Entries from November 2010 ↓


Days ago frenzied American shoppers stormed Wal-Marts and Best Buys to scoop $198 laptops. This year, unlike last, nobody died. It was a pathetic scene.

Last weekend, as I reported, thousands of people stormed an Oakville, Ontario sales trailer to buy unbuilt half-million-dollar houses with little down. It was an astonishing scene.

In both cases, money came second to competition. Good thing. Most people don’t have any.

Interestingly enough, I ran into a guy who runs a men’s clothing store, also in Oakville. Asked how business was going. Fine, he said, as long as we keep dropping prices. He told me about a customer who wanted to buy a topcoat that was marked 30% off, but for less than the advertised price. When he was rebuffed, the customer said he’s come back in a week when it cost less.

“The hell of it is,” the manager said, “he’s probably right.” He also said virtually all sales are on credit card, with new cash in the till drawer at the end of the day typically totaling under $20. Oh yeah, and all of his salesguys are over 60.

“They come cheap. They’re desperate.”

Does this sound like a community, or an economy, in which people are flourishing? Or is the only economy we really have because of pervasive consumer credit and artificially-suppressed interest rates? Is this what’s driving people crazy?

Weeks ago a friend called from Vancouver debating whether to not to sell his pokey house. He bought it for $470,000 four years ago, and after having his brained fried reading this blog, thought bailing at the top might make sense. Two local realtors confirmed it, and last week he listed for $1.23 million. In Toronto the same house in an equal neighbourhood would sell for less than half. In Winnipeg, a quarter. And it would still be overpriced. He expects offers this week.

As I have mentioned here before, the average down payment for a piece of real estate over the last year in Canada is 7%. As you may have seen scanning some comments on the weekend, lots of people coming to this blog scoff when I use an example of investible assets of $200,000.

Typical of the emails I receive is this snippet: “My wife and I are 46, two kids (9 and 11), and live in Calgary in a POS suburban house which cost us $520,000. The mortgage is now $380,000, and we have $10K in our TFSAs in cash, an RESP with $5,500 in it and cash (in I hate to say it, the orange guy’s shorts) of $28,000. Can you help us?”


How can I? A net worth of $180,000 at age forty-six is a disaster. Paying for the kids’ university education alone will require more than a hundred grand in cash – wiping out all liquid savings when this couple is just a decade away from retirement, and will still have a big mortgage on a house likely worth less. There’s no easy answer – no investment strategy that will save people from themselves, or make up for twenty years of idiot decisions.

This is one reason I keep harping about the societal dangers of residential real estate. It is no longer a sure storehouse of wealth when so many people own so much of it, so extravagantly, with so little equity. Were it not for those government-engineered interest rates, we wouldn’t be having this discussion and Mike Holmes would still be wondering how to afford his next tat.

It’s also why I underscore the true nature of risk. The likelihood of running out of money is far greater than the odds of losing it, especially with life expectancy rising and financial literacy dropping. In a low-rate and low-yield world, GICs fail.

In other words, greed and fear are having their way with us. You’d only buy a Van junker for a million or a Calgary particle board box for half that if you were greedy for gains. You’d only lock money away for a negative yield if you feared the future. Meanwhile, both emotions lead to blindness and a retirement laced with KD and Alpo.

I’ve no doubt things will get worse before they improve. But for many, improvement will never come. How can it, when you’ve financed your life on consumer credit, achieved middle age without a pension or enough net worth, have a family to support, still have debt, invested badly and put most of your wealth in a depreciating asset?

I’ll leave this topic for a while and get back to real estate. But I hope the next time you see someone trample a pregnant woman while trying to get to a cheap laptop, scooping a $600,000 house with 5% down from plans in 20 minutes, or recoiling from buying a preferred bank share while  mortgaging their ass to the same institution that you think about emotions.

There’s a men’s store waiting.

In the darkness, I smile

Worth sharing with you. This email arrived Saturday. — Garth

Hi Garth, I’m writing to you from one of the real estate insanity centers in this country, Ft. Mac. As a follower of your blog I have noticed your frustration with the average Canadian’s reluctance to “get it”. I’m writing to you today to tell you you’re not alone.

I won’t bore you with personal details on how I got here, let’s just say I’m a northern BC economic refugee. We are many. I had the skills to get here and as such am one of the economically blessed, my children will not want. I started to read your blog and bought all your books starting in October of 2009. That month saw the end of 16 years of steady employment and a stable family life evaporate in an instant with a letter of permanent closure. In this too across this country, we are many.

I came here to this place only to be shocked by the insulation of the locals that have never had to face what the Chinese call “interesting times”. The housing market here is artificially supported by company housing subsidies and dangerously cheap mortgage rates. I arrived here with many new people from the economic wastelands of central Canada, the west coast, the east coast. I spoke to many of them and pointed them to your blog and your books, urging them to carefully consider their economic choices at present and in the future. Most would not listen, buying in to a market at top prices just to reach that middle class comfy zone that I have learned can be destroyed in an instant. However, a very few others agreed with me and rent here, carefully investing their extra funds in to the financial vehicles that you have recommended.

I have learned that you can’t convince most people of an alternate economic path that will lead to security and prosperity like what you are suggesting in your books and blog. However you can convince a very few. You have to be satisfied with that.

I would like to thank you personally for your insight and efforts. As I write, my mortgage free house in northern BC is being assessed for a HELOC loan. The TFSA’s for myself and my wife will be filled with sector ETF’s. I have an investerline account that will be filled with tax hedged investments that I will add to every month faithfully. Thanks to you, it’s now possible to live comfortably in old age and give my children a fighting chance in a world ruled by inept financial management. I’m still stunned by the short sighted policies of this country that encourages real estate speculation at the expense of the greater economy.

Keep on writing Garth and keep the faith. You might not reach all the people, but I listened and acted. I suspect that you know yourself that soon enough those of us that think this way will be many rather than few. I agree with you that the wealth destruction of an entire generation is imminent. So as I struggle in the biting cold of another –32 degree night to keep that oil going I look south, and in the darkness I smile.