Old people

It was 3:40 in the afternoon. I stared down at my lettuce and tried to tune out the inane Christmas music. If my office building was not up the street from the Loblaws, I thought charitably, my wife would not have asked me to shop. Or maybe she’s trying to drive me away, fed up with my cowboy bad attitude, small arms collection and little Internet friends.

As I weighed the options I heard my name. Standing at the end of my checkout lane was a gray-haired woman aiming her oversized cart towards the exit. “You are that Garth person?” she asked. I admitted it. “Then you must help us seniors. We are so struggling. My GICs are terrible and I have no idea what to do. Maybe that Ally place with 2%. What do you think? It’s just awful, and this food keeps going up. And the electricity. And gas. It’s pathetic what’s happening to us. But at least I’m going to keep my house. What do you think?”

I looked back at the lettuce for inspiration, thought about my wife snickering, then told this woman she had a myriad of investment choices, all secure and paying at least double or triple the return on GICs. “Dear,” she said, “I would never do that.”

Of course not. Then she wouldn’t have anything to bitch about. And she suddenly left, before I could talk about her house – a relevant topic since anyone shopping in this neighbourhood store likely lives in real estate worth seven figures.

I thought of her when I read the latest numbers on how many poor seniors there are – with the tidal wave of Boomer neediness apparently just starting. Poverty among the 65-plus crowd has increased 25% since the financial crisis of 2008-9. Of those, 80% are women.

This matters in a financial way as there are nine million boomers comprising 32% of the population and, if the steady stream of people who seek me out is any indication, too many are nicely screwed. The implications for their adult children are no better.

People in their mid-thirties have enough problems already trying to cope with absurd housing costs, lousy job prospects, debt and snotty kids who demand iPhones. The prospect of bailing out their parents is over the top. Second, if there’s one thing most loser Boomers have, it’s real estate – which means they either take a reverse mortgage to live on (and destroy their family inheritance), or dump their home in a falling market over the next few years (and crash housing values). Either way, the kids take it in the ear.

But, it doesn’t have to be this way. If only people with gray hair would stop being such wussy pansies then they might still be able to look after themselves. Like the old bat who came between me and my leafy greens.

There are hundreds of billions of dollars sitting in bank accounts, term deposits, savings bonds and guaranteed investment certificates which, after inflation and taxes, decrease in value daily. To make the crime worse, 90% of the money that’s been put into those seductive TFSAs with their tantalizing no-tax-ever returns, is now sitting in cash. Maybe it’s a laughable ‘hi-interest’ savings account in the orange guy’s shorts. Maybe a brain-dead GIC with the child-tormenting Ally TV dude. Or just a moribund RRSP in a cash instrument after the nice lady at the bank finished you off.

This is dead money. Invested by scared people. And there’s no excuse in a world teeming with information, empowerment tools and tons of high-yield alternatives with less risk than reading this blog while waxing.

I mean, why would anyone put money in the bank and get 2% for locking in when they can buy a provincial or corporate bond paying twice that rate? Why give the Royal Bank your money for peanuts when you can buy preferred shares in the bank and have it pay you close to 6%. In lightly-taxed dividends, no less? Why feed the bloated orange guy when you can buy a real estate investment trust that owns the building I work in, and get an income stream equal to 8%? Or why not borrow some money against that paid-off house at prime (3%) and build a portfolio with all of these things in it, putting your equity to work, getting a tax-deductible borrowing, and creating an income stream where none existed before?

Of course there are needy old people. Soon there will be a hell of a lot more.

By choice, I guess.

180 comments ↓

#1 McSteve on 11.25.10 at 11:28 pm

The “child tormenting Ally Dude” is the funniest guy on TV.

#2 Bottoms_Up on 11.25.10 at 11:33 pm

The next time you get assaulted by an old fogie on pogie, point them in this direction:

http://www.rev.gov.on.ca/en/bulletins/itrp/6493.html

‘ontario seniors property tax credit’, worth up to $500.

#3 hazzard on 11.25.10 at 11:37 pm

One thing that “old” people would do well to change in their thinking is the need to leave an inheritance in the first place. Why is this still considered a must? You should die spending your last pennies an a great sponge bath from the not new candy striper. Messing around with your retirement just to leave money to your kids is a premise long past it’s expiry date.

#4 Contrarian Canuck on 11.25.10 at 11:45 pm

Subsidizing debtors at the expense of seniors and savers is what this country is all about.

#5 Cory on 11.25.10 at 11:46 pm

People ask me about the stock market since they know I trade alot, they ask me to teach them. It is a complete waste of breathable air. I have given up on trying to inform people on why real estate is a bad choice now and that those days are gone….You should tell people to stay away from the financial things you now encourage people to buy and then they would probably buy them (i.e. tell them the opposite to get the right actions).

I’m sure you’ve heard the old saying “you can’t beat people smart”

#6 Bottoms_Up on 11.25.10 at 11:46 pm

Garth, in Money Road you discuss multiple indicators that you follow in order to determine the direction of the economy. Rarely do you blog about these, and from what I recall the advice was golden.

What are your indicators telling you these days? (I’m just too lazy to do the research i.e. reread your book, on my own).

#7 april on 11.25.10 at 11:54 pm

The lady at the bank said I had to lock in the preferred shares for 3 yrs. I thought preferreds were liquid?

The lady at the bank doesn’t sell them. Or know what she’s talking about. Of course they are liquid. — Garth

#8 Behavioral Finance on 11.25.10 at 11:58 pm

There is a very simple answer to this. Most people are afraid of alternative investments due to risk. They perceive other investments can lead to losses. They want something that is guaranteed even if it means losing money due to inflation, but to them inflation is not a threat.

That being said, I think it is amazing that people will not invest but have very little problem leveraging themselves in real estate.

Like I said, expect lots more needy people. — Garth

#9 T.O. Bubble Boy on 11.26.10 at 12:01 am

Maybe she should have been investing in the products she was buying at Loblaws…

Coffee is near an all-time high:
http://www.google.com/finance?q=NYSE%3AJO

and Sugar is up there too:
http://www.google.com/finance?q=NYSE%3ASGG

and, you can balance that with preferred shares of Loblaws w/ a 5.3% dividend yield (although, these have been run up a bit recently):
http://www.theglobeandmail.com/globe-investor/markets/stocks/summary/?q=L.PR.A-T

#10 LG on 11.26.10 at 12:03 am

I get that putting money into these TSF and basic (orange shorts) RRSP accounts doesn’t make sense due to the interest rates BUT as a beginner, I have no idea how I take this money and invest it within these tax shelters. Who do I talk to? What is the process?

There is a major problem in education here – there are a lot of us (baby boomers) who have learned nothing about investments, retirement savings and exactly what real estate costs.

I may have a $250,000 mortgage but that means I have a debt of at least $300,000.

It comes down to having some understanding and control of my future finances and as a 55 year old with little experience I face some major hurdles.

Congrats. First step. Stick around for answers. — Garth

#11 Wise Guy on 11.26.10 at 12:03 am

OK,

I admit it too, I’m not sure who Garth references when he says the “Orange Guy’s shorts”?

#12 InvestorsFriend (Shawn Allen) on 11.26.10 at 12:06 am

As long as enough people leave their money in 0 to 2% investments, interest rates may stay low.

If there were a a savers strike whereby savers took their money and looked for higher returns then interest rates would rise.

It’s simple supply and demand.

Were that remotely true… — Garth

#13 somecatchphrase on 11.26.10 at 12:19 am

Stock to benefit from an aging population: Tim Horton’s

Good old Tim Horton’s stands to grow earnings considerably as the population ages, and, it pays a dividend.

Observe the old people loitering at your local Tim’s all the time. We humans have a profound psychological need to get out of the house on a daily basis.

Unless the hardcore doomers turn out to be correct, two or three bucks for a coffee and a snack will always be affordable, even to a CPP dependent oldster with more time than money.

Priced at twenty times earnings, I wouldn’t be in any hurry to buy. Put THI on your shopping list for a market panic.

Who said buy and hold was dead? Just pick your entry point with care. You can still do it the “Warren Buffet Way” and end up with “One Up on Wall Street.”

#14 Maxamillion on 11.26.10 at 12:21 am

Prices are not only increasing for certain products in grocery stores but the products are shrinking in size.

http://www.cbc.ca/marketplace/blog/shrinkingproducts/

#15 JB on 11.26.10 at 12:46 am

“Or why not borrow some money against that paid-off house at prime (3%) and build a portfolio with all of these things in it, putting your equity to work, getting a tax-deductible borrowing, and creating an income stream where none existed before?”

When 3% prime interest rate becomes 5%, and eats up your near 6% return, you will be left with nothing.
And more debt against your house.

Hardly. Interest is tax-deductible, and yields will rise with rates. What a silly statement. — Garth

#16 Dan in Victoria on 11.26.10 at 12:52 am

Oh hell Garth, next time your in Victoria we’ll take the big truck into Oak Bay for a couple of laps.
You’ll soon realize how lucky you were to have a gray haired lady only pointing a loaded shopping cart at you.
Better yet we’ll sit in the back and let the boss drive and go toe to toe with those old gray haired people.
You will find out what fear is really all about…..

#17 Crash Callaway on 11.26.10 at 12:54 am

It’s going to be a mess.
Seniors with houses they can’t afford taxes & utilities on and the last crop of potential buyers being stolen by the razzle dazzle condo kings.

Trapped in equity.

#18 yyc bubble on 11.26.10 at 12:56 am

Many recent posters are suggesting that a) they don’t know how to invest, b) are not sure of how to begin, c) are looking here for advice. If you want to ‘do it yourself’ as I do and would like my amateur input, continue reading below.

If you want to do ‘DIY’ investing, open a canadian discount brokerage account. When filling out the paperwork (by hand) which you then mail to the brokerage, open a cash account, TFSA, rrsp, etc. depending on your circumstances.

Expect to pay less than $20 per trade once you have funded the account, or less ($10 if you maintain a balance above $50k for example). Put $10k in the TFSA based on two years contribution room, or wait until Jan 1st and put in $15k, if that is the route you want to pursue.

Next, identify what you would like to invest in. Preferred shares get a lot of positive reviews here, as do real estate trusts. Consider some of the largest and most stable canadian companies and investigate if they have issued preferred shares and what their ‘ticker’ symbol is. Read the prospectus by downloading it or google searching it to find it online. The prospectus review is the toughest part of this entire process, as it contains many pages of fine print. I have a number on hard copy that I have invested in during the IPO process and the prospectus was mailed to me by the brokerage and I have reviewed them extensively. An interesting feature of the bank preferred shares issued back in 2009 is the high reset function, after five years they can reset at rates of the gov. of canada. 5yr prevailing rate plus an additional 3-5% or more, providing some inflation protection down the road for the buyer. Also these tend to trade well above par (usually $25). Many of these quality preferreds are trading well above par at this point, some at highs of around $28. This means lower yield to you the investor, and more risk they will drop and you could end up with a loss if you have to sell.

REITS are generally paying a better rate and are also more volatile. You can even invest in an ETF containing only canadian REIT.

Once you decide which to purchase investigate the deadline by which you need to purchase the share in order to receive the quarterly or monthly payment. This can make a small difference to the price of the share or trust and your annual yield from investing in it.

Finally, sit back and if you hold the share or trust you can watch the income stream arrive indefinitely, hopefully you can add more to the account later and benefit from compounded gains by reinvesting your income.

Here is a sample of two preferred’s and REIT’s I own and the price as of today Nov. 25, and a comment on yield. Also do not misconstrue this as advice to invest in these, do your own research….

Trust
AP.UN $22.69 yield of $.11 per unit/month, 5.8%/year
AX.UN $12.78 yield of $.09 per unit/month, 8.4%/year

Preferred
FFR.PR.C $25.60 yield of $.36/quarter, 5.6%/year
WN.PR.A $25.15 yield of $.36/quarter, 5.7%/year

other good ones with high resets from the banks currently trading way above par.
CM-M. BNS-X, BM-O

Good luck!

last word of advice, purchase preferreds carefully if they have modest daily volumes by using a ‘limit’ order, same goes for selling. Expect them to go down in value when a rate hike is announced by Carney, though they often rebound soon after.

Solid words, but you forgot the most important: Follow up on research and action with constant monitoring and large amounts of time. If you are busy earning a living and raising a family, get some help. — Garth

#19 hobbygirl on 11.26.10 at 1:01 am

I’m all on board with bank preferred shares and ETF’s, but the devil is in the details. I need to know exactly what I should be looking for. I went to the Bank Of Canada website and there is a miriad of of bonds and rates and terms etc. very confusing to this humble being. How does one start investing this way? I like so many others haven’t done it because we don’t know how to start, much less know what we are doing.

At least mutuals are marketed in an easy to understand manner, even though we know we are being ripped in management fees. The appeal is in the simplicity.

#20 Rainbird on 11.26.10 at 1:02 am

TO: #9 T.O. Bubble Boy,

Here is the problem or preferred shares;

“Loblaw Companies Preferred share* Latest27.85. ”

If the interest rates go up, and they will, there goes your yield. The price of this preferred share could go down big time, in which case your 5.30% percent yield would be a big loss & a big gamble.

Is this not correct?

#21 antonio on 11.26.10 at 1:06 am

Garth. Have you taken your own advice? Have you sold all your properties and are you renting?

My advice is not to allow real estate to exceed 30% of net worth. I have nothing against property ownership, but being overweight in it constitutes massive risk. — Garth

#22 Nostradamus Le Mad Vlad on 11.26.10 at 1:08 am


Old People? Break On Through (to the other side!)

“What do you think?” — Quick answer: Sell the house with a rent back clause for XX years. If agreed to, then both sides win — the lady has a place to stay and the new owner has a monthly (agreed upon) incoming cash flow.

If the lady chooses to have a fee-based advisor or (non-banking) CFP, she can put the net amount in a mixture of bonds, bank preferreds, dividend paying stocks, REITs, etc. That should be provide sufficient income for an enjoyable life.

“Dear,” she said, “I would never do that.” — Then she will have to live with the consequences of her own choices, because life on Easy Street has long since gone.

“. . . the lettuce for inspiration . . .” — Contemplating (just wondering) on a lettuce is not something I have come across before. Cabbages (coleslaw) yes, but not lettuce. Something new to try!
*
#7 april — Exactly why we have our own CFP, who has to take exams yearly to keep his licence.

Banks are only for basic savings and chequing advice, nothing more than that. Steer clear of them.
*
#155 pablo — “It would appear that the same process is being implemented against north america and Europe by the same gang of globalist elite that have plundered this planet for centuries.”

Correct. No matter who we choose as PM, the outcome will be the same unless we wake up ( which is already too late) to what is going on at present.

The elite are already preparing for uprisings — FEMA Camps run by the National Guard. and The Patriot Act.

Monsanto will depopulate through poisonous foods, and big pharma will give us our innoculations of deadly toxins.

The ones left behind (sheeples) will fall into place after examples are made of the Free Thinkers. Soon there will be absolutely no civil liberties or rights, so watch when it gets out of hand over here as it has in Europe. Chances are TPTB have set up the emergency laws.
*
QE2 Inflate or die!

The Eurozone is just about imploding.

Pearls of Wisdom Chinese actually, and it’s worth 88 million pounds (quid). Nice pic.

Greg W. — A few years ago, we had extra money saved so we decided to go with an in-house water filtration system. Cost (incl. taxes) was around $4,600.

At the end of each month, I put a 20 kg bag of salt crystals in — cleans and keeps the water smooth and relatively drinkable.

#23 LS on 11.26.10 at 1:08 am

A good example of what I was talking about a couple months ago. Garth said equity markets would get a boost from seniors getting out of real estate and into the markets. I said it’ll never happen because people that have been “safe” with their money all their lives are not suddenly going to grow an appetite for risk.

Now you’ve heard it from the horse’s mouth, so to speak. Some people might put some money into fixed income, but equities? No way.

Where in the piece here did I mention equity investing? — Garth

#24 Jake on 11.26.10 at 1:10 am

All you jealous renters out there just want some shelter of your own:)

Gimme Shelter!!
http://www.youtube.com/watch?v=jJBs-KPY2Ow

#25 RE Bear on 11.26.10 at 1:13 am

#12 InvestorsFriend (Shawn Allen) on 11.26.10 at 12:06 am

Ughm, no, the bond markets and Mr. Carney determine the savings rate at the Canadian banks.

If you want higher yields, invest in Venezualan or Brazillian bonds, great return (10%+), and especially in Brazil’s case, some nice capital appreciation.

#26 Seeker on 11.26.10 at 1:14 am

I get that putting money into these TSF and basic (orange shorts) RRSP accounts doesn’t make sense due to the interest rates BUT as a beginner, I have no idea how I take this money and invest it within these tax shelters. Who do I talk to? What is the process?

As LG has said, I too, would like to know who to talk to? You say in your book to email if we want to know someone in our area that can help with understanding the financial picture you paint. Can you help with this, someone here in Cowtown?

#27 Wealthy Renter on 11.26.10 at 1:15 am

This matters in a financial way as there are nine million boomers comprising 32% of the population and, if the steady stream of people who seek me out is any indication, too many are nicely screwed.

But, didn’t that Lee fellow you skewered a few days back argue that Canadians owned 6 trillion dollars in assets? SURELY, the boomers own the largest portion of it? Therfore, every last one of them is RICH, and set for a life of joy and security in retirement.

Yes, I know that is bullshit. I would bet the bunker those trillions of dollars highly concentrated in the wealthiest 25% of all families.

#28 baglady on 11.26.10 at 1:16 am

who the heck is this guy in ‘orange shorts’, by the way, I’ve read the ‘road’and I enjoy your blogs, keep up the good work, there are those of us oldies that can still learn from you young upstarts

#29 Joseph [Original] on 11.26.10 at 1:17 am

Why would they keep their funds at 2%? Too complicated to do so otherwise. Can’t teach an old dog new tricks. Getting 2 percent wiht something they know is better than the prospect of 4 percent with something they don’t know. The latter option forces them to transfer their wealth to a financial consultant at a very late stage in their lives. The trust factor comes into full force at that juncture. Would you tell your wife to give up control of her finances to somebody else if you were out of the picture?

#30 Kevin on 11.26.10 at 1:22 am

Garth,
We need more guys like you in this country. Thanks for your work.

“Low interest rates, population and job growth, along with consumer confidence will keep the housing market stable.”

Is this from the monthly press release for Saskatoon real estate? No, this is a paraphrase of Las Vegas real estate in 2005 and the projection of the housing market up to 2008.

Housing market forecasts: Las Vegas 2005 vs Saskatoon 2010
http://saskatoonhousingbubble.blogspot.com/2010/11/housing-market-forecasts-las-vegas-2005.html

#31 Victor on 11.26.10 at 1:24 am

I live in an apartment in central Toronto. Just got a notice that rents are going up by 0.70% in 2011. Not a huge number by any means, but wondering what experiences other renters out there are having, and if this kind of increase is typical.

#32 Patz on 11.26.10 at 1:28 am

Here ya go Wise Guy the Orange guy and his shorts.
http://en.wikipedia.org/wiki/ING_Group

#33 Michelle on 11.26.10 at 1:33 am

LMAO! The Rolling Stones as aging “baby boomers”.
I love it Garth :)

#34 nonplused on 11.26.10 at 1:38 am

It’s not just a lack of financial savvy that’s affecting investment decisions, Garth, although I agree that’s a big part of it. But there is also culture and habit, and risk tolerance.

Some people will never buy anything that isn’t government guaranteed. That’s how they grew up, and that’s how they will die.

Others, like me, are still in a complete state of shock about the world economy and note that it isn’t getting better. Oh sure CNN can spin any number as a good reason to buy buy buy! But even a superficial peek behind the curtains shows a world where just about every major institution is insolvent and spiralling towards a crises. It’s all one big theatrical performance and the current act (3 I think) centers on European sovereign debt Act 1 was Iceland, 2 the US banking implosion by my count, and we have act 4 the US municipal and state level funding crises followed by 5 Chinese inflation, 6 trade wars, 7 the US federal funding crises, and 8 a potential hot war in the middle east still to come! And perhaps an act 9 so we can continue to use baseball analogies. Not necessarily in that order.

So, to use the baseball analogy, we are just at the bottom of the 3rd. There is a lot of game left to play, and so far it would be a surprise to see the home team score a run. It looks like it’s going to be a one sided game. There is a lot of notional wealth yet to be returned to whence it came, but so far I can’t see how that can be prevented. So if a lot of people are like me, they are sitting on the sidelines waiting for the sharks to leave the lagoon before they dive back in.

Where does Canada sit in all of this? Well, I don’t know for sure, but I have a feeling we are like a model rocket just after the engine runs out. Things don’t seem so bad right now, new plateau or “permanent altitude”, but I don’t think it will last. All of the economic numbers are trending the wrong way. Heck, we’re even printing trade deficits and deficits of every other kind as well, and still cash out refinancing our houses! Even the Americans have figured out that is a bad idea, finally.

Ben B. is to anyone who will listen that somebody has to borrow and spend some money! Anybody! How much more can he do??? He’s lead us to the water, now drink, damn it!

Something very bad is coming. It may lead to hyperinflation, but not until we have a big bout of debt destruction inspired deflation, which is unavoidable. If there is an inflationary event, it will occur once the rate of debt deflation finally falls below the rate of money creation, and the western world has a long way to go before we get there despite the best efforts of the central bankers. Fact is they cannot legally print the money fast enough. But one day they’ll get ahead of it. Not until a lot of the debts are resolved, unfortunately.

So 5% on some New Brunswick sovereign bonds sounds good for the next 2 years, but if you don’t sell in time you may get 50 cents on the dollar in year 3. And don’t get me started on Ontario. You may loose almost all of your money. Even Alberta will not pay their bonds back without austerity or another natural gas boom. Here’s hoping.

#3 hazzard,

The reason you leave money to your kids is because otherwise you will run out of money before you run out of time. Very unfortunate if you are 85 and end up with another 10 to go in your sentence. But I am all in favour of the occasional candy stripper.

No Canadian federal or provincial bonds will default. You have lost perspective. — Garth

#35 What say ye? on 11.26.10 at 1:41 am

http://www.theglobeandmail.com/report-on-business/rob-magazine/is-vancouver-in-a-real-estate-bubble/article1808967/

#36 Richard on 11.26.10 at 1:49 am

Mr Turner,

Bit of a loaded question : What economic conditions/envionment/indicators are ripe for real estate investors to scoop up rental properties after a price correction and rent them out with relative ease for a steady flow of cash? (i.e when prices are low and people start getting jobs again?). Im interested in investing in real estate when i graduate and start working in a couple years as well as other asset classes.

Thanks!

Real estate is kaput, kid. — Garth

Richard

#37 nonplused on 11.26.10 at 1:52 am

PS, I forgot to attach the maxim:

If you are borrowing for any other reason besides funding capital investments that are expected to finance the debt, you are going broke.

And it doesn’t matter who or what you are. A government that is borrowing money is going broke. It’s just a matter of time. They can borrow to build a bridge if the increased commerce leads to taxes that fund the debt. But health care needs to be funded out of current income.

On a personal level, a student loan is a good idea if it leads to significantly higher net income. But it’s a bad idea for a political science major. A cash out refinancing for a skidoo is a major mistake.

These things will all come back to haunt us.

#38 604genX on 11.26.10 at 1:55 am

Timing timing timing.

All financial assets are in the middle of a bubble due to QE2. Garth – you should know better than to direct people into equity (or debt) markets at this time. Timing the market is a mug’s game, but the irrational exuberance of the current market is nuts. Just as bad as buying real estate in Kitsilano.

I’ve checked prefs and income trusts – nothing seems to yield over 4% and all tanked in the 2008 melt-down – meaning they also come with capital loss risk.

I’d rather earn 1% for a year (before tax and inflation) than lose 10-15% by jumping into financial assets at the top of the market.

I’m just about to read MONEY ROAD on vacation. Maybe you’ll show me the error of my ways.

I hope so. You need it. — Garth

#39 wiseguy on 11.26.10 at 1:56 am

Garth what would you suggest I do with my money. I sold both my townhouse and 1 acre property in vancouver and now renting for next to nothing

I’ve put my cash into 2% high interest savings (what a joke). Is there a better place I can place my savings while I wait for Real estate to (correct/Plummet/ stabilize)

Didn’t I just write about that? — Garth

#40 Ghost of Tom Joad on 11.26.10 at 2:33 am

The Day The Dollar Died
http://www.infowars.com/the-day-the-dollar-died-2/

#41 Ghost of Tom Joad on 11.26.10 at 2:38 am

Words alone cannot describe the video. Please play this.

‘The Euro Game Is Up! Who the hell do you think you are?’ – Nigel Farage MEP

http://www.youtube.com/watch?v=Fyq7WRr_GPg&feature=player_embedded#!

#42 Devore on 11.26.10 at 3:05 am

#8 Behavioral Finance

There is a very simple answer to this. Most people are afraid of alternative investments due to risk.

Had this conversation with my parents. All they hear about equity markets is all the people who lost their money, and it’s too complicated for them, and can’t get help because those people are just out to screw you while delivering losses. Well, can’t argue with that.

They perceive other investments can lead to losses. They want something that is guaranteed even if it means losing money due to inflation, but to them inflation is not a threat.

Inflation is the greatest taxation tool ever devised, and vast majority of people are not even aware of it, or think it is not just benign, but actually good! I guess inflating away your savings just isn’t an issue when you don’t have any. And 2-5% annually doesn’t seem like a big deal when you’re still getting regular raises and promotions and your house keeps going up in value.

No harm done, until you retire on a fixed income, or need to sell your house in a down market after you’ve paid for it in interest, taxes and maintenance 4 times over since you bought it.

Then the shock comes, but of course no realization of how they got there. Somebody else’s fault.

#43 TaxHaven on 11.26.10 at 3:07 am

Sorry to say, but granny has to become a savvy & educated stock speculator if she is to make any headway – or even save her skin.

With central printers everywhere – including Canada’s own Mr. F – trying desperately to re-ignite risk-taking, returns on anything else just won’t cut it. They’re giving savers no choice but to gamble. Even the Bank of England’s Charles Bean recently said outright he wanted to force savers to spend some of their capital…

And suppose their plan actually works? What do we get? Roaring price inflation. 6% won’t maintain today’s standard of living unless you have upwards of $300,000 or so making that…

And that REIT. After residential, commercial real estate is often called the “second shoe to drop” and we’re all just waiting to short the hell out of it…who is going to pay anywhere near 8% in future on tenant-short, sales-short buldings? Risky.

Better to be nimble & quick in stocks.

#44 TL on 11.26.10 at 3:19 am

Old people get so many things wrong. :(

#45 realpaul on 11.26.10 at 3:26 am

I saw the CTV report on the growing numbers of seniors living in poverty. The sad thing was that it is the majority of seniors who are experiancing real poverty without the seven figure house and the unutilized cash to waste on GIC’s…….poverty among seniors is the pinching hungry kind…where people with no resources except their government fixed zero indexed pension ( because according to the BOC theres no inflation) are living so far down the on the poverty scale that canned soup is a luxury….generic soup at that.

I saw this start about two years ago when, as a volunteer, I noted that the majority of the people lining up at the food banks were seniors…..this cohort has now been overwhelmed by young moms and ‘working families’ in number.

You said rightly,

“There are hundreds of billions of dollars sitting in bank accounts, term deposits, savings bonds and guaranteed investment certificates which, after inflation and taxes, decrease in value daily.”

And the reason behing Flaherty’s ZIRP program is the Machiavellian plan to ‘unlock value’ of Canadians savings by forcing the saver to crystallize these savings and make the proceeds available to the CRA. RRSP’s and real estate equity is no good to the government unless they can force you to take the cash out and pocket it…once done it becomes taxable….and thats the insidious plan behind the squeezing of the savers…..squeeze them until they squeal.

Seniors meagre savings ( because the war generation had much smaller incomes, larger families and a false reliance on the cost of living being more or less controlled and a guaranteed pension in old age have not been great savers on the whole…there were no national advertising campaigns for savers until the late 1970’s when the current flock of seniors were raising the current crop of ‘boomers’. The average Canadian wasn’t an executive with a corporate pension or a civil servant with the ticket to ride…he was a working stiff with an average job and most likely lived in the house he built when he came home from the war.

Inflation,,,the real kind, the kind you see where you live, at the grocery store, has skyrocketed, we have all seen the price inflation on basic commodities posted here…seniors haven’t been able to keep up with the doubling of bread prices, tripling of meat and cheese, the astronomical rises of pasta and canned goods and cereals. They have been able to forego their property taxes ( like a reverse mortgage to the city) but they have been direct and immediate victims of the relentless rise in heat and ulitilty bills…so much so that cost of heating a fourty year old home in the winter is more than the OAP and the CPP combined…..so they starve..or shiver….or both…..in the home that they built…in the country that they built…..so they could suffer in proud silence…stoic…like seniors are…people who survived war and the great depression.

Poverty is a far greater issue than the government wants to admit…it would be too embarassing…..they’d rather deny that seniors are anything other than feeble minded ‘investors’ with more money than brains.

Meanwhile…we have the COV spending 3.2 million dollars on two custom made snow sweepers to keep the bicycle lanes cleared through downtown Vancouver while the bike population of fairweather fanatics is noticeably absent…and as the snow and ice pile up in the streets. Mayor Moonbeam and the NDP live in a never never land where the flowers of an Amsterdam summer live in the hearts of the council as chaos decends on the elder staesmen of our once proud country.

I heard someone say,

“By trying to pander to everyone, we lose what we had to begin with.”

Oh Canada…..it’s become a circus of deceit and fabrications.

#46 Kanata squirrel on 11.26.10 at 4:01 am

#11 Wise Guy “Orange Guy’s shorts” = The ING Direct Dutch guy on TV … “Save your money” …

#7 april The person at the bank is probably a college or university grad (with a weak GPA) that became a bank teller because they couldn’t get anything else. They later got some training to be an “investment advisor” to pump the bank’s mutuals funds to people who trust them. They have no clue.

#47 Brian1 on 11.26.10 at 4:09 am

I am enjoying the comments today and would like to know if I can just puchase these preffereds and special bonds casuallly at the bank or must I endure some complicated process?

#48 Earl on 11.26.10 at 4:17 am

Does anyone actually know a good source for researching preferred shares? Everywhere I go, the information I get just seems to be too fragmented.

#49 Not Wondering Anymore on 11.26.10 at 4:40 am

#12 InvestorsFriend (Shawn Allen)

You’re getting it. The answer is to circumvent completely the current ïnvestment “returns” system, remain fluid and mobile,to be aware that inflation and deflation can occur simultaneously, and to prioritize protecting against both.

SELL real estate or any asset which represents more than 25- 30% of net worth.WITHDRAW cash and HOLD it. This will increase in value during DEFLATION.

Concurrently,have NO debt, INCREASE your productive or supplementary income and MINIMIZE your expenses. This protects against INFLATION.

Note:Like High Interest Savings Accounts,GIC’s,RRSP’s, Pensions,or CMHC, know that instruments such as bank preferred shares, provincial and federal bonds, TFSA’s ,etc.are also not without risk, nor are they,contrary to popular belief, a guaranteed investment. They, too, can have their investment rules, expectations and outcomes changed at the stroke of a pen. The imposed “haircuts” for these shareholders are proof of this and it will not be limited to Ireland and Europe.

#50 Europa on 11.26.10 at 4:57 am

“This is dead money. Invested by scared people.” – Garth

I’ve read a lot on this matter for the past two years and Generational Dynamics professor (The wisest guy I’ve ever read) says it best IMO. Simply, we are in a generational risk adversion time right now:

“I hear this all the time, and it always makes me want to vomit. The current Generation-X and Boomer investors who were formerly so risk-ignorant have now become extremely risk averse, and will remain so for the rest of their lives.

To quote a cautionary tale that I heard decades ago: If a cat jumps onto a hot stove and gets burned, then he’ll never jump onto a hot stove again. But he’ll never jump onto a cold stove either.

That’s what happened to today’s investors. They’re deleveraging like mad, and have no intention of investing their own money in new factories or new employees. The only ones who are investing are those who stand to make fat commissions by investing other people’s money. ” – Generational Dynamics

( http://www.generationaldynamics.com/cgi-bin/D.PL?s=SWmqq4&d=ww2010.weblog )

I think this should make some people go.. AHA!

#51 betamax on 11.26.10 at 5:03 am

#6 Bottoms_Up: “What are your indicators telling you these days? (I’m just too lazy to do the research i.e. reread your book, on my own).”

Then your ignorance is well earned.

#52 gold bugger on 11.26.10 at 5:07 am

What I would have asked the old lady:
“How long do you expect to live? Because if you sell your million-dollar house (assuming the house is paid off) at 3% your money will pretty much last forever.”

What we have in this country is an ownership fetish. It’s particular to North America – and maybe only Canada now – but we’re clinging hard to it.

It’s just a roof.

#53 Brian1 on 11.26.10 at 5:26 am

Garth; Yesterday you were referring to someone as a Nazi because of a stance they took regarding immigrants. Perhaps they were focused on the Chinese immigrants too much, but I too think immigrants contribute to keeping house prices high. I expanded this opinion after my tenants meeting regarding opposition to the above guideline increase. At the meeting the coordinator was trying to push the use of paralegals where I wanted to get a real lawyer.
(It just so happens that there is a grant made available that is just enough to pay for a paralegal but not for a lawyer. You have to come up with the rest yourselves and be able to find a competent lawyer). Well there were many immigrants who loudly shouted down my proposal in the belief that they would save money.
I think I know now who is buying a big chunk of the condos; the immigrants, and they do it with the free money from the banks: people with no money competing against people with money.
For example, when an immigrant arrives in Canada they are able to obtain rent subsidies. The scam begins with the unfair above guideline requests from the landlord. When the subsidies end and the immigrant experiences the failure of the system through the tribunal, he/she is left with three alternatives when faced with unaffordable rents, and that is to pay the higher rents, leave the country or get into the property game.
This is why the tribunal is still busy. It has become a thriving industry for paralegals who fantasize one day to become real lawyers, not realizing it is really a closed shop (mainly reserved for nepotists).
By now every apartment in Toronto has undergone turnover since the rules have changed over 18 years ago. There is no rent that is unfair in Toronto since the so called market rent is demanded on each new vacancy. For example, a landlord seeks a higher rent than market and gets no offer so he lowers it until successful. So there is no useful reason for the tribunal to exist except for the express purpose of providing buyers for condos.
I see only one way to stop it and that is if each immigrant, as they step off the boat or plane, is met with a free copy of Money Road rather than a free Toronto Star so they will have a fighting chance.

#54 SafetyBear on 11.26.10 at 5:29 am

#3 Hazzard

After screwing things up royally and sucking the best years out of the planet the very least the Boomers can do is leave something for Gen X to pick up. They really are the most me me me entitled bunch of spoilt people in the history of the world. They had it all and it wasn’t enough. Inheritance? The very least they can do.

#55 Aussie Roy on 11.26.10 at 6:07 am

DA please take the time to read my previous reponses from yesterday and comment. I wonder if you can now see the problem when total leverage is considered from an income prespective. How the gap between rental income and interest rates actually widen faster not slowly contract as you imply. Also can you see how investors expectation of yield also increases with rising interest rates but actual rental yields are falling in this enviroment.

I had an 8 home portfolio some of which I owned for more than 30 years do you think I would have liquidated these without considering what might happen in the future to yields, of course not.
I know it sort of goes against an agents fibre but really you should consider the pricing implications from an income perspective, most real investors do.

Aussie Update

http://smh.domain.com.au/real-estate-news/blogs/property-values/affordability-and-the-supply-myth/20101126-189ta.html

http://globaleconomicanalysis.blogspot.com/2010/11/foreclosed-home-sales-in-spain-to.html

http://www.theage.com.au/business/australias-gdp-growth-running-out-of-puff-20101125-18983.html

Whats this is the REI in NSW trying to cover themselves, house are not overpriced.
http://www.reinsw.com.au/default.aspx?ArticleID=7887

Headline says it all
http://www.afr.com/p/business/property/fears_of_unit_oversupply_in_melbourne_sRIdq6va8GcUmvBVlUwROM

#56 Ottawahouse on 11.26.10 at 6:10 am

You forget one thing Garth, these old dogs went through the Depression. Many are petrified. Many born in and around the 30’s remember hard times well. Lettuce sandwich that was not a diet in the 30’s it was the only food you had to eat.

I bet in your profession your still shocked at how much these old dolls have in checking accounts. I am, and I know a dozen or so with larger sums… every time a 80 something say….. well you never know when you might need it in a hurry. I cry!

So technically we are in the worst financial recession and yet I want to go to Hawaii in February and every 5 star hotel under $500 a night is fully booked. Makes you wonder.

This is a dream world we live in.

In my entire Financial Career I think I met less than 1% of people who lived within their means and had no debt.
It still boggles my mind on a Saturday at the TV store the boxes going out the door all on plastic.

If post 11 has not been answered orange shorts refers to the ING Bank

The Depression was 80 years ago. It’s today’s 50 and 60-year-olds who are in trouble. — Garth

#57 Lily on 11.26.10 at 6:22 am

Wise Guy – orange guy is from an orange three letter “bank” with no branches. He usually wears pants, as far as I can tell.

Old people and others don’t get it because they are truly brainwashed by the media. Plus most people are so bored in retirement that they make and exacerbate problems for themselves so that they have something to complain about.

Thanks for the fresh perspective, Garth. My husband and I have been reading your blog for several months and we are now reading your books. We don’t own a house and we are working hard to build more capital to invest. We are around 30 and most of our peers seem to be living in debt, and not just mortgage and student loans. So while I am not pleased with the boomers as a group, I don’t see my x/y (I’m on the cusp) generation being any better.

We do worry a bit about having to bail out our parents, and they’re all in decent shape, really. But we know that if you live long enough you can burn through it all. Especially with how much end-of-life care/housing costs.

#58 Ottawahouse on 11.26.10 at 6:34 am

My last post got a little long
Time for a survey
How many people on this blog are debt free?
Next question how many on this blog have more than
$10,000 in a checking account?

Now the biggie how many of you earn more than 5% on your investments? and not the speculators please

Now ask yourself how many of you did not pay off your credit card in full last month.

Forget Garth’s high flying advice in buying Preferred’s, at 5 to 6% really Garth how boring.

I can show you the way to earn 28% on your money right now no catch no quickie to richness. Just do it!

1. Pay off that credit card you just earned a 28% return!
2. Pay off that LOC you just earned 4 to 5 % and guess what that’s tax free baby!
3. Stop buying those toys you cannot afford. yes I mean you with that 50 inch big screen TV that you just put on the plastic.

If you have not done any of this before Christmas your looking at the same gloom next year.

Seriously why do you not pay off that credit card?????

Better still why do you put more toys on that credit card? Why do you buy a $1,000 camera when you probably take the same quality pictures with one for $50. Why did you buy that blue Ray when you still have not paid off that VHS machine? Why are you going to Hawaii when you could clean the house on the weekend,

Why do you spend $500 at the spa when your wife could give it for free? and lets not talk about the other free stuff ………..and I am talking the free smile the light kiss the I love you the not the other part and besides if your a boomer your not getting it anyway unless your using KJ.

Like the old saying goes What would happen if we all paid off that credit card……. think of it screw the bank might as well do it at 28% and then ask yourself are you enjoying it? This does have a happy ending.

Just curious

#59 Devil's Advocate on 11.26.10 at 6:36 am

#162 Timing is Everything on 11.26.10 at 12:04 am#124 Dirt Dog said – “Dude get real, a monkey could have sold real estate in the last 10 years.”

Come on….Give him (DA) a break..

…at least a trained monkey.

Hey man, a little respect please. A “trained Chimp”. There is a difference you know. I ain’t got no tail and do belong to belong to some semblance of social order.

A monkey is what you see riding the pups and poodles in a circus… Wait a minute… maybe I am a monkey. LOL

#60 Jody on 11.26.10 at 7:33 am

“Were that remotely true… — Garth”

Money talks, if enough people took out their money…. wait a minute, who am I kidding, if enough people took out their money and the banks got into trouble the government would bail them out, what a shame.

I have been driven nuts by the number of times I’ve had the conversation with people about investing in dividend paying stocks and get worried responses about a stock market crash and the money going bye bye. People fail to make the connection between a crash and the money in their “safe” GIC going bye bye as well. If a bank goes under, nobody will get their money, it matters not how you have it invested with that bank, right? Or am I out to lunch?

What I can’t stand is the “My money up to $100,000 is safe, the government guarntees it”, HAHAHAHA!!! I’m sure we’ll all be the first in line and the first group of people the bank and government thinks about if there is a bank failure, yea right. I’m interested to see if the socialist tossers in Europe have the balls to do their bank run on December 7th.

#61 Moneta on 11.26.10 at 8:08 am

There is a major problem in education here – there are a lot of us (baby boomers) who have learned nothing about investments, retirement savings and exactly what real estate costs.
———–
There is also a huge divide between women and men.

With men I often talk business. With women I NEVER talk business… because as they put it, they work hard all day and just want to relax when the girls get together.

I think women finally wake up in their 50s.

#62 pjwlk on 11.26.10 at 8:08 am

#11 Wise Guy: “I admit it too, I’m not sure who Garth references when he says the “Orange Guy’s shorts”?”

I’ve started a glossary of terms for us so we can try and stay “hip”.

#63 JO on 11.26.10 at 8:32 am

Do your own research but you can get good ETFs such as Claymore (check out CPD and CBO) that actually hold the investments of the index inside the structure and have trustees and custodians who at this time appear financially sound.

I do feel for the seniors with interest rates so low they are being robbed of their money as are the savers such as me. I want to invest all of my money in these preferrd share and high quality corp bonds but need to avoid losses as we will be buying a house in about 2 yrs or less.

On the other hand, my empathy for them is limited. Most have also been the beneficiaries of the greatest debt boom of all times. They bought houses and stocks ar bargain prices,they are earning CPP and OAS payouts that are generous relative to the contributions they made. So while I feel bad for some of them,I am not ignorant to the fact most of them have no excuses for this. Most are just plain stupid with their money.

Expect more handouts at our expense to keep many of these pathetic spenders afloat. It will unfortunately result in generational conflict. You already saw it in Toronto’s elections with Socialist dreamboy Joe Pants making a promise to give special treatment to seniors via property tax relief. My question is: Who the hell i going to pay for that nonsense ? Of course, it’s the yonger people who are paying much higher prices for everything and many of whom do not and will not have pensions or anything near as generous as many of the older folks have.

The main battle should be with the bank execs (including BofC) and stupid politicians.
JO

#64 C on 11.26.10 at 8:37 am

I hear the argument about the piddly ROR the ING’s and Ally’s are paying. I’ve got some money parked there waiting for the S to hit the fan. In reality we are in the same situatuion as Sept ’08 but instead of banks on the brink it’s countries. A little more serious no? I think preferreds are ok but didn’t they get trampled back in’08? As a long term investment yes the ING’s are poor investments, but when western governments are lining up in the soup line, ING is ok as a parking lot for me.

Love this blog and your commentary Garth!! Keep it up :)

#65 DARLENE on 11.26.10 at 8:38 am

Kind of reminds me of a conversation that I had with my MIL a few years ago. She had started to talk about her “investments”, and of course I was all ears looking for some sage advice. Then she leans over and says Canada Savings Bonds.

Back when she was still working in the 80″s a girlfriend told her about them. She couldn’t believe the interest they were paying. Well this conversation took place in the 2000’s and the interest at that point was only 3% not the 14 to 16% that she made when she first bought them.

As a good DIL I never questioned her and thanked her anyway. It was that day I realized that all that she had amassed was by hard work and sacrifice was only because of the high interest rates at the time.

It was then that I realized that although she had the best intentions, she really didn’t have the answers. That’s why I come here to read every day.

#66 Drake on 11.26.10 at 8:45 am

Enough with the preferred shares. If you don’t tell us how to get them, that advice is useless.

#67 Guy Incognito on 11.26.10 at 9:15 am

#11 Wise Guy – ‘Orange Guy’ refers to the nice non-threatening Dutch man who is the spokesman for ING

#68 Paully on 11.26.10 at 9:35 am

#11 Wise Guy – ING

#69 RookieInvestor on 11.26.10 at 9:45 am

@Drake do some research. Look up CDP or XPF. Both are ETF preferred share funds. XPF is a brand new fund, which includes american companies, and trades in cdn dollars. Its a great fund to hold in an RRSP or TFSA.

#70 BrianT on 11.26.10 at 9:54 am

#41Moneta-Canadian seniors circa 2010 are living like kings and queens in comparison to the expected lifestyle of Canadian seniors circa 2040. Also, IMO investment plans should have a strong assumption of far increased taxation rates in the future because the math pretty well locks it in. We are tied to the USA and currently the USA is sitting with a 1.3 million dollar contingent liability per income tax payer. That means is the seniors of 2040 are going to be treated as well as the seniors of today each taxpayer is going to have to fork out an extra 1.3 million dollars. How is this one going to play out.

#71 Renting in Milton on 11.26.10 at 10:10 am

THE ORANGE GUYS SHORTS!!!!!

ING DIRECT! for those who have been asking. I used to have a savings account with them when I was getting 4.25% return on my money. Each month I could see a return of $30 just for having 15,000 sitting safe and sound. This was 8 years ago or so, but I have long since closed the account since the interest rate faded away and 0.6% was’nt worth them having my money. Thank goodness for the TFSA now made available. I have yet to look into preferrerds or ETF’s because I dump most of my extra money into my RRSP. It should be manditory in school to have classes on Money Management and investment options etc. Maybe that would help kids decide which career path to take. These days it’s almost important to look at salery first as opposed to job satisfaction when selecting a career path, specially since our student loans take years to pay off. On another note! if our parents were left an inheritance, then isn’t it only fair to pass some of that on to the next generation when the time comes. You think the boomers are in trouble for retirement? How about their kidswho will be forced to take care of them and have zero financial help!

An RRSP is not a product. — Garth

#72 Happyplace on 11.26.10 at 10:17 am

What kind of selfish world do we live in when we can’t help out our aging parents? My 82 year old Dad is struggling to live on meagre savings. He worked his butt off all of his adult life to provide a decent home and education for his family. It’s the least I can to do help him financially.

Are you helping him invest? — Garth

#73 Grrr on 11.26.10 at 10:21 am

“No Canadian federal or provincial bonds will default. You have lost perspective. — Garth”

Ontario is in worse financial condition than California, which was issuing IOUs to creditors.

Ontario will stay solvent longer than GIC investors. — Garth

#74 Bob on 11.26.10 at 10:28 am

#6 Bottoms_Up: “What are your indicators telling you these days? (I’m just too lazy to do the research i.e. reread your book, on my own).”

reply by # 50 Betamax – Then your ignorance is well earned.
____________________________________________

And Betamax, how did you earn your arrogance? Try to add something to the blog instead of being a continual smartass. You’re becoming tiresome.

#75 Blitzkrieg on 11.26.10 at 10:31 am

Tons of great advice on the blog today, couple points:

Before investing, pay off debt because typically it will yield a higher interest rate than you can achieve by investing in a relatively safe asset class (exception of a low interest mortgage taken out for investment purposes)

CFPs do not take annual exams, they meet Continuing Credit criteria by reading/lecturing and taking courses

GIC are a no no as they will not even beat the inflation rate and on top of that your money is locked in

Use your life insurance advisors (make sure they have more than the LLQP license as its relatively easy to get and in my professional opinion more than 80% of agents out there have absolutely no clue of what they are doing, qualification standards will be raised in the the next several years) you can technically get a guaranteed 4.2% return by overfunding your policy, its tax sheltered growth, and you can access the funds anytime (not only after death)

Preferred Shares are subject to interest rate yield volatility therefore as interest rates rise you may/will experience capital losses (your monthly payout will remain the same but if going rates are 2% higher you can expect to purchase preferred shares that yield 2% more)

You can access preferred shares through an online discount broker, usually they provide free research materials and other perks when you re a client. Commissions are based on transactions and with assets over 50K only cost you 9.99 (as someone has already stated)

Someone asked when to invest in real estate again?
When yields are large enough to consider all the risks of renting and capital appreciation is on the horizon (yields above 7% (historical) plus capital appreciation of 3-5%, maybe in 5 years time)

In all cases seek advice from a professional as their advice can benefit you in many ways, best place to find an advisor in your own social network as this business works on a referral basis

Cheers and good luck

#76 Anotherlowlyrenter on 11.26.10 at 10:32 am

There’s a lot of basic questions about preferred shares despite all the free information on the internet. The best place for info on preferred shares is at prefblog.com. There is also a sister site called prefinfo.com with primers. The author is an industry veteran and his writing style is esoteric but if you persevere the primers on the prefinfo site are a great place to learn.

One thing beginners need to understand about preferred shares is that many of them have no maturity date and are redeemable only at the discretion of the issuer. While the yield on preferreds is higher than GICS and the like, in situations where the payments are fixed you might be screwed if long term interest rates rose significantly AND you needed to sell afterwards. That is because the price of the preferred would fall which might offset the superior income stream you had received. There are obviously other factors to consider which i won’t go into.

If interest rates ‘rose significantly’ I guarantee you’d have bigger things to worry about. But since preferreds are 100% liquid any astute investor would see that train long before it arrived. More irrational fear. — Garth

#77 Blitzkrieg on 11.26.10 at 10:36 am

Another observation,

A very interesting idea of how one company is dealing with unfunded pension liabilities,

http://noir.bloomberg.com/apps/news?pid=20601087&sid=a9TI9uIkR7fE&pos=2

#78 Devil's Advocate on 11.26.10 at 10:40 am

#54 Aussie Roy on 11.26.10 at 6:07 amDA please take the time to read my previous reponses from yesterday and comment. I wonder if you can now see the problem when total leverage is considered from an income prespective.

Roy;

I did read your post, although admittedly more a scan as I was preoccupied preparing for an appointment at the time and your explanation appeared to deserve closer attention.

Ultimately Roy, I too have disposed of revenue property which it did not make sense to continue to hold given the exceedingly high market value compared to that which I paid. So I sold it – at the peak of the market. I will buy property to replace that which I sold when I find the market has adjusted such that rents reasonably cover costs with a reasonable return over the long haul.

I always factor in a “safe rate of interest” and never use that which I secure for financing at the time. I’ve been subjected to high 18% plus rates and low 2.5%. When evaluating a property I use a minimum interest rate of 8.5% in my calculations and I always calculate the feasibility as was I 100% financing the project. I realize that “leveraging” the banks money often provides a better return, on the other hand one must account for the opportunity cost of the equity put in as down payment that can not be used for anything else – but leverage.

Admittedly using the above in addition to the other variables such as vacancy, maintenance, management, taxes etc. necessary distances the opportunities in today’s markets but it has worked quite well for me in balanced markets of the past for long term revenue holds or short term speculative development projects. I do expect those “balanced” markets to return. Balanced markets where the rent/price ratio make some sense. It has to for otherwise, as I suggested, no one will buy or retain rental properties. Well we know there have ALWAYS be renters and judging by the comments on this blog there is only going to be a whole lot more. So… rental properties will, at some point, have to make sense or they will cease to exist and what then Roy? Well then I sell pups and poodles homes instead of renting them homes.

I realize I may not have addressed your specifics. Just don’t have the time to devote the attention to it and figure out exactly what you are proposing as there were, as I recall, a few missing variables to do so adequately.

#79 oasis on 11.26.10 at 10:46 am

No Canadian federal or provincial bonds will default. You have lost perspective. — Garth
______________________________________________

and what makes canada such a special place? how are we any better than the europeans or americans?

Has a US federal or state bond defaulted? A sovereign Euro bond? — Garth

#80 Devil's Advocate on 11.26.10 at 10:57 am

#54 Aussie Roy

Of course a difficulty right now is the scrutinization by the banks. Don’t get me wrong I think it is a good thing and still needs further stepping up. But the finer net has limited opportunity for even a seasoned prudent real estate investor. That too will change but for now it’s sit and wait – sit and wait for a more balanced market on all fronts to return not the real estate Armageddon the pups and poodle hope to vultch off as that in itself is another period of market failing. Vulching is speculating. You can’t time the top or the bottom but, clearly as you well know Roy by what I gather was your accounting explanation, when the math “works” you know things are “working”. I’d rather bet on a sure thing than hope I bought at the bottom or sold at the top.

#81 Devil's Advocate on 11.26.10 at 11:01 am

So why did I sell the revenue property? It just wasn’t worth holding them given what some greater fool was prepared to pay for them.

But that was “revenue” property – property bought to hold long term for which someone made an offer we could not refuse. We’re not stupid.

#82 JD2000 on 11.26.10 at 11:04 am

Question to ALL:
As Garth is stating that all investments (he is referring to) are secure, why all these professionals divert from any form of accountability for them suggested investment choice performance?

Is that English? — Garth

#83 JD2000 on 11.26.10 at 11:09 am

“IIROC-regulated investment advisor” or “MFDA-regulated financial planners” are accountable for what?

IIROC = Investment Industry Regulatory Organization of Canada (advisors licensed to trade and advise in all securities). MFDA = Mutual Fund Dealers Association (advisors licensed to sell mutual funds). Big difference. — Garth

#84 MikeT on 11.26.10 at 11:29 am

Garth, why not create a section on your blog that would have the definitions of what you talk about? Too many (new) readers ask about the identity of the orange guy. Don’t remember people asking about who F is, but maybe they’re shy… A “Garthionary” section would help, I think…

Good taste surely prevents it. — Garth

#85 Europa on 11.26.10 at 11:30 am

Investors with short time horizons…

Best advice I’ve read (outside of this blog) is if you need the money in less than 3 years in the current market, stick to SAFE, guaranteed investments.

Buy and Hold is a long time frame where you don’t need the money for a long time.

More fear. More bad advice. Three years is plenty of time to grow money safely. — Garth

#86 BDG-YYC ... Ranting on 11.26.10 at 11:32 am

#65 Drake on 11.26.10 at 8:45 am
Enough with the preferred shares. If you don’t tell us how to get them, that advice is useless.
…………………..

Representative of the problem. Spoon feed me. I’ve fallen and I shouldn’t have to get up. I’m too lazy to do a little work. etc. etc.

Garth, its not the case that people are too busy to do ALL THE WORK (caps for emphasis) most are simply too lazy to do ANY OF THE WORK. Consider that the average Canadian adult watches over 20 hours of TV a week. That’s 80 hours a month and about 1000 hours a year. For a couple that represents 2000 hours a year which is the equivalent of a full time job. “I don’t have time” my ass. Most people won’t spend the basic time it takes to even become knowledgable enough to be able to competently select an advisor, or to be able to understand what the hell an advisor is talking about.

When everyone expects prosperity should be handed to them nobody can prosper. It takes hard work to stash away a bit of money and a lot more to hang onto it.

Sad.

#87 TheBestPlaceonEarth on 11.26.10 at 11:45 am

If you want to make money other than in Real Estate at this juncture you would want to invest in junior uranium companies

Can we pay for your brain surgery first? — Garth

#88 doctore on 11.26.10 at 11:46 am

The bond vigilantes are now out in full force, targets now are first Portugal and then Spain. Note how both countries are now using the tough talk approach that they do not need help and that things are good. HA! This is the same approach that Ireland and Greece did and now look at them. The vigilantes are a force to be reckoned with, over the next several weeks, look for major turmoil in the stock, bond and fx markets as this continues to play out!

#89 allister on 11.26.10 at 11:59 am

Remember people – never, ever, buy an equity because of the dividend only.

The dividend must be backup up by cash flow, and low payout ratio, and a viable business.

If you don’t know what that means, then you need to either seek advise or better yet, get self educated by reading.

You need to differentiate between commons and preferreds. They have differing risk levels and are actually in varying asset classes. — Garth

#90 Joe Realtor on 11.26.10 at 12:00 pm

#65 Drake – “Enough with the preferred shares. If you don’t tell us how to get them, that advice is useless.”

It isn’t the advice that is useless. Dude, ever hear of “Google”?

http://tinyurl.com/2uenpkh

#91 Slice on 11.26.10 at 12:07 pm

57 Ottawahouse on 11.26.10 at 6:34 am

Time for a survey
How many people on this blog are debt free?
Next question how many on this blog have more than
$10,000 in a checking account?

Now the biggie how many of you earn more than 5% on your investments? and not the speculators please.

I can answer YES to all of the above. I also do not own a house and can’t give a rat’s ass how much the housing market is going to plummet over the next five years.

#92 Ron Burgundy on 11.26.10 at 12:19 pm

“Or why not borrow some money at prime (3%) and build a portfolio with all of these things in it, putting your equity to work, getting a tax-deductible borrowing, and creating an income stream where none existed before”

Garth, for those of us that haven’t fallen victim to the house porn/MSM and have followed your advice with regards to our balanced portfolios, what are your thoughts on Leveraged Loans for the purpose of investing?

Thanks again for responding to my email.

Kind Regards,

Borrow at 3% and invest to make 6%, with tax-deductible interest? Beats knocking over liquor stores. — Garth

#93 T.O. Bubble Boy on 11.26.10 at 12:25 pm

@ #20 Rainbird:

You’re a bit off: if bond yields go up, the *price* of the preferred share will likely go down, but yield will not change from when you bought it. So, if Loblaws Pref. are at $27/share now and paying $1.44/year per share ($0.37 per quarter), they could drop to $25 or $23 or whatever, but still pay you $1.44/year per share.

Also – I should point out that I’m not saying Loblaws Preferreds are the best ones out there… far from it — but, they are far better than 1.5% at ING.

There are also rate-reset preferreds out there, where the rate is reset every few years (usually 5) to government prime + X%… so, even if rates rise, the impact is not as high.

#94 Stevermt on 11.26.10 at 12:25 pm

ref: #14
speaking of products shrinking in size.just bought x-mas LED lites at Costco..2 yrs ago same lite set was 70 lites..now 50 lites for the same price !geez !

#95 OttawaMike on 11.26.10 at 12:29 pm

Why do old people go grocery shopping mostly in the 4-7 PM time slot when everybody else is there? They have all day don’t they?
Why do they insist on standing in the bank lineups in herds on pension cheque day when the cheque is direct deposited and we have ATM’s?
Also why do old people move sooo slowly? Especially when one is in a rush and stuck behind them in the lineup. It would occur to me that seniors should move the quickest since they have the least time left in this mortal coil to get stuff done.

I put these questions to my 90 YO grandma, who is healthy and living independantly.

Firstly she told me to slow down and enjoy the scenery a little more lest I will never make it to being a senior.
Secondly she told me how the biggest problem for healthy seniors is loneliness. Many old people have no human contact all day or even all week. Their spouse has passed on as have their friends. The kids and grandkids are busy running their own lives and selecting granite colours.
So the nice lady at the bank or the bearded writer in the supermarket lineup fills that void.

My suggestion to granny was to establish a govt. colony on Baffin Island for all seniors, that way the weak ones could be culled from the herd more easily ;>)

#96 Aaron on 11.26.10 at 12:47 pm

Your words:

_”If you are busy earning a living and raising a family, get some help. — Garth”_

From who???? that is certainly what i find daunting. bad advice is worse than no advice. Can you provide a list of people/companies in Halifax, NS??

Email me, [email protected]. — Garth

#97 Ahead of the Curve on 11.26.10 at 12:48 pm

Rich Americans Ditch Home Ownership For Renting Welcome to the future Canada. It is here and now. http://tinyurl.com/2fzo3pc

#98 HouseBuster on 11.26.10 at 12:55 pm

#65 Drake – “Enough with the preferred shares. If you don’t tell us how to get them, that advice is useless.”
——————————————————–
I’m sure you wouldn’t have a problem finding the latest gadget for your computer.

Let’s try putting some effort into it!

#99 realpaul on 11.26.10 at 1:04 pm

Government ghou;s are doing everything they can to claw back any savings a senior may have. In this case, recently exposed, the ghouls try to discontinue OAP if a lump sum is withdrawn to pay for sudden expenses,,,,such as having to BURY A SPOUSE!!!!!!!

But…the number of civil servants earning more than $100 p/a continues to treble every three years…on the backs of the poor.

http://communities.canada.com/vancouversun/blogs/cayo/archive/2010/11/26/feds-may-back-down-on-tax-change-that-hammers-low-income-seniors.aspx

The civil servants have become the neo Nazi’s prison camp ubergruppenfuhers living high and fat……a seniors life has become a death march of starvation and intimidation after the government has first stripped them and stolen their possesions…..leaving them to die …….. forgotten and ignoble .

Good strategy. Blame a handful of civil servants for your problems. — Garth

#100 Ben on 11.26.10 at 1:08 pm

The U.S. is bankrupt, the only difference between them and Portugal, Spain, Ireland, Iceland, etc… is they can still borrow. For now…

http://finance.yahoo.com/tech-ticker/howard-davidowitz-on-the-economy-%22here-are-the-numbers-…-we’re-broke!%22-535653.html?tickers=%5EDJI,%5EGSPC,SPY,TBT,TLT,UUP,GLD

You’d better hope the US stays solvent. If not, we are gone in a flash. — Garth

#101 rory on 11.26.10 at 1:08 pm

Hey all …there is a video about 2/3 way thru the link that talks about China’s property boom and potential bust.

Video is about 3 minutes long but gives some strong insight into why our property boom is still going strong – for now?

Aussie’s should watch this too.

http://globaleconomicanalysis.blogspot.com/2010/11/chinas-economic-treadmill-to-hell.html

#102 dark sad person on 11.26.10 at 1:10 pm

#59 Jody on 11.26.10 at 7:33 am

Money talks, if enough people took out their money…. wait a minute, who am I kidding, if enough people took out their money and the banks got into trouble the government would bail them out, what a shame

*******************
if enough people took their money out of Canadian Banks-they would discover that the Banks don’t have the money-it’s all been lent out-
In Canada we have zero reserve requirements-which means each dollar of savings deposits has been lent out how many times?
10-20-30?
We would find out that these “envy of the World” Canadian Banks here are nothing but propped up Zombies-
Don’t anyone bet that a haircut can’t be taken-
The Government is only as sound as its Taxpayers-
Unemployment levels are climbing-the “power” to Tax is diminishing and if people think we are in better shape then Europe-they need to think again because once the Vigilantes have had their way with Europe-they will come to Canada doing as they always do-discounting Governments ability to fund their debt and support the Banks-
Sovereign defaults loom on the horizon and no-Canada and Canadian Banks are not exempt-

#103 realpaul on 11.26.10 at 1:15 pm

Newest government gambit is to nationalize all private pension money and take it under state control by threatening to cut you off a CPP or an OAP altogether by blackmail…this is how they are going to cut ‘deficits’ while maintaining the fat cats salaries at the top….soon to come to Canada…no doubt.

http://www.bloomberg.com/news/2010-11-25/hungary-follows-argentina-in-pension-fund-ultimatum-nightmare-for-some.html

Of course not. Grow up. — Garth

#104 Renting in Milton on 11.26.10 at 1:18 pm

Oh Sorry Garth,
I meant to say Mutual funds (Equity) instead of RRSP’s. I realize that RRSP’s are just the vessel.

There seems to be talk lately about updating Canada Pension Premiums. Canadian Labour Congress is proposing to have the premiums doubled by the time you 20 somethings retire. Sounds good to me but at what cost? Neither my Boyfriend or Myself will have pensions through work so this sounds very appealing. Garth, what do you think. I still don’t think it will be enough since I will probably never own real estate and who knows what rent will be like in 35 years..

CPP premiums will likely go up. The benefits paid will not. There is nothing appealing about this. You are on your own as public pensions were never designed to give you more than 30% of your retirement needs. — Garth

#105 David B on 11.26.10 at 1:25 pm

As I in a bank line up to-day I noticed many older people in the line with their bank books in hand. Yes Mr. Turner older people like the old way of savings and watching their pennies grow.

Not sure just how much money is out there in savings and GIC’s but if it gets to too high I am sure they will find a way to circulate it. Old habits are hard to break.

The greatest risk is running out of money, not losing it. Millions will discover this. — Garth

#106 Hoff23man on 11.26.10 at 1:26 pm

It’s all about risk and reward. ING/Ally is very low risk but low reward. Many smart people have cash parked in accounts there because they see too much risk in the market.

I completely agree with having a diversified portfolio and there is nothing wrong with having a cash component that rises in times of extreme volatility.

You argue that “any astute investor” would see a train wreck coming and get out but a) we all know that is not true, by the time you see it coming, it’s too late and the market is already down and b) the train is about to wreck – it’s just a matter of when.

Secondly, I have to argue the point of saying that preferreds are safe and liquid. You can’t have both at the same time. Preferreds were crushed along with everything else in 2008 and if you had needed the money then for whatever reason, you would have lost substantially. So, they are relatively safe over the medium term but there is still an element of risk if you want it to consider that investment liquid.

I agree with most of your views on Real Estate and investing in general but do take issue with not stating to get higher returns there is an element of risk that must be acknowledged.

First, any astute investor sees danger, but 95% of investors are busy doing something else, which is why smart people with enough investible assets hire a guy to keep them out of danger. Second, the danger with preferreds is hugely overstated by people without any. They are bought primarily for income, which does not change a cent during any financial crisis. During the worst disaster of our generation (winter of 08-09) RBC preferreds dipped from $25 to $15 for a few weeks, before rebounding completely. By comparison, the TSX dropped 50% and is still 22% below its peak. For those who want to make a steady and predictable return on the assets and pay 80% less tax, these are excellent choices. For those who want capital gains, buy common stocks. For the pansies, stick with GICs, and stop complaining. — Garth

#107 The InvestorsFriend (Shawn Allen) on 11.26.10 at 1:32 pm

Number 25 RE Bear disagreed with me that if savers went on strike and refused to accept 0 to 2% interest rates, then those rates would rise.

RE BEar said: “Ughm, no, the bond markets and Mr. Carney determine the savings rate at the Canadian banks.”

Well yes, Mr. Bear, and one half of the bond market is the savers who buy bonds. Individuals, pension plans, insurance companies…

None of these is forced to accept a given interest rate. All are free to invest in other assets or as you mention other countries.

So far they have voted with their wallets to accept low interest rates.

The evidence is that far from a glut of debt, there is a glut of savings eager to be loaned out. Without a glut of savings to be loaned interest rates could not be at record lows.

P.S. I am right.

P.P.S.

I am ALWAYS right.

P.P.P.S.

My only fault is I am way too modest.

#108 JD2000 on 11.26.10 at 1:45 pm

IIROC = (advisors licensed to trade and advise in all securities) – Is it a license to charge x% of the $ amount of the investment portfolio advised by IIROC registered advisor?
And yes, that was dinglish Garth! :-), what other languages do you speak?

Some advisors charge for advice. Some charge for trades. Some charge for managing money. Some take commissions on the sale of products. — Garth

#109 betamax on 11.26.10 at 1:49 pm

#73 Bob: “And Betamax, how did you earn your arrogance? Try to add something to the blog instead of being a continual smartass. You’re becoming tiresome.”

LOL. Sorry, I didn’t realize I had an obligation to meet your estimation of value. Thanks for clearing that up.

Tired yet? Go have a nap.

Re.#6: since when did admitting laziness become a justification for it? I could have said worse, and arrogance has nothing to do with it.

#110 Claudius Emperor on 11.26.10 at 1:59 pm

The best choice now is to keep money in cash/GIC and not to lock them.

The inflation – result of the excess borrowing is already 2.5 percents. The interest rate increases are about to start. The best time to buy bonds – corporate or government is on the top of the interest rates. If you buy bonds now you will sell them for less tomorrow.

Buy bonds but in 1.5-2 years. Now wait and enjoy the holiday discounts. If you don’t get them here go to US on a shopping spree. I will.

Garth, comments?

I’m glad you’re an emperor and not an advisor. — Garth

#111 Timing is Everything on 11.26.10 at 2:00 pm

security or surveillance….condo TV

Condo living….Ha! Ya all can have it. I’ll stick to my ‘private’ 2 acres….

http://www.timescolonist.com/technology/Condos+rethink+cameras+over+privacy+concerns/3886884/story.html

#112 VICTORIA TEA PARTY on 11.26.10 at 2:09 pm

#16 Dan in Victoria

True words about Oak Bay for certain. Two other, related horrors I’ve witnessed in that fair municipality by the sea:

–staying an appropriate distance behind two scrawny hands (couldn’t see the head and shoulders!) gripping the steering wheel of a 1979 Chrysler New Yorker, with a day’s worth of pollution blathering out its exhaust pipe, as it steamed relentlessly (like the old battleship HMS Ark Royal in a heaving Atlantic swell) down Oak Bay Ave possibly on the way to the Monterey Senior’s Centre for afternoon tea and crumpets.

–The ageing female with her Tilley screwed none-too-politely on her greying noggin stepping out onto that aforementioned main drag, mid-block, and crossing WITHOUT looking either way! I don’t know if that babe was just egotistical or an advocate of a cheaper form of euthenasia!

NOW FOR SOME BELGIUM WAFFLING…

Looking at the stock, bond, commodities and currency markets, of the industrialized West today, I see total gloom. That incldued Irish and other Euro banks suffered credit downgrades.

And now this, from CNBC!

“Think BIIGS: There’s One Euro Country Under the Radar

Belgium faces an important test Monday, when it aims to sell…2.5 billion euros worth of bonds in an auction that will indicate the level of investor confidence in the nation plagued by political turmoil and high levels of debt.

The auction…comes as bond vigilantes are increasingly targeting the country…Politicians have been trying since the June elections to broker the formation of a government, but the talks have resulted in complete deadlock and the prospect of new elections is looming.

Belgium could be caught up in the same web as the peripheral euro zone nations of Portugal, Ireland, Italy, Greece and Spain – the so-called PIIGS – if it does not succeed in forming a government soon to reduce the budget deficit through fiscal austerity and bring down its debt, some analysts say.

‘If the crisis lasts another three to six months, it will become a problem. Then the structural issues, with an ageing population, become more serious,’ Philippe Ledent, economist at ING Belgium said.”

Belgium is a belwether or sorts, for Northern Europe so-called, because prevailing notions are that Europe’s debt problems lie mainly in the south of the continent. Truth is all of Europe, mighty Germany included, are in the debt soup up to their necks.

As an aside, Canada’s per capita debt load should frighten thinking Canadians everywhere.

BLACK FRIDAY SHOPPERs…

And, the US keeps on keeping on with its delusional, nay fraudulent, economic bookkeeping, forecasting and dreaming.

An example is today’s “Black Friday” where merchants lock-up profits as the Christmas debt-financed buying binge officially begins.

CNN had one reporter running around a shopping mall literally touting various items the audience might consider purchasing. The network then cut to another reporter who was also promoting this shopping day. Desperation was the theme of this particular program. Just where “average” Americans will get the money for this Christmas is beyond me.

We are now moving into the fourth, or is it the fifth, year of this “great debt contraction” whose end has not been reached, because the beginning has barely begun!

All the central bankers, politicians, economists, media commentators, and other wishful thinkers, so far, have not be able to do a thing to contain and reverse this economic catastrophe. Remember those Green Shoots of Mr. Bernanke, in 2009?

This winter whole countries could become insolvent and maybe a currency or two.

Such an historic time, Oak Bay bats notwithstanding.

#113 Debt's Dark Embrace on 11.26.10 at 2:10 pm

#12 InvestorsFriend (Shawn Allen) on 11.26.10 at 12:06 am
………………………………………………………………………

You are right. As long as the “bond vigilantes” are willing to accept 0-2% interest rates will stay low.

As long as enough people leave their money in 0 to 2% investments, interest rates may stay low.

If there were a a savers strike whereby savers took their money and looked for higher returns then interest rates would rise.

It’s simple supply and demand.

Were that remotely true… — Garth

#114 S on 11.26.10 at 2:11 pm

#71 Happyplace on 11.26.10 at 10:17 am

As sensible a comment as I ever read here. Families must stick together and that is the most important and probably the only truly sustainable form of social safety net in any country. I could elaborate on this but this point usually falls on deaf ears here. Suffice to say that most of societal ills today can be traced to a complete disintegration of the most fundamental unit of a healthy society: family. Children growing up not interacting with their grandparents, grandparents not having the opportunity to transfer their wisdom on the youngest generation etc, etc. Instead we have kids growing up on gems like “Grand Theft Auto” and “Hanna Montana”, while our elderly are liquidating their holdings to pay strangers to take care of them. Garth is right when he often states “this won’t end well” but the problem goes much deeper than financial ignorance.

#115 Macrath on 11.26.10 at 2:14 pm

An astute investor would see that train long before it arrived.— Garth
____________________________________________-

Hoping to see at least a chapter on this subject in your next book.
At least something better than this:

And if you are going to panic, please remember the cardinal rule: Panic before everyone else does.
-Mish

#116 an_actual_IA on 11.26.10 at 2:15 pm

My advice to you people would be to go to your bank and get a RRB. This is a bond that is issued by the govt. that will compensate for the increase in growth of the CPI for ***both** the principal and the interest.

This way if the CPI is growing at 3-5% a year you will get that amount and at the term of maturity, you will get the accumulated percentage on your principal. Go seek your bank for advice. They will help you.

#117 Grrr on 11.26.10 at 2:21 pm

“First, any astute investor sees danger…”

Where were all the astute advisors in ’08?

“They (preferreds) are bought primarily for income, which does not change a cent during any financial crisis.”

When interest rates and inflation rise (they have no where to go but up), the price of preferreds will drop, and a 6% yield won’t seem very rich. The threat in this case is outliving your money.

But this isn’t really a concern, since timing the markets is easy.

Rates will rise slowly, of course, lest the economy nosedive. As they do rise, simply rebalance your preferreds since buying them at lower costs will increase the YTM. How hard is that? — Garth

#118 Claudius Emperor on 11.26.10 at 2:25 pm

Low interest rates is one thing, giving loans to non-qualifying people transfering the risk to the taxpayers
is somehing else.

If this continues the future is clear – inflation (3-4 years down the road) and big tax increases.
Which will screw everyone.

Generation X can not:
1. pay for milion dollar homes
2. have 8 percents (offifial), 12-15 percents unofficial uneployment (for now, with the economic ‘stimulus’),.. with

60 percents of the people on minimal wages.
3. pay the bad debt on behalf of CHMC (hey, what a holiday gift…)
4. support the retirement and the health care of the baby boomers through higher taxes.
5. pay the other outstanding debt.
at the same time.

I would be very careful with the inflation as I have seen hiperinflation and most of the readers on this blog have

not. We all will be screwed. Big time. The houses will be the last problem to worry about.

The opposite of leverage is deliverage. Which means austerity meassures and modest growth.
Money worth more every day without ‘investing’.

BTW even in Japan with huge government debt increases house prices declined in the last 20 years. to 40 percents of

their original values. Despite the inflation.

Could anyone imagine a house worth 600 k now that will cost 240 k in 2030? While you paid total of over million on

that mortgage? Not being able to move as not being able to sell as of the declining prices? Huge debt increase to

200 percents of the GDP and higher taxes without services? Here I am not even factorin the baby boomers.

And forget about the rich immigrants, the world is now open and we unfortunately are nothing special, my choice will

be Spain over Vancouver, any time. Condo for 40 k Euros (very small maintenance), great wheather, good health care

and low cost of living. And friendly people.
What are we living for?

#119 EdmontonianGuy on 11.26.10 at 2:35 pm

So true with the situation with seniors. It’s very unreal here in Alberta though, a real nightmare has brewed.

We have the most amount of consumer debt in the G-20 in Canada, and the debt per household in Alberta is twice the Canadian average!

My Mother works with seniors and is close to be a senior herself. SHe doesn’t understand why so many have taken out $100,000 + on there houses to buy motorhomes, or new cars when they are slowing down so much and 70 years old.

I think some people watch too much television and read the newspapers too much she says. The newspapers where telling us the price of oil should hit $200 a barrel and housing prices shoulsd keep going up 15% a year or more in ALberta for many years. These are the same people who tell us we aren’t in a housing bubble, things are just becoming balanced.

WIth more children growing up below the poverty line here in the city I live in (edmonton) than ever before, everyone has been a greater fool partying on their lines of credit. The party looks like is finally coming to an end though…

As usual the main stream medi will report what has happened, not what’s happening, so for many fools out there it will be to late!

C’est Dommage!

#120 Ben on 11.26.10 at 2:45 pm

#99 Ben on 11.26.10 at 1:08 pm

“You’d better hope the US stays solvent. If not, we are gone in a flash. — Garth”

Garth… I can’t wait, bring it on!

#121 Hoff23man on 11.26.10 at 2:46 pm

First, any astute investor sees danger, but 95% of investors are busy doing something else, which is why smart people with enough investible assets hire a guy to keep them out of danger. Second, the danger with preferreds is hugely overstated by people without any. They are bought primarily for income, which does not change a cent during any financial crisis. During the worst disaster of our generation (winter of 08-09) RBC preferreds dipped from $25 to $15 for a few weeks, before rebounding completely. By comparison, the TSX dropped 50% and is still 22% below its peak. For those who want to make a steady and predictable return on the assets and pay 80% less tax, these are excellent choices. For those who want capital gains, buy common stocks. For the pansies, stick with GICs, and stop complaining. — Garth

My main point is that risk does increase as you attempt to increase return. Preferreds are a good choice and I do own some, but I accept the moderate increase in risk in order to get a better return.

I do consider myself an astute investor and I absolutely see danger right now which is why the cash portion of my portfolio is higher than normal. Do you not see danger with all that is going on right now? You list a number of reasons for a housing correction that will also have an impact on investments whether bonds, preferreds or commons.

#122 Frank from Calgary on 11.26.10 at 2:55 pm

Spain just announced that it has to deal with 100 000 abandoned homes in forclosure. No Ninja loans, no Highschool drop out working at Wally World getting a half million dollar mortgage in Spain.

But hey….it can’t happen here

Ole’

#123 noplused on 11.26.10 at 2:59 pm

It official: Spain needs a bailout.

http://www.theglobeandmail.com/report-on-business/economy/spains-pm-says-no-chance-bailout-needed/article1814802/

This is certain to be entertaining but it’s happening too slowly to catch the collective consciousness.

It’s coming to North America soon, so watch what happens to get an idea what things are going to look like.

Bernanke can print enough money to buy all the Federal debt and the Treasury can use that money to bail out the states who then in turn can bail out the municipalities, but it’s all still borrowed money that has to be repaid. But since the loans they already have can’t be repaid (that is the problem), the new loans won’t be repaid either. In other words the bailouts are just making matters worse. The final bankruptcy will simply return a lower salvage value for the bond holders as there will be so many more outstanding at the time.

And yes it’s coming here too. An Ontario bond is going to be worth maybe 50-75 cents on the dollar shortly after California goes down. Hope that 4.2% yield was worth it while it lasted! Of course you can hold it to maturity but I don’t do long term planning in the middle of a world wide financial crises of unprecedented proportions.

And no, Ontario is not in better shape financially. No, it does not have more resources, no, it does not have more technology or better educated people or any of that! What it does have is 1/10th the population (roughly), 6 months of winter and an ego problem. Then add the fact that the northern half of the province is uninhabitable and un-farmable and that the Ontario economy is almost entirely supported by exports whereas the California economy is much closer to being self sufficient. The odds seem pretty clear that were California goes Ontario will follow.

When the US debt bomb finally blows, we will follow them straight down into the crater. Any other conclusion is just magic thinking. I think it will happen within a few years. The math is all there, it’s clear as can be that if tax receipts do improve dramatically soon all levels of government in North America are insolvent. It’s also clear that tax receipts are not going to improve unless the economy improves. The economy isn’t going to improve because consumers are debt saturated and can’t get a raise because of global competition.

#124 Claudius Emperor on 11.26.10 at 3:02 pm

Garth,

Buying bonds is not the most liquid investment. Buying them today knowing that interest rates will raise tomorrow is a bad choice.

When the facts are speaking even the gods are silenced.

I would not recommend anyone to play the bond game without having basic understanding of how the securities work.
In fact one can lose in this otherwise ‘safe’ investment.

Bonds are 100% liquid. Stick to peeling grapes. — Garth

#125 Future Expatriate on 11.26.10 at 3:16 pm

The choice to remain fearful and ignorant.

#126 T.O. Bubble Boy on 11.26.10 at 3:20 pm

A brief analysis of the 2 new Preferred Shares investments (iShares/BlackRock ETF, and BetaPro funds):

http://www.financialpost.com/personal-finance/ETFs+show+their+colours/3875556/story.html

Holding the individual shares still seems like the obvious choice (losing .48% in management fees on an investment that primarly provides a dividend yield of around 5.4% is essentially like paying 9% for the management!)

#127 Causalien on 11.26.10 at 3:21 pm

#10 LG

First off. I am no financial planner and I am no certified trader. That said, I have a lot of experiences using all the brokerage firms in Canada. (and paid dearly for the “education” in being ripped off by them).

If you want , I can point you to the right place for the type of investments you want to make. But that’s it. I don’t want to be liable for any bad decision you make.

#128 jess on 11.26.10 at 3:23 pm

I came upon this blog regarding
” jurisdictional arbitrage” whose mess is it german or irish?

http://golemxiv-credo.blogspot.com/2010/11/who-bankrupted-ireland.html

#129 Bottoms_Up on 11.26.10 at 3:33 pm

#117 Claudius Emperor on 11.26.10 at 2:25 pm
—————————————
You forgot: Gen Y cannot pay 3x tuition fees as currently trying to be forced upon them in Britain by Boomers/Gen X.

If Boomers/Gen X were heavily subsidized to go to school, why is Gen Y getting the SHAFT?

#130 realpaul on 11.26.10 at 3:49 pm

It may only ‘seem’ like you’d need your head examined for thinking about buying into the rising uranium market, especially after such a drubbing the sector took in the debacle of 2008 and 2009. But even the heavy weight Cameco CCO has trebled since the market recovered.

http://blogs.forbes.com/gordonpape/2010/11/24/uranium-stocks-are-hot/

I went through a very cathartic exercise yesterday and shredded all my investment notes from the carsh of 08/09. It wasn’t just uranium that took a hit…it was banks….even preferreds and trusts…banks stocks, utilities…everything….and most commodity related stocks fell 70%. They have only recently recovered. I thank my experiance and education for giving me the strength to dollar cost average into the market all the way and catch the tremendous rise after the gutting.

I think we should get the speakers and the writers who were telling everyone to sell everything and get out to start again onto a stake in the plaza for a 21st century auto de fe’….such destruction was caused to peoples lives….as bad as Flaherty raping seniors income with ZIRP and killing trust income.

So…..just as an experiment into the bizarro world of sector investing…have a look at the fundamentals of junior urarnium companies and template this info against the macro of the nuclear industry in general. You may find that ….like many of the ‘solid investors; who poo pooed the gold market in spite of its ten year run as ‘impossibly risky’ ( and subsequently missed all the easy money) that uranium offers a solid ( some risk attached) profile as a small weighting in a portfolio.

I admit to owning ‘every’ junior uranium issue listed.

#131 UrbanCowboy on 11.26.10 at 3:58 pm

#78 oasis on 11.26.10 at 10:46 amNo Canadian federal or provincial bonds will default. You have lost perspective. — Garth
______________________________________________

and what makes canada such a special place? how are we any better than the europeans or americans?

Has a US federal or state bond defaulted? A sovereign Euro bond? — Garth
———————————————————-

Garth, but might we be on the cusp of something like this happening for the first time? We are living in exceptional times afterall.

A bond default would destroy the value of money. Then you can kiss your GICs goodbye. — Garth

#132 dark sad person on 11.26.10 at 4:14 pm

Here’s a summary of our situation-
The whole world is being run by incompetents-who have bought into Keynesian theory (endorsed by a few world bankers)
And these idiot “leaders” couldn’t even follow the Keynes theory because Governments need to “buy” votes-so instead of building great surpluses during economic expansions and then unleashing the “saved money” (Keynes theory) into the economy and building and upgrading infrastructure-creating jobs and gunning the economy-they instead borrow/print money (steal from taxpayers) and give it to the Banker crooks-

Had they followed Keynes-this would eventually have come about anyway because his theory is fatally flawed in the end game-but-we would have had a cushion and taxpayers would be able to pay down debt faster and speed up a recovery-
Now-people are in debt and purchasing power is shrinking (unemployment rising and falling wages) and so here we are-cash strapped-in debt with completely clueless World Politicians that are being led around with a nose ring by the IMF ie: World Bankers-
Hi Mark-

#133 Claudius Emperor on 11.26.10 at 4:21 pm

Bonds are 100% liquid. Stick to peeling grapes. — Garth
—————————-
Hmm, really?

Specially when the issuer defaults. Or has trouble paying back.
And as for the liquidity I have my own opinion but I can tell you frankly that if you buy know and you need to
sell next year at higher interest rates you could be losing money.

Beying a little humble this days helps specially when your oponent is right.
I would disregard the arogance in your post as I respect you and completely support you on the housing bubble.
In fact I have been writing in blogs on it since 2004… Long time eh?

My choice is clear – cash and that’s it. I will personally buy bonds (federal government) at the top of the interest

rates. There are times to invest and now is not that time.

#134 Claudius Emperor on 11.26.10 at 4:24 pm

You are right, gen. Y will be even more screwed and as this are our kids and I do care I really think we should be doing something to stop the financial nonsence that we see this days.

#135 Painted Toenails on 11.26.10 at 4:32 pm

Wow, another misognynic comment – Moneta, you’re generally on point, this one is a miss, big-time. The women I know are about as savvy as you can get. Engineers, lawyers, teachers, administrators and like myself, entrepreneurs. I don’t know what sleepy hollow of 50’s housewives you’ve been hanging with …… your observation and comment reflect an old-school peer group. Having said that, I’ll betcha lots of those old housewives were sharp as tacks.

#136 RE Bear on 11.26.10 at 4:44 pm

#106 The InvestorsFriend (Shawn Allen) on 11.26.10 at 1:32 pm

TheBestPlaceonEarth? How how I’ve missed thee. A new alias, I see?

Your theory is quite fine and dandy, however, you find yourself in a delightful quandary. For say a chartered bank needed a pot of gold, would they ask you, the stringent accumulator of capital, for a loan at a rate higher than their good ol’ Pal Carney would print– aye! brrrrr– lend them?

You do realize banks can borrow unlimited amounts of money from the BoC? The only reason they take deposits is because they can get that $$ for less than it costs from the BoC, most of the time paying absolutely no interest on it. A savings account will ALWAYS pay less than the BoC overnight rate at a chartered bank.

Canada has the highest debt-to-PDI ratio in the world at 149% and we have a negative savings rate and have had one for well over a decade. Real incomes haven’t increased in over a decade and incomes among the 25-to-34 crowd haven’t increased in 3 decades, in fact, they’ve shrunk by 2%. Canada has no savings.

Oh, look. TheBestPlaceonEarth escaped from the mental asylum again– I can hear him frothing from the mouth in the alley over there, something about a new Vancouver RE ownership program, involving risk-free junior Uranium mining companies.

#137 jess on 11.26.10 at 4:44 pm

Engineering innovation

Turning the Car Business into a Casino
By Frank Dohmen and Dietmar Hawranek
Porsche’s Poker

http://www.spiegel.de/international/germany/0,1518,730911,00.html

#138 Cookie Monster on 11.26.10 at 5:12 pm

Victor #31
I live in an apartment in central Toronto. Just got a notice that rents are going up by 0.70% in 2011. Not a huge number by any means, but wondering what experiences other renters out there are having, and if this kind of increase is typical.
___________________
I rent an apartment in Kitchener with Transglobe since 2004 and my rent has gone up by the maximum amount for the past three years in a row and now this year too. I expect it to continue even after the crash because there will be a lot of losers looking to rent when I’m looking to buy. Good luck.

#139 VICTORIA TEA PARTY on 11.26.10 at 5:13 pm

#122 Nonplussed

DEFAULTS NEXT?

Your lucid description of the industrialised world’s debt problems has “default” written all over it. This winter will be a laboratory examination of how NOT to run an economy. Finance ministers everywhere will be covering their butts and exhorting the masses to be “understanding” and “patient” as government-mandated pensions/entitlements begin to get shaved a bit here and a bit there, through income tax increases, most likely.

I think Americans generally, and the former middle class in particular, will have one hair-raising winter that will drive a stake into the heart of the “American Way” fastasy. No entitlements will be safe, soon.

What worries me, though, is what shows up on the other side of that Amrican cultural equation; Sarah Palin, Tea Partiers, various world improvers and problem solvers meaning God-knows what? We await.

MORE FROM CNBC…

“Next Debt Crisis May Start in Washington: Bair
Friday, 26 Nov 2010 |

The US needs to take urgent action to cut its debt in order to prevent the next financial crisis, which may start in Washington, Sheila Bair, chair of the Federal Deposits Insurance Corp. (FDIC) wrote in an editorial in the Washington Post.

The federal debt has doubled over the past seven years, to almost $14 trillion, and the growth is a result of both the financial crisis and the government’s ‘unwillingness over many years to make the hard choices necessary to rein in our long-term structural deficit,’ Bair wrote.

Retiring baby boomers will impact government spending heavily and this year…’Defense spending is similarly unsustainable, and our tax code is riddled with special-interest provisions that have little to do with our broader economic prosperity.’

If no action is taken, US federal debt held by the public could rise from 62 percent of gross domestic product this year to 185 percent in 2035, she warned.

‘Eventually, this relentless federal borrowing will directly threaten our financial stability by undermining the confidence that investors have in U.S. government obligations,’ Bair said.”

GARTH: TAKE A LOOK AT THIS. SOME RICH YANKS ARE LISTENING TO YOU!?

“Rich Americans Ditch Home Ownership For Renting
Friday, 26 Nov 2010

Patrick Lee went from homeowner to home renter this year.

It may sound like a downgrade, but the New Yorker didn’t make the switch because he couldn’t keep up with payments or because he lost his job. Instead, Lee was nervous about the state of the housing market.

So in March he sold the Manhattan apartment he bought in 2008 for about the same price he paid and moved…into a luxury, two-bedroom rental unit in a brand new building…for $11,000 a month.

‘I wanted to protect ourselves from prices going down,’ says Lee, who is a managing director at a major bank. ‘I didn’t want to be an owner anymore.’

Lee has company. Demand for luxury rental units has increased as wealthier individuals who can afford to buy are deciding not to…in affluent areas of…New York City, Chicago and San Francisco.

‘More affluent Americans are opting to rent as oppose to buy,’ says Jack McCabe, an independent real estate analyst and CEO of McCabe Research and Consulting in Deerfield Beach, Fla.

‘Within the last year, so many people have seen their family and friends get burned in real estate. They don’t see it as being a risk free investment as they used to.'”

If ever there was a time NOT TO BUY in Canada, this is a great big cold-as-ice wake-up call. Remember that rich Americans always look after number ONE (themselves, as always). They are setting a new trend that will be leaking into Canada soon.

All of you 5/35s, watch it! The real estate Grim Reaper is knocking on your door.

#140 Cookie Monster on 11.26.10 at 5:26 pm

37 nonpulsed
PS, I forgot to attach the maxim:

If you are borrowing for any other reason besides funding capital investments that are expected to finance the debt, you are going broke.

And it doesn’t matter who or what you are. A government that is borrowing money is going broke. It’s just a matter of time. They can borrow to build a bridge if the increased commerce leads to taxes that fund the debt. But health care needs to be funded out of current income.
_________________________
Funny I was just saying this exact thing on the phone last night to a friend. How irresponsible it is for government to be borrowing to fund consumption. Like you said, a sustainable business borrows manly only to fund capital expenditures to generate future revenues and earnings not to fund day-to-day operating costs like our governments do. It’s outrageous how politicians talk about debt and deficits being temporary with no inkling over the fundamental seriousness of the situation, government spending is ‘consumption spending’ this is what’s destroying the capital of our society and the USA, without capital formation you got poverty.

Taxes and socialism have forced capital to flee N.A. this is why the jobs are gone, the capital left. It’s not just cheap labour, the main draw is friendly free markets with low taxes and no/low social services that attract business. Socialism destroys capital.

#141 Get Real on 11.26.10 at 5:30 pm

Love the picture Garth
Now I have a new desktop background

#142 Chaos on 11.26.10 at 5:48 pm

Ugly and stupid are in the same boat going over the Niagra Falls…

And unfortunately, you can’t fix either of them.

But as long as they are under the Banker’s Thumb…
all is well in Canada.

#143 Whistler senior on 11.26.10 at 5:53 pm

HELP! What should I do? My place here was purchased for $710,000. I would be lucky to get $650,000. Should I hold on to it for a few years or bail now with a $60,000 loss. I figure I got 5 years before I need the money out of it.

#144 Victor on 11.26.10 at 5:56 pm

#138 Cookie Monster on 11.26.10 at 5:12 pm

Thanks for the response. I was fortunate to not have had any increase in 2010 so in that sense the 0.70% increase over two years isn’t too bad it seems.

Important thing is that my wife and I are debt free; have been saving diligently the past few years and making decent investment decisions. Hopefully in the next 3-5 years, the timing will be right to purchase property that is within our means and also makes for a prudent investment.

#145 VanLarry on 11.26.10 at 5:58 pm

RE:#19 hobbygirl

Contrary to most people(hey that sounds familiar!), I find mutual funds complicated and hard to understand in comparison to actually owning shares and bonds in those funds.

Sure they make life easier, a nice T5/T3/whatever tax form every year, nice easy to read statements, but you don’t get as much control. You may want, for example, to load up on a certain stock temporary and sell it off for a quick capital gain.

Not to say they’re all bad, for the record I do own seg funds.

#146 The InvestorsFriend (Shawn Allen) on 11.26.10 at 6:04 pm

Number 136 RE Bear challenged my last post at 126

Mr. Bear, you are wrong and I am right. Did you not see my note at 126? I am ALWAYS right.

First I am not best place on earth. I post under my real name and there is a link to my web site. (unlike the anoymous Mr. Bear)

Second, you are wrong about banks borrowing from Bank of Canada. The Bank of Canada rate is a rate that banks borrow from each other at. Check out their balance sheets. They borrow deposits from Canadian individuals and corporations. And they issue debt to same and they have equity capital. They typically loan a bit of money to the government by buying government bonds. They may have some funds on deposit at the cental bank. They don’t borrow from the central bank although they can if needed.

Canada does not in fact have a negative savings rate. Canadian citizens may have. But corporations and pension funds have huge positive savings rates. Think about it. Every dollar borrowed is borrowed from someone else’s savings or investments. Canada does not borrow much from other countries.

Canada (and the world) is awash in savings which explains the low interest rates. Many, even most, citizens may be heavily indebted. But the overall supply and demand for money is such that savings are in huge supply which is why borrowers can borrow at such low rates.

Bank of canda can manipulate short-term rates but not so much the long-term. What forces any saver to accept low rates? Nothing. He could go invest in stocks or in Brazil or whatever.

Again, I am right… as always.

#147 jess on 11.26.10 at 6:19 pm

Who are the said government officals?

From: retheauditors.com

“The leadership of the Big 4 audit firms in the UK has admitted that they did not issue “going concern” opinions because they were told, confidentially, by government officials the banks would be bailed out. ”

Big 4 Bombshell: “We Didn’t Fail Banks Because They Were Getting A Bailout”
By Francine • Nov 25th, 2010 •
http://tinyurl.com/29zxztn

http://www.parliamentlive.tv/Main/Player.aspx?meetingId=7084

#148 Oasis on 11.26.10 at 6:43 pm

A bond default would destroy the value of money. Then you can kiss your GICs goodbye. — Garth
________________________________________________________

really… can you explain this “value of money” you speak of? can you define it?

#149 Sail1 on 11.26.10 at 7:05 pm

There are hundreds of billions of dollars sitting in bank accounts.

And it will stay in those accounts.

The perception of risk and volatility around the stock market is infamous. This is why people view real estate as a safe haven, even if for some it is not. Garth, you make is sound so easy to get these great returns on your money. What are the risks associated, with the investment vehicles you are always suggesting? And don’t tell me there are no risks. You know as well as I do, anything giving you 8% return comes with risk. What seems easy for some, is clearly frightening to others, especially the elderly.

* Sigh* I give up. — Garth

#150 Moneta on 11.26.10 at 7:21 pm

Instead we have kids growing up on gems like “Grand Theft Auto” and “Hanna Montana”, while our elderly are liquidating their holdings to pay strangers to take care of them. Garth is right when he often states “this won’t end well” but the problem goes much deeper than financial ignorance.

——–
You have a point but I’m not sure my husband will stay homes to nurse his mom or his MIL while I bring home the bacon.

#151 Moneta on 11.26.10 at 7:23 pm

Finance ministers everywhere will be covering their butts and exhorting the masses to be “understanding” and “patient” as government-mandated pensions/entitlements begin to get shaved a bit here and a bit there, through income tax increases, most likely.
———–
It has already started and they are not even asking for acceptance:

http://www.theglobeandmail.com/news/politics/low-income-seniors-threatened-by-changes-to-federal-income-support/article1814326/

#152 Mark on 11.26.10 at 7:51 pm

#146, so if Canadian firms have such great savings rates (which they do — earnings by far exceed dividends!), why isn’t this being reflected in the return on those investments?

Or do you think the stock market will move forward very nicely in the next few years, as people realize just how wealthy Canadian businesses are?

#153 realpaul on 11.26.10 at 7:56 pm

Garth, I appreciate your opinion greatly..but when I see the draconian cuts governments around the world are making to the unsuspecting citizenry I have to think that it is what it is and not what I’d like it to be.

Lets face the Canadian national debt is a monster. The finance dept is doing a very good job of disguising the real issue…doesn’t mean that its not as bad as every other G8 country and look whats happening there.

Ask the people in countries like Argentina and Bulgaria if they thought their private pensions would be stolen…they probably would have said “No way”….”It couldn’t happen here”…..and yet we see the matter of debt overwhelming everything that was once held sacred.

I watched a W5 expose where the CRA has been raping small business with mobster style audits..and answering to no one for their egregious behaviour when caught…

The new proposals to cut seniors off benefits came from the national paper not my imagination..I provided the link. Savers are being raped and abused……Rampant real inflation is being denied…indirect taxes are going up by renaming direct taxes as ‘service fee’s.

Lets face it……the revenue starved governement is behind the eight ball….the cost of running the government. the services and all the union contracts is unsustainable right now…never mind next year……My point was….what wil the government do next to extract capital from us to support the teetering structure of fat cats and over generous pensions….the money has to come from somewhere.

I see that the number of seniors, kids and young families falling into extreme poverty is exploding exponentially…yet the cost of running government is still growing…I say out of control…some may disagree.

But in order to kep paying those higher than private sector salaries and fat pensions, it is the seniors, the kids, the general population that has to take the cuts and pay more with less. Why will it be any differant here than the draconian cuts in Ireland, UK, America, Greece, Eurozone etc? Thye hit the wall because the cost of servicing their obligations because impossible…..we are in the same boat….so who’s going to be slashed first. The government workers..some 20 year veterans never thought it could happen either. Welfare and unemployed ‘clients’ are being moved out of the city…its Dickensian ! But that what happenes when you run out of money and have no room to tax. In Canada the rate of direct and indirect WAS over 80% three and four years ago…….since then food costs and the cost of heating etc has doubled and tripled.

Our government says it OK because they still have room to tax…….thats nice…..how much room? And then what?

If spending is not cut immediatley and drastically we are going to end up exactly like all these other G8 countries who have hit the wall. The civil service is not ‘a few civil servants’ it is the largets and most expensive workforce in the nation…supported solely by the taxpayer. We have to keep this in perspective…

The government is the largest employer in the country and it earns no money except to tax those who do not work for the government. I have no beef with the person who works for the government, it is only the braindead and vicious group-think that drives the governments employee union/civil service lobbies that makes them so dangerous for the financial future of the country.

As far as the poor seniors are concerned…they are poor because everything they were told about investing over the fourty years of their productive work lives turned out to be a lie. Their savings earn nothing…they were not trained to be ‘agile investors’ or market savvy wunderkinder’. The poor seniors of today are poor because the government has raped the savings systems that seniors had been told they could rely on…..CSB’s …reasonable rates of return etc etc….all a big lie…they have been usurped by greedy politicians who thought that they could flush out the savers cash to balance the losses by offering the savers negative intrest rates and feeding them into the vicious maw of the tax department when they crystallized a single dollar of cash.

We can’t blame the seniors for not being sophisticated investors. they are waiting for things to ‘normalize’…back to the way they were led to believe was the what they had been promised. We can blame the seniors because a fox has gotten into the henhouse. They saved honestly…it has been the governments dishonesty that has impoverished them. I could say the same for the hundreds of thousands of new homeowners who listened to the politicians croon them into ownership at such absurd debt levels that only a cynical investor could understand would lead to disaster. It really has been a slaughter of the innocents Garth. You’re right “there will be a lot more poor people in the future.” They will have become that way through no fault of their own.

Hell…when I get together with my CA and he shows me the new ‘amendments’ to the Tax Act every year and he can barely understand thae day to day goings on of the system…don’t expect the poor and disenfranchised to keep pace.

Oh Canada…we are being ripped off and misled by special interests who do not have our countries best interrests at heart…never mind that of the average citizen.

#154 dark sad person on 11.26.10 at 8:19 pm

#146 The InvestorsFriend (Shawn Allen) on 11.26.10 at 6:04

Second, you are wrong about banks borrowing from Bank of Canada.

Canada does not in fact have a negative savings rate. Canadian citizens may have. But corporations and pension funds have huge positive savings rates. Think about it. Every dollar borrowed is borrowed from someone else’s savings or investments. Canada does not borrow much from other countries.

Canada (and the world) is awash in savings which explains the low interest rates. Many, even most, citizens may be heavily indebted. But the overall supply and demand for money is such that savings are in huge supply which is why borrowers can borrow at such low rates.

****************
You are delusional/misinformed and everything you say is assbackwards and you prove it-every time you post-

Banks “do” borrow from the BOC-
Who do you suppose they borrowed from when the Credit Markets seized up-who do you suppose is buying up their toxic assets ie: expanding the BOC balance sheet and sliding the sludge onto CMHC who is directly funded by the BOC–go have a look-
geezuzz

Corporate savings?
You need to understand the difference between “borrowed” money sitting and masquerading as ‘cash” on Corporate balance sheets and “real savings”

http://research.stlouisfed.org/fred2/series/BCNSDODNS

http://research.stlouisfed.org/fred2/series/NCBTCMDODNS

http://research.stlouisfed.org/fred2/series/DODFFSWCMI

http://research.stlouisfed.org/fred2/series/WCMITCMFODNS

http://www.hussmanfunds.com/wmc/wmc100809a.jpg

It’s this simple–Mr Investors best friend-

Those Businesses were all locked out of the lending market when the credit markets froze up-so once the market thawed out “after” the US Fed issued Swaps across the World parading as “money”

http://www.zerohedge.com/sites/default/files/images/BIS%207.jpg

So when the credit markets freed up-they drew on their credit lines to the Max. because interest rates were low and the main reason is-they fear the same thing happening again-

That cash is “borrowed” money not ‘savings”
Those Companies aren’t stupid enough to expand or in any way-deploy that cash into the worst Economic downturn since the Depression-
They buy Bonds and Swaps with that money to hedge against the interest charges so they are just “sitting” on it for basically free–

I’m surprised your Mother hasn’t had something to say yet-

#155 Nostradamus Le Mad Vlad on 11.26.10 at 8:23 pm


#101 dark sad person — You make an excellent case for keeping cash in investments + DRIPS, and use savings / chequing accounts for tiny amounts.

A HELOC can help in the event of an emergency, along with being debt free. No money in mattresses is required.

“The greatest risk is running out of money, not losing it. Millions will discover this. — Garth”

These are the people like the lady in the post — still too emotionally attached to bricks and mortar, instead of understanding a home provides shelter and that’s it.

When they see the error of their ways (by not investing modestly), they will be yelling at fed. and prov. govts. to help them out, but there is no money left.

#111 VICTORIA TEA PARTY — ““Think BIIGS: There’s One Euro Country Under the Radar”

Seems the elite are toying with sheeples to their hearts content and, if sheeples do become enraged, they stand on their hind legs and bleat BBBBAAAAAAHHHHHH very loudly, only for no one to hear.

Time to stop bleating and complaining; if we take a non-violent resistance view (as per Gandhi, who drove the Brits. out of India), it will drive the elite nuts, not traveling, not doing anything at all ordered by someone else.

Individuals are masters of their own destiny, which is why the Irish populace rejected the first “Join us or be screwed” vote, and Sarkozy sneakily arranged to have a second vote, which was passed.

Now look at them.

#143 Whistler senior — “Should I hold on to it for a few years or bail now . . .” — Bail now, take the money and run to a rental.

#146 The InvestorsFriend (Shawn Allen) — “But corporations and pension funds have huge positive savings rates.”

Not too long ago, I read somewhere there was 15T sitting on the sidelines. Probably is true, and now this is a great time to invest and let it grow.
*
Hypothesis What would happen if China tanks, at roughly the same time as the States?

Spain Barcelona is a terrific city, so does anyone want to buy a cheap home there? Barcelona is where a few friends and I saw Frank Zappa and The Mothers of Invention, at a bullring.

Hot Pants One understands why war is a great distraction from the economy, even if it is a false war.

I don’t necessarily agree with this whole concept, but it does give food for thought.

Fiction and / or non-fiction? Somewhere in the middle.

#156 Tripp on 11.26.10 at 8:42 pm

#140 cookie monster

“Taxes and socialism have forced capital to flee N.A”

This is true, however the picture seems bigger. Other important components are the ruthless principles of rampant capitalism widely embraced by NA consumers.

Bigger, longer, stronger, heavier have been the pillars of NA economy forever. Of course, combined with cheaper, cheaper and cheaper. The never-ending race for faster and cheaper wiped out the desire for quality.

We can not put all the blame on the corporations. They met the demand for cheap. The NA consumer’s desire is price driven, quality is perceived as a byproduct of
snobbery.

It worked for a long time, until other people figured out how to manufacture even cheaper.

Unfortunately, payback time is already here. I am wondering how our children’s world will look like.

#157 The Original Dave on 11.26.10 at 8:59 pm

some of you are non-stop with your skepticism with Garth’s opinion. Garth suggests some vehicles that return 5-8%, not 200% (which is possible too). Stop pestering him. Either get the help and more information on how to do that, or eff off. He doesn’t owe you anything.

It’s like some of you want him to beg for you to invest wisely. If you know better, or you’re too skeptical, do your own investing/saving or whatever. Nobody really cares that much.

Garth runs a blog here. Thousands of people visit it and hundreds post. One individual’s obsession with preservation and ignorance towards potential gains of a few percent shouldn’t get more than one answer. There’s only a few people that are too thick not to understand. If you think Garth’s pulling a fast one on you, do your own research and invest accordingly. My guess is someone who is so concerned with a low risk investment like Garth suggests, won’t invest at all and will likely stuff cash into GIC’s and savings account. Go on then.

#158 S.B. on 11.26.10 at 9:11 pm

:idea: :arrow: I’m ordering Garth’s book as a wedding present — for 30-something couple. Something unique, signed by him, and helpful (hopefully).

#159 fu_ming_xia on 11.26.10 at 9:16 pm

Garth,

How can you help people living overseas? I have cash sitting in the purple account, but am unable to touch it because I have no need, and now get paid in euros.

can you help?

thanks.

#160 Mouldy Basement Renter on 11.26.10 at 9:22 pm

Geez Garth,
You’ve commented on a ton of the comments here. Whats up? Finished all your chores ? Squirrels all skinned? Guns all cleaned? 14 cords of wood split, stacked and dried? Your Cross Canada Tour has you a little hyper these days. Perhaps a little Christmas shopping with pointy tinfoil crimped on your elbows to fend off the maddening hordes. ( nuthin like elbowing a “Jason Beib-ver” lookalike to make you smile inside).
Get out to the mall….. Tell 4 years olds. Santas dead!
Works for me …… :)

#161 Nostradamus Le Mad Vlad on 11.26.10 at 9:27 pm


Speaking of old people . . .

The US is pushing their luck. “I think that it is obvious that the United States has decided that the best way to get out of the debts owed to China is to murder the people the money is owed to! Of course, American self-image requires some kind of hoax to make it look like China is to blame for the US attack. Like Hitler and Gliewitz, Roosevelt and Pearl Harbor, or Bush and Saddam’s ‘nookular’ weapons.” wrh.com.

Wikileaks “This further proves that Wikileaks is a “front” for the nudge-nudge-wink-wink crowd. Today Turkey threatens to stand with Palestine, and suddenly we get disinformation from Wikileaks trying to insinuate Turkey was helping The Toilet (al-Kayeeda) in Iraq.” wrh.com.

1:45 clip Second Korean war?

0:54 clip The TSA Song — My Ding-A-Ling!

FedEx “FedEx searches for missing radioactive equipment (Here Comes the next issue as the Dow Dives)”

TSA “A new model of the way the THz waves interact with DNA explains how the damage is done and why evidence has been so hard to gather.” Plus — TSA again “Just like Obama’s assertion that the Gulf oil disaster “went away” July 15th.” wrh.com.

4:55 clip Putin recommends the Euro as a reserve currency. Putin’s speech starts at 1:20.

Europe Another fiscal time bomb. “. . . when a generation is reached unable or unwilling to pay that accumulated debt, the whole pyramid collapses. which is what has happened here. The downfall of the push for a global economy is that the bankers created a global depression. More globalism will not repair the damage.” wrh.com.

Ordinary People Not banxters or politicos.

Throw China in as well (possibly).

#162 S on 11.26.10 at 9:32 pm

#150 Moneta on 11.26.10 at 7:21 pm

“You have a point but I’m not sure my husband will stay homes to nurse his mom or his MIL while I bring home the bacon.”

I don’t even know how to address that nor do I mean to judge other peoples decisions on the issue. But I cannot imagine allowing my parents to spend their twilight years being looked after by strangers or depriving my children of the lessons their grandparents have to offer. In doing so I am also giving an example to my children so perhaps they’ll consider doing the same for me. Incidentally, outside of the last crazy decade or two most fortunes took generations to build. A family could hardly hope to improve its status if each generation was forced to start from scratch. Inheriting the passing generation’s assets in exchange for “care to the end” was and in many cultures still is the norm. Maybe those immigrants have something to teach us after all.

#163 BrianT on 11.26.10 at 9:38 pm

#131Urban-Yes, eventually there will be bond defaults-this trip whereby taxpayers guarantee pretty well every single bond investment out there hasn’t been proven to be a viable economic model that can continue indefinitely-Spain is something like 7 times the size of Ireland (from memory) so all these continual bond investor and bank bailouts are doing is sucking from the blood of one or taxpayer or another-obviously this cannot continue in ever increasing sums without negative repurcussions to everyone not getting a free ride from said taxpayers.

#164 BDG-YYC ... Still Ranting on 11.26.10 at 9:44 pm

Spoon feed me ! There is a pathetic theme running through the posts today. Good god! There is absolutely no excuse for the ignorant, lazy ass, oops the games on, poor me crap that seems to be splattering all over the blog today.

Cut back on TV and educate yourselves !!!! Anyone with a high school education, half a clue, and half an ounce of interest and determination can move themselves from a basic level of ignorance to the top 20% of the population in virtually any subject matter in 90 days simply by taking advantage of the information available free on the internet – have a question? Google it.in the comfort of their own home and on thier own schedule. This is particularly true for finance and investment since the state of knowledge in the general population is … well … pathetic at best.

Of course the biggest hurdle to overcome though is being open to let go of all the “stuff” people know that just ain’t so and the rediculous core beliefs and assumptions that are founded on bizzarre notions of how some world somewhere might actually work. Amazing how people just let thier minds imagine in the pieces of the picture that are missing in order to complete the picture for lack of actual knowledge and understanding.

For god sake people (and you won’t know who you are) turn off the TV and plug into the real world. Get your lazy ass up, informed and educated or go away and quit whining.

YOU are your problem.

Gaaawwwdddd …..

#165 BrianT on 11.26.10 at 9:45 pm

#153Real-Basically Yes-here in Ontario we have a monster deficit with a still relatively strong RE market. When California’s RE was going strong their fiscal numbers were a lot better than Ontario’s-look for Ontario to be in a REAL mess come 2011 and 2012.

#166 dd on 11.26.10 at 9:45 pm

#99 Ben

“You’d better hope the US stays solvent. If not, we are gone in a flash. — Garth”

Hope is not much of a plan. Run the numbers. It is not good.

#167 BrianT on 11.26.10 at 9:48 pm

#162S-speak for yourself-not everybody wants to be “taken care of in their twilight years”. If that is your trip then enjoy it but it isn’t for everyone.

#168 InvestorsFriend (Shawn Allen) on 11.26.10 at 10:06 pm

I posted at 146 that Canada and the world are awash in savings. This prompted Dark Sad Person at 154 to rant on that I was backasswards… and he claimed corporate savings are not real.

The main point is we all agree that there is a lot of debt in Canada and the world. If we then stop to think about it, the undeniable fact is that every dollar borrowed is someone else’s savings or investment. So it is clear, there is at least at much savings in the world as there is debt.

In fact since some investments are in equities and not debt there is a lot more savings and investment in this world than there is debt.

The main reason interest rates are so low is that there are actually more people with money saved than there are people wanting to borrow. Hence it is (to borrow a real estate term) a borrowers market. It is not a savers market.

Is this so difficult to understand?

Many people are young and in debt to their eyeballs. But tons of people have no debt and loads of savings in bank accounts, RRSPs, RESPs, TFSAs, pensions and other investments. Remember the Canada pension plan and the government pension plans and all those corporate pension plans all represent giant pools of saved money.

Open your eyes people, we are awash in savings and money. That in fact is one of the reasons for high house prices. Many older owners have their house paid for and money saved. They won’t sell their house except for top dollar. Meanwhile they lend their savings to young people but interest rates are very low since there are more people with money than there are that want to borrow. Low interest rates drive house prices up.

So brighten up there Dark Sad, and be happy for me if not for you.

#169 BrianT on 11.26.10 at 10:12 pm

With all the talk of bond defaults, here is a quote from the Telepgraph today:

“Germany cannot keep paying for bail-outs without going bankrupt itself,” said Professor Wilhelm Hankel, of Frankfurt University. “This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings.”

The refrain was picked up this week by German finance minister Wolfgang Schäuble. “We’re not swimming in money, we’re drowning in debts,” he told the Bundestag.

#170 S.B. on 11.26.10 at 10:13 pm

Worth a re-read, folly in Toronto – a big ole’ maintainence hog of a house that comes with a musty basement and two land transfer grafts/taxes.

http://www.torontolife.com/daily/informer/from-print-edition-informer/2010/04/21/buy-in-rosedale-or-little-italy-one-couples-700000-real-estate-compromise-leads-them-to-the-annex/comment-page-4/

#171 jess on 11.26.10 at 10:23 pm

painted toes:

humans can make smart and unsmart choices
concept of or the starved soul
‘hambre del alma’

http://tinyurl.com/2g5l5a8
=============================
The old and the young seem to have a common purpose back in the day

FDR’s Inner Circle and the Hundred Days That Created Modern America,
Adam Cohen assistant editorial page editor of the New York Times

As Cohen recounts, “Farmers who stayed on the land were responding to their bleak circumstances with extreme politics and lawlessness.” Across the Farm Belt, hundreds of farmers would show up and stop a foreclosure sale by the force of numbers. Some farmers threatened to call a national strike if Congress didn’t act. In Sioux City, Iowa, farmers put wooden planks with nails on the highways to block agricultural deliveries. Cohen writes that in Nebraska, a group of farmers “showed up at a foreclosure sale and saw to it that every item that had been seized from a farmer’s widow sold for five cents, leaving the bank with a total settlement of just $5.35.”

These protests by farmers, Cohen explains, “increased the sense of urgency in Washington.” Henry Wallace and progressive Democrats in Congress kept FDR aware of these protests, which helped them outmaneuver their more moderate colleagues. This combination of outside protest and inside maneuvering led to passage of the Agricultural Adjustment Act and the Emergency Farm Mortgage Act, which, Cohen says, “radically changed the economics of American farming.”

This same dynamic played out in the big cities among veterans, tenants, the unemployed, workers and the elderly.
http://www.washingtonsblog.com/2010/11/fdr-wasnt-fdr-until-his-hand-was-forced.html

#172 BrianT on 11.26.10 at 10:52 pm

#168Investor-if you are serious and not joking around your ignorance is profound.

#173 hobbitt on 11.27.10 at 12:01 am

#53 SafetyBear on 11.26.10 at 5:29 am

After screwing things up royally and sucking the best years out of the planet the very least the Boomers can do is leave something for Gen X to pick up. They really are the most me me me entitled bunch of spoilt people in the history of the world. They had it all and it wasn’t enough. Inheritance? The very least they can do.
————————————————

If you were my kid, you would only inherit the bill for my funeral.

#174 Timing is Everything on 11.27.10 at 12:08 am

Can we pay for your brain surgery first? — Garth

I think one needs uranium for that. ;)

* Nuclear medicine uses radiation to provide diagnostic information about the functioning of a person’s specific organs, or to treat them. Diagnostic procedures are now routine.
* Radiotherapy can be used to treat some medical conditions, especially cancer, using radiation to weaken or destroy particular targeted cells.
* Tens of millions of nuclear medicine procedures are performed each year, and demand for radioisotopes is increasing rapidly.

http://www.world-nuclear.org/info/inf55.html

#175 S.B. on 11.27.10 at 12:11 am

InvestorsFriend, maybe when your student loans are paid off you can move from a paper trading account into a real one.
Speaking of seniors get off the computer your mom is hollering to come upstairs for dinner!! :lol:

#176 Taxpayer like everyone else on 11.27.10 at 12:24 am

173 Brian T – if Shawn is wrong, don’t call him ignorant, just explain where he is wrong. We’re waiting.

#177 Cookie Monster on 11.27.10 at 2:01 am

You’d better hope the US stays solvent. If not, we are gone in a flash. — Garth
_____________
Speak for yourself, I’m personally self sufficient and my business so far draws no revenue from within Canada and if it gets bad here I’ll leave in a flash.

#178 Chris no longer in England on 11.27.10 at 11:45 am

Squirrel recipe on the BBC for those who spurn Garth’s advice.

http://www.bbc.co.uk/news/world-us-canada-11834184

#179 GregW, Oakville on 11.27.10 at 7:01 pm

Hi Garth, fyi BBC new article. (Dr. Strange Love – WW3? I hope not.)
http://www.bbc.co.uk/news/world-asia-pacific-11853905

#180 Steven Rowlandson on 11.27.10 at 7:57 pm

Garth perhaps you are of the opinion that government bonds can not default because of the printing press and the ability to either tax or find a greater fool to buy bonds. With the printing press infinite amounts of unbacked currency can be printed and used to service or pay debt. If not by the press then by the key stroke.
It can be done untill the currency buys nothing.
No raises for workers or higher interest for savers either.
They will be between a rock and a hard place.
Is that about it?

Steven