of despair. Not worth a weekend. And in it lies as much opportunity as there is danger.

If my words caused you to reassess your choices, they were worth reading. We dodged a bullet, Wendy, but it was likely just a warning shot. The best news: you have some time to prepare. We all do. A rare second chance.

It’s what this next book is about. In 100 days.

Update – Wendy responds.

Thank you so much for taking time to respond to my letter.  I am going to read your blog regularly. I used to subscribe to a newsletter you did some years back and I will be doing this again via the blog.

Garth, I live outside of a major western city in an old trapper’s cabin and with countless animals as I run a voluntary animal rescue here.  It is not an official charity as I cannot afford to keep taking on more animals and I have to work.  But I do what I can and they all give me much joy. No one would rent to me with this crew of about 45 animals so I need to stay in my home and have about 4 years left on a mortgage of about 45 grand.

After reading your book I imagined the worst as I was close to my father who was a depression era man and his words would echo your own, if he were alive today.

Respecting your emergency lists, I will do much of that.  I think weapons are a good idea, as I live around bears and cougars who have crashed into my windows and fenced area several times.  Anyhow, I think your book was extraordinary and it is good reading.  What it does though Garth is it challenges us and the world so many take for granted.  Between the global economic challenges, which are huge, and the global environmental challenges, I believe our world in time will change drastically and to imagine it is too hard for many.  They prefer to live in denial and want to keep the status quo.  Me, I am in between.  I do not want to be deluded and avoid addressing issues until it is too late, and I want to live with hope and optimism at the same time.

Enough of my stuff.  I want to thank you for your time and care to write to me and put my letter on your blog which I sent to several friends as I want them to read your blog on a regular basis.

I will study your information and make a decision on whether to get a mortgage renewal now at 4.09% locked in, or go for a variable, but if we think rates will rise, I think I need to consider locking one in.  Any comments are appreciated. Keep up the wonderful work on research and writing which you do exceptionally well.  Your books are readable and challenging, without question

My best, Wendy.

101 comments ↓

#1 My_view on 10.18.09 at 10:25 pm

“Governments desperate to prevent collapse through any means may well end up making the correction last years and years, not months.”

Heck Wendy,

Many, many more years of dispair…

#2 atrax on 10.18.09 at 10:35 pm

I dont think that all is done… it can only get worse now!

Dow 10,000 at in March 1999, is not the same as Dow 10,000, October 2009. Back then:

United States unemployment was 4.2 percent. Now it’s 9.8 percent and rising.
Oil traded around $16 per barrel. The prestigious Economist that now proclaims the Great Recession over, in 1999 predicted oil would fall to $5 and remain low for the foreseeable future. Oil is now trading above $78 a barrel.
It took 91cents to buy one euro, today it costs almost $1.50.
An ounce of gold cost $280 in 1999, today, $1050.

While debt is spiraling OUT OF CONTROL there is no amount of currency debasement which can overcome the structural headwinds imposed and being implemented by government. This is not a failure of capitalism, it is a failure of socialisim and welfare-ism of the G7 – which they pass off as capitalism to the poorly informed.

That being said , some old system were beter then over this new system that clearly does’nt work… Bankers cant be put before the public (As seen in too many fiscal parts of North America)

#3 peter on 10.18.09 at 10:51 pm

Another book?
I’ll be the first in line.

#4 Onemorething on 10.18.09 at 11:31 pm

Wow Garth, Wendy is really on board! For what we are uncertain but we are going to launch into a sideways market for years while we make more mistakes, retest bottoms and for sure Canadian RE will tank!

You reference the next 100 days. If from todays date you are referring it falls within my timeframe for a major shift in something.

My something is simply the overbought market, re-inflation of previous bubbles and the fact now it will take years to put a bottom under housing and unemployment, two keys things that ARE LEADING INDICATORS on what was a consumers driven world and where 70% GDP lies for the western world and Asia Exporters.

Next 100 days will test the markets and watch everyone go back into the USD for the last time before a long drawn out demise of the USD.

There is no future for Canadian exports when the CAD is too high but more importantly when demand for exports have eroded, however I will put my money on Oil SERVICE companies HINT! I only play hockey and rugby with the top OIL & GAS MD’s in Kuala Lumpur each week.

Furthermore, I love the comments of some regular posters, and you know who you are, who feel the Mainland Chinese and Hong Kongers are all flocking to VAN. I run a company in HK, have a factory in China and been doing this for over 15 years.

All of the HKers and Mainlanders have been licking thier wounds and continue to do so only to take the small amounts of money left and play the market either HSI or RE in HK specifically into another bubble.

They are not moving to VAN in hoards, just a few who have had enough of the pollution. The VAN/BC market will be the one who TANKS the most in this 100 days timeframe (and yes it falls into the Olympic Timeframe which will be deadly for RE). The Chinese will just sink with the rest! Not enough new buyers to prop up anything.

As for OIL and GAS, and for those who do not know what the SERVICE companies do, they look for new OIL!

Next 100 days, Strong USD, Stock Market Demise, OIL at $100/b going to $150 mid 2010, GOLD NOT! Unemployment U3 10.5% U6 19-20%, and an absolute boat load of DEFLATION!

Mid to late 2010, USD comes back of flight to safety, drops back to 0.75 range maybe 0.72 but wait, the ROW begins to devalue thier currency to manage GDP.

10 years people, 10 years of sideways! First 2-3 years full of deflation and scary stock markets and currency fluctuations then inflation! HYPER will be no longer in our vocab!

#5 TheComingDepression on 10.18.09 at 11:45 pm

80% that we will be going into a Depression and its getting worse. The government sunk money into the economy is the same as blowing air into a fully inflated lung. Eventually it has to deflate. t has to be paid off, somehow somewhere sometime. Now we have this: Most here, including Garth, know nothing about the Copenhagen Climate Treaty. This treaty will tax the WEST into a Great Depression. It is a transfer of wealth to the east. North America will no longer be what we were used to. We will lose its Sovereignty. Climate change is a massive Tax grab.

#6 Joseph on 10.18.09 at 11:51 pm

Despair I wouldn’t. I have always felt that Canada has been blessed with Providential favour. In a TV interview with former Ontario Premier Mike Harris that I watched two years ago, I recall Mike Harris was asked how Canada will fare in an increasingly competitive globalized economy. He answered something to the effect that, “If this country was not rich in natural resources, we would be in serious trouble.” Well, the fact is that Canada IS RICH in natural resources, so I always think no matter how badly the rest of the planet makes out, we will do decently, maybe not great, but there will be enough opportunity for those like Wendy who have the drive to pursue a career and want to make a difference in their lives. My two cents worth.

#7 ruraldude on 10.18.09 at 11:56 pm

Garth
We have not dodged the bullet, it merely missed it’s intended target and is ricocheting wildly with a lot of energy left to be spent. I’ve put on my bullet proof vest and got my fingers crossed. When will it stop?

#8 nonplused on 10.19.09 at 12:13 am

Oh good! A new book!

I have to take devils advocate regarding your newfound optimism with Wendy. This isn’t going to be a depression, it already is one, and the government action didn’t avert it, it caused it, just like last time.

Piling on more and more debt, whether public or private, is not going to fix a debt problem, it’s going to make it worse. You can’t drink yourself sober.

What’s going to happen instead is that the debts are not going to be paid. Eventually, close to none of them will be. In Iceland and Latvia, they are already talking about redenomination their debt in their own currencies, taking a page from Roosevelt. That will in essence be a default.

Back closer to home what will happen, given time, is that the young are simply not going to be able to pay the debts the old have laid on for them. It will not be possible. But they won’t tolerate a total collapse of government services either. So they will tell the IMF and the bond holders to get stuffed.

But weep not for the banks. They never really had the money they lent you anyway. Here is how money is created by a member bank: A borrower comes in and signs a loan. The bank uses that loan as collateral and credits the borrowers account with the amount borrowed. The new money doesn’t come from anywhere. It is simply created in response to the new collateral the bank has and it is that collateral that backs the newly printed money (electronically, only the mint can print actual paper money).

The bank uses its actual reserves, which are a fraction of the total loans outstanding, to make good on any payments they need to make as our borrower spends the money. But they aren’t too worried about it. What goes out one day as their borrower spends comes back the next as somebody else’s borrower spends. And if they are short, there is the overnight loan market. They just borrow from the bank they owe.

Then, they NPV the new loan using the interest rate and a small deduction for default risk, declare that they just made a pile of money, and pay themselves a bonus out of the real deposits and overnight loans.

Ya! Banking is boss.

If it smells a little like a Ponzi scheme or a fraud, it’s because it is. They never had the money they lent you, or at best a small fraction of it. That’s what they mean when they talk about banks having 3% reserves. They don’t have the money they lend out. Never did. If they had a cash deposit for every dollar they lent out, they would have 100% reserves. They don’t.

So when the loans don’t get paid, all that will happen is that the banks will not get back the money they didn’t have in the first place. Sure, it will case massive price deflation and such, but hey. I’m sick of paying so much for everything.

For bond holders, who might have actually fronted some real cash to buy the junk, well, the news is a lot worse. You aren’t going to get paid back either, but in this case you actually parted with something.

But, Wendy, fret not. Most countries rebound quite nicely once they throw the bankers off their backs. Look at Brazil or Argentina. Life did not end. Sure, fortunes were lost, but Brazil is on its way to utilizing its massive land base and becoming an economic powerhouse. The people didn’t starve. If anything they just be came more self dependant, as did the country as a whole.

Remember, modern money is entirely notional. It only has value because we all agree it has value. Central bankers are always printing too much of it, but they try to do it slowly (the frog in a pot analogy) because they don’t want the notional attachment to wear off to quickly and cause doubt. But it is still all notional. The world will have exactly the same productive capacity the day after a currency collapse as it did the day before. And the only thing that can change that is if the government meddles in the economy to the point where businesses can no longer function. Which they might. They have before. They are now, one would argue, by trying to support the banks.

#9 Chaostrology on 10.19.09 at 12:29 am

Breathe, Wendy, BREATHE!

Attagirl. It get’s better once you leave the twilight zone behind. The truth is, YOU WILL NEVER BE THE SAME AGAIN”. Welcome to the tribe. We have choir practice almost every day. It’s your turn to bring the smores.

Meanwhile, back at the ranch…

Listed in the classified section of Vancouver’s sunday paper “The Province”, brand new luxury condo’s in Astoria Oregon at auction for bids starting at $90,000.,
regularly $292,000.

Right next to the american offer is an ad by some koolaid drinking doofus for a 2bdrm plus den townhouse in Vancouver’s Yaletown for $740,000.

What is wrong with this picture?

#10 Adrian on 10.19.09 at 1:16 am

Garth, it should be evident to you that there are sheep who follow you who aren’t capable of taking what you write and integrating it to a broader and balanced picture. You are right about many things and wrong as well, as you have admitted.

It seems you are developing an unquestioning herd of followers, which if I am correct is precisely the mentality that you do not advocate.

Keep up the good work. Having an astute resource like you on the web has certainly affirmed and in some cases changed some of my decisions.

#11 nonplused on 10.19.09 at 1:19 am

Side note:

There was a quote from a noted astrophysicist some time back. Unfortunately I cannot remember his name and can only paraphrase.

“People used to refer to very large numbers as being ‘astronomical’. 100 million light years, billions of years old. But modern finance has invented numbers in the trillions. Henceforth, very large numbers should be referred to as “economic”, as astronomy has no measures by which to compare.”

The dollar has already collapsed folks. Get used to it and prepare.

The furthest seeing eye we have, Hubble, can supposedly see 13.4 billion years into the past. (It sees what light was emitted when the light left, during the travel time who knows what happened.) It’s hard to imagine how we as humans need 12 trillion to measure a single economy, and 1.4 trillion to make up the deficit. That’s the problem with deficits; they only grow. And the problem with numbers; nobody understands them.

Scientists are saying that in primitive cultures that have not been subject to the counting algorithm, the number system is 1, 2, some, and then words for an exponential number of units. No wonder modern humans have trouble with numbers that are off the 12×12 multiplication tables. No human can understand a trillion dollars. And they shouldn’t. 6 billion people, of whom probably 3 billion are not really part of the economy, do not generate 50 trillion in exchangeable units of production per year and a finance market through derivatives totaling more than 600 trillion. I can’t understand the numbers myself, but my scientific calculator tells me the ratio is absurd. Most of you probably don’t even have a calculator wherein the number 600 trillion can be stored. The dollar is worth nothing. Buy something else while prices are slow to adjust.

#12 Jojo on 10.19.09 at 2:01 am

“This means, I must say, the crash isn’t over”.
What crash? If you mean Real Estate Crash in Toronto Area than you are wrong…
The prices still going up and now we have still highest prices in history EVER. I didn’t see any crash.
Maybe you think about stock market crash?
So what, now TSX hit 11,600 points and next year maybe over 20,000 points because of money printing and skyrocketing commodities and food?
Gold $ 1070 and Oil $ 80. Do you think the commodities going up because of high demand. Nope oil still have less demand than Feb/09 low $33, but money printing did the shit.
Taxes will be higher so Welcome to your DEFLATION?
Money printing = Deflaiton?
Garth is it your knowledge about economy?
AND one more note about your predictions when officialy Hyperinflation start about Sep/2010 than interest will increse AND again will be strong wave of buyers because they know than can’t afford future increase of interest.This bubble will end badly in Canada even much worst than in USA.
Goverment of Canada and USA made cover up of our economy not recovery. Unempoyment will go to 15% in USA and Canada.Only in Canada (Toronto area)
Real Estate prices still going up and in ALL,ALL western Countries from 2007 you can see decrease between 10%-35%. Do you know that we are between top 3 countries with the highest taxes,car insurances in the world? We were lucky because only our Goverment was’t in so much debt as USA. But why we join to the party, now Goverment of Canada will be high level debtor? And again more taxes?
Until complete collapse of economy in 2012 and
WW III. When our dollar and $ US will be wortless currency.

#13 Mike (Authentic) on 10.19.09 at 2:38 am

It is an aweful shame that “we” have not learned from what is still happening in the USA after 3 years now and happend to Canada just last year (and still happening). The gov’t seems more than willing to keep spending money it doesn’t have and shore the holes in the assets bubbles with tax payer money. Tax payers are getting hit from many sides and are blinded by the media, their own gov’t and house salesmen out there.

It is fustrating to me to warn and watch a flood of debt take hold on Canada’s sunny future. While Garth is right, we missed the warning shot last year, nothing, absolutely nothing, has been fixed in the system. In fact, debt levels are just getting worse, unemployment is horrible and we are losing industries that may never come back.

You would hope people would learn from history, learn from the mistakes of others, learn to save, learn to live within their means. But fustratingly, most do not.

I, for one, prefer a short deep pain to fix the system vs a lifetime of country pain. I remember the Mike Harris (Ontario Premier) years in Ontario with massive cut backs to everything and it was an aweful time to live in. But I believe it was, in the end, beneficial vs not doing it.

Some days I feel like I’m trying to stop a flood of lemmings from going over the cliff and you save a few but watch many more go over at the same time.

Harsh to say, but let’s hope the prime rate goes up on the 20th, let’s hope mortgage rates keep going up, let’s hope savings rates go up, let’s hope people think before using their debit/credit cards and getting that 35 year mortgage. This way, the common sense choice is the only choice left so we can all (inc the unborn generation) get out of this mess.

Mike

#14 Future Expatriate on 10.19.09 at 2:41 am

I wouldn’t count Depression II over and out just yet, Garth.

October’s not over yet.

#15 Nostradamus jr. on 10.19.09 at 4:52 am

“”Victoria–The 76 men discovered on board a vessel off the coast of British Columbia are Tamils seeking ***ASYLUM*** in Canada, the Canadian Tamil Congress said Sunday.””

http://www.thestar.com/news/canada/article/712215–migrants-said-to-be-tamils

….As I mentioned many months ago on this blog….

I predict Canada will be innundated with many many thousands of asylum seekers.

Canada is considered the World’s safest country and virtual Paradise for would be Refugees and their families.

…My point… This problem will make all other Canadian problems look like small potatoes.

Nostradamus jr.

#16 Chris no longer in England on 10.19.09 at 6:47 am

UK National debt rising by £700,000 per minute

http://www.dailymail.co.uk/news/article-1221374/National-debt-rising-700-000-minute-treble-Government-figure.html

#17 cf on 10.19.09 at 6:54 am

Read Garth’s book last summer and enjoyed it.He gives a good historical account of the mess the world , especially the states is in.Once he gets into measures to take for the future take it with a grain of salt.Some is helpfull, some is beyond what most peolple could ever do and some is alomost comical.Garth knows way more about this stuff than most but rememeber it is just his opinion and no one can predict the future.Life is going to keep moving forward.Yes people are going to have to live differently without all the toys the younger generation thinks are their right to own.Too bad.Take care all.

#18 Freddy boy on 10.19.09 at 6:59 am

The explosion of credit at all levels will tell the tale in the future of the 21st century economy & of it’s near collapse.

Our grandparents never really had it, our parents have misused it, and my generation has abused it. We need to take the time to (re-)educate.

Your house is a shelter not a bank account.
The Debit card has as many drawbacks as benefits if misused.
Credit, while useful, has much more potential for disaster if used unwisely.

Educate yourself & your kids.

#19 Mikey on 10.19.09 at 7:18 am

Grath, Whats is the name of the book?

Mikey

#20 dd on 10.19.09 at 7:21 am

“The best news: you have some time to prepare. We all do. A rare second chance”

Yes, a rare second chance. Pension, medicare, and demographics the next big thing.

#21 miketheengineer on 10.19.09 at 7:26 am

#4

If oil goes to $150, this will be a disaster for the average “joe” in Canada. You see, most of us are barely making it now. Increase unemployment and increased welfare. Not good for the country. Not good for RE.

You might not see this, being “in oil” and hanging with other “oil guys”. But this is the reality. Go ahead and make it 200 bucks a barrel. The higher it goes, down will go consumption, and the futher bankrupting of the “average” Joe. Food banks about the country are “crying” for food….have you donated any or your company. Living in your McMansion, and driving your SUV and laughing at us, Joe average people.

Gasoline at $1.40 per litre will make things more expensive, and leave a lot less money in people’s pockets. Making the average Joe suffer even more. We are talking food, and everything trucked about.

This is all caused by oil companies wanting excessive profits, at the expense of “Joe”.

The only way outa this mess is a return to nomal historical prices for oil, and a return to normal historical prices for interest. Historical prices are much less than 75 per barrel, I think, but I don’t have the stats to prove it.

Anything else, will destroy our country.

But hey oil guy, if it makes you and your friends really happy, make it 300 a barrel….Enjoy.

#22 dd on 10.19.09 at 7:28 am

#15 Nostradamus jr

“I predict Canada will be innundated with many many thousands of asylum seekers.”

That is alright. I hear the North Vancouverites will welcome them with open arms.

#23 pbrasseur on 10.19.09 at 7:43 am

A new book Garth? Man you’re a machine! ;-)

Cool anyways, I will certainly read it. I hope you will cover and document well this CMHC scam. Also interesting would be a comparison between CMHC and other scams elsewhere in the world, such as Freddie & Fannie. I think this is of crucial importance since without CMHC and other explicit or implicit government guaranties scams the banks would have never accepted so much risk and the real estate bubble would have never reached this magnitude.

#24 news just in on 10.19.09 at 7:57 am

I got a tip from a buddy of mine. He is a real estate investor. Inside his circle probably all of them doing is to hold selling the property they bought. With cheap cheap interest rate they bought up all houses and put them on a hold. Choke the supply and wait for the HST to prop up the price. It’s working so far any house put on sale on the markets are either gone fast whether they bought for living or not.
Resale home will have the 8% advantage over new built. It’s almost a guaranteed 4% return. They can’t lose. All bets are down

#25 Toronto C9 Renter on 10.19.09 at 7:57 am

Wendy, you REALLY need to get some perspective. Chill for goodness sakes! You might want to consider medication.

To #15 Nostradamus, who said “I predict Canada will be innundated with many many thousands of asylum seekers.”

What is your Point, Nostradamus? Did you not learn in grade school that most of Canada’s population decended from similar people — including your ancestors — who have been arriving for the last few centuries and hopefully will continue for centuries to come?

With only 10% the population of USA and 2.5 % China or India, Canada remains an increasingly marginalized lightweight globally. You may be satisfied in your bunker, but hopefully your backward thinking is in the minority. Otherwise Canada may as well give up now.

What are you so afraid of?

#26 David Bakody on 10.19.09 at 8:09 am

Wendy, Wendy…. “Garth, as a long time reader of your work” two points. First you have paid little or no attention to Garth’s and our words or you have and decided to do things your way, both of which has caused doubt.

Paying down debt, saving wisely and living within your needs is sound advice during any financial times. That has been mentioned here time and time again, but awe Wendy people are always looking for the goose and that golden egg and that my dear is what got this world into the mess it is in now. As Garth has mentioned there are millions who will never live long enough to recovery from the last pit fall. Coupled to this are another million or so who falsely believe a) they will be so smart next time around they will make their move ahead of storm & b) the government will bail them out again. “False and Bad News” for they will be left to suffer as were the last bunch. Hello New Orleans is still in ruins after promise after promise as is the ancient ruins of Rome.

In any rate it matters not because Canada has it’s greatest PM ever who in just 3 short years has printed and spent more money per capital than any living leader in history and as a result will be given a majority perhaps exceeding over 90% of the seats and full control of Senate …. and that is a 100% guarantee …. why because he has our money printing presses working overtime and giving money away left right and centre with no accountability …. all he asked for is little support at voting time along with some coffee money. And he is getting it …… 42% in the polls and rising every day. So fear not Wendy just borrow all the cheap money you can get your hands on, Mr’s Harper & Flaherty will cover it and then some ….. (?)

#27 Addis Ababa on 10.19.09 at 8:09 am

Thank you so much for the work you do. Please don’t die. We need you.

#28 Daystar on 10.19.09 at 8:10 am

#10 Adrian on 10.19.09 at 1:16 am

Devoted unquestioning herd… I see your point except for the reality that most of us do question. And as for Garths errors of the past, most have to do with the question of “WHEN”.

The markets go up, the markets go down, the markets crash, RE bubbles inflate and go bust, but the key question is… when. Not why. This is probably why you see a herd mentality forming, is because the majority of us are no longer asking why. We already know why. And where. And to some degree, who and what. But we already know why.

They say a knowitall is one who has stopped learning because they know it all! But some of us here know a fair amount. Some, granted, are guessing or assuming and sluffing it off as fact and its interesting to watch those who self correct themselves as I do when the time does come. Still, there are those who do know exactly what they are talking about. And why. Most especially so, the reasons why.

Those who post here aren’t going to make an extra dime for it, it won’t fluff their resumes or make cozy conversation with the signifigant other. Its not why we do it. For some, its ego, for others its to learn, and others still, to teach or offer that which they know will help others, in service. And its enough. In its final stages of growth, its where it ends and its plenty.

#29 john maynard keynes on 10.19.09 at 8:12 am

To Peter Wiener from the end of the last thread.

What we have here, in the story posted by Garth, is a case of exaggeration, just as I was saying on the last thread.

Whether I am ill informed, as you allege without evidence, is one matter. You don’t have evidence on that either way. But you did provide clear evidence that your reading comprehension skills are limited.

To say that estimations of the bubble and the crash have been exaggerated is not to say that the bubble is not real, nor that the crash is not real. Please look up the word “exaggerate” in a dictionary. It means to blow something out of proportion, not to deny it.

Garth’s letter writer here blew his warnings out of proportion and could not place them into the context of time.

Like I said, bubbles go up (there is a bubble, or several of them) and bubbles go down (there have been crashes), but there is also a lot of hysterical exaggeration.

There’s also a reminder that reading is, indeed, fundamental. Please learn how to do it, my dear friend.

#30 Hiteclowtec on 10.19.09 at 8:25 am

Cheer up Wendy !!!!
We may soon be have home prices like these in Niagara Falls NY. Nice houses 20 k each, what a treat!!!

http://stcatharines.kijiji.ca/c-housing-housing-for-sale-Package-deal-4-houses-20-000-each-Niagara-Falls-NY-W0QQAdIdZ162514028

#31 moonlit on 10.19.09 at 8:27 am

What a strange story out of the Netherlands:

A Dutch bank with a profitable mortgage lending model upset the customers with sharp practices.

So as the story goes:

“A call by one campaigner for savers to withdraw their savings from the bank in order to bankrupt it – on the basis that this would provide mortgage-holders the best chance of redress over insurance policies bundled with their loans – prompted €600m to be withdrawn from the bank in 12 days.”

…..and the Financial Times of London has the end of the story in today’s US edition:

http://www.ft.com/cms/s/0/f53873c2-bc81-11de-a7ec-00144feab49a.html

#32 Daystar on 10.19.09 at 8:35 am

http://www.google.com/hostednews/ap/article/ALeqM5iPlbcTnWEfuKimEaDq0UdU2Uxk1gD9BCG27O0

As for 1.42 trillion dollar federal deficits, we know where it will end and why. The question is… when.

Just like Canada’s RE asset bubble. We know that in time, especially as it is the goal of this government to keep inflating this bubble because its “not the problem”, we know it will end ugly but the question is… when. Will it be double digit interest rates caused from 100 billion dollar annual combined federal/trade deficits not counting what the provinces need? Quebec is expecting a deficit something in the neighborhood of 17 plus billion this year. Ontario is expecting an 18 plus billion dollar deficit. BC is expecting a 4 billion dollar deficit and it’ll be well past that. Alta? 8, 9 billion… and the municipalities! When Canada totals up its total debtload for this year that is intergovernmental and private at some point down the road, the debt growth can be considered as nothing less than blistering.

Will all this debt force interest rates in the bond markets? Duh… and we ask ourselves, “just what will it take for homeowners to declare bankrupcy in droves that won’t be fuelled by unemployment (at first)”. Try double digit rates. And if they come 5 years from now and hit the new mortgage holders of today with half a mil plus mortages, what do you think will happen? If double digit rates hit this nation 2 years from now, it would get ugly. How about those who financed 5 year terms under 5%… they wake up to mortages doubling, how many will walk, recourse loan or otherwise?

This government is clearly not concerned about an asset bubble. Lord knows, they’ve done everything they could to feed it from home improvement grants that encourage homeowners to borrow more, to first time home buyer giveaways to looney tunes CMHC regs for going on close to 4 years now. Higher asset valuations are, after all, good for the economy (regardless of the reasons why, apparently) The real sad part is, this is the same government that isn’t concerned with the staggering debtloads being accumulated now that will later fuel just as blistering a pace of interest rate hikes. THey aren’t concerned because our currency is not in question…. today. Our immediate problem is a high dollar compared to our largest trading partner, the U.S., who’s big problem is…. DEBT!!!

The U.S’s biggest problem facing them now is going to be our biggest problem later and why? Because we won’t face it! And the longer governments go on deluding themselves and the taxpayers/voters that we can go on like this, running up massive levels of debt without cutting spending or raising taxes, the worse off our future will be. Can I be specific? No. But its beyond the question as to why. We need only ask when.

#33 SaraBeth on 10.19.09 at 8:39 am

#5 The ComingDepression ~

The difference between a Climate Change Denyer and those of us who know Climate Change is real is that if YOU are WRONG…..then HumanKind and the Earth as we know it is toast…

#34 David Bakody on 10.19.09 at 8:48 am

Wendy …. some fine food for thought.

Closing line from:

http://watchingamerica.com/News/35919/american-de-industrialization-continues-unabated/

“The American labor market is one huge disaster, readily apparent from official data and relative charts, even considering all the whitewash involved. A recovery without jobs and incomes is just an illusion. The United States continues in crisis mode because credit losses will continue to rise and it will continue in crisis mode because the weak economic recovery in the labor market isn’t sustainable; it can only continue with massive injections of tax dollars, increased government debt and by letting the treasury presses print more and more money.”

Note: “Massive injections of tax dollars” and where do y”all think “Massive Tax Dollars” come from? the people who can least afford to pay them …. a clear and concise analogy of a catch 22!

#35 Kurt on 10.19.09 at 9:04 am

Wendy, you said “One cannot live a life without hope.” The context of your statement suggest that you deeply misunderstand Garth’s message and life in general. What hope have you lost? Hope for a cushy job with a full-pension retirement at the end of it to live in luxury in a McMansion? Hope for relative stability and a modest income matched with a self-supported retirement in a subsidized senior’s residence? I suggest that both of these are in error. Look for strong relations with friends and family, relations that give you satisfaction regardless of the outside world. Most of the world lives in abject poverty, vulnerable to disease, crime, war and malnutrition. Yet most of these people live in hope, because they have family and friends. We will not degenerate into sub-saharan africa (comparisons between little Steven and Bob Mugabe not withstanding.) Garth’s work gives you the tools to ride out any bumps along the way to wherever we’re going, but hope comes from *outside* of our materialistic culture. As for that materialistic side, we have too much of everything for someone who currently rides airplanes to freeze to death, starve, or die for lack of $25 worth of antibiotics. Concentrate on the real sources of hope and happiness in your life, and relegate the material to it’s proper place.

#36 jess on 10.19.09 at 9:17 am

… ok banksters like to unwind orderly but how does one do this with human nature?

http://www.bloomberg.com/apps/news?pid=20601109&sid=a6QpSf.s4NaA

People want to kill somebody, but they don’t know who to shoot at,” says Russell Cunningham, past president of the Birmingham Regional Chamber of Commerce.

One target of their anger is Larry P. Langford, who was the county commission’s president in 2003 and 2004 and is now mayor of Birmingham. The 61-year-old Democrat goes on trial today, charged in a November 2008 federal indictment with taking cash, Rolex watches and designer clothes in exchange for helping to steer $7.1 million in fees to an Alabama investment banker as the county refinanced its sewer debt. ..

Under Langford’s stewardship, the county bet on interest- rate swaps, agreements that a representative of New York-based JPMorgan Chase & Co. told commissioners could reduce their interest costs. Instead, the swaps — covering more than $5 billion in all — blew up during the credit crisis after ratings for the county’s bond insurers fell.

In August, Bank of New York Mellon Corp., as trustee for owners of about $3 billion in sewer warrants, filed suit in Jefferson County Circuit Court seeking an appointed receiver for the sewer system. The receiver should have authority to raise rates enough to meet the debt service, the bank said in the complaint, which is pending. A federal judge turned down a similar request in June, saying he lacked jurisdiction.

The sewer system is already charging customers about 300 percent more to drain bathtubs or flush toilets than a dozen years ago.

#37 Watched Bubble Never Pops on 10.19.09 at 9:21 am

Wendy, don’t listen to the doomsayers and soothsayers on this forum. Anybody who makes predictions doesn’t really know what’s going to happen – they’re just voicing what they wish would happen (but hasn’t).

“We’ve long felt that the only value of forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”
– Warren Buffett

Consider the wealth of well-written predictions that have been made by posters:

Hyper-inflation right around the corner?

CPI data:
September 2009 -0.9
August 2009 -0.8
July 2009 -0.9
June 2009 -0.3

“Consumer prices in Canada continue to follow gasoline prices lower, suggesting to many economists that the cost of borrowing money won’t rise any time soon.”
http://www.financialpost.com/news-sectors/story.html?id=2110269

But CPI numbers don’t show up at the grocery store. Prices are rising for food. I guess Walmart and Loblaws heard their complaints:

“CANADA: Loblaw cuts prices on 2,000 products”
http://www.just-food.com/article.aspx?id=108265

The government of Canada will need to raise yields on their debt in order to sell them to buyers? It seems like non-residents have no problem buying bonds with almost no yield.

“Canadian bonds proved particularly popular, with non-residents acquiring an additional $4.5 billion worth of the assets. The movement toward bonds has been a trend throughout 2009.”
http://www.cbc.ca/money/story/2009/10/19/securities-trade-august.html?ref=rss

Well who cares about non-residents? Canadians surely wouldn’t touch those bonds. Top selling domestic funds? You guessed it: Bond funds.

“The Investment Funds Institute of Canada said this week that domestic bond funds were the top seller on a net basis in September, as they have been for the first three quarters of 2009.”

“The typical diversified Canadian bond fund holds lots of government bonds, plus some debt issued by corporations.”
http://www.theglobeandmail.com/globe-investor/investment-ideas/features/portfolio-strategy/latest-horror-flick-attack-of-the-bond-market/article1327105/

Australia raised their overnight lending rate. This was a rate-hike heard around the world. Canada will follow suit. Maybe. Maybe not.

“It is hardly clear that the Bank of Canada will be forced to scramble to adjust its monetary policy stance any time soon, and whatever additional growth gets tacked onto the near term forecast may just as easily be subtracted from the medium term as the currency’s strength begins to bite. This leaves us secure in our view that the first tightening will be in Q4 2010.”
http://network.nationalpost.com/np/blogs/fpposted/archive/2009/10/16/bank-of-canada-rate-hikes-to-begin-q4-of-2010-td-s-lascelles.aspx

If you strip out the adjectives and predictions of the future (eg: IF x happens, THEN y will follow; SHOULD x happen, THEN y will follow; x MAY happen which means that y will follow) you will find most financial articles to be much easier to read (and more accurate).

The reason economic commentary is sprinkled with historical data is so that they can be used to ‘support’ the idea of the writer’s view of what may happen in the future. Just keep in mind that virtually any economic outcome can be justified. All predictions (good and bad) are equally correct since both have an equal probability of coming to pass.

In the meantime when reading any economic commentary I would recommend a hot cup of tea, a comfortable chair and to simply enjoy the creative fictional elements that they contain (my prediction is that those elements won’t be going away any time soon).

#38 Devil's Advocate on 10.19.09 at 9:28 am

There is still time…

The global credit crisis which caught most by surprise was a warning shot. We need to take heed of that warning. It will be how we conduct ourselves going forward that they will grade us on. We have been given a lesson. Did we learn or were we playing hooky at the time.

Boomers can not be blamed so much for what they did in the past, which is as most any one would have, but what they might do in the future. Personally I am not so optimistic that we will conduct ourselves according to the lesson we ought to have learned. We keep spending our children’s futures citing a sense of entitlement ourselves that we are due our just rewards in retirement as promised would be there. Well if we don’t conduct ourselves with proper prudence they may not be there.

If we do no clean up our act the burden we pass on to our children will make it entirely impossible for them to care for us as we are our parents. That burden will be so weighty our children will rise up and oppose it refusing to pay the taxes required to retire the debt. They will deny us the services we expect as cost saving measure and claw back those earnings we did save justifying that we incurred the debt so it is we who should retire it.

I am familiar with your despair Wendy. I worry about our future. But as Garth says there is a world of opportunity out there and we have some time to prepare. A rare second chance. I only hope that we have learned that lesson necessary in order to clean up our act, economically, socially and environmentally. But the despair still haunts as your average person is really quite stupid, quite short sightedly selfish, and was not in class when that so important lesson was given.

For me… I think I shall not want to be in this country when the day of reckoning arrives that we pass the reins of power to our children and they are not so sympathetic to our lofty wants let alone needs. We are no more entitled to it than anyone else who has spent their future earnings with reckless abandon. We will find we have not spent our children’s futures we have spent our own as we are taxed punitively and provided for barely adequately… as so it should be… if we are so selfish as not to set about changing our ways and to the problem, at our expense, here, now, today.

#39 Hiteclowtec on 10.19.09 at 9:32 am

My dad often talks about the depression and lives his life as if the last one never ended. When they would have supper no one would ever mention if the food was good or not. The only question was is there any more ?

Wendy – It may not be fillet mignon but yes there is more a lot more !!!

#40 pjwlk on 10.19.09 at 9:36 am

#24 “news just in” said:
“I got a tip from a buddy of mine. He is a real estate investor.”

Sounds like a half-baked plan. Kind of like the guy while robbing a bank, used the back of his cheque to write the hold up note on… lol. I don’t think your buddy’s buddies could possibly buy enough housing to choke off the market. I hope your greedy buddy doesn’t get stuck in a negative equity situation…

#41 Denis on 10.19.09 at 9:51 am

Canadian Residential Mortgages – Charts and Tables
Information collected from CANSIM by Jonathan Tonge, http://www.americacanada.blogspot.com
http://bit.ly/46D9jq

Gold! Finally some good data to back the notion that this latest rise in RE is not sustainable and that it’s rise is due to the availability of cheap credit and longer than usual Amortization period (backed by CMHC – at the risk of the Canadian… Tax Payer)… Mortgage issuance at a Growing at a rate of 10.4% per year is not sustainable … Especially with our very modest rise in income!

The most interesting Graph … CANADA – OUTSTANDING RESIDENTIAL MORTGAGE DEBT VS. SALARIES & WAGES -> Note how after 2006 (When Jim Flaherty Introduced $0 Down / 40 year Ams) lending went into overdrive and for the first time in our HISTORY in the shortest amount of time has our outstanding residential mortgage debt crossed the amount of INCOME we have available to pay for said mortgage debt! This is like living off of credit cards to just stay afloat! This is not a good sign.

#42 somecatchphrase on 10.19.09 at 9:55 am

Subsistence agriculture is starting to make a comeback. Is this what a “recovery” looks like?

http://www.nytimes.com/slideshow/2009/10/18/us/1018LAND_index.html

#43 GregW., Oakville on 10.19.09 at 9:59 am

Hi Garth, FYI, atrical

Ten questions about flu vaccines that doctors and health authorities refuse to answer

Mike Adams
Natural News
October 18, 2009

Vaccine mythology remains rampant in both western medicine and the mainstream media. To hear the vaccination zealots say it, vaccines are backed by “good science,” they’ve been “proven effective” and they’re “perfectly safe.”

Oh really? Where’s all that good science? As it turns out, there’s isn’t any. Flu vaccines (including swine flu vaccines) are based entirely on a vaccine mythology…
http://www.prisonplanet.com/ten-questions-about-flu-vaccines-that-doctors-and-health-authorities-refuse-to-answer.html

#44 john maynard keynes on 10.19.09 at 10:07 am

Very shrewd, #37.

#45 Daystar on 10.19.09 at 10:32 am

Distractions, distractions, distractions. Remember this one Garth? ;-)

http://archives.cbc.ca/economy_business/the_media/clips/16738/

23 years ago? R U serious, dude? — Garth

#46 Debtfree on 10.19.09 at 10:35 am

I really hate to give the Craparty credit for anything but credit where credit is due . That is to say the
” Federal Green Transformation Program ” 1 billion dollars to prop up the pulp and paper industry by incentives to clean up pollution and energy efficiency programs that the industry cannot undertake on their own in this current condition .There by saving thousand of jobs and making pulp mill towns a little safer to take a breath in ( lucky for me I don’t have to live near one ) This also bolsters my faith in yin and yang , that even bad has a little spot of good in it. I also have a nice little position in a company that builds pollution control systems and energy efficiency …. now hows that for predictions nostrapessimist.

#47 Concerned? on 10.19.09 at 10:41 am

The current RE $$’s are WAY too high!
Back when I (we) got married (early 90’s), 40K was equal to a 25-30% down paqyment on the “average” 175-200K home.
Today with “average” prices (for 35-40 ft. lots, 2 car garage, 2000-2400 sq ft.) being between 400-600K (we looked around Vaughan and Richmond Hill; 40-50K is barely 10%.

With our incomes remaining relatively flat, something has to give.

When will it end?

#48 Watched Bubble Never Pops on 10.19.09 at 10:46 am

#32 Daystar

“As for 1.42 trillion dollar federal deficits, we know where it will end and why. The question is… when.”

And since that question can never be answered, the rest of the information is unactionable and for-all-intents and purposes, irrelevant.

#49 Devil's Advocate on 10.19.09 at 11:04 am

http://archives.cbc.ca/society/youth/clips/6689/

#50 kc on 10.19.09 at 11:15 am

#24

“It’s working so far any house put on sale on the markets are either gone fast whether they bought for living or not.”

Your “buddies” aren’t buying on my street… it is a short little 2 block street and on it there are 4 houses for sale. these 4 have been on the market since early summer. they are all priced about the same just under 400K. Believe what matters to you, however, the tide is slowly turning as the buyers are haveing reality set in. The hype and kool-aid drinkers have breathed thier last hoorah. one other sign… all summer long the REW (realestate weekly) mags that come to the door have been thin, maybe 20 pages. lately I have noticed that these rags are gaining in pages up near 40. Anyone else noticing this in your doorstep papers>?

cheers

#51 taylor192 on 10.19.09 at 11:20 am

Perhaps the best graph I have found on the BC housing bubble yet:
http://3.bp.blogspot.com/_0YOsyi5WbLY/SttjpMeVnxI/AAAAAAAAAOo/_1fU7cSh5E8/s1600-h/Canada+-+2008+Mortgage+Credit+to+Income+ratio+by+Province.JPG

This is for new mortgages issued in 2008.

You’ll notice something is wrong, why is BC 35.2% when the GDS is 35%? Explanation: some lenders remove the GDS restriction for those with good credit score – and BC residents are all too eager to take as much credit as they can get.

Lets look at TDS instead. The limit is 42% or 44% for those with good credit. Thus the average new BC home owner in 2008 has only 7-9% room to renew in 2013.

A 2% rate hike turns that 35% into >44% for the average $450K house in BC.

#52 Bob Bentley on 10.19.09 at 11:23 am

Reality sucks…. but this blog is becoming overwrought with nay sayers and “get on the wagon” groupies.

Whether or not anyone’s predictions come to pass, i.e. Keep espousing it and someone will believe it… Most posters here also need a reality check. The world is continuing to turn, economies are what they are, policiticians will philander and wear sunscreen, but how about trying to find a little positive to post.

Yeah I know it is not the in thing here to post optomisim but try just a little, it would do all and Wendy a lot of good.

Just to save the abrogating hordes from further self destruction I get the economic doom and gloom and why this blog exists but i don’t believe this is why Garth writes what he does, just so you can vent your spleen over what is so painfully obvious (to most….) and not look for a more rounded picture.

#53 Jeannie on 10.19.09 at 11:24 am

Just had to say it…..the contributers on this blog have to be some of the most intelligent, wise, insightful, thought- provoking ,and knowledgeable thinkers on one website.
Thanks for sharing your thoughts, even the most eccentric and extreme of you, we enjoy it all.

Hey, how ’bout the host guy? — Garth

#54 pezzazz on 10.19.09 at 11:32 am

I am constantly reminded of the story of Joe Kennedy selling out of the market in the summer of 1929 when an elevator boy started giving him stock tips on the way up to the office. He knew that was the time to sell.

The modern day equivalent of this story is that every night you go home and turn on the news and all you see are newscasters talking about real estate all day. This is not normal. Real estate home prices should not consistently be a top story almost every night of the week. The masses have officially caught up to the classes.

#55 Debtfree on 10.19.09 at 11:41 am

daystar mutual funds are the single biggest rip off going they get churned for fees, mers , frontloads ,backloads . They are about as transperent as duct tape . Read the naked investor and the hidden power. I wouldn’t touch them with a barge pole . If you want to make money on mutual buy the companies that sell them …. they are the ones that make money on mutuals .

#56 David Bakody on 10.19.09 at 11:44 am

#47 Concerned? on 10.19.09 at 10:41 am

When will it end?

Who knows perhaps never, the new system has been designed to keep most if not all working class people paying and paying and paying …. in some countries the mortgages are passed on to their children. Interest only mortgages basically have a for ever amortization. Gone are days of buying a home working at paying it off and living a better life. Gone! Think, a 20% correction on a 600K home would still leave a price of 480K plus closing costs would put the house over 500K easily. Then of course all would want to value to increase …. and so the game continues.

Food for thought.

If all in the working class people spent 90% of their take home pay living within their means and saved 10% the country would go broke. Why? when you find the answer to that you will understand what Garth has said.

#57 David Bakody on 10.19.09 at 11:48 am

#53 Jeannie on 10.19.09 at 11:24 am

Hey, how ’bout the host guy? — Garth

Are you not the prime contributor Garth?

#58 Jeannie on 10.19.09 at 11:51 am

Hi Host Guy, you too! but then you have so many admirers here that I thought it time to give some plaudits to the ‘unknowns’…and I bet they’re all good-looking too!
Thanks Garth for hosting this blog, it must take up a lot of your time, Dorothy is one patient lady..so thanks also to Dorothy.

#59 Grantmi on 10.19.09 at 12:14 pm

Ouch! Harry Dent is calling for another crash in the stock market after this run up! 3,800 or lower on the DOW!! (Extra locks on the bunker!!)

http://video.newsmax.com/?bcpid=20972460001&bclid=22770166001&bctid=44979113001

#60 Genghis on 10.19.09 at 12:14 pm

Speaking of excess have a look at this story:

http://www.ottawacitizen.com/business/Government+plans+building+boom/2117981/story.html

Number of federal employees up by 4.5% in 2008. Average growth for all levels of gov’t: 12%.

Now that fed and provincial governments are weighed down with record deficits how likely is it that these new jobs can be sustained?

#61 Gerry on 10.19.09 at 12:16 pm

Hey, #47 Concerned…

Prices here in Mississauga are clearly out of line. I finally convinced my wife of that. We bought our house 10 years ago for $290k. Our combined income at the time was $90k, so about 3.2x income, affordable. Today, our house is selling for about 500k. Our income is now 160k, so about 3.1x income, a little more affordable. But 10 years ago, she was a bank telephone CSR and I was a junior engineer. Today, she’s running a million-dollar sales department and I’m leading a 10 person engineering company. Our salaries might be a little low for what we do, but the price of the house is certainly too high.

#62 Got A Watch on 10.19.09 at 12:29 pm

Here’s to long-term” investing”: I was looking at a long term chart of the US S&P 500 adjusted for the value of the US $ (strong down-trend since 1913). It showed today’s market price is the same as it was in 1995 – after “one of the greatest rallies in history!”. Cough. You have held on grimly through 2 bouyant Bull markets and 2 grim Bears for 14+ years (present rally is within a larger down-trend, still)…to make 0. Zero. Nada. None. A decline now would put stock values back to ’93 or ’92, and going backward. Yeah, baby, investing is so easy. The only one who made money was your Bank and friendly Broker.

You would have been much better off in Bonds, just holding them to maturity. And having a healthy allocation to silver & gold to hedge the currency value loss.

Consider this then: over very long periods of time, the Stock market has out-performed real estate by a small margin. Think reversion to the mean, and what does that say about where real estate prices will be in 5 or 10 years. Hmm.

I will say this again: I read a study of past real estate crashes, and the average length was 4 /12 years of declining prices followed by a flat slow market for a few years – before any next ‘boom’ started. We are still blowing the biggest credit bubble in history here in Canada, it seems our ‘lag’ time behind the US economy has increased from 18-24 months like in the past to more like 24-36 months. I am sure it will end well. Really. OK, I lied.

# 32 – What he said! You’re on a roll Daystar, thanks for the comments always.

# 37 – You almost made sense until “All predictions (good and bad) are equally correct since both have an equal probability of coming to pass.” I am not sure how you arrived at this conclusion, since any prediction can be verified as to accuracy eventually. Did it come to pass or not? When an individual or organization is often correct, because it did happen like they thought, and others usually wrong, would you say they are “equal”? I think not. You just need to be more selective.

There were a small group of economists who saw this all coming years ago, and were ignored. The other 98% of the practitioners of the”science of being wrong” denied there was any bubble. Just like Stephen Harper, one of the 98%. What does that suggest?

#52 – Bob Bentley – And other optimists. It is good to have a positive attitude. But do not let having a smile on your face keep you from reality. If we were in a new boom, and everyone was going to get a raise and a promotion and a puppy dog, I’d be happy for them. But it is our sad fate to live in these times we have in front of us. Hope for the best, plan for the worst.

The commenters who come here to say ‘it’s all good’ remind me of those who used to be on the California Housing Blogs around 2006 or so. If you do not believe me, try Patrick.net and Dr Housing Bubble and the sites they link to, who have been documenting the US real estate crash since ’05. In the comments there you will find every possible sunny days/ blue sky/ housing will never go down/everything is fine argument vehemently repeated. Those posters are gone now, blown away by the wind of the collapsing bubble. But we in Canada are different, yes we are. It Can’t Happen Here, because the Banks and PM say so. Uh huh.

#63 taylor192 on 10.19.09 at 12:41 pm

#54 pezzazz

Another great quote:

“Be fearful when others are greedy, and be greedy when others are fearful” – Warren Buffett

#64 jess on 10.19.09 at 12:45 pm

Very interesting article on remittances and the reasons for allowing migrants from poor countries in. I somehow doubt americans or canadians who have lost jobs will agree with this. But certainly there would be an advantage with a system whereby banks would make a fee to handle the transactions…..

http://www.foreignaffairs.com/articles/65448/dilip-ratha/dollars-without-borders?page=2#

#65 Nostradamus jr. on 10.19.09 at 12:56 pm

Protectionism or Secesation of Western Canada.

…One of the above is coming, bet on it.

Either possibility will only enforce the growing desirability of becoming a Western Canadian citizen.

Western Canada will never fold again to Eastern Canadian Liberal Politics.

…Today you even see Eastern Canada rejecting Iggy.

That is why nearly 500 years ago, I predicted Toronot would implode as it was an overpopulated, manufacturing location.

…It is just a matter of time when the Detroit/Clevelan/Buffalo plague visits Toronto and its outlying Hinterland.

Nostradamus jr.

#66 Nostradamus Le Mad Vlad on 10.19.09 at 1:07 pm

#2 atrax — “While debt is spiraling OUT OF CONTROL . . .”
— and —
#4 Onemorething — “Next 100 days . . . ”
— and —
#16 CNLIE — “UK National debt rising by £700,000 per minute . . .”

The following sheds more light on where we are headed. — barmybernanke

The more things change, the more they stay the same. This is dubya’s third term. — dubyama

Keep in mind that Larry Edelson, writing for Uncommon Wisdom said a week ago the US has very quietly defaulted on its debt (see first link). Main thing is that all these events are happening at such speed, no one really knows what is going on anymore.

With CNLIE’s #16 post, the US debt rising by US$1 mln. every six seconds (ours is probably not too far off), a bubble is gonna pop (if it already hasn’t) much sooner than later.

#67 kw on 10.19.09 at 1:24 pm

Re #50 kc
In our area along the north shore of Nova Scotia, there is very little selling. Prices are low compared to most areas across the country. (absolutely no jobs). One property that was listed for the past year at $285,000 was dropped to $229,000 in the past few weeks. I see that two properties have sold after being on the market one year plus. I check the mls.ca regularly and those two listings are the only ones that have sold recently. Some of the less expensive listings sold over the summer. $60-80,000 range.

#68 ClaudiusEmperor on 10.19.09 at 1:36 pm

Bob Bentley, this is NOT a real estate agents or bankers blog. If you want positive news talk to your real estate agent or investment banker.

One year down the road the same agent and banker will through you out of your home and sell it for 40 percent of the current purchase price.
And you will still be on the hook for the remaining 60 percents. which you will pay twice – once as a debtor and second time as a tax payer.

If you are so happy and rich go and buy man, what are you waiting for?
There is plenty of real estate to choose from. That will keep appreciating. So don’t waste your time with ‘losers’ that refuse to be robbed, just go on a shopping spree and enjoy yourself…

One’s misfortune is almost always somebody else’s fortune.
You cant’ distinguish a fire by pouring gasoline into it.

#69 The Great Gazoo on 10.19.09 at 2:31 pm

Garth,

I am truly looking forward to your book as the first one (along with this blog) saved me from investing most of my money into bubble real estate and gave me knowledge on the markets (I argue well against RE pumpers).

It seems like today political parties are deviating from their original ideals and are truly ineffective in making change to our citizens but rather to interests of corporations and elitists. Hence we have new parties arising – ie. the WildRose Alliance Party

You should start your own political party reflecting your beliefs in putting citizens first and educating them:

Choice 1: the IntellectualDaisy Alliance Party

Choice 2: the JadedSunflower Party

#70 Davinci on 10.19.09 at 2:42 pm

As the days move on and another stock market rally, I would if anyone ponders a stock market crash in real goods such as gold, silver and oil?

NAH!

Like the “Garth” said Dollars is money. LOL :D :)

Save those dollars! Someone has to be the greater fool!

It’s amazing how dollars and houses have the same issues they both have been overvalued and the government is force us to take more. Yet someone as intellectually endowed as Garth is can’t see that real things are limited but currency is UNLIMITED. That just amazes me.

Ah well, reality will be our final arbiter.

#71 Concerned? on 10.19.09 at 2:53 pm

# 52 Bob Bentley:

Thank You! Thank You! Thank You!
A little optimism isn’t a bad thing.
Yes, we are in a bad state of affairs, but let’s try to tone down “the end of the world” predictions….
We will still have plenty of immigration in the GTA, GVA, GCA and other cities…..

Immigration is inconsequential to the real estate market. — Garth

#72 jess on 10.19.09 at 3:40 pm

homelessness has two classes going under at the same time the low income who rented off the now foreclosed landlord who is homeless as well…seems like the underclass is the only thing that has a positive growth rate.
http://www.nytimes.com/2009/10/19/business/economy/19foreclosed.html?ref=business

some more ‘ticklish’ issue mr banker…..

#73 Watched Bubble Never Pops on 10.19.09 at 3:41 pm

#59 Grantmi

Harry Dent is a joke. I thought economists were bad with their predictions…

“Dent has been criticized also by many economists for being downright wrong in several of his predictions. In fact, http://www.maxfunds.com, a financial reporting site awarded him the The “Ultimate Charlatan” Award. They write: “The worst investing advice usually arrives near the top and bottom of stock market cycles. Demographic trends guru Harry S. Dent is making the rounds again, and touting his latest book, The Great Depression Ahead: How to Prosper in the Crash Following the Greatest Boom in History ….” In his 2006 work, Dent predicted, “The Dow hitting 40,000 by the end of the decade, the NASDAQ[‘s] advancing at least ten times from its October 2001 lows to around 13,500, and potentially as high as 20,000 by 2009 … The Great Boom[‘s] resurging into its final and strongest stage in 2007, and even more fully in 2008, lasting until late 2009 to early 2010.” Of course, those who read The Roaring 2000s, Dent’s 1999 masterpiece, should soon be buying each of us a turkey with all the fixin’s. According to the book, only a year remains before the Dow breaks 40,000 and the Nasdaq hits 20,000, at which time we’ll simply amplify our fortunes by shorting stocks in the coming depression. We can’t underestimate how big this final move up will be before the depression kicks in, since The Dow and Nasdaq are currently quite a bit lower than they were back in 1999 when The Roaring 2000s was published.”

#74 Watched Bubble Never Pops on 10.19.09 at 3:48 pm

#62 Got A Watch

Thank you for the comments.

“You almost made sense until “All predictions (good and bad) are equally correct since both have an equal probability of coming to pass.” I am not sure how you arrived at this conclusion, since any prediction can be verified as to accuracy eventually. Did it come to pass or not? When an individual or organization is often correct, because it did happen like they thought, and others usually wrong, would you say they are “equal”? I think not. You just need to be more selective.”

The chance of a good or bad predictive outcome are equal because you can always ‘back date’ your comment to make them ‘correct’. If I say ‘housing will boom’, I can wait until tomorrow and say, ‘see? housing is booming’. If I say ‘housing will crash’ I can wait until the next crash and then say ‘see? housing is crashing’.

Predictions are quite meaningless regardless of how many sources a person cites or letters after their name. Until something happens, nobody knows.

As engineers say, ‘too much noise, not enough signal’.

#75 X on 10.19.09 at 4:17 pm

#37, 73…Yeah…it sure is easy to be critical of others and not pick one side or another.

Although you may or may not read this….

If you have an opinion on something whats wrong with voicing it…it is your opinion anyways…we can all make our own decisions.

#76 David on 10.19.09 at 4:50 pm

a good article over at ZeroHedge

http://www.zerohedge.com/article/how-federal-reserve-bailed-out-world

and this source for that article (PDF warning)

http://www.bis.org/publ/work291.pdf?noframes=1

#77 David on 10.19.09 at 5:09 pm

sorry I neglected to indicate the title

How The Federal Reserve Bailed Out The World

and here is an excerpt

“We are now back at a time when the only gains in the stock market are at the expense of dollar destruction, with a concomittant funding for dollar denominated assets. In one short year since the collapse of Lehman we have gone back to the same dollar funding risk exposure as was on the books in these days before Dick Fuld’s empire unravelled. While whether or not the Federal Reserve stepped beyond its bounds in practically bailing out not just Goldman Sachs, but as this paper has proven, virtually the entire world, is not up to us to decide. However, a critical topic is: have we learned anything from the implications of an unprecedented dollar funding gap, which is likely back to record levels once again? What is obvious is that the Fed’s current policy of a weak dollar, contrary to its repeated lies otherwise, is simply enhancing the dollar funding moral hazard: and the breaking point will come sooner or later with disastrous consequences.”

#78 Ottawa Mike on 10.19.09 at 5:13 pm

Last Saturday I was doing some service work on a friend’s Esso station in Ottawa’s upscale Rockliffe Park.
Part of his business is a hand car wash where the elites bring in their high end steeds for detailing.
As I was leaving a 2010 AMG Mercedes convertible was getting cleaned up. One of these:
http://www.automobilemag.com/reviews/driven/0812_2010_mercedes_benz_sl65_amg_black_series_hits_the_dyno/index.html
I struck up a conversation with the owner. The man being an Indo-Canadian who also happens to be Ottawa’s largest condo developer, I figured out fairly quickly who he was.

I asked him what the prospects for real estate were in Canada considering the present predicament where most buyers had little down with taking 35 yr. ams. He countered that almost all of his buyers were” putting down 10-20% and besides 35 yr. ams. were banished when the financial crisis hit”. I just listened mostly. He told me they were moving 80 units/month and there was no end in sight for demand in Ottawa for at least another 5 years. Their Rideau River towers being complete they were breaking ground on 2 new towers elsewhere. His opinion on Toronto/Vancouver markets: “They’re finished”.

Interesting conversation even considering the guy has to talk up something he’s selling. I have to wonder if he could be partially correct: During the last bust of ’89, Ottawa really didn’t take a hit until around ’95-’96. Governments probably are in no mood to cut more jobs when the economy is still precarious.

#79 David on 10.19.09 at 5:16 pm

Someone posted this on another site. Wall Street Week episodes from the 1987 crash

http://www.youtube.com/user/crashof1987#p/u/9/2MyToTwag34

#80 jess on 10.19.09 at 5:31 pm

who tests the energy star program here? so does that mean all those shiny steel refrigerators are energy suckers too….

Companies test their own products ?
The DOE does not test products for compliance with its Energy Star standards; manufacturers do it. And there’s no independent verification of what they report. Rather, the government relies on manufacturers to test their competitors’ appliances and notify it of suspicious energy-use claims…

A number of test procedures are out of date or problematic,” says David B. Goldstein, codirector of the energy program at the nonprofit Natural Resources Defense Council (NRDC). “Part of the reason is that the DOE doesn’t have the staff they need to do very much on test procedures. There’s also willpower. They don’t want to do it.”…

While the Energy Department requires manufacturers of windows and L.E.D. and fluorescent lighting to have independent laboratories evaluate their products, the report said, companies that make refrigerators, washing machines, dishwashers, water heaters and room air-conditioners, which consume far more energy, can certify those appliances themselves.

One refrigerator manufacturer tipped off the Energy Department that some models from a competitor that carried the Energy Star label did not meet the criteria, the audit said. That problem was also described by Consumer Reports magazine in October 2008 about tests it had conducted. In a settlement last year, the manufacturer, LG of South Korea, agreed to modify circuit boards in the machines already sold, to reduce their consumption and to compensate consumers for the extra power consumed.
================

The report also noted that while the government said in 2007 that it would conduct “retail assessments” to ensure that all the products carrying the Energy Star logo deserved them, it is still not doing so for windows, doors, skylights, water heaters and solid-state lighting. And the department is not following through to ensure that when inappropriately labeled products are identified, the labels are actually taken off, the audit said.

The Canada-Ontario Affordable Housing Program Agreement, signed in 2005, comprises a commitment of $301 million from each of the two senior levels of government. In total, the federal, provincial and municipal governments will invest at least $734 million in the program, which will provide affordable housing for up to 20,000 households in Ontario.

Haney Pioneer Village Co-operative is an 84-unit seniors’ complex built in the early1970’s. The original single-pane windows that are now outdated and inefficient will be replaced with new double-pane “Energy Star” white slider windows.

#81 ralph on 10.19.09 at 5:51 pm

Not sure what kind of animals you have but they could be used as a food source for yourself besides the bears and cougars. Bears and cougars don’t taste so bad either if you are hungry enough.

#82 DaBull on 10.19.09 at 6:29 pm

Wendy

Everyone has hope, everyone here has hope. Some have hope everything will collapse and some have hope everything will be hunky doorie. Some have hope that they will live another day. But the one thing in common is they all have hope and they hope they will be right. Why? because they have a lot invested, whether that be money or their ego. So just hope what happens is what you hoped for and hope it comes true. It’s that simple.

#62 Got A Watch

If this small group of economists truely believed they were so right how come they’re not now the richest people in the World now. After all they knew all this was coming. They could have shorted everything to max and made a friggin killing. But they didn’t. Why? Because they weren’t really sure it would happen, they only hoped it would. (There is that damn HOPE again) In the end, a few had some predictions right, but they didn’t have enough balls to put their money where their mouth was. The only profit most of these predictors made was from selling their predictions to others. Pretty sad.

#73 Watched Bubble Never Pops

There are a lot of so called writers and prophets out there that take advantage of current economic conditions to peddle their books and wares. I think Mr Dent is the self appointed leader of this group.

#83 Nostradamus jr. on 10.19.09 at 6:30 pm

Expect Canada to follow this….

“”Last Friday, the Brazilian Government denied allegations that it would impose a new tax on foreign fixed income investments and equities, in hopes of cooling off its surging currency and speculation in its markets.

But today comes word that the government will do just that.

Bloomberg: “Brazil will impose taxes on purchases by foreign investors of real-denominated, fixed-income securities and on purchases of stocks, Finance Minister Guido Mantega said today. The measures are being taken ‘to avoid an excess speculation in the stock market and in capital markets,’ he told reporters in Sao Paulo.” “”

#84 Devil's Advocate on 10.19.09 at 6:33 pm

The ramp up in real estate of late is misunderstood.

Last fall when the economic shit hit the fan it scared the crap out of buyers and sellers alike. Buyers withdrew from the market. Prices plummeted as did interest rates and the affordability quotient of housing fell dramatically. When buyers finally realized it was not the end of the world they began re-entering the market but there was really not a lot of inventory to choose from. And with each sale there became less and less.

Demand outstripped supply as the pent up demand returned to the market. Prices rose.

To put this in perspective however you would have to average the last few months’ exuberance along with that of the months prior so that you achieved a balanced result over the last total twelve months. This would more likely give you a better idea of what the level of activity we might expect for 2010 will be.

I don’t think you can forecast what lies ahead in real estate and the economy based on the last six months as it really was a consequence of events which will not be able to be duplicated. We don’t want to duplicate them and we have no more bullets left after this last battle. More likely we will return to that which proceeded the last six months which will be a return to the 6 months preceding April this year. And THAT was no screaming hell to write home about.

#85 Onemorething on 10.19.09 at 7:00 pm

#78 Ottawa Mike,

Interesting conversation. I know Ottawa well especially around the high tech bubble dayz. I made a whack of money in RE, however while I agree with Van/TO tanking I also believe it will drag down all CAN RE. Ottawa/Montreal will not be exempt.

Ottawa 15-20% min. for properties now priced $350-$450K, over $500-$700K 25%+.

Ottawa has had a nice run for the past 10 years, it’s a great city to live in, raise a family and enough fed’s for a regional job safety net but dont underestimate the knock-on effect this correction will have.

#86 George on 10.19.09 at 7:29 pm

I think that since the majority of this economy is consumer spending, the banks are trying to squeeze all the blood out of the turnip before we begin to see grown men in suits sitting on the steps of their office buildings crying into their hands. If all a young couple can come up with is a couple thousand bucks the banksters will take it. Better than nothing at all. They know what the eventual score will be to this particular game so siphoning off even the scraps count for something. Negative Equity is really just a rigged casino game where the house lets the player feel like his dice are hot before he watches all his chips slid away in the dealers direction. If you can’t get em to buy the useless chinese stuff (ceramic flaccid penis art and the likes) get em to fork over that capital for another fantasy (temporary home ownership) That’s one hard asset investment fantasy that might net one a mail order bride or two on the short term. Keep spending is the cultural hypnosis that the mainstream media, banks and government witch doctor dance to.

#87 LatinLife on 10.19.09 at 8:09 pm

#8 nonplused
#86 george

Excellent posts!!!

#88 Sam on 10.19.09 at 8:23 pm

according to globe and mail why Canadian markets did not collapse..

http://www.theglobeandmail.com/report-on-business/why-canadas-housing-sector-didnt-collapse/article1329997/

#89 Bob Bentley on 10.19.09 at 8:45 pm

68 ClaudiusEmperor –

Thank you for your response. You validated my point perfectly.

Maybe I shouldn’t presuppose that most if not all the bloggers/posters here are already a bit savy in the ways of the world of economics 101 & RE and are looking for a bit more insight, not gasoline stations………

#90 Andrew toronto on 10.19.09 at 9:17 pm

Garth, even with rates being so low, and thus a bidding war has emerged in RE in Canada, Question that lingers in my mind , Hasn’t this just sucked in buyers that would not have purchased for a few years.. pulling them forward.. thus going forward less demand I would think. looking at what happened to Japan are we not heading in that direction, eventually the low rates will have no more positive effect and the slightest of rate increaseswill kill the ecomony Just like Japan.

based on what happened with the cash for cluckers in the U.s once the incentive was gone sales dried up..

Any thoughts on this Garth

#91 Peter Wiener on 10.19.09 at 9:49 pm

#4 Onemorething

I read everyone of your posts I can find as they are highly informative.

I really appreciate your insights on the Chinese situation and markets in general. Would you be so kind as to give us your informed opinion on the possibility of a Chinese economic “implosion” occurring anytime soon?

Also, is there a specific reason(s) you think that oil is poised to move so much higher DESPITE your view of a stronger US dollar or did I misinterpret your post.

Many thanks in advance.

#92 nonplused on 10.20.09 at 12:50 am

#33 SaraBeth

I believe that is called Pascal’s wager. It goes like this: Even if the chances of God really existing are slim, you should believe, because the payoff if you believe is eternal bliss while the payoff if you don’t is eternal agony.

The church used this basic argument to defraud the public for years on earth, so I hope all those followers did receive the promised reward in heaven. But turn the proceeds over to the government? We’ll be better off with global warming than a global government.

I’m all for conservation on a personal level, I even bough a few solar panels and a wind turbine. Damn if I can get them to take much of the load off the grid though. But I put some of my money where my mouth is and I’m trying to get something to work. So far the only benefit I have is that the panels have roughly tracked the price of gold as an investment vehicle. But they are a lot harder to store (people steal them too, and everyone can see them and they are big). Plus the neighbors all know they are there and somehow think your little installation should be able to turn the lights on in their house to when the power is out. I can’t even run the fridge full time here! And I’m in for over $6000. ($7000 now with gold running up.) It will run the entertainment center though.

#36 jess

Hedges can do what they are meant to do, which is lock in your costs. But they can also be used to speculate. I also find that many institutions look at hedging too narrowly. They might be able to lock in their interest cost, but they don’t think about what might be happening to their revenue in a low interest environment. So they lock in and protect against rate rises, but they don’t/can’t insure the income stream they may face in an environment that would force rates down.

Hedges work best in a “payout” time horizon, where all the variables are locked down. But our Willie hedgers always have on aspect they want to be long, and leave the hedge incomplete.

I hate banks. But we can’t solely blame the banks for things like Orange County.

The best use of hedging I know is to protect project financing from commodity price declines. You hedge the commodity and the interest rate, if it’s not locked. But, as we saw with Barrack Gold, the temptation to make money with the hedge book is too strong. “Why not hedge 130% of our production if prices are falling and use the proceeds to buy up failing competitors at bargain prices”? They are still trying to get out.

#65 Nostradamus jr.

No separation coming, we are all “have not” provinces now!

#87 LatinLife

Thanks. But realize that I post tongue in cheek. The full explanation of how fractional reserve banking actually works takes quite a while to explain. There are a couple of good videos on the web that I thought did it, but they run 2 hours in length. But the big take away is that the Fed prints money from nothing (well, not nothing, they have something like a government bond they buy with the money they print. But they did just print it to buy the bond.), and the banks are able to leverage that money 10 times when they have reserve requirements, more as the reserve requirements are relaxed and much more when they are practically abandoned, as has happened recently.

I actually expected a lot of critics decrying me for misrepresentation because I didn’t explain all the ingredients that go into the sausage, and instead stuck to “this sausage tastes like crap!”

#93 Mike (Authentic) on 10.20.09 at 4:10 am

#70 Davinci “I would if anyone ponders a stock market crash in real goods such as gold, silver and oil? NAH!Like the “Garth” said Dollars is money. LOL Save those dollars! Someone has to be the greater fool!”

Actually, you may be a greater fool than you realise. The main motivator of gold and silver (even oil) going up is the depreciation of the USD. So in fact, for you (I assume you are buying using CDN) there is little to no (even negative) gain in buying USD priced assets.

Take a look:

What you see:
Gold in February 2009 $950oz. When crash hit again.
Gold today: $1062 oz.

You see a very good 12% return.

Reality:
CDN February 2009 (from BoC): .80 USD
CDN today (from BoC): .97 USD

Those with CASH saw an amazing 21% return.

Thus, you lost 9% of total worth by buying gold to date. Who is the greater fool? The one who stuck in cash or the one in gold?

Now, if I was an American, buying gold in USD, I’d be up 12%, not down 9% and I would be buying gold myself. But as a Canadian buying gold using CDN, no way.

Mike

#94 Davinci on 10.20.09 at 10:03 am

#93 Mike
Lets take that date 2 years back to October 2007, what was the price of gold and silver in CDN. Oh yeah it was less than the American price and at that time it was 700 USD. Also what was the price of gas at that time as well. Oh SNAP gas was below $0.65!

So now we have a 30% rise in gas over 2 years and as an average and a 30% rise in gold over 2 years as an average. Did your bond kick out 30% over 2 years?

Now if you go back 10 years. Well… lol
Nah, I don’t want to embarrass you.

Seriously now, all assets, including currency, move in a cycle of over valued to under valued back to over valued. This cycle looks like a wave pattern, expanding the time frame helps one see that pattern in volatile items. Paper currency moved from an under value in the 80s to an over value in the 90s and is moving back to an undervalued item.

On a scale of -10 to 10 where 10 was over value paper money hit its peak in 2000, so that was a 10. Currently the money value has dropped and is somewhere at a 3 and falling. Thus as an affect, prices are increasing. Zoom in to the micro world of month to month economics, and you will not see what is happening because prices of volatile items do not move in a straight line.

Currently money (gold and silver) is becoming more valuable but over the next 10 years it will be volatile.
Some time in the next 3 years I expect a spectacular rise in gold (over 100% in months) only to see it drop by 50% before resuming it’s up trend. This is how our paper currency system works it’s just paper and there is so much of it. Thus if so much as 1% where to go into “PHYSICAL” metal it would quadruple the price.

#95 Claudius Emeperor on 10.20.09 at 8:35 pm

Bob Bentley,

yes, I predicted the US housing crash in 2004, people were laughing at me madly. As I look back now I was overly optimistic.

500 k for condo in Miami that is worth 180 k now. it will go down to 120k. cheers.

but here is different, right, it is diferent, we are slowly bankrupting the country and our kids. And as I will be paying with my taxes, I do care.

#96 Claudius Emeperor on 10.20.09 at 8:40 pm

Bob Bentley wrote:

—————————–
Thank you for your response. You validated my point perfectly.

Maybe I shouldn’t presuppose that most if not all the bloggers/posters here are already a bit savy in the ways of the world of economics 101 & RE and are looking for a bit more insight, not gasoline stations………
—————–

yes, with a sister real estate agent I know what I talking about.

#97 GTA001 on 10.20.09 at 9:04 pm

To Wendy:

On September 15, 2008 when Lehman Brothers Investment bank collapsed causing a $1 trillion default of securities (most of which was held by Asian banks) followed by the near failure of AIG, the worlds largest insurer, on the next day when their London England office issued $400 billion of credit default swaps and $3.5 trillion of derivatives, could not cover the loses of the bank especially with only $1 trillion in assets, 25% of which was in the form of residential and commercial real estate! President Bush, Treasury Secretary Hank Polson and Federal Reserve Chairman Ben Bernanke scrambled to stabilized the US and world financial system from a total meltdown. They loaned AIG $86 billion, allowed JP Morgan/Chase Manhattan to buy Meryl Lynch and allowed Goldman Sacs and Morgan Stanley to become chartered banks. On the morning of Sept 17, 2008, the Federal Reserve Board injected $285 billion with central banks around the world injecting another $700 trillion to cover $1.5 trillion in losses as stock markets declined world wide (PR News Hour). Stock markets continued to decline for at least another month as credit markets began to fail. When the crisis subsided (partially due to the passing of the TARP in Washington on Oct 3, 2008) by mid November of 2008, the Federal Reserve Board loaned out $5 trillion to financial institutions or an average of $1 trillion every 45 days. $1 Trillion dollars visualized is $1 dollar bills stacked 67 miles high or the equivalent of about 150 CN Towers!!!!!! During those 7 weeks, commercial banks received 788 billion while Fannie Mae& Freddy Mac received $474 billion. The rest of the money covered $1.25 trillion in toxic assets and counterparty risk in banks around the world. How did the global financial crisis start and what are the implications for you and I here in Canada. What can we do to protect ourselves now and in the future?

Part of the origins of this crisis really started with the twin deficits during the Reagan Administration two terms (1981-84, 1984-87). The OMB under David Stockman made critical errors in the 1981 Budget. First they passed the tax cut with huge defense spending. Second their economic forecast did not anticipate the severity of the recession, nor the fact that revenues collapsed. Third the recovery did not generate enough revenue (no inflation in the tax code) to offset then annual -$200 billion deficit gap. The government was sucking up domestic and foreign capital to fund its debt, even when it made cuts to services. The trade deficit with the rest of the world became worse as business has to borrow for capital spending/investment for manufacturing and found they could not compete with new industrial nations due to wage and legacy costs. The national debt passed $2trillion in January 1987. On October 19, 1987 the Dow Jones stock market on Wall Street fell 508 points due to fears by holders of US Treasury bonds (mostly European countries like Germany) that the America will have difficulty financing its debts, leading to higher interest rate due to risk. In Japan the Nikkei-Dow crashed in 1990 leading to a deflationary scenario in real estate which is continuing at present. Then we had the Savings&Loan crisis that cost the US government over$500 billion to fix as 1000 financial institutions failed.

When President George Bush Senior lost the 1992 US General Election to Bill Clinton, there was a push by the financial and banking lobby to deregulate the capital markets. First, the Glass –Stegal Act was partially repealed in November 1999 allowing banks to own insurance and investment banking firms. Second, the Commodity Futures Modernization Act of 2000 was signed into law by President Clinton on December 21, 2000. The importance of this piece of legislation cannot be underestimated. Before 1974 the Commodities Exchange Act (CEA) only applied to agricultural products and they can only be traded in places like the Chicago Mercantile Exchange (CME). After 1974 the Commodities Futures Trading Act (CFTA) created the Commodities Futures Trading Commission (CFTC) which covered all agricultural products, all other goods and articles, and all services rights and interest in which contracts for futures delivery are present. Existing non traded financial commodity derivatives (mostly interbank) markets in foreign currency (FOREX) and government securities and other specified instruments were excluded by a “Treasury Amendment” to the extent that transaction were off board. The CEA also required that futures delivery contracts in commodities covered by law be on a regulated exchange. If parties entered into a contract outside a regulated exchange it would be deemed illegal. Forward delivery contracts such as interest rate and currency swaps were also illegal. Although the swaps market was growing in the 1980’s it was still an off board transaction and if a court ruled it illegal it could cause trillions in losses in derivatives trade and a financial crisis. The new law made derivatives and swaps legal, but not regulated by the CFTC or an established OTC derivative clearing house (Wikipedia.com). The Federal Reserve Board Chair Allan Greenspan made no objections to the law. Ironically a US congressman who sat on the CFMA hearings eerily predicted a financial crisis in 2010 as a result of unregulated derivatives meltdown!!! On Tues October 20, 2009 at 9pm PBS Frontline has a show called the “Warning” that documents the 10 year battle by a former Chair of the CFTC, Ms Brooksley Bern to regulate OTC derivatives. In 2003 the derivative market stood at $83 trillion. In 2009 it had grown to $650 trillion. Credit default swaps (CDS) were used by investors and hedge funds to insure a derivative if a company becomes insolvent because it cannot pay its debt. The market today is close to $62 trillion according to the Bank of International Settlements (BIS). This is the part of the derivatives market than nearly imploded last year.

Ironically the Dot Com bubble which resulted in small and institution investors putting large sums of capital in internet startup firms from 1998-2001. When it burst (due to rising interest rates) on January 14, 2000 at 11,750 and ended in October 2002 the result was an estimated loss of $8trillion in wealth. Federal Reserve Board Chairman Allan Greenspan reduced the fed rate 11 times after the attack on the WTC in September 2001 to about 1% in 2004 (Wickpedia.com). This led to the housing bubble in 2005-2006 which resulted in the creation of the subprime mortgage market which peaked in July 2007. What made the situation worse is that investment banks were allowed to package them with good mortgages, credit card debt, vehicle loans and leases of AAA, BBB and CCC quality into SIV, CDO, synthetic CDO’s and other exotic financial products and sell them to investors around the world. It is estimated that Wall Street sold $538 trillion of MBS to investors and banks around the world. The top 20 US banks hold ½ or $250 trillion of these toxic financial assets. The four largest banks in the US hold close to $180 trillion of derivatives. They are: JP Morgan/Chase Manhattan-$88 trillion; Bank of America-$39trillion; Citycorp-$36 trillion and Wells Fargo/Wachovia-$6 trillion and Bank of NY-$1.2 trillion(Webster G Tarpley) The Bush Administration through the Securities & Exchange Commission (SEC) also repealed the uptick rule and allowed investment banks to be leveraged from 12/1 to 30-40/1. When Bear Sterns became bankrupt on March 13, 2008 it was supposedly due to a lack of confidence. On March 10 it was valued at $18.1 billion. In less than a week it plummeted to $2 billion.

JP Morgan/Chase took over Bear Sterns with a guarantee that the US Government would cover $30 billion to rescue the investors, not the common or preferred shareholders. Few people knew that its mortgage backed securities (MBS) that contained subprime loans in at least one of its hedge funds was worthless in July 2007. Jamie Diamond, the CEO of JP Morgan/Chase had Bear Sterns firebombed to prevent its mortgage backed derivatives from a meltdown which would have destroyed the banks derivatives! (Wickpidia.com)

Another issue of concern is the growth of the overall debt of the US. At present it is a whopping $100 trillion in debt. According to McAlvany.com household and corporate debt is about $44 trillion. When you add the unfunded liabilities of Social Security, Medicare and Medicaid plus the national debt it is about $55 trillion. It is estimated that taxes (even at 100%) will not cover the unfunded liabilities in 2040. The growth of the US Government debt is making foreign holders of treasury bonds nervous. Total foreign ownership of the estimated $11.9 trillion debt is $3.428 trillion with China ($800.5 billion) and Japan ($724.5 billion) holding almost half of the total (Wickpedia.com)

So what is happening to main street USA? The US economy at present has shed almost 5 million jobs, and when you add the people who have given up looking for work the unemployment rate is about 17%. GM and Chrysler (which merged with Fiat) went bankrupt due to falling sales and legacy costs. Although they have restructured the US is still losing manufacturing jobs because they can’t compete with China. The value of residential real estate has dropped by at least $2 trillion in value and still falling! Almost 1 million homes have been foreclosed on this year. There are 19 million vacant homes with another 17 million with underwater mortgages according to bullionbullscanada.com. The US housing market is at least 5 years from stabilizing and that is an optimistic assessment. Commercial real estate valued at nearly $3.4 trillion is about to implode as retail sales have fallen and corporate tenants are going bankrupt. US states in total have a combined budget deficit of $180 billion which could grow to $350 billion in 2010. About 100 banks have failed which has depleted the reserves of the FDIC with at least 400 more at risk! About ½ of the $787 billion TARP funds was used to buy preferred shares in the largest US banks, but they are not lending money to regular people or small businesses. They are getting rid of bad loans and assets, buying up good banks and are still trading in the derivatives market. People are losing their jobs, can’t pay their bills, can’t buy big ticket items and losing their homes due to illness, being in arrears in their mortgages and going bankrupt-See Part 2

#98 GTA001 on 10.21.09 at 1:21 am

To Wendy (Part 2)

I apologize for the length of the first post, but it is necessary to give you an overview of some of the underlying causes of the global financial crisis. It is historical and somewhat detailed which will give you an idea of how much trouble the US economy is in right now. In some of Garth’s earlier post he has indicated that Canada could face the same scenario two to three years from now in 2012-13. Right now we are in the middle of a housing bubble with median house prices in major cities hovering near $400,000. CMHC is allowing first time buyers to put down $1000-$5000 for a new home and borrowing 95%. By 2011 they will back almost $1 trillion of mortgage backed securities (MBS) which the capital markets can’t even short. The Harper Conservative government is borrowing almost $200 million to cover the $50 billion fiscal stimulus package and $125 billion to cover a possible CMHC default. We are also running a trade deficit with a high dollar that is killing manufacturing firms with a loss of 300,000 jobs. Canada’s unemployment rate is currently 9%, but it could be as high as 11% with at least 1.5 to 2 million people out of work!! Corporate and personal bankruptcies are up 50% from last year and at least 500,000 people are at least 30 days in arrears in credit card payments!

Are we facing a deflationary depression followed by hyperinflation or vice versa? To be honest I don’t know for sure. We could be facing a hyper-stagflation event with rising prices in basic needs with deflation in real estate followed by a severe deflationary depression. There could be an L shaped recovery as we experience slow growth for at least a decade? What we can extrapolate from this situation is that our ponzi scheme fractional reserve debt based system that‘s been in existence for 300 year may be coming to an end. A new banking and world reserve system may have to be set up by the IMF if the US dollar crashes or devalues in the next 12-24 months. Future economic growth will have to be based on real assets such as commodities (like agriculture), infrastructure renewal, green and energy technology, artificial intelligence and computer systems, biotechnology and engineering sciences.

When you read both my post the economic situation in the US now and Canada possibly in 2013 is very depressing, but I want to tell you that all is not lost. The world financial and economic system will have to be restructured for better or worse. People will have to learn how to work together in communities to grow and store food, use green/energy technology, provide personal services and create a sustainable economy.

You mentioned that you live outside a major western Canadian City and run a voluntary animal rescue service with 45 four legged friends. The $45k mortgage on your house will be paid off in 4 years. First and foremost read the section of Garth’s book “After the Crash” on preparing for the various economic scenarios. Although the chances of an economic depression are 20%, there are things that you can do to protect your self before and after an economic crisis. Second, try to lock in a mortgage rate of 4-5% for the next 5 years from a financial institution and PAY IT OFF as fast as you can. Third, is your job safe for the next 5 years? If it is then don’t worry too much. If its not see if you can start a home based business based on your hobbies or sell products on the internet. Fourth, review your budget and cut your expenses. Keep at least $1000 in paper money, silver or gold dollar coins for emergencies in a safe place in the home. Eat and live as cheaply as you can. Shop for food and clothing and necessities at the cheapest stores and always look for sales. Fifth, buy as much dry bulk food such as wheat, oatmeal and grains including dry milk powder and store them in animal proof plastic bins. Buy canned goods, like vegetables, corned beef, beans, tomato sauce, fruits and jams etc. Can you grow food on your property such as tomatoes, cucumbers, squash, chives, onions etc? Can you store them some where in the house? Buy seeds for storage! Look into building a portable hydroponics garden inside the house that requires minimal energy? Check military stores for meals ready to eat packs (MRE), winter clothing and all purpose portable cutting tools with retractable pliers. Do you have freezer/cold storage for meat and perishables?

Do you have electric power coming to your house? Can you buy a generator that can supply power during a black out. Is your house insulated against the elements and do you have a built in underground shelter? Can you install solar panels for power and for hot water heating? You can purchase portable solar generators to power portable electrical devices. You can buy portable gas powered stoves and the gas canisters in bulk at any camping stores. Do you have piped services going to your house or water well and septic tank? You can buy 24 bottles of filtered tap water at the store for $5 dollars and store as much as you can for 2 years. Alternately you can buy the X-Pack portable water filter pack that is used by the US military or the Triton M2 filter system or the Katadyn carbon filter that requires no electricity. It can filter water from a fresh water body or stream without electrical power! Can you buy large plastic or metal drums to store large quantities of water in emergencies? Do you have bleach/or chlorine tablets so you can keep the water disinfected? Can you purchase a FEMA portable survival bag? They contain medical supplies, flash lights, candles, batteries, matches, blankets, dry food, candy bars, drinking water packs and a wind up fm/shortwave radio?

With regard to weapons, it’s difficult to give you advice here. If you are buying a rifle/shotgun or hand gun for protection from bears and cougars, it will be necessary to get a firearms license from the federal government and store it and the ammunition in a metal storage or safe as the police can inspect it anytime with a search warrant! Is your house crime proof?

Lastly are you part of a close knit community? Do you know your neighbors and do you keep an eye out for each other. Do you live close to friends and family? Are you close to a small town by car/truck? Do you have a TV, computer and radio to keep in touch with the outside world? Can you get help if you need it and are supplies available locally? Can you trade or barter for goods that you need in town?

Wendy, there is no need for despair and to give into fear, uncertainty and panic (FUP). The economy and the society at large will experience a painful restructuring probably in the next 5 years. Will Canada escape the worst of the economic crisis that is affecting the US? Maybe, but being hopeful also means being realistic and pragmatic as governments may have to cut services forcing individuals, families and communities to be more resourceful and self sufficient and work together cope with structural economic and social change. Whatever you decide to do good luck and God be with you!

#99 Davinci on 10.21.09 at 9:44 am

#97 GTA001

Correction $1000 dollar bills stacked 67 miles high is 1 trillion dollars.

And all of that will not cause prices to go up, they will only go down, according to Garth so hold those dollars.

#100 Daystar on 10.21.09 at 3:28 pm

#48 Watched Bubble Never Pops on 10.19.09 at 10:46 am

Never say never.

#101 GTA001 on 10.22.09 at 4:12 am

To Davinci:

Thank you very much for the correction. Visualizing a trillion dollars is not an easy thing to do! The magnitude of these numbers can really boggle the mind.