Nesting

Somewhere in Ottawa is a civil servant who found enough time to send me this note on her official Public Works and Government Services official account:

“Just read your comment about not paying off your mortgage if it has a ‘cheap’ rate. You just messed up my entire freaking day. For 2 years I have been doing exactly what another so called ‘guru’ – Gail Vaz-Oxlade – has been preaching. Please, please, please tell me I did the right thing by dropping the pay-back time on my prime-minus-a-half mortgage to five years. These payments have been killing me, but she said it was the right move. I demand you clean this up now. I might blow up your stupid web site myself.”

Ah, fame. I’m lovin’ it. The adulation. The threats. The paparazzi. The explosives. The attention. The kevlar.

Actually this note raise a few interesting questions. Like, does it sometimes makes sense not to pay off your debts? And that answer to that, as far as the bureaucrat-terrorist above is concerned, is absolutely.

First, why on earth would anyone want to take hard-earned money and use it to pay a loan off when the bank was dumb enough to give it to you at less than the prime rate? In this case, that would be 2.5% – which is barely above the current inflation rate of 1.8%. This means the real cost of that mortgage money is a scant 0.7%.

Now, if the vixen bomber took the bushels of money she has been throwing at an insane 5-year mortgage amortization at 2.5% and used it instead to buy preferred shares in the same bank,  yielding 5.8%, she’d be actually building wealth instead of covering a mortgage loan officer’s exposed rump. In fact, this is how rich people get that way. They see debt as a tool – even when interest is not deductible, as in this case.

But there’s a more profound reason nobody should be in a hurry to pay down a cheapo home loan, even in Ottawa.

In a world where recession never ended, where yields are low, money is tough to come by and salary increases elusive, why shovel money into a depreciating asset? How can it possibly make any sense to drain off your valuable cash flow for years to eliminate a below-prime mortgage when the asset you just paid for falls in value? It would have been far wiser to divert those funds into assets which paid you to own them – in interest, dividends or capital gains.

And, yes, I know all about accumulated interest, accelerated payments and the pitfalls of long amortizations – I’ve written books dedicated to techniques for mortgage eradication. But that was for another time, when interest charges were high, when real estate appreciation was a given, and the investment world wasn’t brimming with so many options.

I would say if you want to be creative with your mortgage, and plan to own your house forever, then consider the RRSP mortgage I detailed some days ago. Better still, make your mortgage tax-deductible. That’s simple. If you have investments equal to your home loan, sell them and pay off the mortgage. Then get a new mortgage and buy back your investments. Now you own and owe what you did before, but 100% of your mortgage interest (and most of your payments) can be written off your taxes.

In fact, if your mortgage rate is 3% or less today, there’s only one reason to nuke the mortgage at the expense of your TFSA or investment account. Emotion. That’s it – the psychological fuzzies you’ll harvest from bedding down nightly in a nest on which you owe nothing. It may be a crappy financial move, but at least you can go to Gail’s web site and get a sisterly hug.

I wonder if she wears kevlar boxer shorts, too? Nah.

201 comments ↓

#1 Dean, the bubble watcher on 09.14.10 at 9:42 pm

Mish (Mike Shedlock) warns, Vancouver could easily see a 40% haircut:

http://globaleconomicanalysis.blogspot.com/

#2 Toronto Guy on 09.14.10 at 9:56 pm

I have read some people acknowledging real estate is overvalued but doubting it’s fall because they cannot see the trigger for a fall.

I think it’s more important that eventually everything returns to the mean and long term relationships will always re-establish themselves.

We know that real estate real long term return after inflation is suppose to be 0%. What has it been over the last 10 years?

We know that prices are 35% over the long term average and in some hot spot selling over 6 times family income.

This divergence will close and will usually fall below the long term mean before returning to the mean.

Who cares what the excuse or trigger will be. Just know that there is a very high probability that it will happen.

#3 Crazy Eddy on 09.14.10 at 9:56 pm

if you have investments equal to your home loan, sell them and pay off the mortgage. Then get a new mortgage and buy back your investments. Now you own and owe what you did before, but 100% of your mortgage interest (and most of your payments) can be written off your taxes.

problem with this strategy is most people you talk to, they think 100% write off means “free”… kind of like those “free” renos or reno write offs of yesteryear….

People also believe in deposit insurance and angels. — Garth

#4 Old_is_Gold on 09.14.10 at 9:57 pm

Clicking heels and wishing for good times to return is not going to work this time around as it has many times in the past. Without full well paying employment how can there be a full recovery in the US? And without a full recovery in the US, how long can the ‘We are Different’ Canada myth last? A longer deeper downturn In Canada than most expect maybe in the cards.

“The persistent and sticky unemployment of the American worker – To get back to 5 percent unemployment we would need to add 285,000 jobs per month for 5 consecutive years.”

http://www.mybudget360.com/the-persistent-and-sticky-unemployment-of-the-american-worker/#more-2358

#5 bullion.bunny on 09.14.10 at 9:59 pm

There will be no sovereign bond defaults in North America. At least try to pretend to be credible. — Garth

Yes, Yes…….sure ok….Garth is always right. Don’t let the facts get in the way. Just keep purchasing those bonds……and hope for the best…..U.S. Dollar is about to rally.

#6 bullion.bunny on 09.14.10 at 10:08 pm

There will be no sovereign bond defaults in North America. At least try to pretend to be credible. — Garth

I never said North America……….you did!

I’m pleased we agree you were wrong. This is progress. Hug? — Garth

#7 abraxas on 09.14.10 at 10:08 pm

I’m trying to pay off my mortgage early but my interest rate is certainly not attractive. 5.98% locked in until November 2014. Please, please tell me that it’s the right move given the giant interest rate? Let’s not get into how I got suckered into an interest rate like that (basically a closed 7 year term mortgage from a grocery store)

#8 Bigboy on 09.14.10 at 10:16 pm

A comment on this blog. Garth wouldn’t your comment on her paying off her mortgage as per “gails” advice depend on how old this person is? If she is under 40 than maybe being debt free and being able to plow all of the mortgage payment into investments when the mortgage is paid off is a good stratgey. Just asking.

Why not do that now, regardless of age? — Garth

#9 Rainbird on 09.14.10 at 10:17 pm

This maybe a conspiracy by RE agents ahead of Garth’s visit to Vancouver.

But, did anyone watch BCTV with Chris Gailus this evening? The big RE story was that listings are drying up and you better hurry to buy NOW!! The buyers market lasted only about a month and now – it’s a sellers market again – lack of listings they claim ‘buy or never’.

He had several RE agents and customers who pointed out that the houses they were watching on the internet have all sold and they’re now pressured to buy the last one @$650,000 in Cloverdale. WOW!!!!!!!!! Cloverdale Eh? A one horse town.

#10 FerrisWheel on 09.14.10 at 10:18 pm

It seems Royal Bank is about to be downgraded, just as BMO was by Moodys. Garth, how will this affect our preferred shares? Should we sell now?

Thanks,
FerrisWheel

Source material for your downgrade comment? — Garth

#11 garthfan on 09.14.10 at 10:21 pm

There was a point in my childhood where my father had to draw a Christmas tree on the wall because we couldn’t afford to buy one…

Pardon me for laughing out loud but that sounds a lot like …

I fail to find anything funny at all in that statement, Mr. Obvious.

I know a lot of families who haven’t been able to afford Christmas (trees). I even know some families who didn’t go out and charge one on credit anyway.

#12 Patz on 09.14.10 at 10:26 pm

Hmm… I wonder if people turn on their gurus in India?

#13 april on 09.14.10 at 10:27 pm

I’ve asked this question already and that is I can only access about 8 to 10 comments in the last couple of days. Is anyone else having this problem?

#14 Behavioral Finance on 09.14.10 at 10:29 pm

Bank of Japan intervened in the currency market USD/JPY flying. We have a lift off.

#15 junius on 09.14.10 at 10:29 pm

Garth,

Are you willing to talk to my mother (realtor in Edmonton) for me, she’s driving me nuts. Grinding my ass because I listen to you.

She think’s she’s omnipotent. She’s just a realtor for gosh sakes! She claims she knows the market better than you as she’s a professional in this business for fifteeen years.

I don’t know who to trust.

junius

#16 FLT on 09.14.10 at 10:31 pm

Garth,

I follow your blog regularly and I agree with most of the things you say, but on paying of your mortgage faster, you missed it.

Rates will go up, so paying down now means you are paying down the expected rate increase risk.

Most people do not have cash & equivalent that they can use for RRSP Mortgage, so we may have to look for something most people can participate in.

Do you know of such?

The risk is running out of money, not having a mortgage rise by 0.5% in 2011. — Garth

#17 Mark on 09.14.10 at 10:48 pm

Garth, she’s a civil servant for a reason…. Most of them just have rocks in their heads, and need to be smacked back into reality.

#18 Taxpayer like everyone else on 09.14.10 at 10:48 pm

7 Abraxas – 5.98% a giant rate?? The two mortages I had on my current residence were in the 4.35-5.5 range,
but my first house started at over 11%.

Keep in mind your early payments give you an after tax return equivalent to that 5.98%.

Though Garth gives some great examples on how to make debt work, it often isnt the story for many of us.
My last mortgage started in 02 at $170k. Though the
payments were very manageable, I feared a business
downturn enough that my objective became to kill that
thing off so I didnt have to renew at 8-9% (Hey, there
was no way 5.5% could last for more than a couple of
years, right?). Now I did have some accounting smoke
and mirrors available to me (perfectly legal), and
proceeded to pound that puppy down in 7 years.

Given the rates now, and my current finances, was it the
best move? No (see Garths examples). But I sleep well.

Garth – I did not take down your site. Honest.

#19 Joseph [Original] on 09.14.10 at 10:49 pm

Your site is as hard as ever to access – the guy must still be attacking your site with endless spam attacks for it to be responding so poorly. You might want to give your techie a call.

We are working on this constantly and soon will move to an entirely new infrastructure. — Garth

#20 604genX on 09.14.10 at 10:57 pm

Cameron Muir of the BC Real Estate Association is at it again. Painting a big happy face on the current real estate situation. This is going beyond comedy routine to full circus act.

“The number of new residential listings in the province has fallen 30 per cent since April.”

“With fewer new listings, total active listings are now on the decline, signaling that an end to the buyer’s market may be on the horizon.”

http://www.bcrea.bc.ca/news_room/2010-08.pdf

#21 Jody on 09.14.10 at 11:02 pm

If it wasn’t for Canadian content laws and the CRTC Gail Vaz-Oxlade would be a nobody/realter.

#22 604genX on 09.14.10 at 11:08 pm

More ammo for your upcoming Vancouver gig. Forget Kevlar boxers, get on that stage full commando – the best defense is a solid offense.

Kits prices are collapsing:

http://www.yattermatters.com/2010/09/snapshot-kitsilano-single-family/#more-20722

#23 Jane54 on 09.14.10 at 11:13 pm

I am also confused Garth because I have understood you to advise that one should use these current low interest rates to pay off HH debt and I have been concentrating on reducing my mortgage principal before rates set higher.

Depends on the rate, on your personal situation and mostly on the amount of liquid assets you have. Disaster is ending up with a depreciating house that ate all your money. — Garth

#24 Cashman on 09.14.10 at 11:19 pm

I was talking to a real estate agent, friend of the family, and he was saying that sales are way down in the north GTA (above Highway 7 south of Barrie). He didn’t sound too happy either when I talked to him. In fact he was down right miserable. Yet only 2 years ago, he was happily frolicking in his money and counting the sales he closed. My how life changes.

#25 T.O. Bubble Boy on 09.14.10 at 11:25 pm

The problem is: most people who talk about the “cheap money” that a 2% mortgage represents use this statement to justify why they don’t need to save/invest.

Usually, this goes something like:

A) My mortgage is 2%, so why not do my $50,000 kitchen reno now and just add it onto the debt?

B) I can get a mortgage at 2%, so why not buy the $800,000 house with the $700,000+ mortgage that will “only” cost $3000 a month?

C) I’m “saving” so much money with my cheap 2% mortgage that I don’t need to budget! I’m going to Lease a BMW and buy an iPhone4 and drink Lattes because I’m in good financial shape.

Personally, I’m in favour of fixing payments at a higher rate (e.g. pre-paying like you have a 5% rate)… you get a bit of the fuzzy emotional gain that Garth lauds, and you can easily budget other investments around it. Poor financial advice or not, it ensures that the “forced savings” are actually happening.

#26 KarlHungus on 09.14.10 at 11:30 pm

Actually, what she should have done to make the interest tax deductible, was to take out a HELOC (might be a curse word around here), and use the borrowed money for investments.

When she gets her tax refund the next year, apply it to the mortgage and then re-borrow that same amount for investments again.

This strategy is known as the Smith maneuver.

I do not recommend this. Danger. — Garth

#27 KarlHungus on 09.14.10 at 11:33 pm

oops, should have read the comments first! Crazy Eddy beat me to it.

#28 KarlHungus on 09.14.10 at 11:36 pm

Abraxas, one option for you would be to get out of your current interest rate. The penalty in most cases is 3 months worth of interest and assuming you would re-qualify, might save you some money in the future. There are banks/brokers offering prime minus .8 percent.

2.2 % (Prime minus .8) is a big difference from 5.98%

#29 US Investor on 09.14.10 at 11:41 pm

In the USA people can walk away from their houses, in Canada it seems for the most part they can not. Can someone please tell me how this dynamic changes the scenario for Canadians in a crashing RE market?

It doesn’t. Both recourse and non-recourse US states have seen real estate crash. — Garth

#30 Zzzzz. on 09.14.10 at 11:51 pm

Yes 3% vs. 6%. All very interesting while the financial system is on the verge of collapse.

Fact is we got bigger problems coming down the pike than a 3% differential. How come we don’t talk about those any more?

A loss of confidence in the dollar is not out of the question. We are already near a loss of confidence in the economy. At least US side. In Canada we fear nothing, do nothing, and know nothing. But our dollar is tied at the hip to the US dollar, with varying results.

I want to know more about what we should do if a) low interest rates are indicative of an impending economic collapse, and b) what to do if rates rise signalling we are out of it and good times are ahead.

So far rates are stuck at the low end which is worrying. I see ultra low rates as a sign that the market sees economic collapse on the horizon, the best investment would be cash, prices and profits will fall to absurdly low levels. High rates mean cash is in demand because the economy is strong, people can invest at a healthy profit.

Zero rates means zero epected profit for the average investment, on worse. Yuck. Nobody would put the bulk of their money in the “Dutch guy’s shorts” for next to nothing unless they thought that was the most likely way they might get some of it back.

Personally, i would have all my cash and some gold and silver and oil under the matress or in the tub right now if I could, but wifey doesn’t want the tub filled with oil and gold, silver and cash attract too many teenagers with guns. So I pay the banks to at least promise to keep it safe and pay it back, even though they probably won’t, management is devising a way to steal it too. But it doesn’t involve a gun.

There will be no collapse. But if there were, gold sure wouldn’t save you. — Garth

#31 Jim Summers on 09.14.10 at 11:55 pm

What’s the big deal? If this woman is sorry she paid down her mortgage, she can always reverse the transaction and increase her mortgage (while she still has equity).

However, I think it is a mistake to borrow against an asset that is guaranteed to go down in value. The risk of ending up with negative equity outweighs a few percent of extra return.

#32 SquareNinja on 09.15.10 at 12:02 am

All of you who are shitting your pants because you’re paying off your mortgage… HELLO.

Have you not been reading the rest of Garth’s blog?

Even if you make a piddly 3% return on whatever money you don’t use to pay off your mortgage – YOU’VE STILL GOT A HUGE MORTGAGE ON A DEFLATING ASSET!!!

#33 Susi on 09.15.10 at 12:05 am

Hey Garth,

I’m coming to the Four Seasons Thursday evening and can’t wait!!!

On Global news tonight, they stated that listings had decreased and sales were stronger for August. They ended the piece that the market was turning and it was going to be a sellers market again – what do you think?

I think it’s amazing how one intellectually dishonest media release can suck in the MSM. — Garth

#34 CrowdedElevatorfartz on 09.15.10 at 12:24 am

Better still, make your mortgage tax-deductible. That’s simple. If you have investments equal to your home loan, sell them and pay off the mortgage. Then get a new mortgage and buy back your investments. Now you own and owe what you did before, but 100% of your mortgage interest (and most of your payments) can be written off your taxes.

Garth, isnt this the “Smith Manouver” ?

No. — Garth

#35 PrinceGuy on 09.15.10 at 12:41 am

Inflation rate at 1.8%

Is this a personal calculation of a former business editor and Minister of Revenue or a statistic supplied by our trusted government?

StatsCan. — Garth

#36 Jimmy on 09.15.10 at 1:34 am

So inflation is going to go up says the news so this would mean that holding lot of debt is a good thing. That debt could become very manageable and less significant if inflation increases dramatically and carries on. This is assuming that you have locked in your mortgage for 5 years and have a fixed rate mortgage non variable rate mortgage. So people that have gone into significant debt may benefit more than the people that have not.

#37 Dan in Victoria on 09.15.10 at 1:56 am

Nice westcoast gardening picture Garth. LOL.

I recieved an e mail from a civil servant…….I demand you clean this up now! Gee too bad that e mail didn’t come from “F”

Gail Vaz-Oxlade, watched a couple of her shows.
She’s affectionately known in our house hold as “Iron Pants”
I do like her method it has a start a middle and an end.
Sort of like opening a can of latex paint, painting the wall and cleaning up.
Basic. Gets the job done.

Then we have Garth.
He sets his canvas on the easel, tilts his hat at a jaunty angle.
Looks for an unwary subject…..
Selects the hog bristle brush for the bold, strong texture strokes.
Then on to the weasel hair brushes, ( gee I wonder who that would be used to paint)
And finally the siberian mink tail hair brush, for the fine points.

Both of them get the job done, Gail is good for your basic get your sh-t together student. Good advice.
On the other hand we have to understand Garth the artist, and his conception of his work. It will be thought out, presented boldly, Some get it, some don’t. Not for every one.
Pick your teacher, each one has something to teach you.
Remember oil and latex don’t mix.

#38 Mel on 09.15.10 at 2:18 am

Australia’s largest bank last week released a presentation that was to be pitched to global investors (bond buyers) spruiking Australia’s ‘sound’ housing market. Apparently, the Australian banks have about $500 billion of outstanding foreign borrowings (which they have been used to pump housing) raised during the good times, that will soon need to be rolled-over.

Problem is, the bank’s presentation is full of holes and mis-information, and they have been caught-out trying to deceive about the state of the Australian housing market. They must be getting desperate.

Check out the shenanigans here:

http://www.unconventionaleconomist.com/2010/09/cba-desperately-seeking-housing.html

#39 Risk on 09.15.10 at 4:16 am

Time to add an addendum based on my own experiences:

“First, why on earth would anyone want to take hard-earned money and use it to pay a loan”

Because you never know when you are going to be layed off, fired or have your pay reduced, especially in this economy. Having no mortgage or a reduced one is better than a mortgage you can’t afford even if it is at 2%

“use it instead to buy preferred shares in the same bank, yielding 5.8%, she’d be actually building wealth instead of covering a mortgage loan officer’s exposed rump. In fact, this is how rich people get that way”

I know you hang out with a lot of rich people Garth, but some of us got “rich” by saving our earnings, not by risking it. Again, personal experience. Put away at least 10% of everything you make, it’s an ancient secret.

“there’s only one reason to nuke the mortgage at the expense of your TFSA or investment account. Emotion.”

Again, from experience. That “emotion” of not owning money and paying off your debts is ABSOLUTELY priceless. We paid off my first mortgage in 2 years, my second in 2 years. That “emotion” was better than the emotion of making a million dollars.

Based on that, Mr “Civil servant” is right in paying off his debts. In fact, more people need to do that exact same thing, the gov’t the prov’s, corporations, etc. Debt does not equal weath.

Good luck. I hope you have liquidity. — Garth

#40 Rick in Japan on 09.15.10 at 5:21 am

Have to disagree with you Garth. Remove all debt. You have the stats to show how undisciplined most of us are when it comes to money. To say to the average Canadian “save the difference and put it into stocks” is usually BS. Just the other day someone was writing about their nest egg of $20,000 and asking what they should do with it (wtf??, but – that, I suspect, is the amount a large number of people have).
For the vast majority of people-Pay everything off as quickly as you can-though, there are a few exceptions.

I won’t be surprised to see a return to double digit interest rates for mortgages. I still have a number of rental properties that are either free and clear, or almost free and clear. I am happy to keep them through the market changes.

#41 bullion.bunny on 09.15.10 at 5:38 am

I’m pleased we agree you were wrong. This is progress. Hug? — Garth

I’m not wrong…….Gold $2500……….bond revulsion next phase of the credit crunch.

definition for revulsion….
1. A sudden strong change or reaction in feeling, especially a feeling of violent disgust or loathing.
2. A withdrawing or turning away from something.
3. Medicine Counterirritation used to reduce inflammation or increase the blood supply to the affected area.

Bonds don’t have to necessarily default in any country….but they could lose half their value quickly.

You’re making it up. — Garth

#42 David B on 09.15.10 at 5:58 am

News from the WSJ:

And this is real fallout from the Subprime Loan Disaster!

By SARA MURRAY
Efforts to tame America’s ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history.

At the same time, the fraction of American households not paying federal income taxes has also grown—to an estimated 45% in 2010, from 39% five years ago, according to the Tax Policy Center, a nonpartisan research organization.

Could it happen here …. who knows for sure ? but close is a reality perhpas as almost 50% of Canadians are living from paycheck to paycheck while the MSM continues to feed in correct Real Estate projections to an unsuspecting public. All this can not be good.

#43 Aussie Roy on 09.15.10 at 6:02 am

Aussie Update

The title says it all.
http://www.crikey.com.au/2009/12/15/housing-prices-the-bubble-just-gets-bigger/

http://www.smh.com.au/business/cba-raises-eyebrows-on-global-roadshow-20100914-15avx.html

Even the 2IC at the RBA supports CBA’s dodgey data.
http://delusionaleconomics.blogspot.com/2010/09/ric-and-world.html

#44 bullion.bunny on 09.15.10 at 6:24 am

You’re making it up. — Garth

Watch what happens next!……U.S. Dollar rally.

#45 howjido on 09.15.10 at 6:26 am

Gail is not much of a “guru”. She has the same advice for every couple, put your money into jars, pay cash, and then write everything down in a paper based “budget binder” not a spreadsheet, cut up all your credit and debit cards (not sure why debit), live in poverty today so you will be wealthy in the future. It’s typical “widows and orphans” advice, be fearful of risk and watch the pennies and then in some far far distant time when you are too old to enjoy life, you can look at your bank statements. Her predictions of the future value of saving $1 in a GIC or mutual fund are also way out of whack. I invested in nothing but blue chip stocks, banks, utilities and pipelines over the last 20 years; when the prices fall I just buy more. I’m sure the bank financial advisors would say I am “not balanced” but I don’t particularly care since now I can live on the dividends alone. I’m sure TD Canada Trust can find some other doddery old fools as per their TV commercials, to sell mutual funds and GIC’s to. I’m going to go buy some nice cashmere sweaters now with my food budget from the money jars; winter is coming.

#46 bullion.bunny on 09.15.10 at 6:41 am

Here….let Dr. Steve Keen explain it to you.

http://www.youtube.com/watch?v=0BaDbK9jFts&feature=player_embedded#!

#47 Moneta on 09.15.10 at 6:52 am

Have to disagree with you Garth. Remove all debt. You have the stats to show how undisciplined most of us are when it comes to money.
————–
I agree but Garth’s recommendations involve working against human nature. Once you understand this, you understand that only a tiny fraction of the population will be able to use his advice in a profitable way. That’s why he’s preaching to the converted.

#48 pbrasseur on 09.15.10 at 7:02 am

Montreal data comes out today, anyone has a link?

The only thing I’ve seen in an extraordinarily complaisant article on Cyberpresse.

#49 abraxas on 09.15.10 at 7:05 am

To those who advised me to break the current mortgage…

I don’t think that’s a good move because I would pay the interest rate differential which currently amounts to about $20K (yes that’s confirmed). I still owe about $200K on my mortgage and my term is locked for another 4+ years.

I’m thinking given the crappy mortgage I have it’s best to repay it ASAP (I can prepay over 40K a year in addition to my regular payments). I think it would be a stretch to try and earn that 5.98% in the markets so I’m just better off wiping out the mortgage first. Thoughts?

#50 Aaron on 09.15.10 at 7:08 am

Confused!!!

Kill debt or don’t kill debt?

So i should probably stop making my accelerated mortgage payments and use the extra to kill the LOC?

#51 S.B. on 09.15.10 at 7:12 am

Interesting. And bear in mind to run a war you need to support your paper – fiat currrency and debt. For this reason alone I think that US $ and bonds will be supported:

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aqqEDrWMDO3w&pos=3

Pimco Makes $8.1 Billion Bet Against ‘Lost Decade’ of Deflation

Sept. 15 (Bloomberg) — Bill Gross’s Pacific Investment Management Co. made an $8.1 billion wager that the U.S. won’t suffer a decade of deflation like the one that crippled Japan starting in the 1990s.

That’s the notional value of long-term derivative contracts tied to the U.S. consumer price index that Pimco’s mutual funds entered into during the first half of this year, according to a regulatory filing. The funds received $70.5 million in up-front premiums under these contracts, known as inflation floors, in return for agreeing to pay investors should prices decline in the 10 years ending in 2020.

“We think the possibility that the U.S. goes 10 years with stagnant or falling prices is remote,” Mihir Worah, the head of Pimco’s real return portfolio management team

#52 DJ on 09.15.10 at 7:27 am

#21 Jody on 09.14.10 at 11:02 pm
If it wasn’t for Canadian content laws and the CRTC Gail Vaz-Oxlade would be a nobody/realter.
__________________________________________
If you’ve ever seen the show, it’s a hoot!
Trust me, the people she features on her show need help. These clowns unfortunately represent a lot of people out there, with +$30K balance on their credit cards and spending like drunken sailors. I don’t think many of them make it to this website.
You have to learn to crawl before you can walk.

#53 Brian on 09.15.10 at 7:28 am

I am studying economics. I have Schaums which will guanrantee a C average. Throw in the textbooks and be thorough in all questions and I should get a B. May I ask you how to get an A. I don’t trust the professors I’ve met.

#54 eddy on 09.15.10 at 7:32 am

overvalued? bubble is government created. market value assessments =more property tax for local government. it is irrelevant what you paid for the house, or how much money you have, you must pay more, it’s a luxury tax

#55 pbrasseur on 09.15.10 at 7:34 am

Montreal sales keep falling in August

http://www.montrealgazette.com/business/Residential+sales+falling+Montreal/3523461/story.html

http://montreal.ctv.ca/servlet/an/local/CTVNews/20100914/mtl_housing_100914/

The industry’s buzz still positive though

#56 just wondering on 09.15.10 at 7:40 am

#10 Ferris Wheel
It seems Royal Bank is about to be downgraded, just as BMO was by Moodys. Garth, how will this affect our preferred shares? Should we sell now?

Thanks,
FerrisWheel

Source material for your downgrade comment? — Garth

****************

Here’s the link:

http://www.cbc.ca/money/story/2010/09/14/moodys-rbc-rating-review.html

#57 Kaganovich on 09.15.10 at 7:44 am

Important:

http://baselinescenario.com/2010/09/13/the-importance-of-the-1970s/?source=patrick.net#container

#58 T.O. Bubble Boy on 09.15.10 at 7:53 am

@ #10 FerrisWheel / Garth:

RBC downgrade rumour — http://www.cbc.ca/money/story/2010/09/14/moodys-rbc-rating-review.html

A downgrade is unlikely. But if it happens the only consequence is higher yields for investors. — Garth

#59 fancy_pants on 09.15.10 at 8:00 am

Digressing from the article but reiterating the theme present on this blog: two propelling forces that drive our economy – greed and fear. Greed sends us up and fear back down. Weeee! I would like to add a third force to this mix: stupidity. This is the federal hand of wisdom that tries to shepherd the sheeple’s emotions in the direction of the wise shepherd. This force works in conjunction with either of the propelling forces and quickly turns to helplessness when used effectively.
What if the shepherd always protected himself before the sheeple? The weakest sheeple get eaten. What happens when the wolf is no longer tamed by the staff? The weakest sheeple get eaten. What happens when the shepherd can no longer keep the wolves at bay? Many, many sheeple get eaten.
you see this metaphor unfolding anywhere else? I do. Get out of the flock or risk being eaten.

#60 bullion.bunny on 09.15.10 at 8:12 am

Deflation at work as part of an overall credit contraction……..

http://www.zerohedge.com/article/empire-mfg-index-misses-consensus-second-time-row-comes-41-consensus-80-prior-71-lowest-july

#61 dark sad person on 09.15.10 at 8:15 am

#36 Jimmy on 09.15.10 at 1:34 am

So people that have gone into significant debt may benefit more than the people that have not.

**********************
Exactly-but-what i can’t understand is-
Why so many on this board are pumping the Inflation drum and not only Inflation-but-Hyper-inflation and yet-
they’re bearish on debt and RE-
Like huh?

If they think Inflation and especially Hyper-inflation is the future-why on earth aren’t they borrowing as much money as possible and buying RE?
That’s the best play in the book-for an Inflationary scenario-
Seems the Inflationist’s don’t care to address that inconvenient truth–

#62 Bill ( Peterborough) on 09.15.10 at 8:21 am

RE #30 Zzzzz ( Garths comment)

There will be no collapse. But if there were, gold sure wouldn’t save you. — Garth

——————————————————————–

Garth;

Either you have some sort of Crystal Ball, Magic Wand.. please enlighten us as to how we will recover from our debt loads created by our governments.

We can’t just keep printing money to get out of debt, most of our natural resources have been sold off…

Peoples confidence in our governments, financial institutions is eroding very quickly.

The world has more currency floating around than it actually produces.

Every year it is getting harder and harder for the average person to survive ( the ones who were smart and did not accumulate large debt loads)

All these economic formulas thrown at us by the so called ” Intellectual Wizards” are bullshit.

Alot of my friends feel the same way . Even the ones who have shit loads of money.

#63 Nancy on 09.15.10 at 8:31 am

This tax-deductible mortgage idea sounds great.

But I can only get a loan at prime + 1/2 or 1, and prime right now is about 3%. My mortgage is 2%. That’s a 35-50% difference, which would wipe out any tax advantage.

The only way it would work to our advantage is if we could get the same rate.

#64 kc on 09.15.10 at 8:34 am

A few days back I was talking with my mother, and was shocked to hear what they did. (back groound) … 7 years back she moved out of the city to a small town in BC, and bought a house fully paid for. (115K). I felt back then that she was making the right choice for now she was basicaly debt free and content. I knew she had placed her home on the market for 200K 6 weeks back for she wanted to move again into a new small town, sell and rent for a year or two while feeling out the new town.

The other night she told me that she was feeling down for the house wasn’t selling as fast as they figured it would. Then she laid the bomb shell on me… they have to sell for they re-fi the place to pay off all debts that had been growing for the past 4 years … i was huh?? what debts?? “oh you know … renos, CC bills, vehicle loans. I was in shock for I didn’t know that this was going on. and figured they were living ok with in their means. I asked point blank, what do you need to sell for on the bottom line to to move and still be ahead? 165K … this is the break even point. my jaw is still on the floor.

I told them back 4 years ago to never get into the situation were they had to refinance the house to pay for anything, and I mentioned this to her the other night. Her responce was… “in the states it was sub-prime loans that got everyone in trouble, not refinancing houses” …

Garth’s predictions are so real about what is coming for the next set of retirees. I feel strongly that my mom is stuck where she is living, and to top it off is now in debt to the tune of over 50K.

#65 Coldlazarus on 09.15.10 at 8:35 am

Caught Ms Vaz-Oxlade on BNN recently and like yourself she is fighting the good fight against national financial illiteracy.
Just knowing how much you actually have to spend each year or each month is somewhat important, especially if consumed by housing lust.

When you reflect on the just how simple it is to plan by using a spreadsheet, or software, or a lead pencil and paper, guess that people such as Garth and Gail will find endless work.
Hmmm, could someone let the finance ministers in Ottawa, Toronto, Edmonton know about her?? I’ll buy the pencils.

Garth and Gail – could be a new team – safety in numbers and all that…

#66 DJ on 09.15.10 at 8:41 am

#60 Bill ( Peterborough)

I think the premise of this site is that society will not collapse and go the way of “Lord of the Flies”.
This site should be focused on how to maximize your wealth. Afterall, if the middle-class is going to be wiped-out, better to be on the upper-class side.

#67 prairie gal on 09.15.10 at 8:56 am

#21 Jody on 09.14.10 at 11:02 pm
If it wasn’t for Canadian content laws and the CRTC Gail Vaz-Oxlade would be a nobody/realter.

OK now I know you are one of those anti-government, anti-everything conspiracy wingnuts along with the likes of Bill from Peterborough. Haters like you just love to suck the life out of the people around you and think the absolute worst of everything.

Seek help.

#68 KB on 09.15.10 at 9:00 am

#13 april on 09.14.10 at 10:27 pm

You may be experiencing web page caching.

When you open the comments page, press your F5 key or click on the refresh button on your browser. This will reload the page. Hope this helps.

#69 BrianT on 09.15.10 at 9:10 am

#59Dark-you are missing the other part of the equation. Yes, devaluing the currency can help RE values, but only if the said RE is wanted by those whose incomes or wealth rise in the devalued currency. This isn’t the 1970s-inflation will not mean wage increases for the majority, just cost increases. This will result in even less available to spend on RE purchases or rent. That small minority of Cdn RE desired by those unaffected will do relatively better.

#70 bee foot on 09.15.10 at 9:11 am

I thought you sum it up well for people who tries to pay off their mortgage at a very low rate. Emotion. We threw almost 75% of our hard earned money to the mortgage in the last 3 years and we managed to pay it off in a little less than 5 years. I’m also aware that liquidity is important.

Now we’re mortgage free for almost 5 months now, and we build up some liquidity. We should have 20% down payment for our second house in 6 more months — kidding :-) I listen to your advice, I got some bank prefs and love the 6% yields.

#71 Got A Watch on 09.15.10 at 9:19 am

Currency Wars, and their brother, Protectionism, are looking to break out after a 70 years slump. As each nation tries to manipulate their currency lower for exporting advantage, competing nations will retaliate.

We are seeing the opening shots fired now. The Chinese are buying Yen to push their currency down and the Yen up and to diversify out of US $. The Japanese become very angry and retaliate, as their currency rising damages their exporting economy. This could lead to a war in Asia on it’s own.

The Swiss economy threatens to implode under the weight of a rising Franc. If the Swiss don’t intervene, and even if they do, their currency could continue to rise, thus crushing their exports.

Germany wants a lower Euro, as do the PIIGs.

In the US, over 100 Congress Critters, nervously eying the polls and the rise of the TEA Party, are calling for protectionism. Etc, etc, this will be replayed around the world. Tensions are rising. Another likely outcome will be a war, a big one.

It’s a case of everyone wants the same thing, which means, by definition, it can’t happen that way. Some will win, and a lot will lose. And the effects of this are hugely deflationary in a global sense – when demand falls from end customers, as it will under protectionism and currency wars, supply increases, economic activity slows as borders tighten, pressuring demand again…

Nothing gets a great Depression rolling like some good old-fashioned protectionism. The forces of globalization are now in retreat, and the whole project is in danger from a strong reversal.

Personally I see no advantage to Canada from “globalization”. We got the toxic products, and lost our jobs. I could care less about large multi-national corporations, they are just the corporate criminal class of our age, destroying everything they touch in their quest for profit without consequences.

Spare me the lecture about how we “need” cough “free trade” or “globalization”. I call total bullshit on that one.

If you’re betting, the odds of a global deflationary spiral, much like the 1930s, just went up markedly. This could get ugly, quickly. Politicians will find it difficult not to appeal to popular sentiment. These types of generational changes take decades to play out.

The Kondratieff Winter is right on track.

#72 Bill ( Peterborough) on 09.15.10 at 9:19 am

# 49 abraxas

I don’t think that’s a good move because I would pay the interest rate differential which currently amounts to about $20K (yes that’s confirmed). I still owe about $200K on my mortgage and my term is locked for another 4+ years.

I’m thinking given the crappy mortgage I have it’s best to repay it ASAP (I can prepay over 40K a year in addition to my regular payments). I think it would be a stretch to try and earn that 5.98% in the markets so I’m just better off wiping out the mortgage first. Thoughts?
——————————————————————-

Just to clariry things; $200,000.00 owing, 4+ years left.

You are capable of paying an additional $40,000.00 per year on top mortgage payments.

If you can wipe out mortgage and still put away for rainy day ( job security/ wage cutbacks plus other unforseen variables…) why not. I personally hate debt , unless it is advantageous for me in right offs…( providing the numbers work in my business’. )

I am very cautious/ skeptical of our current economy.

My rule of thumb was if the shit hit the fan do I have enough in reserves to carry me( food , shelter, bills…) for at least 1 year minimal ( cash)

Followed this principle most of my life, teaching me along the way how to save and budget as well.( has worked well for me)

Just weigh things out and do whats best for you, everybody is different.

Don’t stretch yourself out to thin.

Believe me that 5.98% mortgage is not that crappy, compared to what some of the rates in the 70’s and 80’s were.

#73 bullion.bunny on 09.15.10 at 9:22 am

#59 dark sad person on 09.15.10 at 8:15 am

Exactly-but-what i can’t understand is-
Why so many on this board are pumping the Inflation drum

Simple……they fail to see the relationship between the fractional reserve banking system, credit markets and the economy. They also fail to see that (money/credit notes/promissory notes) used in day to day transactions are nothing more than bank credit created out of thin air and passed in the economy as money. Banks expand credit until speculation is out of control and the entire system is flooded with credit notes or “promises to pay”. Once the interest and debt cannot be paid; credit collapses and the underlying assets are repriced in the market place. This lesson is about to be learned, as it was in 1720,1770,1825,1873,1929,2000 & 2008. Garth also fails to see this connection.

#74 John on 09.15.10 at 9:22 am

Gail`s column and show usually focus on people terrible with money and in poor financial shape. Thus her advice.

Garth`s advice is directed towards those in reasonably good financial shape with a variety of assets.

The civil servant is likely in good shape so should ignore Gail and hail Garth!

#75 Lorne on 09.15.10 at 9:26 am

Home sales rise for first time since March

http://www.theprovince.com/business/Home+sales+rise+first+time+since+March/3527865/story.html?cid=megadrop_story

#76 Old_is_Gold on 09.15.10 at 9:28 am

# 59 Dark Sad Person (By the way if you need a pep talk to make you a Light Happy Person, I’d volunteer for the job)

Exactly-but-what i can’t understand is-
Why so many on this board are pumping the Inflation drum and not only Inflation-but-Hyper-inflation and yet-
they’re bearish on debt and RE-
Like huh?

If they think Inflation and especially Hyper-inflation is the future-why on earth aren’t they borrowing as much money as possible and buying RE?
That’s the best play in the book-for an Inflationary scenario-
Seems the Inflationist’s don’t care to address that inconvenient truth–

This scenario may be in play 2 years from when the prices are down considerably, and hopefully money is cheaper as has happened in the States. At that time instead of using your cash / gold etc. it would be far wiser to buy a property with as little down as possible and as long a mortgage as possible. Small payments – good property and chep money that will be paid back in depreciating dollars, that will be the time to borrow. Use your cash to stock up on booze and cigarettes, they’ll probably be more valuable than gold.

#77 Old_is_Gold on 09.15.10 at 9:37 am

#64 – DJ

I think the premise of this site is that society will not collapse and go the way of “Lord of the Flies”.
This site should be focused on how to maximize your wealth. After all, if the middle-class is going to be wiped-out, better to be on the upper-class side.

No argument here, this site, because of the leanings of its owner, is not the right place to get into the deeper workings of the system. Garth has created this site for a different purpose. Personally I think Garth’s readers would be better served if they knew the whole truth but in a (still) free country, it his right to manage the content as he sees best.

#60 Bill ( Peterborough) – You are very well informed and are not afraid to connect the dots, but it appears that most of the readers here have different goals. If you are in Peterborough, please send me an e-mail from my link and we can have a chat sometimes about the Jesuits, Vatican etc. I ride up towards Lindsay / Peterborough from time to time and always look forward to speaking to the rare person who gets the bigger picture.

I do not manage content here, since all are free to post what they want – within obvious limits. BTW, how’s that apocalypse working out for you? — Garth

#78 Moneta on 09.15.10 at 9:44 am

I told them back 4 years ago to never get into the situation were they had to refinance the house to pay for anything, and I mentioned this to her the other night. Her responce was… “in the states it was sub-prime loans that got everyone in trouble, not refinancing houses” …
——–
People still don’t get it. Subprime was ALL about refi and HELOCs.

Wake up. If you can’t afford your life without using a HELOC or getting a refi, you are most probably living above your means and are most probably subprime.

And the key word is without. If you have the money backing your debt but choose to carry the debt because the banks are lending it to you for close to free, you are prime. If you don’t have that money to pay it off, you are probably renting a lifestyle and will need a greater fool somewhere down the road. But chances are you are the greater fool.

#79 Timing is Everything on 09.15.10 at 9:53 am

#25 T.O. Bubble Boy – “Personally, I’m in favour of fixing payments at a higher rate (e.g. pre-paying like you have a 5% rate)… you get a bit of the fuzzy emotional gain that Garth lauds, and you can easily budget other investments around it. Poor financial advice or not, it ensures that the “forced savings” are actually happening.”

Agreed…It’s a start for many.

#80 Prof ANON on 09.15.10 at 9:55 am

@ #52 Brian

You shouldn’t trust your professors. But you should leverage your relationships with them, and you should be a critical self-motivated learning machine who goes beyond the crumbs doled out in class.

Your focus on Schaum’s and grades suggest that you aren’t actually interested in what you are studying. Perhaps you should change majors to something you can throw yourself into whole heartedly?

#81 Grandpa Grinch on 09.15.10 at 10:02 am

Well Garth, I – much like yourself, now officially have the ability to see into the future.

Two years ago, I predicted out loud to Mrs. Grinch that her younger sister who was an Engineering student & dating an idiot with a crappy job would get proposed to by said idiot within a year or two so he could hitch his wagon to her career.

I even went further stating that in addition he would insist that they buy a house. Well less than a year after my prediction, the idiot is now my BIL and they maxed out what they could spend on a house. If that weren’t enough – she had to pay for the wedding.

My next prediction is that they start buying toys on a LOC as his 12 year old mentality dictates it. I give the whole mess about 6 years before it implodes. Sad being able to predict….it really is a heavy burden.

#82 JMC on 09.15.10 at 10:05 am

RE: Gail Vaz-Oxlade

Gail and Garth have very different audiences.

For the most part, Garth’s followers appear to be more financially savvy. Garth gives excellent advice regarding real estate and investing (and garden variety financial info) and I look forward to reading his blog everyday.

Gail’s students have little to no financial knowledge, and through their own negligence and ignorance, find themselves mired in $000’s of credit card debt. Gail has a “no nonsense” approach (which some people require) and does not suffer fools gladly. Cutting up credit and debit cards may be the only way for some people to control the outflow of cash. The jars may seem extreme to some people but to the families she is helping, they are a salvation.

If Garth’s and many other agencies predictions for the future are accurate, Gail Vaz-Oxlade.com may be busier than Greaterfool.ca as people become desperate to clean up their financial mess.

These are apples and oranges – no comparison.

#83 Calgary Rip Off on 09.15.10 at 10:08 am

The latest from the Herald in Calgary: http://www.calgaryherald.com/business/Slowdown+home+sales+worse+Alberta+Real+estate+assoc/3528129/story.html

Calgary continues to be the biggest ripoff(aside from Vancouver) for vinyl sided shacks with tight fencelines.

#84 Risk on 09.15.10 at 10:14 am

#39 Risk on “Paying off debts is a good thing, not a bad thing.”

Good luck. I hope you have liquidity. — Garth

Thanks Garth. We do indeed, 99% liquidity. Best of luck to you and everyone on this blog too. I think we will all need more luck and caring for each other as time goes forth.

I just read today that a new record since 1959 has been broken in the USA… 1 in 7 people are now poor in the USA. Isn’t that horrible?

http://www.nydailynews.com/news/national/2010/09/12/2010-09-12_soaring_poverty_rate_hits_dismal_high__45_million.html

I’d like to share a sad personal story…

I learned from my Parents in the early 80’s the value of saving a dollar and keeping it safe. That there are ups and downs in life and you need to save for the rainy days. That if you owed anyone of anything you were a no truly free till you paid it off. If you are not a slave to debt then you were truly free. And freedom is worth more than a dollar.

Sadly, my mom at 60 died in debt, my dad died at 65 with $10k to his name, but he paid his debt off at the very very end. It took my parents 40 years to pay the debt off from credit cards and loans. I learned from this. I try to teach others this to improve their lives. Sadly, I regret I couldn’t teach my parents this. I still feel it’s my biggest failure in life. :(

Interesting – 99% liquidity. So you own no fixed assets? — Garth

#85 dark sad person on 09.15.10 at 10:27 am

#67 BrianT on 09.15.10 at 9:10 am

#59Dark-you are missing the other part of the equation. Yes, devaluing the currency can help RE values, but only if the said RE is wanted by those whose incomes or wealth rise in the devalued currency. This isn’t the 1970s-inflation will not mean wage increases for the majority, just cost increases. This will result in even less available to spend on RE purchases or rent. That small minority of Cdn RE desired by those unaffected will do relatively better.

*********************

Inflation will have to come first-through credit lending-
Prices can only increase-with an expansion in the credit and or money supply-but only providing velocity increases at the same time-
Wages never rose here a the last 10 years and we had low unemployment and easy credit-
Borrowing and spending velocity was high-to extreme-
If people have no jobs now-thus no paycheck and decreasing wages and cannot or will not borrow-how can RE prices rise?
Look at Japan-they have been printing/devaluing like crazy for 20 years and just opened the spigot again–
RE prices are still falling-after 20 years–
Lots of money-lots of devaluation-but-no velocity-
Of course-there will be small exceptions to the rule-with those who are rich an unaffected-

#86 Tim Mahoney on 09.15.10 at 10:29 am

Average Canadian home price down 3rd month in a row

http://www.theglobeandmail.com/report-on-business/economy/home-prices-sag-in-august/article1708215/

#87 jess on 09.15.10 at 10:30 am

CrowdedElevatorfartz on 09.14.10 at 9:28 pm
#163 Jess
Selling Hyperion Stock are we????????/

You draw a sweeping conclusion and have mistaken the motivation.
I am pointing out that small (local) rather the large (big is not always better) too big too fail ,cities becoming too big too fast ,etc.
Check out 3d printers. Will you assume i have an artifical leg since i mention this one…

#88 604genX on 09.15.10 at 10:41 am

CLARIFICATION NEEDED GARTH. I thought you were recommending essentially the “Smith Maneuver” that some posts refer to: sell investments (possibly from RRSP or outside), use such cash to paydown 1st mortgage, then take out a 2nd mortgage (HELOC?) to re-buy the same stocks. Since the 2nd mortgage is used for investment purposes it is tax deductible. However your comment responses suggest you do not recommend this (or it depends on one’s personal situation).

A few more details would be helpful. (I’ll be picking up your book at the Vancouver show so hopefully that will clarify what you’re recommending.)

I have never recommended the Smith Manoeuvre and never will. It involves too much market risk. — Garth

#89 Bill ( Peterborough) on 09.15.10 at 10:42 am

Re # 64 DJ

#60 Bill ( Peterborough)

I think the premise of this site is that society will not collapse and go the way of “Lord of the Flies”.
This site should be focused on how to maximize your wealth. Afterall, if the middle-class is going to be wiped-out, better to be on the upper-class side.

—————————————————————–

Great attitude. So lets just wipe out the middle class and go back to the ” Feudal system” ( serfs and barons.)

The middle class has been the backbone of a societies for ages , with the same game being played to wipe them out. Therefore creating 2nd/3rd world standards.

Now with your logic roughly 95% of the people will have “NOTHING”, but you figure with your intellect you should fit right in with the ” ELITE” 5+/- %.

Pass the ” Fairy Dust ‘ Tinkerbell.

#90 dark sad person on 09.15.10 at 10:44 am

#74 Old_is_Gold on 09.15.10 at 9:28 am

This scenario may be in play 2 years from when the prices are down considerably, and hopefully money is cheaper as has happened in the States. At that time instead of using your cash / gold etc. it would be far wiser to buy a property with as little down as possible and as long a mortgage as possible

****************
Sure-when we get to that point-2-5-10 years from now?
But i need to play the hand I’m dealt today-

**********************

#71 bullion.bunny on 09.15.10 at 9:22 am

Banks expand credit until speculation is out of control and the entire system is flooded with credit notes or “promises to pay”. Once the interest and debt cannot be paid; credit collapses and the underlying assets are repriced in the market place. This lesson is about to be learned

*************
Re-priced-Lessons and Learned–great words-
Good for society as a whole-
Getting there?
OMFG-the pain–

#91 Real Estate Realist on 09.15.10 at 10:45 am

To #29 US Investor:

It actually changes it a lot and I am an authority on this subject, for the record. Here’s how~

Simply put, the difference between being liable for the “shortfall” as we call it in Canada or not being liable, as is usually the case in the US, is that Canadians will behave differently when faced with a “negative equity” situation.

For example, and this is the main one, despite someone’s home dropping in value below their mortgage balance, they WILL keep making the payments if they are capable of doing so. Their income has not being affected, they are just watching their equity dwindle and hit the red area. They know that if they walk, the Bank will issue NOS (Notice of Sale), take the home, sell it for FMV (at an unpreventable loss) and then come after them for the balance owing if it’s not a “conventional” mortgage. This will destroy a credit rating that was hard earned and in good standing (with or without bankruptcy and with or without a shortfall), plus, there was no reason to walk. Now, imagine ignoring the market, paying that mortgage as if nothing is happening, you’re stuck to it anyway, and hanging onto your original plan, ie. long term principal residence and long term debt obligation. The market will rebound in 10 yrs +, you will have lost a lot of upswing years, but not lost your credit rating or your home. Whether this is sane or not is irrelevant. Canadians will not walk if they have the “ability to pay” the mortgage. And, unless they want to be homeless (can’t rent with a credit check on a NOS usually) and take years and years to be able to get credit again, they’ll stay put.

However, if the homeowner can no longer meet the payment obligation, and the Bank can’t restructure the loan to make it viable again due to the Debtor’s inability to pay, then they usually walk, or the Bank lets them know the timeline of the process and recommends a date to be out by, assuming it’s cordial (otherwise, it comes to eviction). Actually, they usually have to be evicted because denial is so thick when finances interfere with mortgage payments. That is a major difference, even in a dire situation financially, between the US and Canadian culture. This time around though, due to the publicity surrounding the “walkers” in the US, it may seem fashionable to do it up here this time around. You know that “herd” thing. Still, the ones who can pay will not succumb to this trend as they did in the US. If they do it will be an historical shift of great significance in the Canadian psyche.

*One final point ~ the laws of recovery differ between Provinces, some “foreclose”, some go “NOS” (aka Power of Sale). In foreclosures liability to the shortfall can be forgiven, but in NOS, NEVER. Chartered Banks in Ontario ALWAYS pursue NOS.

*Ok, one more ~ it’s the “Collateral Mortgages” that are going to devastate the Bank’s real estate portfolios (most in 1st position, zillions in 2nd as well) as the shortfalls on those mortgages are uninsured, but the Feds will take the hit of a lifetime in coverages for the shortfalls on “Conventional” mortgages, (ie CMHC insured), the ones you are all used to hearing about. If this crash achieves the magnitude that now seems inevitable, no lender, or Fed jockey, will survive it with the ability to continue to play golf without distraction.

#92 JET on 09.15.10 at 11:03 am

There are so many frickin’ bank preferreds! Which one is the best? Or are they all basically the same?

It’s harder than buying jeans. Get help. — Garth

#93 mel on 09.15.10 at 11:09 am

This is to Prairie Gal:

Sorry for making your life so miserable. Unfortunatelly, most people on this site live in reality, not in willful ignorance. This is why most of us are in debt. Pretending that everything is okay! No, it’s not!

Debt is number one enemy for our future standard of living. Are you financially prepared, or are you leaving things for the future to take care of it? Either way, it will wait for your action!

#94 Corey on 09.15.10 at 11:13 am

Garth – given the apparent dearth of information regarding trusted financial advisors out there (at least that seems to be the case for people on this site) why not start a Mike Holmes type of business where you recommend trusted advisors to those who are looking? Rather than “Make it Right” you could call it “Plan it Right.”

I for one would be happy to take your recommendation.

#95 winnipeger1 on 09.15.10 at 11:17 am

A downgrade is unlikely. But if it happens the only consequence is higher yields for investors. — Garth
————-

So you mean prices for new purchases would drop and thus yields would increase…..the underlying price of preferreds you already own would drop…..if you already own preffereds your cash flow would remain the same even though your yield would increase….but if you had to sell you would take a capital loss….

People who contemplate the need for liquidity buy dividend ETFs, not preferreds. People who want steady and predictable yield buy preferreds. People who have never owned either post comments about them. — Garth

#96 CrowdedElevatorfartz on 09.15.10 at 11:18 am

#79 GrandpaGrinch
….Two years ago, I predicted out loud to Mrs. Grinch that her younger sister who was an Engineering student & dating an idiot with a crappy job would get proposed to by said idiot within a year or two so he could hitch his wagon to her career……

Are we related ?

#97 mel on 09.15.10 at 11:20 am

JMC-you talk about Gail and her instructions to people without any financial knowledge.

Fine, she is giving advice. But, for heaven sakes, what happened to people’s self-control!

I mean, do you have to be told that you are not making enough money to support your fantacy world of overspending?

Anyhow, people are going to have to learn the hard way, when they run out of money.

#98 T in Victoria on 09.15.10 at 11:23 am

Garth, several credit card companies (MBNA is one of them) offers 1% interest on cash advance/balance transfer, some with no fees at all, and usually only for short term (6 months for example). I used mine to pay down and consolidate some higher interest cards, which makes it easier to pay off the debts and/or lower the payments.

For younger people just starting to invest, is it wise to use these credit tools to borrow for invesment purposes? For many that don’t own a home, getting a line of credit is difficult and usually comes with a higher interest rate. Obviously you can only borrow up to your credit limit, but if you can borrow, as an example, $20,000 at 1% for 6 months, would it be worth it?

#99 Grandpa Grinch on 09.15.10 at 11:26 am

I see BNN is working hard to boost RE activity. Gregory Klump was on again today – 2nd time this week!

http://watch.bnn.ca/market-morning/september-2010/market-morning-september-15-2010/#clip348340

#100 Prof ANON on 09.15.10 at 11:26 am

@ 89 Real Estate Realist

Good post. However, I do disagree with one thing. I don’t believe that there is a cultural difference between the US (pre-bust) and Canada (currently “pre-correction”) regarding underwater mortgages/debt obligations.

Prebust US, the cultural norm was that you take responsibillity for your debts. It didn’t take long for change in zeitgeist. I witnessed both sides of that.

Currently, I live in Canada and I cannot believe that the folks here will behave any differently. People is people.

Not that long ago, Garth posted a blog that described the horrible financial situation of an older couple. It was revealing how many commenters thought that bankruptcy was a perfectly rational and acceptable response to such a situation.

Unfortunately, due to cyber-vandalism, the comment section is no longer there, but I think that this is the link to the post:

http://www.greaterfool.ca/2010/08/22/seductive/

#101 Hiteclowtec on 09.15.10 at 11:33 am

Cumulative preferred ? Redeemable preferred ? Perpetual preferred ? Retractable preferred ? Structured preferred? Reset preferred ? Floating-rate preferred ? Dutch Auction preferred ? fixed-rate preferred ?

OR CPD – liquid and simple

Albert Einstein- Make everything as simple as possible, but not simpler.

#102 CrowdedElevatorfartz on 09.15.10 at 11:35 am

#85 jess
Great, so lets manufacture 4500 “Mini” Nuclear reactors for $25 million a piece, sell them worldwide ( US Govt shouldnt have a problem with THAT).
BURY THEM ?!?!?!? WTF ? (because Nuclear reactors NEVER need to be maintained).
Now we wait
And, oh, in about 50 years and they all start leaking radioactive waste into the water table all over the world. Or in 50 years we have to dig up 4500 reactors that will remain toxic for another 100,000 years ?
Sure , sign me up.
P.S. Has Ford started marketing ATOMIC CARS yet?
You know, 1950’s style, lotsa chrome, big fin fenders, yeah baby, Im there…. Barrett Jackson , eat your heart out.

#103 DJ on 09.15.10 at 11:35 am

#87 Bill ( Peterborough) on 09.15.10 at 10:42 am

I agree totally. A fuedal system is a giant leap backwards. I never said wipeout the middle-class. It just may happen whether we like it or not.

#104 DJ on 09.15.10 at 11:42 am

#87 Bill ( Peterborough) on 09.15.10 at 10:42 am

And I’m hardly elite, afterall, I’m in the automotive industry. I have 1 CRT TV and I don’t have cable. I don’t drink or smoke. Simply put, I just live below my means.

#105 Bill ( Peterborough) on 09.15.10 at 12:01 pm

I do not manage content here, since all are free to post what they want – within obvious limits. BTW, how’s that apocalypse working out for you? — Garth

——————————————————————–

Garth , your killing me here man. lol

Your advice for most part is sound , providing you have money.

What I am trying to point out to people is that every year it’s getting harder and harder for the average person to survive, regardless of their debt loads.

Yet very few people question why ?

Instead they just scramble around to make more, eventually realizing that most are not getting ahead, having less free time to themselves.

If we do not get to the root of the problem and just try to keep expending more energy to stay at the same comfort level( if you are lucky) seems absurd.

Sort of like sticking your finger into the hole of a leaking dyke. Will work for a short term but in the end you will drown.

Personally , I’m OK, but I do care about the rest of the people as well.

Like the old saying goes : First they came for my neighbour in the village, then they came for the others. When there was no one left they came for me.

No one will be insulated from what is about to be bestowed upon us in the not to distant future.

http://www.youtube.com/watch?v=vflIjekcnc8

#106 canuckfilly on 09.15.10 at 12:09 pm

Hi Could you devote a blog to those of us who have their morgage paid off and want to mitigate taxes when we take out our RRSP. We have saved a good amount but with pensions etc we are going to get hammered when we take out our RRSP’s. Just cause I paid into CPP and OAS for my whole working life for my parents who got grandfathered in and paid in for only a year or two I’d like to get some out too. I know this doesn’t seem fair to the younger generation but it sure as heck wasn’t fair for me to have to pay about 120K to someone who never even paid in a thousand bucks. Sour grapes eh!!

#107 Jeff Smith on 09.15.10 at 12:17 pm

Home sales rise. Back to the good old days.

http://money.canoe.ca/money/business/canada/archives/2010/09/20100915-095958.html

#108 Larry in Calgary on 09.15.10 at 12:19 pm

The Townhouse across the street here in NW Calgary is now down 40K from 358K since somone else is selling at 319K LOL.
That’s about 2.5 years my current rent.
The price slide is gathering momentum much to the delight of Calgary rip off i’m sure.

#109 Jeff Jones on 09.15.10 at 12:20 pm

A [RBC] downgrade is unlikely. But if it happens the only consequence is higher yields for investors. — Garth
================

No, RBC pref share investors would also see the value of their RBC pref shares fall (that’s what would make the yield higher – duh!), and that is certainly a ‘consequence’.

You buy preferreds for yield, not capital gain. This is only the 486th time I have typed this. — Garth

#110 Grrr on 09.15.10 at 12:22 pm

Garth, your plan of maintaining mortgage debt levels to buy preferreds and bonds is very risky. If interest rates rise, your debt becomes more expensive while your assets become less valuable. And lets face it, interest rates pretty much have only one direction to go.

#111 Republic_of_Western_Canada on 09.15.10 at 12:27 pm

#78 Prof ANON –
[…]Perhaps you should change majors to something you can throw yourself into whole heartedly?

Dangerous advice. The day you allow yourself to get really interested in course material is the day you die.

Going off on a tangent is dangerously expensive, in time and effort. More material is presented and expected to be known than any good average student could become thoroughly familiar with. Professors and those establishing curricula have been able to watch thousands of students before you, possibly over decades, to know just how much work can be piled on until you puke. Knock-out percentages of students killed off in first (and sometimes subsequent) years are adjusted by workload, difficulty of assignments and ‘seminars’ and labs (time killers), a student base with prior or advantaged knowledge of topic material, and screwed tricks like vague mentions of important reference material that can only be discovered by tearing apart a library for a week or specialty labs with access hours only during lecture times or having a personal relationship with a particular researcher and his current work (at the undergraduate level, no less).

So, pursuing something [else] which is really interesting takes resources away from what you will be graded on.

Getting critical with presented material is bad too, as you’ll get bitter when all those exceptions and discontinuities which are inherent in academic material surface. A lot of stuff could also be considered irrelevant or ridiculous for one reason or another – that should be screened out as much as possible and dealt with by examining a school’s program and course curriculum and descriptions, and professor’s backgrounds before signing on to a program in the first place.

Note too that a classic primary teaching ‘aid’ is making students extremely frustrated with course material and assignments, so they are motivated to go over it again and again to make sense out of it. If you get personally involved with the material in addition to the contrived frustration, you will become despondent and utterly exhausted.

Note that this assumes a student is putting out 100% in any direction. Motivation is assumed. Abuse or careless placement of that motivation is the core problem.

#112 brainsail on 09.15.10 at 12:53 pm

#82 Risk

“I just read today that a new record since 1959 has been broken in the USA… 1 in 7 people are now poor in the USA. Isn’t that horrible?”

1 in 7 is not a new record. The year to year increase from 2008 is, according to your link.

“The estimated 1.8 percentage-point increase in 2009 is the largest year-to-year uptick since the U.S. started calculating poverty figures in 1959.”

#113 Bill ( Peterborough) on 09.15.10 at 12:55 pm

Re # 75 Old_ is_Gold

Thank you for the compliment.

Went and clicked on your monicker and it brought me to your website. ( Deshpal Sandhu) Presuming this is you.

If this is correct I have noticed you have used your name as your monicker as well.

Curious as to why” A MAN OF GOD” would use 2 different monickers.

#114 Bill ( Peterborough) on 09.15.10 at 1:00 pm

Re #101 DJ

Fair enough.

#115 antonio on 09.15.10 at 1:12 pm

Spoke to my real estate agent today. She usually tells the truth. In the last few months she has been truthful about the slow market. She is saying that in the beaches area Toronto in september they are contending with multiple offers. Anyone else hearing something similar? Are we the greater fools?

#116 Soylent Green is People on 09.15.10 at 1:13 pm

Where’s my post?

#117 JMC on 09.15.10 at 1:14 pm

#94 – Mel:

Yes.

There are people who need to be told in no uncertain terms that they need to make more money or have more self-control or snap out of their fantasy life/world or buy preferreds or not expect to pay for groceries/gas with gold or not get into the real estate market right now and if they are in to get out. They have not figured it out for themselves.

Yes. These people have already run out of money by the time Gail gets to them or perhaps they have been burned by the Smith manouever by the time they find Garth.

The similarities in the intent of the advice is obvious. The audience is different.

Desperate times call for desperate measures. Whether that means using mason jars to get your finances in order or re-balancing your portfolio depends on individual situations.

I expect that some of Garth’s readers (including you, Mel) already know people who live beyond their means and have no financial clue. They may not be ready for Garth’s website. Perhaps you could refer them to Gail’s website where they may finally get the wake up call they need.

Slamming Gail (whom I assume you have never met) or me on Garth’s blog makes you look like a greater fool – not to mention a common bully.

Have a nice day, Mel.

#118 dale on 09.15.10 at 1:16 pm

I am not in favor of borrowing to invest myself, but I know others that do. I suppose once I have my home purchased, I will actually leverage some cash and do this, but I am always a little hesitant, as I don’t trust myself, and think, ok I invest 100 bucks, and lose 30, that is ok, but I borrow 1000, and lose 300… I am 300 in the hole… Hmmm its leveraging risk as well as profits.

I think once I have a few years under my belt, and can see my Dividend Balanced Portfolio is doing better than current interest rates, i will give it a try. With Mortage rates at 2% the spread is good, but my LOC is 4.5%, that means I have to get a relative return of at least 6 to make it worth while. And what happens when my LOC goes up? The spread decreases. Paying off a mortgage is not a bad idea, when rates are above 4%, IMHO, as you are esentially makeing 4% compound, by paying it off. Below 4%, you are better off doing exactly as Garth has suggested. There are institutes that will get the loan, and the investment as a package, my insurance agent tried to sell me a package, but I didn’t want to disturb my credit availability as I am intending to buy in 1-2 years…

Garth, thanks for the info…

#119 Larry in Calgary on 09.15.10 at 1:18 pm

#106 Grr, you sound like the girl in my office who asked me for some RSP investment advice on 2% or 3% return, while at the same time complained about her huge credit card debt with 19% interest.
What Garth is trying to tell you is that paying off more mortage debt then you need, at such a low interest rate is worse then investing that money in preferrals or bonds.

#120 EB on 09.15.10 at 1:19 pm

#60 Bill ( Peterborough) – While I agree for the most part, and I’m not as sanguine as Mr. Turner claims to be about the future of the current crisis, the message of diversification still holds.

Nobody anywhere knows how things will play out – not the hyperinflationists and gold bugs, not Mr. Obama, not the Captains of Industry, not the Polyannas who are waiting for 10% house price appreciation next year in Vancouver. Diversification is the sensible strategy in order to capitalize on whatever the outcome looks like.

#121 Moneta on 09.15.10 at 1:22 pm

There are so many frickin’ bank preferreds! Which one is the best? Or are they all basically the same?
———-
Don’t worry, there’s a tonne more coming.

#122 arthur on 09.15.10 at 1:23 pm

#106 Grrr

Not all preferred shares are perpetual or at a fixed rate.

#123 dale on 09.15.10 at 1:29 pm

#103
“Hi Could you devote a blog to those of us who have their morgage paid off and want to mitigate taxes when we take out our RRSP”

I talk to some people who don’t even bother with RRSP’s, there is no point if you are so lucky to have pension and savings, that will put you in a 40% tax bracket at retirement. Pay it now or pay it later… you are still gonna pay. I have money in an insurance policy, a whole life policy, (they don’t exist any more) I will pay into it until the day I die, and never see a penny. My wife will get it, and pay off any debts i have.. here it comes… TAX FREE… you pay no tax on life insurance policys… I intend to have a mortgage until the day I die, and my LI will pay it off, leaving my family to the house, and rest of my pension.

Another great vehicle is the TFSA, and Garth has touched on this in previous posts, how much in RRSP’s and how to put in TFSA’s.

#124 jess on 09.15.10 at 1:37 pm

Solar and wind won’t produce enough power

we could go to the moon and get a shovel full of helium3

#125 Hell in a Hand Basket on 09.15.10 at 1:38 pm

From yesterdays comments:

bullion.bunny on 09.14.10 at 3:07 pm
Very good point…………but how are you going to pay the outstanding debt back?
_____________________________________________
We could make use of the Bank of Canada. It is a nationalize bank, we could borrow money from the BoC virtually interest free to pay off a large portion of the interest bearing debt that is owned by the private banks. We routinely used to finance up to a third of the budget from the BoC until 1974.

kitchener1 on 09.14.10 at 4:57 pm

Thats the problem, without full time stable work, people will not commit to purchases that require financing– autos homes etc…
_____________________________________________
I agree it’s a problem, but there will never be full time, high paying employment again. Those days are over. Human workers for physical labour are increasingly becoming irrelevant. Hell, human workers for mental labour are becoming increasingly irrelevant. So unless we turn back the clock on technological advancements, which will never happen, we need to think about a new paradigm. Jeremy Rifkin suggests that a third sector, not public, not private but volunteer/non-profit will arise to prominence.

Nostradamus Le Mad Vlad

Correct, and therein lies the karmic speed of time, becoming faster each moment so there will be many more technological breakthroughs, which will lead to new areas of work, stuff being invented that we haven’t even conceived of.
The next lifecycle will be quite fascinating (depending on where we are). There are many changes coming forth.
_____________________________________________
Well let’s extrapolate even more, in a world of mostly automation, why have work? Why have money? Why have rigid government institutions? Why have corporations? In the next 20 years we will be reassessing every view we’ve held as inviolate for the past 100 years. My children will raise their children in a world that is radically different than the world we are living in today.

#126 Prof ANON on 09.15.10 at 1:47 pm

@107 Republic of Western Canada

Interesting point of view. I didn’t run into the frustrations you describe until I hit the dissertation stage. At that point, I was already doing what I loved, so I didn’t mind as much as most.

My perspective is simply that if you do what you love, you will do it more and be better at it. This will not only make you more marketable in your field, but you also won’t mind the hassles so much.

If you can pull this trick off, work isn’t so much work as it is an expression of self. Doesn’t matter if your a craftsman, a mechanic, an academic, a tattoo artist, or a realtor.

From Mike’s (comment 52) post, it seems that he is more concerned about getting a certain grade while saving a couple dollars on textbooks than he is about economics. If this is the case (it might not be), for his sake, I sure hope that this isn’t his planned career.

#127 Ottawa S. on 09.15.10 at 1:47 pm

I have mixed feelings about this post.

I don’t think it is a yes or no scenario. I think paying your mortgage off faster can be good. We all know how high the cost of borrowing on a house can be, even at low rates.

Frankly, I don’t think investing is for everyone. Even if you buy all preferred shares, my understanding is that you’re not guaranteed dividends, and the value of those shares can fluctuate, too. And if the company goes bankrupt, preferred shares are useless as well. There is still risk, nothing is guaranteed, and some people just don’t want to deal with the risk. For some people, security is more important.

Borrowing money to invest is also not something the average Joe should be doing. It is high risk, and frankly a lot of us just don’t have the collatoral to get into that game.

Another point is most of us don’t have the financial knowledge to invest wisely. And you need money to make money, and some of us just don’t have enough money to even get a good financial advisor interested since they mostly want to deal with those that already have money (large portfolios). Vicious circle.

So in the meantime, if all you have access and knowledge to do is pay down your mortgage faster, I’d say go for it.

Garth, have you watched Till Debt Do Us Part? Gail does provide a lot of great advice for people in debt. Her advice is great for the masses, probably not the same audience that this blog is tailered to (the wealthier).

#128 glu on 09.15.10 at 1:48 pm

#98 Hiteclotec

CPD – one consideration is tax treatment – some variable portion of distribution is ROC. ~30% for ’09.

http://www.claymoreinvestments.ca/en/etf/fund/cpd/distributions

This seems like a reasonable move given that my lacklustre search for a fee based advisor locally has been a dismal bust.

#129 Alan Greenspan on 09.15.10 at 1:49 pm

Gold is the ultimate means of payment.

Greenspan’s comments came in response to moderator and audience questions, and were accordingly wide-ranging. The former central banker noted that gold, the price of which has been surging, still represents the “ultimate means of payment.” What is happening in that market “is a signal there is a problem with respect to currency markets.” He reckons the problem is not a large one, but the jump in gold prices could be “the canary in the coal mine to keep an eye on.”

http://blogs.wsj.com/economics/2010/09/15/greenspan-fiscal-stimulus-worked-far-less-than-expected/

#130 jess on 09.15.10 at 1:55 pm

T in victoria

stoozing /carry trade or
“picking up nickels in front of a steamroller”
http://www.economicshelp.org/dictionary/y/yen-carry-trade-unwind.html

Mother of all carry trades faces an inevitable bust by Nouriel Roubini, 1 Nov 2009.

#131 Foggy on 09.15.10 at 2:01 pm

In your west coast seminars I would be curious to know what kind of response you would get if you asked the audience “Can somebody tell me about the real estate events of 1989?” If you get a lot of blank looks then you’re largely dealing with an audience who has no frame of reference for the current peak and decline. The thinking is that if it didn’t happen when I was an adult, then it never happened. You can also take the wind out of their sails by saying “If there are any realtors here let’s just get all the current cliches out of the way first, so we don’t have to hear them again –
It’s a balanced market…
Prices are stable…
There is no better time to buy…
Vancouver is a world class city and everybody wants to live here…
It’s different here…”

#132 prairie gal on 09.15.10 at 2:04 pm

91 mel on 09.15.10 at 11:09 am This is to Prairie Gal:

Sorry for making your life so miserable. Unfortunatelly, most people on this site live in reality, not in willful ignorance. This is why most of us are in debt. Pretending that everything is okay! No, it’s not!

Debt is number one enemy for our future standard of living. Are you financially prepared, or are you leaving things for the future to take care of it? Either way, it will wait for your action!
___

Eh? I’m not miserable – I happen to be in support of Gail vas Oxlade and her no-nonsense approach to debt reduction. I was calling Jody out on her nasty comment that Gail would be a nobody if it weren’t for the CRTC and Canadian content rules.

Jody (among others on this blog) are conspiracy theorist wingnuts who think that there is a grand plan for a scary New World Order designed to take away your freedoms via a carbon tax (or some other means).

Who needs a reality check? Does anyone with half a brain actually believe that national governments will surrender their sovereignty? Anyways, global governance is already here in the form of the United Nations and countless other regional bodies designed to protect citizens from the crimes of violent dictators and bring justice.

Not so scary when you put a name to them: International Criminal Court, World Trade Organization, etc.

again, you were saying something about reality? or do you, too, believe that Al Gore is part of a new world order plan to wipe out the middle class? would you care to share a scary website filled with the rantings of ill-educated lunatic fringe with WAAAAAY too much time on their hands?

or do you just really suck at reading comprehension?

#133 InvestX on 09.15.10 at 2:06 pm

US Investor :
In he USA people can walk away from their houses, in Canada it seems for the most part they can not. Can someone please tell me how this dynamic changes the scenario for Canadians in a crashing RE market?

It doesn’t. Both recourse and non-recourse US states have seen real estate crash. — Garth
—————————————————–

Greater rate of foreclosures doesn’t drop property values faster?

#134 Mike Turner on 09.15.10 at 2:12 pm

August home resales jump…
Amazing how you can twist stats to make a headline. Sales up 4.1% for first time since march. But down 22.5% from same time last year. Talk about making a mountain out of a mole hill. Sounds more like a dead cat bounce to me

#135 TheBigLebowski on 09.15.10 at 2:18 pm

#102 Bill ( Peterborough)

Yup, we are living through a script, A planned economy. Once you come to accept this then the next step is finding out the best way to protect yourself financially and physically. Instead of stumbling in the dark because most economist , anylists and government officials either don’t see the full picture or know if they talk about it they would be on food stamps tout de suite.

#136 Devore on 09.15.10 at 2:22 pm

http://www.cnbc.com/id/39192979

Here’s some cheerful US real estate news from the CNBC.

They say today’s buyers are only looking for great deals, so if you price the home at its actual value, nobody’s interested. You have to go below.

Coming soon to a neighborhood near you?

#137 goldenfox on 09.15.10 at 2:28 pm

Dear Financial Media,

Instead of making fun of the very small majority of us who for almost a decade have been very bullish and correct on the price of gold (call us gold bugs, doomsayers, etc), how about just once you go back to the thousands of articles you wrote calling gold a top, bubble, useless relic, ready to collapse, etc, and asked those so-called authorities you quoted time and time again to explain how they were wrong – yet again?

Sincerely,

Peter Grandich, author of the claim “We’re in the mother of all gold bull markets” and sole member of the Tokyo Rose fan club.

#138 Old_is_Gold on 09.15.10 at 2:42 pm

Re comment # 75 / I do not manage content here, since all are free to post what they want – within obvious limits. BTW, how’s that apocalypse working out for you? — Garth

Garth, what I meant was that as the owner of this site it is your right to determine what kind of content you wish to post, obviously comments are not your content but you allow them to be posted as you see fit. So if you do not wish to address other subjects which, in my opinion are related, such as conspiracies, NWO, market manipulation, corrupt politicians etc. that is your choice, and no one should be offended by it.

In Godfather III, Michael Corleone says something to the effect that all he wanted to be was to become respectable, but the higher he climbed the ladder, the more ‘respectable’ company he began to keep (congressmen, senators, religious leaders, lawyers etc.) the more corrupt he found them to be; more corrupt than the mafia – go figure! Art imitating life, and being that you were in politics, I’m sure you can attest to the truth of the corruption in politics. Conspiracy – for those who dare to look, its easy enough to find but those who don’t want to look will never find it.

As to the Apocalypse, Jesus said that it would last something like one generation, about 40 years. So we can check again in a decade or two. Just because it hasn’t happened yet doesn’t mean it is not going to happen. Somewhat like your predictions of a housing crash, although the signs have been there for many years, most would still deny that it will ever happen – kinda like the Apocalypse.

I have personally witnessed no corruption in politics. Bad judgment, of course. Expediency, naturally. But no malicious intent. Upon what do you base your beliefs, other than a movie? — Garth

#139 TheBigLebowski on 09.15.10 at 2:46 pm

#116 EB-Nobody anywhere knows how things will play out

I disagree, I could tell you exactly what is coming. They document their plans in CFR meetings, Club of Rome, Tri-Lateral Commission and U.N roundtable get togethers. Until you follow the real government in the shadows and quit paying attention to the Gov officials put in front of us for the public to throw tomatoes at: Nothing will make sense.

#140 Tom from Mississauga on 09.15.10 at 2:57 pm

#49 abraxas on 09.15.10 at 7:05 am

“I think it would be a stretch to try and earn that 5.98% in the markets so I’m just better off wiping out the mortgage first.”

Take out variable HELOC for 100,000 or 200,000 at 3% interest payment only for cash flow, put max prepayable without penalty against 5.98% mortgage, increase payment to max on 5.98%, do again at next year. Take extra 3% HELOC funds throw into TFSA and RRSP earning 5-7% return. BAM!!!

#141 Jeff Jones on 09.15.10 at 2:57 pm

You buy preferreds for yield, not capital gain. This is only the 486th time I have typed this. — Garth
==================

We are talking about a capital **loss**, not a capital gain. Do you really ignore the capital loss that accompanies and occurs with many pref shares?

There’s nothing to ignore. They are far more stable than commons. Buy quality. — Garth

#142 TGS on 09.15.10 at 2:58 pm

Interesting article that indicates that the US housing market could be in for THREE MORE YEARS of declining prices…..

http://www.bloomberg.com/news/2010-09-15/u-s-home-prices-face-three-year-drop-as-inventory-surge-looms.html

#143 Risk on 09.15.10 at 3:12 pm

Hang on!

Expect house prices to slide 7% next year, TD warns

“In an environment characterized by highly-indebted Canadian households, a moderation in job growth and personal income, and the fact that demand was frontloaded in 2009, we expect the cooling in the housing market to continue through the remainder of 2010 and throughout the entirety of 2011. TD Economics forecasts for existing home sales to decline by more than 20 per cent in 2011 and existing home prices by more than 7 per cent in the same year.” Francis Fong, economist, Toronto-Dominion Bank ”

http://www.ctv.ca/generic/generated/static/business/article1708642.html

Garth sure is giving out great advice, I sure hope home sellers and buyers are listening.

#144 Hiteclowtec on 09.15.10 at 3:14 pm

#125 glu

Lengthy discussion regarding the return of capital with lots of info.
http://www.financialwebring.org/forum/viewtopic.php?f=33&t=106991&start=25

There is also -Diversified Preferred Share Trust (DPS.UN)

James Hymas has a fund, only $150,000 minimum deposit –HA—HA ! The experts sure ain`t cheap.

We plebs have to take what we can get.

#145 Amy on 09.15.10 at 3:27 pm

Total listings down, Greater Vancouver Main Area Real Estate Weekly Statistics: http://canadabubble.com/charts/589-greater-vancouver-weekly-statistics.html

#146 Debt and Debtor on 09.15.10 at 3:30 pm

I think when evaluating cost of debt vs. expected returns on investments one should remember that returns are not risk free, whereas the ‘return’ from paying debt is known.

Also, even during bull markets many retail investors tend to significantly underperform the averages due to fees, emotional market timing, etc.

For some, a disciplined approach to paying debt with a known (but low) ROI beats an emotional chase for a 5% ROI that never materializes.

Except when you are paying non-deductible debt on a depreciating asset. — Garth

#147 Amy on 09.15.10 at 3:31 pm

Total listings up, Greater Vancouver Main Area Real Estate Weekly Statistics: http://canadabubble.com/charts/589-greater-vancouver-weekly-statistics.html

#148 Debt and Debtor on 09.15.10 at 3:32 pm

I guess what I’m trying to say is this:

Invest if you know what you’re doing. Pay down your debt if you couldn’t invest your way out of a wet paper bag.

#149 POG on 09.15.10 at 3:37 pm

# 15 junius

What’s trust got to do with it. Review the FACTS and make a decision like any other SANE adult might do.

#150 DJ on 09.15.10 at 3:40 pm

#139 TGS on 09.15.10 at 2:58 pm
Interesting article that indicates that the US housing market could be in for THREE MORE YEARS of declining prices…..

http://www.bloomberg.com/news/2010-09-15/u-s-home-prices-face-three-year-drop-as-inventory-surge-looms.html

Garth,

Does this alter your advice on buying property in the US?
It seems the water is still a bit too cold to jump into that lake. The 3%/year projected increase in value of US property isn’t very inspiring. I was in Fort Myers FLA this spring, and properties were cheap and abundant, so it is tempting.

So what if you buy when prices might decline another 5-10% before recovering? If you have the cash, the timing doesn’t bother me. — Garth

#151 POG on 09.15.10 at 3:45 pm

# 135 Old_is_Gold – Garth’s comment

“I have personally witnessed no corruption in politics.”

I have personally witnessed no murders either, but they certainly occur.

I was there for nine years. And you? — Garth

#152 VICTORIA TEA PARTY on 09.15.10 at 3:48 pm

#42 David B.

Brilliant contribution there.

Yes, and this is where I part company with Garth about the future of the American Empire. These Americans who do not pay taxes, thanks to various deductions and entitlements, are zombies and parasites, according to Bill Bonner of the Daily Reckoning site.

Zombies can bring down empires sure as shootin’ there pardner. “I didn’t know my tax return was loaded…” with other peoples’ money! Whoopee!

Meanwhile, I watch the US mid-term electoral pot-luck like someone watches a bad car accident; with mute fascination, all the while replaying it after the fact in one’s head, over and over.

The Tea Party crowd (not unlike BC’s anti-HST zombies) is displacing some long time Republicans in a series of primary votes leading up to the November 2 election.

Ecstatic Democrats say their candidates will slaughter these whacko interlopers because the incumbents were more of a threat. Remains to be seen.

The best hope for America is a House where Republicans win by a whisker and a tied Senate that will allow for fillibusters. This is called Gridlock. Some politics watchers say this has benefits in that nothing to startling ever gets rammed through Congress. We’ll see.

Regardless it won’t stop the pork, another nail for the empire’s considerable coffin.

#153 Darryl on 09.15.10 at 3:49 pm

abraxas #49

If I remember correctly. And this may have changed. If you have paid the CMHC fee , the banks can only charge you the 3 months interest. I used this 15 or so years ago to change my interest payment. However , when I paid off my last mortgage the bank charged me the differential . Didn’t fight it because the difference was minimal. You should investigate this.

Darryl

#154 Darryl on 09.15.10 at 4:01 pm

66 KB on 09.15.10 at 9:00 am #13 april on 09.14.10 at 10:27 pm

You may be experiencing web page caching.

When you open the comments page, press your F5 key or click on the refresh button on your browser. This will reload the page. Hope this helps.

Hmmm.
You seem to know a little to much about computers KB.
Send out the KGB guys Garth. I think we found your sabateur.

:)

#155 Industrial Guy on 09.15.10 at 4:10 pm

CREA is reporting today that month to month sales increased 4.1 % …. But if you do a little snooping yourself, you’ll discover that year to year sales in August 2010 decreased by over 20% when compared to the same month in 2009. You have to look at CREA’s web site to find this out: ttp://creastats.crea.ca/natl/

I guess they didn’t want another month of bad news in the headlines so they fabricated some good news. OK, so it’s slightly less of free fall. This is classic spin journalism. Shame on the media for playing their game.

#156 Painted Toenails on 09.15.10 at 4:13 pm

Homeless in Victoria! Since selling the money pit, er…. heritage house, in December, I’ve been merrily homeless. The first six months I leased a fancy condo up at the even fancier resort on the mountain (touted as beautiful – it turns out the only truly beautiful thing up there is the wildlife). Now I’m housesitting a waterfront, STUNNING home in the middle of the city. My friend says she could be gone for up to 2 years but even if it is only another 2 days THIS IS UNREAL!

I’m still too scared to do anything with my money except feel around for it in the ‘dutch guys pants’. He seems to like it….. alas, all good things must come to an end for him…I will soon be casting my eyes about for someone else’s pants.

My friends with the two houses? One their permanent ‘new waterfront home’ and the other their ‘old, new waterfront home’? That one is now a shiny, bobbing trinket in a sea of other shiny bobbing trinkets for sale. Drip, drip, drip. All day long, all month long. Almost five long months now hearing that dripping, unable to stem the leak. Taxes. Maintenance. Gardeners. Utilities. The never-ending, soul-sucking, hands-out for a dollar rats from the insurance company and the banks. They say they are deep, pit-in-the-stomach worried now.

Am I smarter than my friends? Was I born under a lucky star? Do shamrocks fill my flower vases? Or was I savvy enough to research what Garth and Rosenberg were saying, find it solid, close my eyes and step. off. the. housing. cliff.

About 15 fat, honking Canadian geese are flying in a V over the water in front of me just now, preparing for their long journey.

Take a cue from our magnificent world around us. Everyone ready for winter?

Thank you Garth.

#157 Causalien on 09.15.10 at 4:14 pm

#107

Buy interest rate reset preferred. It will not be as affected by a downgrade since the yield will track the LIBOR rate.

Then again, it is a stock, so when sheeple believe it will fall, they will all sell. Even if the yield is 20% on a bank that has slim chances of halting dividend according to BASEL III

#158 TheBigLebowski on 09.15.10 at 4:17 pm

#147 DJ, your grandkids might be waiting for prices to appreciate with what is coming. So buying real estate in the states isn’t an investment its dead money and a tax burden.

Dead wrong. — Garth

#159 Bill ( Peterborough) on 09.15.10 at 4:23 pm

Re #117 EB

Diversification is the sensible strategy in order to capitalize on whatever the outcome looks like.
——————————————————————-

Absolutley. My diversifaction portfolio consists of free range beef cattle, chickens , pigs, vegetable gardens, vast amounts of hard wood for my wood stove, fresh fish( which I catch)….

Plus 3 freezers to keep them in.

Also gold( the kind I can touch) & cash. Real estate/ business as well, bought right, of course.

As stated before I do not hold much faith in our stockmarkets in this day and age. Or most of the Financial Wizards out there .

Yeah I know , old school thinking. Worked hard both physically/ mentally ,and sweated to get where I am.

As far as nobody out there knowing how things will turn out , depends on how far you want to go down the rabbit hole to seek the truth.

Q) Why does history repeat itself ?

A) Because its written by the same handful of conspirators.

___________________________________________

Re # 128 prairie gal

Jody (among others on this blog) are conspiracy theorist wingnuts who think that there is a grand plan for a scary New World Order designed to take away your freedoms via a carbon tax (or some other means).

Who needs a reality check? Does anyone with half a brain actually believe that national governments will surrender their sovereignty? Anyways, global governance is already here in the form of the United Nations and countless other regional bodies designed to protect citizens from the crimes of violent dictators and bring justice.

Not so scary when you put a name to them: International Criminal Court, World Trade Organization, etc.

again, you were saying something about reality? or do you, too, believe that Al Gore is part of a new world order plan to wipe out the middle class? would you care to share a scary website filled with the rantings of ill-educated lunatic fringe with WAAAAAY too much time on their hands?

or do you just really suck at reading comprehension?
——————————————————————-

Normaly I would not reply to your blog.

If ignorance truly is Bliss you graduate at the top of your class.

Nothing worse than babbling about something which you have no knowledge of. Furthermore coming across as a know it all in things which you chose to have not read about/ cross referenced with other sources in order to form an opinion. Wild.

Who needs the reality check.

I could go on , but I fear it would fall on deaf ears.

Some quotes :

” Better to be though a fool , than spoken and know a fool”

” Education is a great thing, it’s the people who ruin it”

” Why confuse me with the facts my mind is made up”

” A little knowledge is a very dangerous thing”

___________________________________________

Re # 131 TheBigLebowski

Correct. Alot of people do not want to look at the obvious, no matter how much it presses into their face.

They would sooner come up with any other excuse but the truth so as not to pop their insulated bubbles.

In regards to your comment to me yesterday your right no conspiracie’s. Just alot of coincidence’s.

#160 Bill ( Peterborough) on 09.15.10 at 4:40 pm

Re Garths comment:

I have personally witnessed no corruption in politics. Bad judgment, of course. Expediency, naturally. But no malicious intent. Upon what do you base your beliefs, other than a movie? — Garth
——————————————————————-

Garth , your really cracking me up here, never laughed so hard in my life.

Ya that purchasing broad in the Toronto City Hall computer scandal; where the purchasing price double, slept with the a member of that company because she loved him.

And Ed Jacko’s $25,000.00 winfal given to him by Dash Domie( who was also involved in computer deal)
was nothing more than a king, generous gift from one human to another.

Of course these were just bad judgement calls with the twist of bad timing thrown in. Pricless.

Please no more comments Garth , I’m libel to bust a gut.

I didn’t serve in City Hall, nor was that the context of the comment. But, look, a shiny thing. — Garth

#161 Midas on 09.15.10 at 4:53 pm

“There will be no collapse. But if there were, gold sure wouldn’t save you. — Garth”

Depends on the nature of the ‘collapse’. Gold would have been the perfect storage asset for Germans during the Weimar republic. Ditto Zimbabwe recently. Ditto Chile in the 70s.

The real concern with gold is whether a govt. will try to seize it and outlaw it. I gather that in the Soviet Union, being found with gold was an offence punishable by death. Vodka sounds like a safer proposition!

Booze and cigs are good for trading day to day, but gold takes up a lot less room in storage. Do as Garth suggests: diversify. It’s impossible to predict where the world is going, given the State’s tendency to interfere in free markets.

Garth saw no corruption while in politics. Well, maybe he didn’t. Depends on the definition. My definition of a thief is someone who points a gun to my head and demands money. Does not the State fit that description?

Those of you holding on to real estate could be squeezed high and dry at any time via our good friend, the property tax. For those of you fabulously wealthy living in BC, remember the NDP’s plan to hike property taxes on the wealthy back in Glen Clark’s day?

And more recently, Gordo implemented HST without the approval of the legislature, a major violation of the Common Law. Now he says he’ll hold a referendum next year. After he’s retired to Hawaii???

The Feds can print money. The locals can’t. All the locals have are taxes and expropriation to feed the beast known as government.

Enjoy the end of summer, folks. The Fall beckons.

Weimar. Zimbabwe. Chile. Have you guys got anything remotely approaching modern life in a first world nation? — Garth

#162 Hiteclowtec on 09.15.10 at 4:54 pm

If you have the cash, the timing doesn’t bother me. — Garth
———————————————————
How about this for your new web infrastructure.

Communication Station, Ocilla, GA

http://www.missilebases.com/ocillageorgia

• DSL and fiber-optic nearby

Perfect! — Garth

#163 Old_is_Gold on 09.15.10 at 4:58 pm

re comment # 135 – I have personally witnessed no corruption in politics. Bad judgment, of course. Expediency, naturally. But no malicious intent. Upon what do you base your beliefs, other than a movie? — Garth

Garth I believe you were not long enough in politics to witness the corruption. It is an open secret that the country is run by the PMO, not even cabinet, let alone the MPs. Most MPs try and make it two terms so they can get cushy pensions and make private sector contacts for their future. If politicians were truly white knights, the first thing to go would be the lobbyists. The lobbyists influence on Washington (and Ottawa I’m sure) is not a matter of speculation but of record. Just like the Godfather did not offer his protection merely out of the goodness of his heart, neither do politicians bow to the will of the lobbyists for their concern for the little people. BTW I quoted Corleone as an anecdote not evidence.

Even though guised as political expediency it still amounts to corruption as for instance the emergency interest rates brought about by the collusion between government and the central bank. Let’s see who the beneficiaries were, certainly not the average Canadian who got suckered into what amounts to an unpayable debt. The RE industry, brokers, agents, builders, developers all benefited, though temporarily for their party is about to come to an end.

But the real beneficiaries were the big banks who were all languishing in 2008 and were beginning to swoon like Northern Rock or WAMU. Suddenly all their bad debts have been bought up by the taxpayers and all their future losses are guaranteed by CMHC (the taxpayer.) Socialize the losses, privatize the profits – is this all political expediency or just stupid mistakes? At whose behest would the politicians do such stupid things? Or were they not stupid from a certain point of view? You and I would not have advised them to do what they did but somebody did advice them, what was their motivation?

And where is the media who always seems to be adding 2 + 2 to equal 5, sometimes 50, are they all stupid too that they can’t see what is plain to even simpletons like me who are not exactly the sharpest knives in the drawer?

And political parties investigating each other is like internal affairs investigating cops or banks regulating themselves, they all feed at the same trough and will therefore never cut off the hand that feeds them. This is why there are hardly ever any provable cases of corruption in Canada such as Mulroney with Airbus or Chretien with the golf course deal. RCMP will always give them a clean bill. So corruption in Canada is only deducible not necessarily provable. In the States it is far more apparent than here but never brought out in the MSM although Bill Moyers did a report that aired on PBS in the 80’s on the secret government. Why is it that legitimate questions raised by such reports are dismissed as conspiracy theories? How about answering all the facts that are brought out in the report? How about answering the question as to how building 7 collapsed on 9/11? Please watch the Moyers report on Google:

http://video.google.com/videoplay?docid=3505348655137118430#

So in answer to your question I base my conclusions on 20 years of trying to understand how my world really works, and it does not work the way my parents, teachers or professors taught me. I can forward you reams of evidence if you desire that proves what most dare not call conspiracy; it’s far easier to sip lattes and watch HGTV or paint your face and scream Go leafs go!

So the answer is ‘nothing.’ Walk a mile in my shoes before you speak of things you know not. — Garth

#164 Bill Gable on 09.15.10 at 5:11 pm

A new study obtained by CNBC says Americans are $6.6 trillion short of what they need to retire.

My question is – with a lot of Canuckleheads with less than 25 K in RRSPS or whatever, what happens when this tide hits the beach?

Canada is tied at the hip to the United States. Sorry, xenophobes, that’s the deal, and so if retirees to be are this cranked, I have a sinking feeling how we are doing.

Mr. Turner has half of the media in the city of Vancouver waiting to ambush him.

Kevlar everything, sir. My best advice. I don’t even charge a fixed fee!

#165 JET on 09.15.10 at 5:14 pm

#119 Moneta
There are so many frickin’ bank preferreds! Which one is the best? Or are they all basically the same?
———-
Don’t worry, there’s a tonne more coming.
————

I’m not worried… come to think of it, the more the merrier because competition for capital (if that’s what you mean) could only mean one thing – higher yields!

Anyways, will work on a spreadsheet to analyze them. That way, if/when I get help, I’ll at least know what I’m talking about.

#166 Cashman on 09.15.10 at 5:15 pm

I just got off the phone with a real estate friend in the Barrie, Ontario area and when asked how the market is, his answer: S-L-O-W.

Kudo’s to Sir Garth and his expert analysis! The real estate gravy train has derailed, finally! Maybe now we can start seeing some realistic pricing in the market. But then again, it’s still early in the down cycle. Quick break open the champagne, and celebrate.

#167 dwc on 09.15.10 at 5:17 pm

Here is a couple of links to the downgrade of the Royal bank Of Canada by moody’s. Not that i would take anything by moody’s very seriously, aren’t they the ones that graded toxic waste morgage backed securities as triple a rated. How well did that work out for taxpayers? These agencies will be held accountable for their criminal activities when the truth goes mainstream.

http://www.istockanalyst.com/article/viewiStockNews/articleid/4504082

http://www.theglobeandmail.com/globe-investor/markets/markets-blog/royal-bank-credit-downgrade-in-the-works/article1707267/

#168 Anand on 09.15.10 at 5:18 pm

I suspect this Gov. Lady, behind blowing up you site last week

#169 rory on 09.15.10 at 5:29 pm

#100 CrowdedElevatorfartz

You got a better idea on how to keep your first world lifestyle going. Solar and wind are great ideas but is not enough to keep us all ‘charged’ up.

#170 Midas on 09.15.10 at 5:38 pm

“Weimar. Zimbabwe. Chile. Have you guys got anything remotely approaching modern life in a first world nation? — Garth”

Germany: the nation that produced Bach, Goethe, Beethoven, Kant and a few others.

Austro-Hungary: the empire that produced Haydn, Hayek, Gödel and a few others.

Zimbabwe was, prior to Mugabe taking over, one of the most advanced countries in Africa. Argentina once had the 7th largest economy in the world.

In the US, what is a dollar worth now compared to 1914? Roughly a nickel.

Who started WW I and WW II? Old Worlders. Who gave rise to Lenin/Stalin, Hitler and Mussolini? Old Worlders. Who printed money so fast the presses had to run 24 hrs a day? Old Worlders. Or First Worlders, if you prefer.

Thank God we live in the New World, eh!

Ancient history. Your fearmongering is tiresome, old and repetitive. All you seem to yearn for is a societal collapse, making your gold worth more. Shame. — Garth

#171 Bill ( Peterborough) on 09.15.10 at 5:48 pm

Re Garths Comment:

I didn’t serve in City Hall, nor was that the context of the comment. But, look, a shiny thing. — Garth
——————————————————————–
Was not directed at you Garth. However we both know there are MANIPULATIVE WEASELS in politics who rewrite the laws in order to steal from the taxpayers. Thus for convincing themselves, perhaps?, that it is alright because of certain clauses/ interpretations of the law.

Still Wrong. Thats where morals and scruples fall into play. A true rarity in the political field.

#172 Bill ( Peterborough) on 09.15.10 at 6:00 pm

GARTHS COMMENT;

Weimar. Zimbabwe. Chile. Have you guys got anything remotely approaching modern life in a first world nation? — Garth
——————————————————————

Stick around awhile Garth; Should be all played out here on this continent shortly.

A first of it’s kind.

Think about it; Front row seats.

Guaranteed to have alot of OOOO’s , AAAH”S, and of course the last famous words’ THIS CANNOT BE HAPPENING”.

On in your world, Bill. — Garth

#173 Pat on 09.15.10 at 6:33 pm

G,
when I saw your comment about not witnessing corruption my first thought was to ask to you define “personally witnessed.”

Then further down, I see this:
“I didn’t serve in City Hall, nor was that the context of the comment. But, look, a shiny thing. — Garth”

#174 Nostradamus Le Mad Vlad on 09.15.10 at 6:40 pm


#208 TheBigLebowski on 09.15.10 at 3:53 am — m$m is always correct, and conspiracy theories are for golliwogs. Follow The Yellow Brick Road down to Sludgeville and see what’s happening for yourself!

#209 TheBigLebowski on 09.15.10 at 3:59 am — Thanks for the reply. It would be easier for the US to start another war based on false pretenses, deceptions and lies. BTW, where are Sadaam’s nuke WMD? dubya, Rumsfeld, Cheney, Powell, Blair and Rice all told the world that Iraq was a threat, so it must be true!

“I have personally witnessed no corruption in politics. Bad judgment, of course. Expediency, naturally. But no malicious intent. Upon what do you base your beliefs, other than a movie? — Garth”

Tues. a.m. I met Ron Canaan and his wife. They were out for a bike ride and I was walking. I asked him about Oddaawwaahhaaha and he said “Same old, same old. It’s moving as quickly as the Titanic sank and everyone procrastinates.”

But he said life was good, back at work in a week’s time or so. So congrats. to the CPC, C-H-F and their lynchpins. They are bringing the end ahead quickly, then implement the NAU and SPP, followed by WW3.
*
Life can sure change on a dime. Tuesday, in a soccer game from Europe, two players went for the ball. One kicked it a few yards and it bounced off the other for a throw in. No harm, no foul.

As the Manchester United player was turning to run back to his side of the pitch, the lower part of his right leg broke in two places, and part of the bone was clean out of the skin.

The player (Antonio Valencia) is gone for the season, after just getting back from another injury. For some, life sure does suck.

#104 canuckfilly — FWIW, I would much prefer to be in a position where I don’t need CPP / OAS / GIS.

The less the feds. and provinces know about me, the happier I am. So I would follow Garth’s straightforward advice: A mixture of dividend-paying stocks, bank preferreds, bonds (if they are still around), utilities, health, etc., all of which are at least 80% tax-free (if not more).

Stay away from the guy in the orange shorts. Like lottery tickets, he is a guaranteed money loser.

#175 jess on 09.15.10 at 6:47 pm

Obama to name Elizabeth Warren to advisory position to avoid confirmation battle over heading consumer protection agency.

#176 McSteve on 09.15.10 at 7:00 pm

Old is Gold:

On politians.

I’ve worked in the public sector for 15 years. I’ve seen no graft or corruption, per se. Of the lousy politicians the biggest problems are as follows:

– many are unqualified for the positions they have assended to. Winning a popularilty contest does not qualify you to be “Minister of X”

– preoccupation for staying popular – makes a politician waffle when they should be strong and tell people what they want to hear rather than what they need to hear.

– Making no decisions is preferable for making unpopular decisions = analysis paralysis

– partisan politics – a killer of honesty

– ego – “I’m the Minister, even though I’m not qualified for my job, I know everything”

– the electorate – many not ready or able to “handle the truth”

#177 john m on 09.15.10 at 7:03 pm

Our country is headed for the toilet big time in my opinion..even worse than the US.we have so many feeding at the trough and contributing nothing..the working man paid his dues and theirs also and now jobs are disappearing steadily…so who’s going to pay the bills now?I would be willing to bet every family in Canada knows someone who does not contribute (i live in a farming community and know hundreds who live the millionaire lifestyle and cry poor) A whole lot of things have to change in this country- political vote buying and partisanship with no regard to the destruction of our country will be the downfall of us all.

#178 Rick in Japan on 09.15.10 at 7:18 pm

#47 Moneta on 09.15.10 at 6:52 am

I agree but Garth’s recommendations involve working against human nature. Once you understand this, you understand that only a tiny fraction of the population will be able to use his advice in a profitable way. That’s why he’s preaching to the converted.
—————————-
Did you read what I wrote? I understand perfectly. The civil servant was new to this site and talking about blowing it up-is she converted? Hardly. Also, the stats show that half of Canadians have little savings, and I gave an example of a poster with $20k. That was what I was writing about. After all, 5 or 6% dividend stocks are great, but how much money worth of those do you need to make $50,000 year? Somewhere around $900,000. Now, people who save and invest $10,000 a year are doing far better than average. But, at that amount, it’ll take far more than a lifetime to attain $900k (even after re-investing the dividends to create exponential growth with the 5-6%). So, I understand what Garth is sating, I’m suggesting that for the vast majority of Canadians, paying off debt is a better solution (particularly those who are immature enough to suggest attacking a website, even if it was a *joke*).

#179 S.B. on 09.15.10 at 7:22 pm

Prarie gal: countries HAVE surrendered their soverienty. It’s called the European Union. One barely elected guy dictates how much money each country can print, how and when they go to war, and so much more. And our own globalist Harper has even used a phrase like: ‘we have to do it to remain global’.

We have no choice. Energy audits, carbons taxes, HST on everything is coming. We little people will pay the price; meanwhile the largest consumer (and polluter) of fuel is the US army. But don’t let facts get in the way of a good conspiracy…

#180 Nostradamus Le Mad Vlad on 09.15.10 at 7:33 pm


Garth — Professional trolls with an agenda?

Failed banks in 2010, incl. cost to taxpayers.

Where Are The Jobs? “Well, some investors are already anticipating rough times ahead and are flocking to commodities.”

2:11 clip China is putting it mildly.

2:31 clip Manipulating / shorting. Someone’s making a helluva lotta money.

Extreme Analyst who lives in an orange house. Not our Dutch guy.

A case of putting two stories together.

For those who want a change from Microblither — http://www.ubuntulinux.org/ . “I’m running the new Ubuntu 10.04 Desktop 64 bit OS on an Inspiron. It is smooth and fast. It even has an email program with it. Try it! You will like it. Don’t cost nothin.”

Infrastructure, you say? Ask San Bruno.

#181 Rick in Japan on 09.15.10 at 7:36 pm

I see you are online, Garth-Good luck in the next couple of hours. . . people get so emotional when they are told the economic truths. . . recently I was telling a few people about the bubble in Vancouver and a fellow Canadian got so irate (we were in a bar in Osaka Japan) that he wanted to fight. . . turns out he bought a condo recently in Vancouver. Well, I told him that I was not gleefully hoping this would happen but it just does and no matter how much he wishes upon a star, all his wishes and dreams may or may not come true-economic reality comes true.

#182 45north on 09.15.10 at 7:39 pm

Bill in Peterborough: My diversifaction portfolio consists of free range beef cattle, chickens , pigs, vegetable gardens, vast amounts of hard wood for my wood stove, fresh fish( which I catch)….

Plus 3 freezers to keep them in.

Also gold( the kind I can touch) & cash. Real estate/ business as well, bought right, of course.

sounds a little smug

I have personally witnessed no corruption in politics. Bad judgment, of course. Expediency, naturally.

after 35 years in the Federal Government I witnessed no corruption. Bad judgment, of course. Expediency naturally. Ever so naturally.

#183 T.O. Bubble Boy on 09.15.10 at 7:46 pm

Many others have already said this for me… but today’s CREA press release may actually win the award for

*THE WORST CREA SPIN EVER*

(can’t wait for September press releases!)

#184 Debt's Dark Embrace on 09.15.10 at 7:52 pm

#162 JET on 09.15.10 at 5:14 pm

#119 Moneta
There are so many frickin’ bank preferreds! Which one is the best? Or are they all basically the same?
———-
Don’t worry, there’s a tonne more coming.
————

I’m not worried… come to think of it, the more the merrier because competition for capital (if that’s what you mean) could only mean one thing – higher yields!

Anyways, will work on a spreadsheet to analyze them. That way, if/when I get help, I’ll at least know what I’m talking about.
………………………………………………………………………

Please let us know what you come up with : )

#185 Midas on 09.15.10 at 7:56 pm

“All you seem to yearn for is a societal collapse, making your gold worth more. Shame. — Garth”

Nyet, comrade. The last thing in the world I want to see is economic ruin. Owning gold is merely a hedge.

Since I appear to be interested in ancient history, perhaps now is a good time to quote Vegetius: “Let he who wishes peace prepare for war.”

#186 David B on 09.15.10 at 8:07 pm

Zombie Buildings Shadow Spain’s Economic Future .

http://online.wsj.com/article/SB10001424052748704476104575439783253733728.html?mod=WSJ_hpp_sections_realestate

No problem here in Canada eh as spending continues

#187 prairie gal on 09.15.10 at 8:22 pm

Little Billy wrote:

Normaly I would not reply to your blog.

If ignorance truly is Bliss you graduate at the top of your class.

Nothing worse than babbling about something which you have no knowledge of. Furthermore coming across as a know it all in things which you chose to have not read about/ cross referenced with other sources in order to form an opinion. Wild.

Who needs the reality check.

I could go on , but I fear it would fall on deaf ears.

Some quotes :

” Better to be though a fool , than spoken and know a fool”

” Education is a great thing, it’s the people who ruin it”

” Why confuse me with the facts my mind is made up”

” A little knowledge is a very dangerous thing”
______________

Right back atcha, buddy. My research doesn’t include youtube and the world wide web of idiots with webcams and wild imaginations. Reality is really so subjective, isn’t it?

You are the King of the WingNuts – enjoy that tinfoil crown.

#188 Timing is Everything on 09.15.10 at 8:26 pm

#160 ” So the answer is ‘nothing.’ Walk a mile in my shoes before you speak of things you know not.” — Garth

I disagree, the answer is ‘perception.’

#189 Moneta on 09.15.10 at 8:26 pm

175 Rick in Japan
———-
Garth can have the best recommendations but for most people it goes right over their heads… it’s like trying to teach the math rule of three to 5 year-olds. Their brains are not ready yet. Obviously this civil servant is part of that group.

I agree that for most, paying down debt is the best they can do but expecting Garth to adapt his message to go hand in hand with human nature is like expecting the majority to downsize their lives and start saving 15% annually.

#190 prairie gal on 09.15.10 at 8:37 pm

#176 S.B. on 09.15.10 at 7:22 pm
Prarie gal: countries HAVE surrendered their soverienty. It’s called the European Union. One barely elected guy dictates how much money each country can print, how and when they go to war, and so much more. And our own globalist Harper has even used a phrase like: ‘we have to do it to remain global’.

We have no choice. Energy audits, carbons taxes, HST on everything is coming. We little people will pay the price; meanwhile the largest consumer (and polluter) of fuel is the US army. But don’t let facts get in the way of a good conspiracy…
____
Um, membership in the EU is voluntary – it was to the benefit of member nations to have a stronger currency and fewer trade barriers with their neighbours. Nobody put a gun to anyone’s head and forced them to join.

There are many occasions where the IMF and the World Bank have effed up developing countries with their free-market ideological experiments as conditions to loans (ie. privatizing water in Bolivia). That is a travesty. But these situations are not what the tin foil hat crowd are ranting on about.

The threat of climate change is a serious global crisis and requires a global response. A carbon tax is probably the most efficient manner of addressing the issue. Regardless of your opinion, some form of regulation of greenhouse gases is coming to your jurisdiction soon.

Or do you think its a-ok for the bulk of the energy supply to be used up within a few generations, leaving behind a legacy of pollution, debt and crappy living standards to your great-grandchildren?

Governing institutions exist to provide a framework that promotes equity – between individuals and entire generations. Only a selfish TAKER who is only concerned with their own comfort and happiness would find a problem with this.

#191 Taxpayer like everyone else on 09.15.10 at 9:29 pm

175 Rick

$10k/yr compounded 5.5% per annum I get $814k after 30 years.

#192 S.B. on 09.15.10 at 9:45 pm

Now, climate change and peak oil are b.s.

We have as much cheap energy as we need from solar and wind. But we’re addicted to oil. Membership in EU: YES an economic gun was held to their heads. Iceland was the hostage – remember that happend to them?
Ireland tried to hold out but could not.

WAR is the #1 polluter and we have it in spades. But the spoills…so good…
DU weapons? SOP these days.

Answer this: if we are forced into the North American union, do ya think we will fall to Mexico’s level or will they rise ours? Will their lax environmental standards be cleaned up, to the detriment of multi-national corporations and for the good of people, or will we turn into the same sewer pit?
The level of mexican drug gangs currently taking over the southern USA should be the first hint. Divide and conquer is their political strategy.

#193 gold bugger on 09.15.10 at 10:57 pm

Ancient history is 10-100 years ago?
Garth, you’re a charlatan. Selling snake oil to suckers.
The world being full of them, I’m guessing your event will be sold out tonight.

#194 Soylent Green is People on 09.15.10 at 11:05 pm

Peterborough Bill is my friend.

Re corruption in government, you must be blind not to see it. I know someone for the last 45 years who consulted for government, I believe it was the provincial level, and it goes something like this:

– big businessman gives government man bribes or expensive perks in exchange for untendered contract (both knowing the final price is inflated to cover the bribes)

(this is like giving the bartender five bucks cash that she puts in her pocket, and in exchange she gives you a beer for “free”)

– sometimes the big businessman takes government man out for lap dances and records it on his cell phone, now government man is his bitch and must do whatever the (Chinese?) businessman wants

Also, I worked for a City of Toronto councillor and a greatest pig at the trough I’ve never seen in my life. Did I see any money change hands… no, but it was the dirtiest place I’ve ever worked. scam scam scam all on the taxpayer’s dime.

I was there through the MFP computer scandal and I would just like to point out the woman at the heart of that computer sex scandal Wanda Liczyk was brought into Toronto City Hall from North York City Hall by the nutjob Mel Lastman during amalgamation. Metro was very responsible and well run organization before the illegal amalgamation that was (surprise) not revenue neutral as the province promised.

Just like 9/11, amalgamation was a man made created disaster to throw up the dirt and smoke to cover up the illegal activity taking place.

Do you really think HarperCon’s recent NINE BILLION DOLLAR jet deal does not include graft? Really…? REALLY?

~~~~~~~
Defence Minister Peter MacKay and two other cabinet ministers have rallied behind Ottawa’s proposal to buy stealth fighter jets for up to $9 billion, while opponents questioned the need to purchase the high-tech aircraft from an American company.

http://edmonton.ctv.ca/servlet/an/local/CTVNews/20100915/fighter-jet-committee-100915/20100915/?hub=EdmontonHome

p.s. I believe the middle class is being wiped out and I think North America will be destroyed.

#195 Bill ( Peterborough) on 09.15.10 at 11:27 pm

Re 182 North

sounds a little smug

——————————————————————-

Yes , once in a while I do sound smug. I’ve earned that right. Especially dealing the majority of the populous. At least I won’t have to rely on any
social handouts from our illustrious government down the road. Being able to feed oneself/family.

Unlike the majority of the herd down the road.

Sad thing my formulas that I applied my my life were not rocket science. Hard work, discipline, living within your means, proper budgeting… Pretty simple aren’t they.

Yet the majority of the people out there are in such financial messes.

#196 Bill ( Peterborough) on 09.15.10 at 11:39 pm

Re# 187 prairie gal;

Typical respone from the herd. No original thought. Try to give an intelligent rebutal next time.

Perhaps getting someone more qualified/ well read in most of these topics to converse on your behalf. You might even learn something if you pay attention.

As I recall from previous blogs awhile back I believe you worked / worked for the government in some minute capacity.

Personally we could reduce the buerocracy by half and become more productive. Now they wouldn’t be tripping over each other to justify their existance.

#197 Bill ( Peterborough) on 09.15.10 at 11:46 pm

RE # 190 praire gal

Governing institutions exist to provide a framework that promotes equity – between individuals and entire generations. Only a selfish TAKER who is only concerned with their own comfort and happiness would find a problem with this.
——————————————————————

You truly are a piece of work, sad thing is you believe all your onesided bullshit.

The road to Hell is paved with do gooders.

#198 Alex on 09.16.10 at 2:50 am

Garth I am 28 started reading your blog about 4 months ago and I much appreciate the wisdom.

You have mentioned liquefying financial assets to pay off a mortgage then obtaining a new mortgage buying back similar investments to obtain a tax break on the interest paid on the mortgage.

You commented on a couple posts that suggested a similar process however they would make use of a HELOC. This is the first time I had heard of it referred to as the Smith maneuver. I am confused as to why using a HELOC would be more risky as the investments themselves would be subject to market volatility. Why should the debt instrument have an effect whether a traditional mortgage or HELOC.

Can you clarify where the greater danger is in using a HELOC this way?

#199 Missed The Boat? on 09.16.10 at 10:19 am

Ok, I see everywhere is down, they’ve suddenly left out the YOY numbers and it appears (it) is about to hit the fan, great.

Yet in Sask it’s doing the opposite. Using August numbers Sales down 20% YOY, listings up 19% YOY yet the average price is up 8% YOY. We’ve all heard “are we different” in Canada vs the US housing situation, now I am asking the question “Are we different” in Sask?

#200 profitman on 09.16.10 at 12:43 pm

i am hearing from a few financial advisers a method to pay down your mortgage…it goes like this.

the value of your home is 1,000,000 (i’m in vancouver so we think in millions….ugh!) the bank institution provides 70% for available lending. Assume you are in total debts of $500,000. Your equity is $200,000 and a bond is issued on that 200k at a return of 9% annually. The bond is insured with a couple layers of protection. The cash flow generated from the 9% return goes back on the mortgage. You are simply creating cash flow to put extra on the mortgage without using your own money!

i have not wrapped my head around it yet but what do you think?

Bizarre. If an advisor suggests that, run. — Garth

#201 Marcus Aurelius on 09.16.10 at 1:45 pm

78 Moneta – you hit the nail on the head. The RE problems in the US were all about folks living above their means, whether that meant borrowing more than they could afford to pay back in the first place, or as the market rose, withdrawing equity to buy holidays and renos.

I can remember when I was a kid in the late 60s and we could not buy eggs to decorate for Easter. Yeah, I know, that’s what probably scarred me for life. Or drawing a tree on the wall. We made one plastic tree last 10 years (there’s the hardy northern Saskatchewan in me talking). It kept breaking so the tree got shorter every year. Didn’t change how we felt about each other, mind.

Thing is, over the last boom years we learn to expect that we “deserve” certain things. That’s what fuels our consumerism. Credit card limits only made it possible.

Truth is, we have learned to “rent a lifestyle”. How sad. Good while it lasts, but only as long as it lasts. Then it’s time to pay.

Thanks to all for partaking in the “middle class” experiment. It’s been a hoot. Come again in a couple of generations.