It gets better

When this godawful blog started three years ago the smell of financial collapse hung in the air like a Wal-Mart fragrance. With its message of caution about what was to come (and it did), GreaterFool attracted an audience of doomers, nihilists, conspiracists, survivalists and hot chicks (I mean, look at me).

Times have changed, sort of, but a platoon of the nutbars hangs on. Clad only in spears and Depends, they stomp across this blog warning of systemic financial collapse, banking insolvency, sovereign debt defaults, hyperinflation, mayhem, currency debasement and the collapse of America. Must suck to be them. Because none of this will happen.

Oh sure, the US debt ceiling debate will go to the 11th hour and excite television anchors. But that’s politics, not economics. Yeah, the Greeks are toast. But that matters about as much as Iceland. Europe will quiver and wallow in self-pitying austerity for a few years. But no neo-depression. The US will stagger through the housing crisis and unprecedented deficit financing. But it will stay the world’s biggest economy. No default. And stock markets will swoon once or twice more, scaring the crap out of DIYers and guys drenched in leverage. But no 1932.

Corporate profits are sending a different signal. Earnings this year suggest markets are undervalued – which also means smart people buy the dips instead of running in panic. It was telling this week that IBM posted a profit surge ahead of expectations – telling because these guys make their money selling to other corporations, who are buying based on their own forecasts and balance sheets. Hell, even the casino dudes at Wynn Resorts are rolling in it again, with a doubling in profits thanks to an expansion in China and a recovery in Vegas.

Two company results don’t mean squat. But corporate profits in total at the end of 2010 hit an all-time high, and are on track to surpass that this year. The return on equity among big companies has surged relative to bond yields to a 13-year high. What does that mean? Well, the last time this happened, the stock market doubled in the next five years.

Corporate bosses, of course, shoveled jobs out the door in the crisis of three years ago, remade their businesses, expanded globally and rediscovered profits.

So what about bankrupt America? For sure, housing’s still a disaster and unemployment’s just as bad. But this will change over time. Obama’s re-election next year, and the marginalization of the angry God-and-gold crowd, will shock the media and likely signal the inklings of an American renaissance. Good for commodities, good for Canada.

In short, no rerun of 2008. No Armageddon. No excuse to buy a gun and a coonhound.

But this doesn’t mean a booming economy, rising standard of living, swelling incomes or any rescue from a real estate showdown. Instead, it probably means people who borrowed their asses off to buy houses at inflated prices will be handed their butts over the next few years. Homes can fall 25% in value across the country, wiping out the equityless former virgins and screwing up all those Boomer retirement plans, and it won’t make any impact on financial markets. No banks will stumble. Only families dumb enough to buy what they could never afford will feel the chill.

What to do?

Just what this morose blog’s been beating on about. If you live in a market where real estate is still alive, get out. Crystallize those windfall profits and give praise to Allah that she rescued your sorry tail. It could be a decade or more (maybe lots more) before 2011 prices are repeated. Pay down debt, since the cost of money is in the dirt. Five years from now you’ll look back on this as a gift never to be repeated in your lifetime.

Buy when others sell. Be greedy when they fear. Rush in when they flee.

So as equity markets stutter and choke, as they always do, pile into things like sector and index ETFs. When stocks charge higher, bond yields jump and prices crash, gorge a little on fixed income. Build a portfolio that gives you balance between growth assets and bonds, preferreds, REITs and trusts.

I’d be shocked if the returns on an asset allocation like that did not double or triple the return on residential real estate for at least a generation. And financial investors always have that precious gift so rarely bestowed by a house – liquidity. If you’ve the slightest doomer instinct or the faintest streak of caution, you know this is the holy grail.

And that brings us to Jake. Again.

Yesterday I told you about the houseless but home-horny, investment-starved 50-year-old civil servant desperately trying to score real estate by early retirement at fifty-five. I told him to grow up. So did most of you.

Jake now gets it.

I have never received such great advice. The blog dogs really pulled through, some retirees coming out and telling their stories, some great advice on extending retirement. Very intuitive intelligent comments. So what have I learned?  (Yes you may print this if you like.)

1.       Stay working until 60-65, as my pension will be worth a lot more.
2.       Keep renting. My rent is reasonable, and manageable, and my RRSP money can collect dividends and interest.
3.       Push the old lady to work, actually she is 10 years younger than me, and has a University Degree.. go figure…
4.       Retire at 65 and move to New Brunswick, in the Winnebago.
5.       Educate my children in matters of finance.

It is true, I didn’t grow up until 35, but I don’t regret it, had a great time. I played in bands, got my pilots licence, had a few girlfriends, (lots of heart aches too), worked and travelled to lots
of different places, Winterpeg, Taiwan, Disney Land, Quesnel, Japan.

I was offered a mortgage on a $550,000 house in 2010, I turned it down. Upon doing the calculations, I knew I could never pay it off. So I am starting to salvage the rest of my
financial life. Will give it another year, and recalculate my financial situation. I just found out, I didn’t get the promotion I had put in for, so that puts a damper on things. Don’t count your chickens…

Thanks for your time, and all the blog dogs that took time to respond, I will be vultching in Victoria for some time to come…

Praise be. Another soul snatched back.

222 comments ↓

#1 Bench Warmer on 07.18.11 at 9:23 pm

I’m Just here for the hot chicks. …….First?………….

#2 bah on 07.18.11 at 9:25 pm

I’m the hot chick.

#3 chris on 07.18.11 at 9:28 pm

Another great post Garth.
As far as investing in Windsor ON, would you recommend a detached home or an apartment building fully rented out etc
Cheers to all of you blog-dogs,there is indeed some great wisdom to be had here,,,:)

Apartments. No contest. — Garth

#4 KingBubbles on 07.18.11 at 9:38 pm

hallelujah

#5 TurnerNation on 07.18.11 at 9:40 pm

This ignominious weblog!! Blog dog Carney will make a pronouncement tomorrow.

Get ready to say: Whack! “Thank you sir, may we have another”? :-?

#6 mouthagape on 07.18.11 at 9:42 pm

Devore: I’ve decided to accept your invitation to continue the conversation.

I don’t believe in things that do not exist, such as the existence of the “wealth effect.”

According to David Backus, an NYU economist, the wealth effect is not observable in economic data, at least in regards to increases or decreases in home or stock equity. He states the following:

“For example, while the stock market boom in the late 1990s (q.v. dot-com bubble) increased the wealth of Americans, it did not produce a significant change in consumption, and after the crash, consumption did not decrease.”

For those economists that do believe in the wealth effect, they tend to agree that it if it does exist, it is relatively small.

Studies indicate that real wealth and greater relative wealth (to one’s peers) are for more highly correlated to increased spending than perceived wealth.

#7 mid-Ontario on 07.18.11 at 9:45 pm

Jake…you seem to have reconsidered your options properly. One option remains depending on the mind numbing aspect of the govt job and your desire to experience life more fully. That option is to retire early and go into private business. It is fraught with danger, far more work than you experience in govt but you will gain a greater understanding of what it is like to live fully in Canada. If you can’t imagine seeing yourself this way, work until 60 or 65 as you said.

Downside to staying in government : Government pension plans as they exist currently will be phased out. This may or may not impact you will you are still working.

Garth is wrong about Greece. When Greece goes down and they will, the ripple effect will be felt around the world big time by everyone.

#8 David on 07.18.11 at 9:52 pm

“Buy when others sell. Be greedy when they fear. Rush in when they flee.” In my SDRSP I’m holding 15,900 YLO for which I paid $146,646.29 but are now worth $34,344. Can’t sell for a tax loss. And I still like the 30 percent dividend. I wonder if I should try buying myself out of this hole by purchasing another 10,000 YLO at $2 in the hope that it will be back at $6 by Xmas. Your advice has got me thinking….

#9 shanks on 07.18.11 at 9:57 pm

what time do those hot chicks with the birds from yesterday go on?

#10 kimi on 07.18.11 at 9:59 pm

My only hope is that Jake, himself, isn’t educating his kids on finance.

#11 Lisa on 07.18.11 at 10:08 pm

I appreciate your outlook, Mr. Turner. This blog is a good platform for a Boomer prophet such as yourself. However, I’m a Gen Xer, so I guess that makes me a natural cynic. I believe that history repeats itself. Because most people who actually lived through the Great Depression are now gone and the rest of us feel it’s ancient history and could never possibly happen again, that is why it WILL. And now. We will be in Crisis for at least another 10-20 years. It will echo the 1930s, no doubt about it.

Your age or mine has nothing to do with it. If a systemic collapse were to grip us, we’d be in it already. 2008 was as close as you’ll ever come, and crisis was averted. — Garth

#12 Basil Fawlty on 07.18.11 at 10:21 pm

“they stomp across this blog warning of systemic financial collapse, banking insolvency, sovereign debt defaults, hyperinflation, mayhem, currency debasement and the collapse of America.”
How many of these have not happened and how is Obama going to marginalize the price of gold? I really hope you are correct Garth, but without trillions in bailouts the banking system is bankrupt. People keep slagging gold and maybe they will be correct one day, however in the meantime the barbarous relic just keeps going up. Imagine how hard the money bunnies would have laughed when the gold bugs were predicting $1600 and what do you know, it’s there. The funny thing is though that it’s not gold going up, it’s fiat going down, as central bank continue to print (like they have choice). I can’t imagine Obama driving down gold prices, as that would assume a change in the ongoing policy of “spend and pretend”. Good luck on that one.

#13 WI Boomer on 07.18.11 at 10:22 pm

Garth-

This is the BEST column I can recall that you have penned since I started reading your wit & wisdom.

* SELL That RE while you can hold yor gains

* Pay down DEBTS

* Invest in Tax Favoured Ways

Wonderful Advice

Jake-
We have no perfect vision of the future. We don’t know if things will be better, or worse several years out. At least, stay away from a crushing house payment, there will be a better time to buy, and you may find that you grow away from idea of owning. Save & Invest for now, money has not yet gone out of fashion.

#14 Genghis on 07.18.11 at 10:27 pm

Good article on the renting vs. purchasing debate. The downgrade in social status that goes with renting in some Cdn cities is discussed.

http://www.canadianbusiness.com/article/33638–rental-complex–page1

In the first example given a fellow in Oakville calculated that the house he wanted to buy would cost $5,000 a month “before you turn on the lights”. And that is with $400K down. He figured that basically the same house could be rented, all-in, for around $3500 a month. This is all before accounting for the opportunity cost of purchasing.

#15 john on 07.18.11 at 10:27 pm

Your age or mine has nothing to do with it. If a systemic collapse were to grip us, we’d be in it already. 2008 was as close as you’ll ever come, and crisis was averted. — Garth

What has changed since 2008 other than US planning a QE3 of may be a trillion dollars to keep the stock market alive, US government surving on the hope of a debt ceiling increase of $ 2 trillion or more, Gold reaching $1600, Europe bailing out every country, man and his dog, India and China fighting inflation? Something I missed, Garth?

Coordinated fiscal and monetary policy in an unprecedented global concert. Oh, and the article I just posted. You read it, right? — Garth

#16 siddelly on 07.18.11 at 10:31 pm

#8 David

Unfortunately for me I have the same Yellow Media stock but luckily not nearly as much. The market does not seem to think that the business model can compete with Dr. Google apparently. The first rule of investing is don’t lose money and a corollary to that would be ” never try to catch a falling knife”. According to my calculations from todays Globe and Mail investor pages, YLOs payout ratio is 295% where a healthy company might pay 30 to 70 percent.

Don’t do it !!!

#17 Kitchener1 on 07.18.11 at 10:31 pm

In 2008 we all came with hours, yes hours of the ATM’s going totally offline– most people dont know or care, but thats the reality.

Greece will default and it will messup europe– a lot of banks are interconnected– huge losses for all countries involved.

I do think that things will get better, dont see the stock market doubling though, not with out some crazy inflation– that due to depressed wage levels, will not happen.

#18 john on 07.18.11 at 10:33 pm

#11 Lisa..

I have to agree with you on this one. The only way the stock market will go higher is due to inflation and not on whether stocks are under or over valued. The only way inflation will occur is if countries continue with the stimulus, bailout and monetary easing policies. This comes back to the supreme idea of inflating the way out of the debt.

So much for sustained growth and strong fundamentals in the economy.

Inflation is not a determinant of stock values. Did you just make that up? — Garth

#19 nonplused on 07.18.11 at 10:33 pm

Jake,

Glad to hear you found some useful advice.

Garth,

I might be one of the “doomers” you are referring to, because I am not so certain as you that the financial system is going to continue on in its present form without some serious re-tinkering with the social contract. Here’s why:

Our current system depends on strong GDP growth to fund retirement promises. It’s a pay as you go system. There must always be enough cash coming in to support the cash going out. It’s true that there are funds set aside but those have been lent to the government, so to cash them in the government must raise the funds in taxes or new borrowing in the current year. With the baby boomers retiring, we have demographics, peak oil, and the debt situation all weighing heavily on the equation.

GDP growth is driven by population and productivity increases, and in the modern experience always associated with higher energy consumption. And don’t get me wrong, GDP appears to be growing, but not here. And at some point, without a massive build out of 4th generation nuclear, it’s hard to see how energy production can continue to grow much longer.

Something is going to give.

But the sun will still rise in the east and settle in California, ants will still make up the largest biomass of any land animal, and the trees will be happy with any conceivable amount of CO2 in the air above 280 ppm. The world will still be here and I am optimistic that generation 4 reactors running on Thorium will actually happen once the public is aware of our predicament. (And that the generation 1 & 2 reactors will be phased out.)

As for planning for the end of the world, I’ve given it a lot of thought lately and decided to give up. Hyperinflation or depression may come, but we’ve seen these things before in many countries and they are but a prolonged major inconvenience. One need only plan to be comfortable until the currency is reset (and yes the can use metals to do it, but probably won’t need to).

(Solar and wind, as Bill Gates put it, are “cute” toys for rich people and nations, but can’t be part a major part of the solution until the battery problem is solved. Disclaimer: Bill has invested in Gen4 technology.)

As for the Mad Max scenario, well, one need not plan for it. Fukushima has taught us that if the grid goes down, the 400 or so nuclear plants scattered around the planet will quickly begin yielding the 200,000 or so tons of stored nuclear waste material back into the environment. I don’t know if that is enough nuclear material to kill everything, but I’m betting on giant man-eating cockroaches in that event.

#20 Brad in Cowtown on 07.18.11 at 10:34 pm

“…2008 was as close as you’ll ever come, and crisis was averted. — Garth”

Delayed, not averted.

Man, I’m glad I don’t take my investment advice from the comment section. — Garth

#21 Lisa on 07.18.11 at 10:35 pm

“Your age or mine has nothing to do with it. If a systemic collapse were to grip us, we’d be in it already. 2008 was as close as you’ll ever come, and crisis was averted. — Garth”

I respectfully disagree. You, yourself know how rotten the fundamentals are in the U.S., the shift in
power to China, the unprecedented debt loads held by consumers. 2008 was just the beginning, the first rock on a long rocky road after 20 years of unravelling. History repeats itself in rhymes and echos. It doesn’t have to LOOK exactly the same as 1929 in order to be as
bad.

#22 Min in Mission on 07.18.11 at 10:42 pm

Excellent!! Always interesting, I just wish that I could be 1/2 as informed.

I can wait for 10 years, or so. Even with a drop (up to 25%) now, I think that I would be OK. I don’t need any increases until then.

I think that a default of Greece would have an effect outside of the EU.

What will happen if the free trade agreement, with the EU, finally gets nailed down?

#23 Mr. Reality on 07.18.11 at 10:43 pm

Sorry Garth but it isn’t corporate profits that prop up the market. It’s consumers that spend money to keep the corporations alive. When that cash flow dries up so do profits. You are jumping the gun here as we are seeing a peak in earnings. The next few quarters will show a different picture.

Mr. R.

Isn’t this blog all about mindless consumer spending? — Garth

#24 VICTORIA TEA PARTY on 07.18.11 at 10:51 pm

FROM SOUTH OF THE LINE, SOBERING ECONOMIC STUFF

“All the talk in Washington these days, however, is of cutbacks—even for the hungry.” (The Economist)

Meanwhile as we await the shake-out of our real estate so-called industry, and whatever happens next to the global economy, I got to reading a piece from The Economist magazine, entitled: “Food stamps The struggle to eat.”

It says in part: “As Congress wrangles over spending cuts, surging numbers of Americans are relying on the government just to put food on the table…As the haggling over raising the legal limit on the federal government’s debt reaches a climax, the feeble state of the economy is making the budgetary trade-offs involved ever less appealing…

“Take food stamps…Participation has soared since the recession began…By April it had reached almost 45m, or one in seven Americans. The cost…has soared…from $35 billion in 2008 to $65 billion last year. And the Department of Agriculture, which administers the scheme, reckons only two-thirds of those who are eligible have signed up….”

Republican leaders propose cutting the program by a fifth by 2015 and fobbing it off the the states. The Republican-dominate House has also voted to “cut a separate health-and-nutrition scheme for poor pregnant women, infants and children…by 11%. (The Senate, controlled by the Democrats, is unlikely to approve either measure.)”

Income, assets and family size are factors determining eligiblity for food stamps to a maximum monthly $133 “…and the maximum, for an individual with no income at all, is $200. Those sums are due to fall soon, when a temporary boost expires….

“About half of (recipients) are children, and another 8% are elderly. Only 14% of food-stamp households have incomes above the poverty line; 41% have incomes of half that level or less, and 18% have no income at all. The average participating family has only $101 in savings or valuables…”

My oh my.

So, I must disagree with Garth’s contention that the US will somehow heal its economic wounds, soon I must assume, bringing about “inklings of an American renaissance.” We shall see. I just don’t know when “Happy Days” will return to that troubled land.

But I do know that Canada’s resources will continue to be purchased by Americans. Those would be hydrocarbons, timber, iron ore and a lot of other stuff that we extract, process and ship so efficiently.

Therefore we must count our blessings one and all. There but for the Grace of God go….you know the rest of the story.

#25 JohnnyBravo on 07.18.11 at 10:51 pm

I find it fascinating to juxtapose the difference opinions now proffered throughout the blogosphere on the economy, particularly in the US.

US economic fundamentals are very, very poor right now (housing, consumer confidence, unemployment, “food stamps”, labor participation rate, negative equity, shadow inventories, fraud, MERS, FASB mark to myth, stimulus, GDP based on government cheese, etc., etc. –– not to mention the whole debt and deficit thing).

Just today, from Zero Hedge (http://www.zerohedge.com/article/head-worlds-biggest-hedge-fund-sees-economic-collapse-due-money-printing-early-2013). This is not a particularly noteworthy example, but there are many, many more where that came from.

Denninger says US debt is mathematically impossible to sustain. 8% GDP from here to (almost) eternity needed to dig out of the hole. Spending must be cut not dramatically, but DRAMATICALLY! Janszen says output gap virtually impossible to fill. Michael Hudson will change any positive view you may have on Obama. Wall Street gets 13 tril; the people get the bill. Just today, Michael Pento of EuroPac Capital says bond market could be signalling a deflationary depression (and admits this might not be good for gold if it forces the US to get religion). Schiff, who called for housing collapse back in 2004 (if I recall) still calling for depression for US. Says it’s needed, actually.

Gold not a big deal in US. But apparently the Chinese, Indians and so many of those “other” other people love the stuff. They must be crazy. After all, as The Bernank said: gold is not money; it’s just a “store of value.” Wal-Mart is also a store of value but no currency was every backed by Wal-Mart. The Spanish did not loot the New World back in the 16th century looking for Wal-Marts.

Unlike most other countries, the US cannot run out of money. But maybe that’s the problem. Not for the banks––they are covered. But for the people. Because in the end, “we the people” pay the bill. Austerity or high-inflation. Take your pick. Different route; same destination.

Debt ceiling is a political problem, not a fiscal one. But, congress now loaded with Tea Party folks. You know, the nuts who believe in responsible government spending, smaller government, and that quaint little document called The US Constitution. Sure some of them are nuts. But not all. Maybe, just maybe, these guys are not playing politics. Maybe some of them actually believe in being fiscally responsible and have said, “The buck stops here.” Crazy I know. Imagine what kind of F√çk’d up world it would be if governments were fiscally responsible. Perish the thought and pass the pixie dust.

In the meantime, US large-caps are doing just fine; thank you China et al. The corporations gorge on profits, while the people may start to look to their iPads for apps with recipes on how to roast angry birds.

If energy stays dear, and there’s no massive productivity boost, the world will gorge on the new 100 trillion in debt prescribed by the World Economic Forum. But most people in this hemisphere will continue to get poorer––whatever happens to stocks.

Diminishing personal net worth for most people is a no brainer. But that doesn’t mean you need to participate. What most people in this comment section today fail to see is that wealth can be built successfully whatever the economic conditions. Unless you are quivering under rocks. — Garth

#26 squidly77 on 07.18.11 at 10:54 pm

BAC @$9.74 is a foreboding sign.
I think the IBM quarterly report was a little juiced due to a devalued USD.

I am no Gold Bug, but I do believe there’s a rough ride ahead.

#27 Snowboid on 07.18.11 at 10:55 pm

7 mid-Ontario…

Where have you been? Your stereotypical description of life in the public service may have been accurate 30 or 40 years ago, but it doesn’t hold water anymore.

Most public servants I know believe (or did at one time) in the ‘service’ part of their job, and would have made far more money in the private sector.

In fact one of the ongoing challenges of middle managers in BC (from my experience) was retaining staff when they could make almost double the salary as private sector ‘consultants’.

With little or no job security anymore, and some politicians bent on destroying the public service, I can assure you life as a public employee since Y2K is most certainly ‘fraught with danger’

Oh and by the way, public service pensions aren’t being phased out anytime soon, especially not in Jake’s lifetime.

#28 TS on 07.18.11 at 10:56 pm

Isn’t this blog all about mindless consumer spending? — Garth.
It would be nice to change direction and have the people with the cash spending not the ones that take on large gobs of debt. Of course the financial world just does not seem to work this way since 2008. Maybe Jake held back but the boomers need demand. Not sure that is going to happen anymore.

#29 Toxicosis on 07.18.11 at 10:56 pm

“”””Times have changed, sort of, but a platoon of the nutbars hangs on. Clad only in spears and Depends, they stomp across this blog warning of systemic financial collapse, banking insolvency, sovereign debt defaults, hyperinflation, mayhem, currency debasement and the collapse of America. Must suck to be them. Because none of this will happen.””””””

If you say so Garth, if you say so. I guess the shadow banking system full of at least 600 Trillion plus derivatives and all of this interconnected sovereign and banking system debt will be consequence free and swept under the rug. Garth either you’re a first class liar who is pandering to shove his ignorant viewpoint devoid of facts down people’s throats or you’re just plain ignorant and believe the drivel you’re soliciting. If you’re right than gold shouldn’t have broken 1600 when you told people to sell at 850. If you’re right than silver is really in a bubble, however, inventories are excessively low which contradicts your bubble THEORY. Housing is in a bubble because of the excessive prices and high inventory with buyers priced out and drying up. That’s not happening with precious metals, but I suppose you desire to keep the lie alive. I’m calling you out Garth and in fact would love to see you debate any of this either with me or someone with much more clout say….David Walker former comptroller of the currency. Or how about Jim Willie, Karl Denninger, or the folks at Zero Hedge.

#30 Brad in Cowtown on 07.18.11 at 10:58 pm

“Coordinated fiscal and monetary policy in an unprecedented global concert. ”

So an unprecedented coordination is all it takes to avert a meltdown indefinitely? Even though that’s what causes meltdowns in the first place? You need to read someone other than yourself once in awhile.

Actually, it worked. And I probably read a little more than you. — Garth

#31 nonplused on 07.18.11 at 11:01 pm

For those of you (probably all of you) who think I am being a little stupid about the old nuclear technology, a video. I cannot confirm it is legit, but they are popping up all over the internet especially sourced from Japan. This one is from Lake Louise Alberta.

http://enenews.com/video-1-68-%c2%b5svhr-detected-in-canadian-rain-water-sample-geiger-counter-display-reads-dangerous-radiation-background

Remember this is 2/3 of 1 plant, out of 400. Well to be honest I am a little fuzzy about whether there are 400 plant or 400 units. If there are 400 units then this is 4 out of 400, or 1% of what could happen in the Mad Max scenario.

I brought it to this blog first that the sinking of the Deep Water Horizon in the Gulf Coast was going to be bad bad news and that BP and the government were lying, to much ridicule. (Although not all of the thinking was original.) I bring this to you now (again). We are dealing with the worst industrial accident ever in the history of mankind (credit to Arnie Gunderson at fairewinds.com)

The debt ceiling is a nice distraction, but we do actually have bigger things that we need to start thinking about.

#32 Golden Stu on 07.18.11 at 11:01 pm

“The US will stagger through the housing crisis and unprecedented deficit financing. But it will stay the world’s biggest economy. ”

If you remove the bank bailouts and the military spending for dropping bombs on every country who disagrees with them, then there is not really much left.

The US is the largest debtor nation ever. Loaning money to the US for 3% over 10 years by buying treasury bonds is like loaning money to your neighbour when you know he has a few dozen condos he bought at the peak and is up to his neck in debt with the bank.

Great if you are into charity but hardly a wise move if you do want the money back without taking a hair cut on it.

#33 Brad in Cowtown on 07.18.11 at 11:01 pm

“Isn’t this blog all about mindless consumer spending? — Garth”

So consumers are tapped out and can’t afford houses anymore. But they can still mindlessly spend money to keep corporate profits at their peak?!

ok, good, got it dude

#34 Peakoilist on 07.18.11 at 11:03 pm

Everybody, don’t try to change Garth’s mind..he’s in his “blow sunshine up everybody’s butt mood again”…
Just go with it for now OK..
I guess I won’t go to Fortinos and stock up on tuna, rice and beans this week after all, cause Garth says not to worry, kiddies. :)

#35 Drew on 07.18.11 at 11:07 pm

So Garth,

You’ve said about a million times that nothing can go up forever…
So how can gov’t debt go up for ever?
Can the US just keep raising their debt ceiling ad-infinitum?
The piper must eventually be paid. No?

#36 Patz on 07.18.11 at 11:09 pm

Agent Will weekly stats:
Read it and weep. Metro Vancouver sales are down a whooping 43% from this year’s high in the first week of April. Look at the graph of unit sales. This year is tracking 2008 which was bad. There is still a chance it could look more like 2010 but I doubt it.

See for yourself.
http://agentwill.com/weekly-stats/

#37 Dr. Wayne on 07.18.11 at 11:12 pm

“this godawful blog started three years ago” … with continuous stern warnings of a severe correction. In that time frame, those who ignored the warnings made, in some cases, millions on housing real estate. Go figure.

#38 Golden Stu on 07.18.11 at 11:19 pm

GT is right in that people who are not aware of what is going on now could end up with a huge problem. The higher the housing bubble went the bigger it is likely to fall. If it was just a stagger then it probably will not be too bad.

In my town a friend “bought” a 1000ft2 condo off plan back on 2005 for $10k down. After the developer staved of bankruptcy long enough to finish building, the time came for them to take possession of the condo in 2009 for the bargain price of $740k.

I passed on my pennies worth ” WTF are you mad, do not take possession, do what you can to walk” The developer threatened lawyers etc and eventually they caved in and somehow got a loan to “buy” the place.

Its now on the market for more than they paid for it thinking it will sell. Better, bigger units in better location are now being sold by other developers for $300k, maybe $400k.

This is not a unique story. This is not a stagger. Other prime bubble areas are likely to see the same thing.

I feel so sorry for them but there is nothing that really can be done now, its just a matter of time……

#39 Lisa and Brad I am with you both on 07.18.11 at 11:23 pm

It is hard to understand why Garth speaks with such resolute authority on whether or not we’re in for systemic collapse a la 2008.

Brad’s comment re “delayed, not averted” and Lisa’s “2008 was just the beginning, the first rock on a long rocky road after 20 years of unravelling” bear examination.

Garth, I don’t know why you are not open to considering that things may go from bad to worse, for a very long time. You say that is the case for RE yet there is a simple case to be made that this is really the driver behind tons of consumer spending (and perceived wealth ie well-being).

I think it is interesting that you have so much faith in the past….but I am concerned that you have so much faith in the past.

Just a thought.

#40 Jody on 07.18.11 at 11:26 pm

Quesnel – guess BC Tourism missed that one, right up there with Moose Jaw and Oyen.

Glad you saw the light. The RV is a great idea, one day I’m gonna do that, I wanna be like Woody Harrilson in the movie 2012.

Gold north of $1600 today, silver set to rise upto $60 then back down when JP Moran manipulates the price yet again. Get in then get out on some silver plays right now! I strongly disagree with Garth about things being okay and a melt occuring, something is going to trigger a decade or more of total hell and when a correction comes it’s going to be fast and deep due to the mentality of us humans when we are in a herd. I might think everyone in the theatre will calmly head for the doors when an explosion occurs but in reality everyone runs and a stampede happens. Just keep your heads up people.

#41 Ron on 07.18.11 at 11:27 pm

Hi Garth,

Good post tonight.

What I’ve taken over the last 3 years is:
* be liquid
* kill debt
* renting is currently a better option than buying (TOTALLY agree)
* cash out if you’re house rich and cash poor in a market where ‘it’s different here’
* don’t bet against the USA
* question what the herds are doing

This has been very helpful for me. Thanks.

#42 Utopia on 07.18.11 at 11:31 pm

A big fat Euro short is coming. Long term predictions are anyone else’s best guess. Garth might be right here today, I don’t know. But I am going by my gut now.

US dollar up, Euro down. Shit hitting fan. No questions.

#43 Not 1st on 07.18.11 at 11:36 pm

So lets use some logic;

Companies make their profits when the general consumer demand increases and people spend more money for various things, like renos, ipads, TVs, cars, which require both labour and manufacturing and raw materials to construct.

But at the same time, their main lifetime purchase (real estate) is in decline, their savings at generational lows, most took a beating in the equity market in 2008 and on top of that we have rising inflation, cost of living and prices of everything going up. Many have delayed retirement and even their offspring are under employed with jobs moving overseas. Couple that with insolvent financial institutions, declining purchasing power aka QE and massive sovereign debt coming home to roost everywhere.

And this leads to a consumer resurgence?? Thats a real leap.

Not a chance. If companies have more money now, they got it two ways, by either shuffling TARP funds right to their shares and balance sheets, or by cutting employees and shedding costs.

#44 JohnnyBravo on 07.18.11 at 11:38 pm

#8 David on 07.18.11 at 9:52 pm

First, let me say, I am envious that you can put $146,646.29 into a single stock (please tell me you have millions in other holdings).

Second, I feel your pain. While I can’t give you investment advice, IMHO, the future is not bright Yellow. They are struggling to make the successful transition to online while their print business continues to die. Anecdotally, (and I stress “anecdotally”) it appears their online efforts, while valiant, are not bearing much fruit. Meanwhile, Google and others are forging ahead with innovative ways to find products and services online. Google makes Yellow’s core business look like an afterthought. I think, unless something really innovative is done, it’s only a matter of time.

Back in ’08 I told friends to stay away from RIM as a long-term investment. Their lack of innovation and lacklustre products (a flip phone for god’s sake!), coupled with their foray into the brutal CE market to me signalled a slow death spiral of margin compression and increased irrelevance. (And the only reason the spiral was slow was because of the pace of expansion in the smartphone market.) Have you looked at RIM’s five year chart lately?

BTW: was the divy on YLO 30% when you bought at, what, $9.22? That sounds totally unrealistic.

#45 Cristian on 07.18.11 at 11:48 pm

Inflation is not a determinant of stock values. Did you just make that up? — Garth

There is a clear corelation between inflation and stock market:

“Charles R. Nelson, an economics professor at University of Washington, has studied the impact of price inflation, as measured by the consumer price index. He’s formulated the following trading rule: “When CPI inflation is on the rise, stay out of stocks; when CPI inflation is on the decline, buy stocks.” ” (http://www.investmentu.com/2006/February/20060206.html)

“Inflation and stock market have a very close association. If there is inflation, stock markets are the worst affected.”
(http://www.economywatch.com/inflation/economy/stock-market.html)

“A low and stable inflationary environment is ideal for equity markets.”
(http://valueinvestingcenter.com/2011/06/10/effects-of-inflation-on-stock-market-returns/)

etc etc etc…

On another topic, God/Allah is not a “she” in any religion. Christian religion talks about God as a Holy Trinity: the Father, the Son and the Holy Spirit. Even if the Holy Spirit were a she, that’s still counts for only 1/3.
Unless you’re a feminist, of course… :-)

#46 Andrew on 07.18.11 at 11:54 pm

#18 Garth

“Inflation is not a determinant of stock values. Did you just make that up? — Garth”

How can you say this? This just defies all common sense. Stock values are measured in currencies. Currencies expand in their supply over time, forcing prices higher. This is inflation. How does this find its way into stock values? Simple. Companies generally provide some sorts of goods or services to their clients. As the cost of materials, labor, etc, rise, they are forced to raise their prices to remain profitable. These profits are returned to their shareholders through dividends. This forces the price of the stock higher. This in no way implies that the company is in any better off than before. It’s just simple inflation.

#47 from kits on 07.19.11 at 12:36 am

for anyone wanting to read a book that tells the story of 2008 check out “the big short.”

this one is for blog poster “john.”

I myself don’t claim to know much of what’s happening but this book does a good job at educating and then showing us how the US government saved most of wall street from going bankrupt.

I believe qe3 is more about stimulating the economy and trying to get the consumers back on board.

#48 from kits on 07.19.11 at 12:40 am

RE: “Sorry Garth but it isn’t corporate profits that prop up the market. It’s consumers that spend money to keep the corporations alive….”

I don’t know the stats on this but I believe it could be argued that not all or even the majority of public traded companies are alive because of the general consumer just buying crap from china they don’t need? again, what do I know but just a hunch…

I still need a car to get around, still have to put gas in it, I still need to eat 3 times a day, buy wine at night, buy parts for my bike so I can get to work, still have to go to the dentist to take care of my teeth, etc, etc?

#49 DML on 07.19.11 at 12:44 am

Isn’t this blog all about mindless consumer spending? — Garth

Never underestimate mindless consumer spending.

http://articles.nydailynews.com/2011-06-26/news/29728593_1_tintype-fort-sumner-rare-artifacts

#50 Cognizant on 07.19.11 at 12:58 am

“The Most Important Chart In The World Right Now”

“Want to understand why the world is going through sovereign debt gyrations that threaten to plunge the global economy into a new crisis?
Tracy Alloway has snagged a fantastic chart from a new BIS report, which she calls “the most important chart in the world right now.”
Basically, it looks at total issuance of AAA-rated credit by year. You can see there are twin peaks: First in 2005 and 2006, during the worst of the housing-related excess, when garbage was repackaged into AAA, and then following that AAA-rated issuance peaked again when governments bailed out the financial sector.
So now… well, you know what’s going on these days.”

http://www.businessinsider.com/chart-of-the-day-issuance-of-aaa-assets-2011-7

#51 AB Bust on 07.19.11 at 1:05 am

Garth, seems like chopping at the Greece social system didn’t work, they will default regardless. Is this something worthy for teapartyers to take note of state side?

#52 Bickity boom on 07.19.11 at 1:06 am

A little off topic, but what would you do in this situation.

wife and I could get a place in the lower mainland for $1800 a month with 20% down. We would rent out the top floor for $1500, and my growing business needs a shop, otherwise I would be renting a warehouse for around $900 a month. Therefore my business pays $450 for the use of the detached shop.

Now with our trade off of renting a basement suite (nice suite) for $1000 that brings me to a grand total of $2950. With a projected monthly cost of mortgage, utilities, and property tax of $2350. Do I not save $ 600 per month for the 4 years were planning on living in the basement ( long term house for 10-15 years atleast )

Thats over $10,000 extra a year I can invest, which would be otherwise going to personal rent, and warehouse costs.

If that was going to my mortgage, thats $50,000 off the price of the existing mortgage which would be $410,000 initially, come renewal in 5 years with a fixed rate, I would renew at $330,000 (based on $6000 towards principal over 5 years $30,000).

Thats renewal would be just over 50% of the house value at todays prices.

I think this would be a win win situation even if the market does correct out here in langley where the house is valued at 10% less then 2008 prices.

Anyone have input for this situation? Much appreciated.

#53 Charles Ponzi on 07.19.11 at 1:17 am

Greater Depression more likely delayed than averted in my humble opinion.

#54 JohnnyBravo on 07.19.11 at 1:21 am

I think some people have gotten confused between inflation and liquidity, vis-a-vis stock prices.

Most people define inflation as rising rices for goods and services (e.g. CPI). This does not drive stock prices higher. But excess liquidity (or monetary inflation) can. This makes sense when there is an appetite for risk. Stocks are the most liquid real asset so they are very sensitive to increases in the money supply/liquidity. When new money is created, it typically flows into risk assets and commodities first. Later on, it filters into the real economy via credit issuance, potentially driving up prices, or driving down profits.

I have learned that in economics, stand-alone metrics do not matter. The important thing is the relative rates of change between correlated metrics. For example, demand may increase, but prices can still drop if supply increases at a faster rate.

Excess money creates a kind of wealth effect that can increase demand and drive up prices. Especially in the stock market where the supply is relatively stable.

#55 Rural Rick on 07.19.11 at 1:43 am

Well Garth here we are three years down the road. It has been a great read. Thank you so much for this forum and your insight.
I do have to ask what gives you this confidence? Three years ago you were selling generators on exurbia.What has changed? Is not this the same extended BS, kick the can down the road?

#56 InTheBleachers on 07.19.11 at 2:14 am

Caution Garth!

Beware the sucker rally

http://www.ftadviser.com/InvestmentAdviser/Investments/Comment/article/20110711/f7033576-a7b1-11e0-acfd-00144f2af8e8/The-Editor-Beware-the-sucker-rally.jsp

#57 Qazmer on 07.19.11 at 2:37 am

#8 David
” In my SDRSP I’m holding 15,900 YLO for which I paid $146,646.29 but are now worth $34,344. Can’t sell for a tax loss. And I still like the 30 percent dividend. I wonder if I should try buying myself out of this hole by purchasing another 10,000 YLO at $2 in the hope that it will be back at $6 by Xmas. Your advice has got me thinkin”

Lucky you diversified your portfolio, as Garth has been trying to pound into peoples heads.

As for YLO, the dividend will be cut, some people think that may raise the price, giving you an exit. Just a quick look on google finance tell me that bookvalue of the stock is around -5.03. Your best bet would be to talk to a finance adviser, not one from the bank.

#58 TS on 07.19.11 at 4:28 am

So how much longer do you think this will last?

http://www.theredpin.com/blog/canada/20-hard-facts-on-toronto-condo-market

#59 munch on 07.19.11 at 4:34 am

Two words!

Double Dip!!!

Thanks for listening!

#60 Tim on 07.19.11 at 4:57 am

I said a few weeks ago when silver went below 35 bucks an ounce that it was a good time to buy, the weak hands have been shaken. As usual I was ridiculed and now here we are back above 40$ an ounce. There is far more money to be made in bullion these days than any paper stock.

#61 reality guy on 07.19.11 at 5:06 am

Just noticed a bunch of houses for rent in the east vancouver area for approxiately 1800 per month.

Its interesting because if you bought these houses in the past several months they would of sold for approxiately 700,000 to 800,000 bucks.

That means you would be paying about 3000 per month on interest alone(@low rates) added another

– 400 / month for property taxes
– 200 / month for insurance and utility / garbage fees

Brings us down to 3600 per month , not including maintenance and other cost. Therefore the owner would be subsidizing your cost of living. by approxiately 1800 per month. Can you say bad investment!!!

Oh yeah, expect to lose another 25 % in 2 years 200,000 or 8333 per month.

Man the owner must feel like he’s getting raped in jail

#62 Neo on 07.19.11 at 5:52 am

Half of S&P 500 profits are made overseas and a weak dollar policy even props that fact up even more. So there has never been a bigger disconnect between the Wall Street and Main Street in the U.S. Corporations have done a good job starving the host, American consumer, by outcourcing their jobs and replacing their incomes with a credit card they use to purchase cheap goods from the very countries who took to their goods to maintain their wobbly standard of living.

The correct answer is that in 2008 the crisis was delayed, not averted. You cannot solve a debt crisis by issuing MORE debt. The debt must be rung out like a dirty wet rag first for a complete deleverage until a true equilibrium is reached and THEN you can move forward with sustainable growth.

In the meantime money can be made and the global economy will expand. From 1914 – 1946 we had 2 World Wars, a mini Depression in the early 20’s, and a Great Depression that lasted over a decade but Global GDP still averaged 1.8% over that time. That doesn’t mean there wasn’t massive upheaval and suffering though.

#63 detalumis on 07.19.11 at 6:01 am

I would just like to add a cautionary tale to Jake being it seems according to all the bitter men who post all over the place, the only woman in the country who ever had to pay alimony. You may think your life is all bread and roses today but having a dependent spouse is the worst financial mistake you can ever make, even worse than not growing up until 35, not buying a house, having no savings etc. So far I have never ever, met one person that listened to my advice until it was too late and I never ever say I told you so.

#64 BrianT on 07.19.11 at 6:13 am

#11Lisa-At this point, most realize that the problems of 2008 were not fixed, addressed or dealt with in any manner. All that was done was to take taxpayer capital and give it away. That bought some time, and that is the approach still being followed in 2011. There is not an unlimited amount of taxpayer capital to give away continually in ever larger amounts. You have to wonder how these simple facts (increasingly obvious) can be misinterpreted as a “conspiracy theory”.

#65 JO on 07.19.11 at 6:24 am

Being an investment pro and having followed the markets since 12, I have made my share of mistakes like everybody else. On average though I am doing reasonably fine and can share just one critical lesson i learned for today: You need to have an exit plan before you enter a trade. For those of you in YLO, that plan should be to sell out if the stock decline hits a certain # – for me, typically 7/8 %, but never more than 15 % for a small cap.

How anyone can ride any stock down more than 20 %, let alone 70-80 % is beyond comprehension. Yes sometimes you will get whipsawed but on average, selling out of badly performing individual stocks is going to save your ass.

Hopefully you folks avoid such large losses next time.

Buy and hope…ooops, I mean buy and hold works on a portfolio level and better when using well diversified low cost high yielding investments. I personally will not buy and hold anything except a modest position in bullion until such time the DOW/GOLD ratio hits the bottom of its long term average.

Good luck to all
JO

#66 pbrasseur on 07.19.11 at 6:27 am

Armageddon?

Not quite.

550,000 Android activations, every day!!!!!

Think about it…

#67 David B on 07.19.11 at 6:50 am

Jake, your mind is now on track … well done …. first get wife a job … she will love it being with her peers through all that grown up women stuff …. retire at 60! early CPP but keep here working as it takes 5 years to adjust to retirement …. you will be surprised just how short the days, hello the years get once y’all retire … do not worry about what to do …. I am doing nothing looking to do less and very few if ever days do by that I have not do something and I still have unfinished tasks. This I now know it cost one hell of lot money to work. In any rate never worry about life … it starts every morning at sunrise … just put a few pennies away for a rain day and enjoy each day. Do that and the days pass and pennies grow and speculators plot their next costly failure.

#68 Herb on 07.19.11 at 7:06 am

When does the trickling down begin?

Er, wait a minute. Our asses were handed to the banksters to enable “mindless consumer spending” on things that the corporate empire assured us we could not live without, and we are and will stay on the hook as the payer of last resort for sovereign, corporate and personal debt. And we even want jam on it in the form of a bit of personal prosperity and security? And this is supposed to end well?

Crisis averted? Crisis? Wot crisis?

#69 househornyhousewife on 07.19.11 at 7:22 am

#21 – Lisa

I’m afraid I have to agreed with your reasoning, as depressing as it is. The sorry state of our world economies is a direct reflection of consumer action … buy now and pay later. Something that was never carried to such an extreme in the past. Frenzied buying of everything from expensive houses to expensive cars to expensive house renos has been growing our economy in the recent past (ie. the last 20 years or so). Companies made more money, people got more jobs and consumers thought they had it all (except for that bill that they had to put off with the minimum payment every month). Children born into this part of history know nothing about saving up for retirement or buying something only when they can afford it. It is this generation of 20 and 30 somethings (who should be in an acquisition of wealth stage in their lives rather than an acquisition of debt stage) that will be ruined in the near future.

This kind of irresponsible spending is quite obviously unsustainable and we are only now just beginning to see the wall we are about to hit. The huge difference between history and today … incredible amounts of unsustainable borrowing with an apparent disregard to everyday liquidity. Consumers (and businesses) borrowing huge sums of money from financiers who do not add up their numbers correctly (following Greenspan “free economy” models that lo and behold eventually don’t work as predicted).

Most companies and households that go bankrupt don’t do so because they don’t have a positive net worth. It is a lack of liquidity that often does them in. If you don’t have enough cash to pay your day to day expenses over the long haul then your net worth isn’t worth a damn (unless your creditors are REALLY patient and willing to let you pay your bills whenever the heck you feel like it). This lack of liquidity is now having an effect on consumers and governments alike. Raising debt ceilings and government bail outs will only delay the inevitable and only a change of thinking and behaviour will ultimately “solve” our problems (if economic problems are actually solvable).

On the bright side, volatility and chaos breed opportunity. For those who are intuitive enough to go against the herd mentality, there is the chance to profit and to profit big. Necessity is the mother of invention and I think that we are on the brink of world economic change. What that change is going to be, I haven’t a clue but batton down the hatches and watch how things play out and some of those opportunities are sure to show themselves pretty soon.

In the meantime, live your lives and live them well. Buy whatever the heck you want but just don’t buy things that you cannot afford .. be it houses, cars, prostitutes, dildos or whatever (let’s not begrudge this blog its usual flavour of depravity). Budget properly and use good judgement when spending as opposed to buying with your emotions. We seem to measure living well and being happy with the amount of STUFF that we own and we all want to own those houses on HGTV. This has to stop and one way or another it most definitely will .. most likely via the hard way as opposed to the easy way. Think for yourselves people !!

Anyway, that’s my 10 cents. Lisa, I definitely agree with your opinion.

HHHW

#70 Mr Buyer on 07.19.11 at 7:32 am

#62 detalumis … alimony is not news for men. Neither is working all the time or spending most of our money on our families and our women. Add never getting to see our children and I would be happy to welcome you to the men’s end of the pool (I hear you on the getting burned thing, been there done that and will likely get burned again, but not by my wife, famous last words, but she is ‘different’).

#71 fancy_pants on 07.19.11 at 7:51 am

The only reason companies are still making $ is b/c consumers continue to spend what they don’t have.

A slight turn of the taxes wheel and a slight tightening of the spending wheel and voila! company revenues/profits go south as people’s pockets dry up a little more. Credit expansion cannot grow exponentially forever in real terms. At some point inflation takes over or the house of cards falls.

You are allowed to suggest the doomers have their heads in the sand but definately not the bears – the bears have a good grip on reality.

As I wrote, corporations learned stuff in the financial crisis. Most citizens learned nothing. Investors with a balanced, diversified asset allocation, high degree of liquidity and active management are positioned to benefit from the ensuing volatility. I fail to understand why this is such a hard concept to grasp. — Garth

#72 disciple on 07.19.11 at 8:02 am

Let’s party like it’s 1929!

Now…back to reality…here’s the deal:

The REAL economy will continue unabated like it has for millennia. People need stuff. People want stuff they don’t need. Other people get it for them. Corporations will continue to expand globally and rake in the profits.

The FALSE economy foisted upon us by the financial parasite class will retreat back into the shadows as more and more people begin to awaken. But first, there will be enormous suffering. Wars and rumours of wars; in point of fact, it is happening now. Just count the number of wars around the world.

It has all been planned out far ahead in advance. The only variable that is unpredictable is the “messiah” factor. Will there arise among us, the one that will advance our consciousness to the point of discovering that the secret societies have ALREADY developed new technologies and are withholding them from us?

This is the real reason one of the Jesus twins was assassinated in London at the turn of the last millennium. He, like his brother, was attempting to release that knowledge to the public, and strip away the veil of conspiracy.

#73 Steven Rowlandson on 07.19.11 at 8:06 am

Patience Garth.
Did you really think that the great 80+/- year orgy of real estate speculation, private and public debt bubbles, stock scams and other crimes and foolishness would be exposed and cleared up in short order?
Most people would be loathed to admitt there is a problem let alone bow to the enevitable. No Garth people have to find out the hard way and that is all there is to it. Just be sure to have some thing internationally respectable and little or no debt.

You can’t change the world. But you can insulate yourself from it. Money is an excellent insulator. That’s my point. Fear paralyzes. — Garth

#74 pessimist on 07.19.11 at 8:07 am

Jake,

Congratulations on your correct decision.

When investing, or even gambling (some use these terms interchangeably, or act like they don’t know the difference between the two), there are three extremely important points to consider:

1) Don’t gamble/invest more than you can afford to lose,

2) Give yourself a generous margin for error in case your analysis is incorrect, or an unexpected event occurs that you could not possibly have foreseen, did not consider, or underestimated the probability there of, and

3) Diversification is very important. This way you cannot be taken down with a single rogue investment.

In your case, regarding these three points:

1) You are in no position to risk many times your current net worth. If you were twenty, no problem (or fewer anyway), but you are looking at retirement very soon. You would never recover from these sorts of losses,

2) You don’t even have enough margin to survive house prices going flat, let alone decreasing. As Garth so ably demonstrated yesterday, you would not be able to carry the house payments in retirement.

3) You were not only putting all of your eggs in one basket, you were borrowing eggs from the bank to put in the same basket. Leverage amplifies your gains on the way up, and amplifies them on the way down. Your situation is such that you simply could not afford it.

Missing any one of these three points should be a deal killer. You don’t come close on any one of the three. Run, don’t walk away from owning until your personal financial situation, or the housing situation changes.

There is no shame in renting. I could buy pretty well buy – with cash – any house in town that I wanted, yet I rent. That is because renting is not only cheaper right now, it is dramatically cheaper. It’s the smarter move.

Anyone who tells you to buy because it is the smarter way to go, simply has not done the economic analysis required. Look at all of the costs of owning, and there are many.

There may be good psychological reasons for owning, but you had better be darned sure that you can afford the luxury of catering to your wants rather than what financially makes sense.

Good luck!

#75 Helicopter Ben on 07.19.11 at 8:22 am

John Williams from shadow stats talk’s about hyperinflation in the states. http://www.youtube.com/watch?v=XyoqTqLA1nk

#76 Not 1st on 07.19.11 at 8:28 am

Garth, how about this. We will cut the doomer talk if you truly take the time to investigate the following topics and blog on them:

– the multi hundred trillion unregulated CDS market that resides in every bank, but off balance sheet. (i.e shadow banking sector)

– the real amount of money that was injected to the financial system by the U.S. fed. Hint: its not 800 billion, more like 10-12 trillion and most of it went to foreign countries, even canada.

– the real beneficiaries of the TARP program. Why did Catapiller, Harley Davidson and GE need taxpayer money and why did none of it ever get to main street?

– the real U.S. and world debt. For the U.S. its at least 100 trillion and the world is probably more than 10 times that.

#77 robert in london on 07.19.11 at 8:31 am

Because this will never happen.

Wow, with such absolute certainty, you must be the most well rested man on the planet.

#78 Helicopter Ben on 07.19.11 at 8:36 am

#59 Tim, I agree. I bought 250 ounces of silver on my credit card, 10 thousand worth. i already own quit a bit already before that i just couldnt resist buying more at that price, it has gone up 5 dollars in a week since i bought. of course it could go down time will tell if it was a good buy or not but i think it is, just have to get a line of credit now, i dont have any debt besides this so not to worried either way. heres a good article on the new hong kong new silver exchange… http://goldsilver.com/news/hong-kong-metals-exchange-opens-silver-contract-friday/

#79 gladiator on 07.19.11 at 8:37 am

Garth, do you realize what you are writing about? Consumers are overleveraged, indebted, not much money left for food and even less for discretionary items, housing will go down and will pull under water millions of families – and somehow the economy, which is 65% dependent on consumer spending, will go up and corporations will swim in profits. Excuse me, but that doesn’t make sense.
Ok, profits are up (for now), but there’s not much more offshoring to be done. The bulk of the jobs that could be offshored are already there. What other costs to trim? Not many more. As Toxicosis wrote, there is also the derivatives problem and it’s humongous…
Is you old age catching up with you? :)

Experience is. Wait. It’s good. — Garth

#80 Amarillo on 07.19.11 at 8:38 am

I’m in a situation not unlike the subject of today’s post. In an effort to keep costs down, just bought a 1999 Honda Odyssey van for $2,500 in great shape. I’m counting on the eventual govt DBP plan but in the meantime, where does a guy with only $25,000 in cash find advice on which investments to buy?

#81 JohnnyBravo on 07.19.11 at 8:43 am

“…wealth can be built successfully whatever the economic conditions… — Garth”

No question. And I believe I’ve taken some positive steps in this regard.

#82 JohnnyBravo on 07.19.11 at 8:46 am

#75 Helicopter Ben on 07.19.11 at 8:22 am

John Williams is a smart guy, but he’s been predicting hyperinflation in the US for years. While it’s possible, the US is not Zimbabwe or Weimar Germany. Not even close.

#83 somejerk on 07.19.11 at 8:51 am

Diminishing personal net worth for most people is a no brainer. But that doesn’t mean you need to participate. What most people in this comment section today fail to see is that wealth can be built successfully whatever the economic conditions. Unless you are quivering under rocks. — Garth

You can’t change the world. But you can insulate yourself from it. Money is an excellent insulator. That’s my point. Fear paralyzes. — Garth

As I wrote, corporations learned stuff in the financial crisis. Most citizens learned nothing. Investors with a balanced, diversified asset allocation, high degree of liquidity and active management are positioned to benefit from the ensuing volatility. I fail to understand why this is such a hard concept to grasp. — Garth

some of your best written stuff…

#84 Peakoilist on 07.19.11 at 9:02 am

#58 Munch…you said “double dip”, I prefer a double-double thx, anyway..did It ever really stop dipping? maybe in Canada but stateside probably just sidelined and will dip again..maybe that is a double dip but I’ve understood that it is a W shape. there’s likely a CHART of the day for this but after viewing #49’s chart, I went cross-eyed and just squinted a lot. just wondering.

#85 Jody on 07.19.11 at 9:10 am

I think everyone on here will agree that Greece will default. What might happen as a result?

http://boombustblog.com/BoomBustBlog/What-is-the-Most-Likely-Scenario-in-the-Greek-Debt-Fiasco-Restructuring-Via-Extension-of-Maturity-Dates.html

And good old Peter, tells it like it is, I remember everyone laughing at him when he was predicting the US housing collapse, those tossers ain’t laughing anymore. I think the DOW and gold will meet.

http://www.youtube.com/watch?v=V0nMZrn0Xfo&feature=related

US debt clock

http://www.usdebtclock.org/

#86 DM in C on 07.19.11 at 9:10 am

Unbelievable PR/Hot Air piece on Brad Lamb today – just left me shaking my head

“An individual can easily manage four or five condominium rental suites and have a full-time job,” Mr. Lamb says. “Four or five, after 25 years, will make you enough money to live like a king. You’ll pay off your mortgage, you’ll have $2-million or $3-million of net equity. And anyone can retire on that.”

http://www.calgaryherald.com/business/real-estate/High+buys/5118745/story.html

#87 kimi on 07.19.11 at 9:13 am

Diminishing personal net worth for most people is a no brainer. But that doesn’t mean you need to participate. What most people in this comment section today fail to see is that wealth can be built successfully whatever the economic conditions. Unless you are quivering under rocks. — Garth
——————————————————
#26 Sqidly… for me, personally, there is no rough ride ahead. Regardless of where the economy is at. Garth is absolutely right.
I also believe that the US will be back up. 300 million people compared to our 30 million. In my life time the US dollar has never been lower than the Canadian dollar so I can’t see that lasting.
There will always be another white rabbit waiting to pop outta that US black hat. August 3 you’ll see it for real. Tadah!

#88 Xnilo on 07.19.11 at 9:28 am

“Clad only in spears and Depends, they stomp across this blog warning of systemic financial collapse, banking insolvency, sovereign debt defaults, hyperinflation, mayhem, currency debasement and the collapse of America. Must suck to be them. Because none of this will happen.”

Garth, did you actual say that? Today you have lost me. I know you have read this but just in case you haven’t…here it is.

This Time Is Different: Eight Centuries of Financial Folly
Carmen M. Reinhart & Kenneth S. Rogoff

http://press.princeton.edu/titles/8973.html

Of course I read it, some time ago. Read mine? — Garth

#89 DM in C on 07.19.11 at 9:28 am

#44 Johnny Bravo;

Read something more on RIM today — they are grasping at straws now.

http://www.itworldcanada.com/news/rim-aimless-with-rumoured-media-box-analyst-says/143549?sub=565758&utm_source=565758&utm_medium=dailyitwire&utm_campaign=enews

#90 Canuck Abroad on 07.19.11 at 9:38 am

Garth, you are completely wrong on this one. The coming crisis will be worse than 2008. You say they have fixed things but they have fixed nothing. And banks ARE insolvent. I don’t see how you can actually think otherwise – because they changed the accounting rules to avoid taking losses??? So the losses aren’t there? Yes, they can release strategic reserves of oil, and fudge the corn report, and lie about the rates of unemployment and inflation, but these are all just bandages to kick the can past the next election and manage perceptions. Turn off your TV and stop watching North American news Garth. You are being lied to.

Interesting how many comments today attack me as ill-informed when I do not confirm a publicly-held view. I love this. — Garth

#91 Dad on 07.19.11 at 9:40 am

Just goes to show a greater fool and his money are soon parted. Asked the principessa to go work despite having a university degree?

See you in divorce court, wave bye-bye to that pension cause ints going to be her “job” to get ahold of that.

Well, and your nest-egg.

Sorry son :(

#92 refinow on 07.19.11 at 9:56 am

Garth, long time follower, it seems that you are losing your razor sharp edge of lately, or maybe it has just become a little monotonous, telling the same story over and over and over… Having sold my home and sitting in my rented bunker waiting for homeagedon to start, I feel there has never been a better time to drive home the message that homeownership at current prices, based on very flawed current lending guidelines is a one way trip to financial hardship.
Waiting for Obama to somehow waive his magic wand and solve the massive US debt problem, but after the pathetic puff of smoke clears, it will be clear that the only option will be to increase the spending limit yet again. 11 Trillion, 14 Trillion, why not 50 Trillion? It is only a number with 9 zeros in it, that’s not too scary, is it? Why not go for 1 Quadrillion, that’s only 12 zeros, that’s only 3 more small zeros….
Any corporation losing that much money year over year , there is not a bank in the world that would extend credit to it, and yet with a small signature on a piece of paper…Tada!!! instant access to a limit that will likely double the debt in a short period of time.
Just look at what the debt has done in the last 10 years…
Who is ever going to pay for all of this?
I think global Bankruptcy could be the answer, write it all off, give the world a bad credit rating for 7 years, and start it all over again.

You confuse public debt with private or corporate debt. The US need never pay it back to prosper. BTW, is the definition of ‘losing my edge’ that you disagree with me? — Garth

#93 Utopia on 07.19.11 at 10:04 am

“You were not only putting all of your eggs in one basket, you were borrowing eggs from the bank to put in the same basket. Leverage amplifies your gains on the way up, and amplifies (losses) on the way down. Your situation is such that you simply could not afford it”. ~~Pessimist
—————————-

Good line. I have to admit I am really enjoying todays comments. The Dawgs seem to be on top of the game and are not interested in candy coated hope for the future.

Have we all turned negative here or are we just a bunch of realists now?

Even I am a little puzzled by the suggestion in todays post that no sovereign defaults will occur. We are witnessing one first-hand right now (Greece) and more will follow. They are both inevitable and unavoidable.

We really should bring back Xurbia. Too few are prepared.

A lot of you Dawgs posting today are brilliant.

#94 BrianT on 07.19.11 at 10:05 am

#76Not-Most do not understand the difference between digital capital and real capital. Those trillions of dollars “injected” did not magically fall from heaven for the use of banksters-they were transferred from other, non-connected pockets, even if those paying for this largesse are unaware of the transfer. Eventually they will be aware as the pain hits.

#95 chuck d on 07.19.11 at 10:08 am

Houses continue to fly off the shelves here at crazy prices. A colleague mentioned to me that a house just went up for sale on her street but didn’t know the price. I looked it up and we both laughed at the price. She said that she has a similar house that she bought 5 years ago for half the price. (Not as done up) We speculated that it would sit on the market. Anyway when she came in this morning she told me it was sold! This is a house that I thought would be around 750 if it did sell given the area and the upgrades.

http://www.realtor.ca/propertyDetails.aspx?propertyId=10917283&PidKey=-39978682

#96 JohnnyBravo on 07.19.11 at 10:14 am

#87 DM in C on 07.19.11 at 9:28 am

If this is true, it’s very sad. Because of the Canadian media (particularly BNN) many Canadians have an oversized view of RIM’s place in the CE market. But the truth is, they are becoming increasingly marginalized. What they need is another game changer in the vein of their push e-mail tech/service. While their encryption may be the best in the world, their competitive advantage is compromised when governments demand access anyway.

I am now waiting for their threat to leave Canada, the gov incentives to keep them here, and the eventual (second) accounting scandal. Maybe at some point Jim will get his wish and he’ll buy a hockey team because he’ll have nothing else to do.

Sorry, I don’t like being so negative on RIM. But they really p%$$ me off. Wasn’t Nortel bad enough?

#97 John on 07.19.11 at 10:29 am

Garth, I think most of the responses today are trying to get a grasp on the investment sentiment. While opportunities to make money (not invest) do exist, the risk of a systemic failure of economies are real. Since 2008 no government made real progress with diversifying their economies. They only bloated their balance sheets. If the only measure of economic progress is corporate profits than rest of the factors can take a hike. But that is not the case and the whole fiasco can turn for the worse in no time. Things will get better eventually, but for now holding cash is not bad too.

#98 Mister Obvious on 07.19.11 at 10:30 am

It seems the BOC has taken a somewhat “firmer stance” this morning. Holy crap! Head for the hills!

#99 JohnnyBravo on 07.19.11 at 10:32 am

“The US need never pay it [the debt] back to prosper…— Garth”

Under MMT, there is the concept of sectoral balances. It states, roughly, that in the aggregate, private wealth equals public debt. Meaning, no government debt, no money. Not only does the US not have to pay back the debt, but under a debt/fiat money system with floating exchanges rates, and where your debt is held in your currency, they actually need the debt, which of course will have to grow with the economy. That’s the MMT view, anyway.

The thing economists keep an eye on is debt-to-GDP. One debate raging right now is, how high can the US’s debt-to-GDP go before creditors lose confidence? But, in my view, it’s not that simple. In a very real way, the US is holding the rest of the world hostage, thanks in so small part to their global military presence. The “problems” of the US are thus, the problems of the everyone because it’s not just an economic, fiscal or monetary issue.

#100 pablo on 07.19.11 at 10:34 am

U.S. R/E projected to take another 20% haircut this year.
U.S. unemployment officially at near 10%. Another round of QE money supply increase coming down the pipe will further devalue the U.S.$. The U.S. represents our largest trading partner with 70% of exports going to their markets. We’re in for one big shitstorm, the shitwinds are blowing and the shithawks are circling. (TPB’S-MR. LAYHE)

#101 This is Wonderland on 07.19.11 at 10:36 am

#86 DM in C

Unbelievable PR/Hot Air piece on Brad Lamb today – just left me shaking my head

====================================

And…

They also work with brokers who have an in with reputable developers so they can jump queues and get better deals. For example, when Mr. Lamb readies to launch a project, he first gives a shout-out to fast-moving friends, family and “anybody who has bought from us before and isn’t a pain in the ass” and offer suites for sale at a 10% discount. That will sell 25% of the building, he says. Next up, fast-acting brokers he has worked with before get dibs at a 5% discount and another 35% of the building sells. Then it’s on to lesser-known brokers, where prices are a tad higher and another 10% sells. By the time he gets to the general public, the project is at 70% sold “so you’re not nervous, you’ve got enough sales to build it.”

———————————————————-

How can this be legal?

#102 waterloo Resident on 07.19.11 at 10:40 am

Yes, Garth is right, stocks will rise, but so will house prices. You see, as the economy gets better and people get more jobs they will pile back into housing because they think that its the best investment possible. ITS NOT. But homes won’t sink, not yet, not until the next recession comes in 12 years time. Until then homes will continue to rise 2 – 4 % even as interest rates rise. But stocks will do much better, rising about 7% to 9% per year. So if you have 100% cash to invest then stocks will be better, but nobody has that, we all borrow 90% to buy a house, so with only 10% down and that much leverage the buying of homes will still be so much better for practically everyone, everyone except me that is because I rent a house right now. I’m waiting first to see what rising interest rates will do to prices. If prices keep rising even as rates rise then I will buy, it not then I’ll keep renting.

#103 dd on 07.19.11 at 10:41 am

….the Greeks are toast. But …. Lehman who?

Don’t worry, the debt problem is contained … Bernanke 2007.

#104 The InvestorsFriend on 07.19.11 at 10:44 am

Number 19 Nonplused laments:

“Our current system depends on strong GDP growth to fund retirement promises. It’s a pay as you go system. There must always be enough cash coming in to support the cash going out.”

Others worry about excessive world-wide debt and derivatives.

Relax people and think about the REAL economy of goods and services production and distribution. Cash is secondary to the REAL economy.

Consider for a moment that it is not possible for the world as a whole to be in debt. No money was borrowed from outer space. Nor was any borrowed from the unborn since that is impossible.

The world as a whole is always investing in more fixed assets and improvements to the world. Factories, roads, bridges, schools, houses and so much more.

Everything that the world consumes, we produce. (except natural resources).

The standard of living has been exploding world wide and continues to do so.

I could go on…

Someone posted a few days ago, none of us are looking for advice just confirmation of our existing beliefs. So true.

Optimists among you will agree with me.

Doomers will choke on their beef jerky as they rush to tell me what a fool I am.

Anyhow, look after yourself. The world will evolve as it will. You can’t do anything about it. But you CAN look after yourself. Enjoy life and work and spend and save in whatever proportion YOU decide. The world is full of opportunities. Whining is a waste of time.

#105 dd on 07.19.11 at 10:46 am

…Well, the last time this happened, the stock market doubled in the next five years….

In real terms the Dow has returned nil to investors. Nil. Of course you know that right?

I was buying in March of 2009 (as recommended on this blog), so these have been great years. — Garth

#106 33isgreat on 07.19.11 at 10:46 am

I’m so old that I am forgetting my age already. I believe I am 33 (not 34). Like Jake I didn’t really grow up. Unfortunately due ot the craziness of the last two years as a single it means I am permanently out of the a house if you want to do it right and not go about the 3 times ration. My gen probably would have had to “grow up” before 33. Kind of sad. I am getting the house = grown up thing. I hope I don’t end up regretting this like Jake this and I believe I will end up in the scenerio like he did where I try to purchase a house when I retire. There is more to life. I hope I have money enough to retire

#107 Mr. Plow on 07.19.11 at 10:47 am

#5 TurnerNation

Better luck next announcement.

#108 dd on 07.19.11 at 10:48 am

…Good for commodities…

Debasing the US buck is also good for commodities.

#109 Mr. Reality on 07.19.11 at 10:53 am

“”#93 Utopia on 07.19.11 at 10:04 am
“You were not only putting all of your eggs in one basket, you were borrowing eggs from the bank to put in the same basket. Leverage amplifies your gains on the way up, and amplifies (losses) on the way down. Your situation is such that you simply could not afford it”. ~~Pessimist
—————————-

Good line. I have to admit I am really enjoying todays comments. The Dawgs seem to be on top of the game and are not interested in candy coated hope for the future.

Have we all turned negative here or are we just a bunch of realists now?

Even I am a little puzzled by the suggestion in todays post that no sovereign defaults will occur. We are witnessing one first-hand right now (Greece) and more will follow. They are both inevitable and unavoidable.

We really should bring back Xurbia. Too few are prepared.

A lot of you Dawgs posting today are brilliant.””

Reality is setting in my friend. You cannot spend your way out of debt. One day soon people will realize that our society was built on hard work and financial prudence not debt and laziness……

The problem is people are choosing the same perpetual optimism that got them in a tough place to reason their way out of this mess we are in. Hence the references of 2008 all over again.

When i read that a 30 billion dollar hedge fund is 75% in cash because of their inability to understand what is coming every retail investor and home owner should be raising their eyebrows. People need to wake up and learn and realize the news they watch and read is not informing them of the truth.

And today the market is up because or corporate earnings. These earnings mean nothing. Why? Because this money is taken from the people that really run the show. The consumers……And where they are broke, nothing can keep the markets propped up for long.

Mr. R.

#110 dd on 07.19.11 at 10:54 am

…but a platoon of the nutbars hangs on…Must suck to be them. …

Ya it really does. Silver up 300% from my purchase last year. Gold up 40%. I am really mad. LOL.

Sure hope you are taking those profits. — Garth

#111 Not 1st on 07.19.11 at 10:55 am

A U.S. resurgence is a possibility, but a couple of drastic actions need to happen first.

First, the U.S. would need to default and tell all foreign creditors that they won’t be paid back. That will cut the national debt down to size and prevent the U.S. from facing austerity.

But when the U.S. does that, they will make so many enemies around the world that nobody will ever trade with them again so oil and other raw materials would need to be sourced locally (i.e. Canada, Alaska). The U.S. forces would need to be stationed on every border. Immigration would halt.

Lastly, the U.S. would need to repatriate their manufacturing base or re-invigorate the remaining base they have and start producing locally again.

Maybe the contrarian view is the U.S. is set to go it totally alone, refute globalism and keep its own people working and all goods and services internally and let the rest of the world fight over whats left.

#112 DM in C on 07.19.11 at 10:55 am

#96 Johnny

You may also be interested in this article;

http://www.bgr.com/2011/07/13/rims-inside-story-an-exclusive-look-at-the-rise-and-fall-of-the-company-that-made-smartphones-smart/

#113 dd on 07.19.11 at 11:00 am

#92 refinow

…The US need never pay it back to prosper… — Garth

But they need growth. More rules and regulations are added each year to business. Any jobs being created still are in the service sector and not in manufactoring. But of course you know that.

#114 Junius on 07.19.11 at 11:01 am

#104 InvestorsFriend,

You said, “Consider for a moment that it is not possible for the world as a whole to be in debt. No money was borrowed from outer space. Nor was any borrowed from the unborn since that is impossible.”

Are you serious? How can you possibly say this? The entire world is in serious, deep debt problems. It is an international epidemic from Greece to the municipalities of China.

How could you have missed this?

#115 Thoughts on 07.19.11 at 11:02 am

Deep down the Western (white) world seems to hate itself so much that it actually wants to die off, you need only look at the doomers insistence of their own destruction. No wonder they don’t bring their children to birth anymore, I wouldn’t either!

#116 fancy_pants on 07.19.11 at 11:03 am

MC is a coward. As I have said time and time again Canada’s rates are not going anywhere in a hurry. tied to the hip of US rates as MC would rather give away our resources/exports than slow down that sector.

And since the US prefers the taste of fresh $ (QE), rates won’t be rising soon (barring a default). The only thing going for the US right now is there are other economies/EU/countries in worse financial shape.

And QE is easier medicine to swallow for now. Hey, fun kind of a magic pill – “no effects”. look ma, no hands!… crash.

#117 dd on 07.19.11 at 11:10 am

#23 Mr. Reality

…Isn’t this blog all about mindless consumer spending? — Garth…

Reality. that is the whole point. people are still borrowing. the lastest stats suggest that debt is not being paid down and is in fact growing again. Not good. And profits will be at all time highs because this is calculated in nominal terms. Everything is going up in price!

#118 OkanaganInvestor on 07.19.11 at 11:14 am

31 nonplused on 07.18.11 at 11:01 pm
For those of you (probably all of you) who think I am being a little stupid about the old nuclear technology, a video. I cannot confirm it is legit, but they are popping up all over the internet especially sourced from Japan. This one is from Lake Louise Alberta.

http://enenews.com/video-1-68-%c2%b5svhr-detected-in-canadian-rain-water-sample-geiger-counter-display-reads-dangerous-radiation-background

Thanks for the update nonplused. I knew that people on the Coast were inhaling 5 hot particles per day, but not the danger to the Interior, as warned in at this website article on the Seattle fallout:

“What surprised me is that the air filters in Seattle, indicate that the people there were absorbing 5 hot particles every day for the month of April. What does that mean? It means that that hot particle gets absorbed in your lung, or it winds up in your intestines or it winds up in your muscle or it winds up in your bone. It constantly bombards a very narrow piece of tissue. Now we have here a picture of a lung from an ape and there is a hot particle in the lung. And you can see how localized the damage is from that hot particle constantly bombarding the ape’s lung. Now a constant irritant like that your body fights, and most of the time your body wins. Sometimes however, those hot particles can cause a cancer and of course, that is a grave concern. Now you can’t run a geiger counter over someone’s lung on the outside to determine if they have a hot particle. Because those particles, those rays, don’t travel outside the body. They do their damage to the local tissue.
But we know they are there, because the air filter results indicate that they are.”

http://www.fairewinds.com/content/hot-particles-japan-seattle-virtually-undetectable-when-inhaled-or-swallowed

#119 waterloo Resident on 07.19.11 at 11:22 am

Here’s my prediction:
2011 is okay, stocks are flat, homes going up 2-4% per year.

2012 will be a lot like 2011.
and 2013, 2014, and 2015 will be similar to 2011 too.

Finally, by 2016, Mark Carney will raise interest rates 0.25% ONCE. that year homes will go up 10% because people will rush into the market trying to beat the rate increases.

after that rates won’t be going up, they might actually head back down.

#120 Brad K on 07.19.11 at 11:24 am

Toronto market news update –

Average selling price in Toronto in the first two weeks of July ($464,277) is down ~3% over the first two weeks in June ($477,853) and the entire month of June ($476,371). The press release from TREB emphasizes strong sales volumes, but I would attribute this to highly motivated sellers vacating the market.

July is shaping up to be an absolute bloodbath in Toronto – this data may be the canary in the coal mine.

source: http://www.torontorealestateboard.com/consumer_info/market_news/index.htm

#121 Devore on 07.19.11 at 11:27 am

http://www.cbc.ca/news/canada/ottawa/story/2011/07/19/interest-rate-decision-canada-july.html

Tuesday’s rate decision provided further lift for the Canadian loonie. The currency traded at $1.053 US in mid-morning, up from Monday’s Bank of Canada close of $1.043 US.

But I thought higher rate was supposed to make the loonie stronger and hurt exporters. Are we in twilight zone where the loonie goes up no matter what?

The bank indicated rates will be rising shortly. Hence the dollar’s advance. — Garth

#122 Peakoilist on 07.19.11 at 11:45 am

#82 JohnnyB…that’s a big statement..let’s see some evidence..earlier you stated that the US debt ceiling is just political, not fiscal..All the financial mainstream pundits are trumpeting that these days..denial or intended fleecing..”make it simple so it sounds like business as usual so they won’t panic and destroy my wealth”.. thx JB :)

#123 JohnnyBravo on 07.19.11 at 11:47 am

#111 DM in C on 07.19.11 at 10:55 am

Thanks for the link. I will read the article as soon as I get a chance. Looks interesting.

#124 dd on 07.19.11 at 11:54 am

#110 dd

..Sure hope you are taking those profits. — Garth

Going with the trend. Fundamentals of holding metals actually are getting better (worse for the economy). When there is a plausable plan put forward by the powers that be then the selling starts. And it starts when governments actually let banks and countries fail.

Bears make money. Bulls make money. Pigs get baconized. — Garth

#125 Devore on 07.19.11 at 12:07 pm

#8 David

So your average purchase price is $9.22, and you’re down to $2.16, and now at $2.00 as I check the ticker. But guess what, your dividend rate is still 7%, so don’t go patting yourself on the back just yet. It is 30% only for today’s buyers. It is 20% for buyers like smoking man, who jumped on the cheap stock a few weeks ago.

It’s definitely a speculative play now. They’re trying to make the transition to digital, pay down debt, start new projects and increase income. The dividend payout is around 70%, which is pretty normal, but if they need more money I could see that juicy 30% getting a shave. They’re not in terrible shape, but clearly have to turn things around, long term.

#126 Peakoilist on 07.19.11 at 12:12 pm

Garth said, Bears make money. Bulls make money. Pigs get baconized. —you meant PIIGS, right? sorry couldn’t help it.

#127 Sumadartson jr. on 07.19.11 at 12:12 pm

#121ST

Canadian Dollar Surging!!!

Canada becomes Next Switzerland and if rates go up, Canadian Dollar becomes Next World Currency too.

Rich foreigners moving to Toronto and Vancouver.

#128 Burnt Norton on 07.19.11 at 12:19 pm

#76 Not 1st on 07.19.11 at 8:28 am

So what? Even if all this is true, doesn’t that bode well as evidence of what effort has gone into righting the ship?

Reading doomer comments here for almost 2 years now (ah, remember Knucklewalker’s black undersea dragons from GOM spill?). IMO most of these comments reflect more about fascinating aspects of human psychology than anything to do with global economic outlook.

I suspect that the prevalence of doomer comments here relates to a degree of sample bias aka fearful, frustrated and comforted by anonymity of expression.

It is also classic Eros-Thanatos psychology.

http://en.wikipedia.org/wiki/Death_drive

Thanatos: End of days. Eros: Irrational exuberance.

How about balance? Cautious optimism. Healthy scepticism. Call it what you will.

Also linked to this topic is that of the goal. The master plan. Retire at 45 and golf every day? Cool. Sounds like fun. Maybe even meaningful if you are passionate about golf. Not likely to be truly meaningful or truly satisfying in and of itself. This was my take home message from the “grow up” response to the guy worth $1.7M from the other day.

To each their own though. We each define our own happiness to some degree, depending on how honest we are willing to be with ourselves.

In any event, thanks to Garth and all the commentators for the ongoing learning and laughs.

#129 dd on 07.19.11 at 12:29 pm

To all …

“Since 1980, the debt ceiling has been raised 39 times. It was raised 17 times under Ronald Reagan, four times under Bill Clinton and seven times under George W.”

Nothing new here.

#130 garrulous squirrel on 07.19.11 at 12:30 pm

Seriously…..I’m going to piss myself laughing if Carney keeps up the charade that ‘core’ inflation is still below 2% across the country.

Bwahahahahahahahahahahahahahahahahahaha!!!!!!

http://business.financialpost.com/2011/07/19/loonie-soars-on-hawkish-tone/

Tell this BS to anyone who has to feed their children.

#131 JohnnyBravo on 07.19.11 at 12:34 pm

#121 Peakoilist on 07.19.11 at 11:45 am

Not sure what you’re asking me. The “make it simple…” quote did not come from me. I’ll be happy to respond if you please clarify.

#132 dd on 07.19.11 at 12:34 pm

#121 Devore

…But I thought higher rate was supposed to make the loonie stronger and hurt exporters….

If bank A pays more interest than bank B more money will go into bank A. This is all about parking billions overnight for a few % points higher.

#133 disciple on 07.19.11 at 12:41 pm

#99 Bravo, JohnnyBravo…

You got it…When will the creditors lose confidence? Fact is, they already have. Only the Fed is buying up Treasuries. There is a “hostage” crisis, indeed.

War is the only and final solution to a new beginning. It is staring us in the face, only it is at the end of the tunnel where it can see us, but we cannot yet see it. Perhaps our eyes are closed?

Before my untimely death many decades from now, I fully expect that Chinese army boots will one day be washed on the banks of Lake Ontario. And Russian, Japanese, Turkish, Israeli, etc…pick your poison.

Where is Canada in the world military rankings?

http://www.globalfirepower.com/

#134 Ultraumatic on 07.19.11 at 12:47 pm

#104 The InvestorsFriend Everything that the world consumes, we produce. (except natural resources).

The comment in parenthesis invalidates the rest of your happy-go-lucky and naive post. You’re right in that incomes are rising in the global south (while ours are being depressed–is it too far-fetched to think that every global worker will be worth the same wage one day?)

However the cost of 7-9% growth in GDP per year in countries like China, India, and Brazil, is quite literally life on earth. The one thing this blog always fails to address (and admittedly, this topic is beyond its purview) is climate change. How, in a world with finite resources, can we depend on a system that relies upon infinite growth?

Even if economic conditions do improve, things are still getting worse with respect to climate change.

#135 foolsrushin on 07.19.11 at 12:48 pm

“Times have changed, sort of, but a platoon of the nutbars hangs on. Clad only in spears and Depends, they stomp across this blog warning of systemic financial collapse, banking insolvency, sovereign debt defaults, hyperinflation, mayhem, currency debasement and the collapse of America. Must suck to be them. Because none of this will happen.”

Its different here. It will be different this time. Now where have I heard that before?

Not from me. — Garth

#136 Steven Rowlandson on 07.19.11 at 12:49 pm

Ordinarily vultching victoria might be something to do but it is entirely possible that one might need to invest in a rad suit and geiger counter first.

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

#137 jason gouin on 07.19.11 at 12:53 pm

http://www.realtor.ca/propertyDetails.aspx?propertyId=10249875&PidKey=-1831446413

This a good example of a good rental in Windsor, almost 10% return

#138 Junius on 07.19.11 at 12:56 pm

#134 Ultraumatic,

Good post. There is a fine line between being an optimist and being naive. He is no Investor’s Friend if he is wearing rose coloured glasses.

I agree that climate change is a huge headwind we will have to deal with on many levels. Add peak oil, changing demographics and the world’s debt problems and things are not going to be easy.

There are opportunities in the future, for sure. There are lots of trends to follow and great lives to be led. However you aren’t going to find them with blind optimism.

#139 disciple on 07.19.11 at 12:57 pm

#123 dd…

The government by edict, can force you to sell your gold for a nominal price, say $300 per ounce, at any time, and without warning. They can then sell it back to the open market at a profit. You shouldn’t have more than a fifth of your net worth in shiny rocks. Gold is not wealth. Brush up on your history. Scratch that…just read one of my posts from last week…

#140 betamax on 07.19.11 at 1:08 pm

#43 Not 1st: “So lets use some logic…”

Good logic and well said.

#141 disciple on 07.19.11 at 1:09 pm

#134 Utraumatic…

The Earth is growing in size. Hopefully ditto for your awareness and that of your peers. Check this out:

http://www.youtube.com/watch?v=BIgTRMBZ1Jk

That is not to say that resources are infinite, but climate change is a natural process not a man-made one. I would like to compare humans to flies on the back of an elephant but that would be exaggerating. The Earth tolerates us as much as it does massive solar storms from the sun and will be here long after we are extinct.

#142 betamax on 07.19.11 at 1:12 pm

#72 disciple: “This is the real reason one of the Jesus twins was assassinated in London at the turn of the last millennium.”

Thanks for clearing that up. I had assumed that the Jesus twin’s death was an accident when he got hit by that bus after his tinfoil hat blew off and he ran back to pick it up, but now I know the truth.

#143 Junius on 07.19.11 at 1:15 pm

#127 Sumardston Jr.,

You said, “Canada becomes Next Switzerland and if rates go up, Canadian Dollar becomes Next World Currency too.
Rich foreigners moving to Toronto and Vancouver.”

Nosty has returned.

Switzerland attracts the wealthy because of its tax policies and private banking system. Canada is not an alternative to that.

More rich foreigners are moving to London, New York, Paris, LA, etc. You are dreaming if you think rich immigrants are going to “save” our economy. There is study after study that shows that the trickle down impact is much less than expected from wealthy people. It is a red herring.

#144 Utopia on 07.19.11 at 1:18 pm

#120 Devore

“Are we in twilight zone where the Loonie goes up no matter what?”
____________________

We are. The US dollar is still weakening against all other commodity currencies and the Swissie. Increasing rates now would only have magnified that trend. Although I would have preferred a small rate increase to wake this country up, I can certainly understand why the Bank of Canada would hold steady here.

The future is less certain than today though. Rates will definitely rise in the future. And why would they not? In case anybody has missed this, rates are on the rise in most of Europe, Africa, Asia and elsewhere. Just look at Australia and China as examples.

Look at what the bond markets are signaling for the PIIGS. Look at London itself, the debt struggles there and the prospects that lie ahead.

We live in a dream-world-fantasy here in North America that is totally disconnected with what almost everyone else on the planet is now experiencing.

Hard to imagine it will last. The big worry we really face is debt hardship as our payment schedule steepens and deepens. Every percentage point increase in rates takes a few extra kilos of flesh out of the system.

Less money for program spending, less money for political initiatives, less money available to pay down past obligations, provide new investment, be directed towards much needed consumption and last….less to tackle the deficits and debts themselves…..

It is easy to understand why being in hock to your eyeballs just as rates begin to rise makes for a nasty economic cocktail. It hurts growth prospects at exactly the point we most urgently need fresh growth. It ties the hands of government to intervene on behalf of the wider economy too.

The banks know this of course. They have prepared.

“Joe Bloke” seems to be lost in the woods though and instead of heeding the obvious good advice to pay down personal debts, instead he ramps up spending and borrows like there is no tomorrow. For housing for Gods sakes. Pack of fool Idiots!

There is no tomorrow for those fools.

#145 City Slicker on 07.19.11 at 1:19 pm

#71 fancy_pants on 07.19.11 at 7:51 amThe only reason companies are still making $ is b/c consumers continue to spend what they don’t have.

A slight turn of the taxes wheel and a slight tightening of the spending wheel and voila! company revenues/profits go south as people’s pockets dry up a little more. Credit expansion cannot grow exponentially forever in real terms. At some point inflation takes over or the house of cards falls.

You are allowed to suggest the doomers have their heads in the sand but definately not the bears – the bears have a good grip on reality.

As I wrote, corporations learned stuff in the financial crisis. Most citizens learned nothing. Investors with a balanced, diversified asset allocation, high degree of liquidity and active management are positioned to benefit from the ensuing volatility. I fail to understand why this is such a hard concept to grasp. — Garth
———————————————————-
Consumers spending what they don’t have, and good jobs being shipped elsewhere in the world for a fraction of the salary also explains corporate earnings. The rest finding part time work at Macdonalds and Walmart get to live on credit and debt payments.

#146 Utopia on 07.19.11 at 1:26 pm

#133 disciple

“#99 Bravo, JohnnyBravo….”
—————————————–
I second that Disciple. Lots of sensible and rational commentary coming from the new guy. Good to have you here Johnny. Keep on posting.

#147 Peakoilist on 07.19.11 at 1:33 pm

#131 JohnnyBravo on 07.19.11 at 12:34 pm
sorry, I wasn’t quoting you on that one, although it sounded that way, not sure what the H I was trying to ask now..I think I should get off here and not return until tomorrow or the next day :-)

Do have stats that compare the fiscal situation that the US has, compared to Zimbabwe or Weimar Germany? (the amount of QE, debt to GDP comparisons, etc, that would be interesting, but probably difficult to find) thx

#148 arctodus on 07.19.11 at 1:41 pm

I would hazard that the “non doomers” out there simply have never,…ever,….seen what bad can really be.

I surmize many born and raised of soft western lifestyles, told stories of “manifest destiny” and ever rising socio-economic status simply cannot ever fathom things simply falling apart.

When I hear sage voices (this is you Garth) waxing eloquent about “experience” and how recovery (or even muddling through) is inevitable I smile sadly.

Fantasy land for weak thinking…or maybe just classic cognitive dissonance……if we think it ain’t so…it ain’t….right??

Utter tripe….net energy peak 2004-2005 (EROEI)
Financial collapse beginning in 2006
Commercial collapse currently in the midst of (western economies generally)
Social collapse beginning sometime last year generally speaking.

The millstones of the peak energy world are starting to grind finer and finer every day. As we now start on the decline of the modified hubbert curve you will see just how utterly useless are the ponifications of economists, politicians, lawyers, employed government lakeys, cornucopian blog dogs, the parasites clinging to the collapsing edifice of the human enterprise.

Reality does not care if you do not want to face it. Reality states that there are to many of us monkeys, wanting to much, in a world with resources at an end…..and no…cornucopian fantasies of abiotic oil, endless human ingenuity, and star trek transporters will not save us.

Most are simply sheep riding the conveyer into the slaughterhouse……

#149 arctodus on 07.19.11 at 1:57 pm

#128: Freud was full of sh…, you should know that by now.

Re comments about GOM oil spill

The “black dragon” is alive and well in the GOM..perhaps curtailed a bit but I would encourage you to review the current ecologic/economic status of the GOM before thinking the dragon has met any kind of serious demise.

It fascinates me that even when presented with overwhelming evidence that many monkeys simply chitter on….the leopard would never sink it’s fangs into “my” head…it will always be the dumb schmuck beside me?

May you all retire at 50, golf till you stroke out, may your world of never ending comsumption be eternal, may you make tons of profit by being “smarter” than the next guy……hell….maybe you can carry this on forever.

I remember reading a quote by an emergency room physician who had been slammed after an article he wrote by the famed Ray Kurzweil. Kurzweil had given the physician what for, over advocating a certain acceptance of death as a natural part of existence. Ray “I’m going to live forever” Kurzweil felt that the physician was copping out.

The physician responded (I think it was in Discovery magazine) simply by stating that while he would never begin to criticize Ray’s impecable scientific qualifications he was sure of just one thing…..

That Ray Kurzweil was going to die someday in the early 21 st century…fantasy thinking not with standing…

I agree with that physician.

Things ARE getting worse and they will continue to get worse…because they simply cannot get better anymore.

#150 dd on 07.19.11 at 1:57 pm

#139

…The government by edict, can force you to sell your gold for a nominal price, say $300 per ounce, at any time, and without warning….

And that is what they are doing with fiat. 100% guarannteed. Brush up on your fiat education.

#151 Smoking Man on 07.19.11 at 1:57 pm

Read it and weep bubble heads

Three weeks ago when I said media would be trying to cool the market, I suspected it was on fire…. I was so right.

Carneys not fooling anyone anymore, the herd knows his cahonas are tied. Big push in prices till the bottom falls out in 2014

Read it and weep bubble heads

Toronto Real Estate Sales up 35% Mid July

http://www.movesmartly.com/2011/07/toronto-real-estate-sales-up-35-mid-july.html

#152 dd on 07.19.11 at 2:02 pm

#139 disciple

…You shouldn’t have more than a fifth of your net worth in shiny rocks…

Stick to you “rule of thumb.” Having wealth concentrated into a couple of asset classes is not a bad thing. It works for some and not for others.

#153 dd on 07.19.11 at 2:10 pm

#105 dd

…I was buying in March of 2009 (as recommended on this blog), so these have been great years. — Garth…

Sure Garth. I really think a lot of people where probably not in cash in 2007 or early 2008. The dow has gone sideways for 10 years. The TSX – just now reaching the highs of 2007. Of course in real terms … down.

‘A lot of people’ missed the opportunity? Duh. Do what most people don’t, and benefit. This is why I’m doing the opposite of what most on this blog today are parroting. — Garth

#154 Two-thirds on 07.19.11 at 2:12 pm

So, corporate profits are currently high. Agreed

Why? is the real interesting question.

If profits come from corporations sitting on loads of cash – which is not a hotly contested view, then would this not mean they foresee a rough patch ahead?

If corporations expected growth ahead, would they not preferentially reinvest their profits to expand?

Instead, we see them hoarding cash and delaying hiring. Some have so much $$$ that mergers and acquisitions have started accelerating in many sectors.

In the above context, current profit levels are not a good sign, but rather a troublesome one.

Incidentally, it is rather ironic that Garth, generally labelled a “doomer” by most outside this blog is taking fire today from those within for not being doomer enough for it!

#155 jess on 07.19.11 at 2:12 pm

efgbank

The Latsis commercial empire has been closely involved with German firm Hochtief in both constructing and managing Spata airport. Through Hellenic Petroleum, one of Greece’s largest oil companies – in which another partner is the Russian oil giant LUKoil – it holds the contract for all fuel supplies to the airport, through an EU-funded pipeline built by a Latsis engineering company. Hellenic Petroleum, according to its own accounts, in 2000, paid $612 million to acquire a 34 percent interest in the Athens Airport Fuel Pipeline Company.

A Latsis company also has a 50 percent stake in the huge contract for running most of the airport’s “ground-handling” services – almost everything except control of the aircraft themselves.

Latsis’s development arm, Lamda, is a partner with Hochtief in a series of vast, part-EU funded motorway projects across Greece, as part of the “Trans European Network”. And between 1999 and 2004, during the time when Spata airport was completed, the commission last week revealed that the giant EFG Eurobank Ergasias banking group, controlled by Latsis family interests, held an exclusive contract to handle all EU structural funds coming to Greece, totalling €28 billion.

The family’s largest holding is its EFG Bank European Financial Group in Luxembourg, a banking conglomerate with two main banking holdings that operate in many jurisdictions. The Group holds over 40% of EFG Eurobank Ergasias SA listed in Greece as well as over 40% of EFG International listed in Switzerland.
http://www.efgbank.com/

The Turner Corporation Announces Merger With HOCHTIEF AG
NEW YORK, August 16, 1999 – The Turner Corporation (NYSE: TUR) announced that it has entered into a merger agreement with HOCHTIEF AG

#156 Lead Paint on 07.19.11 at 2:15 pm

Interesting to see how many jabs Garth is taking today. While he initially drew a crowd with doom and gloom predictions, the crowd is no longer satiated with a tempered outlook, and are turning on their dear leader.

Reminds me of Annie Hall :
First older woman: “Boy, the food at this place is really terrible.”
The other one says, “Yeah, I know, and such … small portions.”

The world is changing, not ending (even the US):

“American factories are booming. Industrial production is the strongest it’s been in a quarter century. Five of the 10 biggest companies on the Standard & Poor’s 500-stock index earn money from making things. Manufacturers are on track to increase their payrolls this year for the first time since 1998.

The renaissance in U.S. manufacturing is the result of something that is taken for granted in countries such as Canada, Germany and South Korea: exports.”

http://www.theglobeandmail.com/report-on-business/economy/manufacturing/resurgent-us-factories-find-new-life-in-export-market/article2095282/

Having said that, the Tea Party nuts in the congress scare me, they will happily ruin the economy to try and make reality fit their ideology. My business is cutting back expenditures until we see how this plays out.

#157 jess on 07.19.11 at 2:22 pm

Canada Inflation Rate May/2011 3.70 3.30 =

Japan is by far the largest international market for Chinese labour, valued at around US$1.5 billion in 2009, three times the size of the second largest market in Singapore. The vast majority of Chinese workers in Japan are employed as “trainees” under a scheme first devised by the Japanese government in the 1980s to address its domestic labour shortage. China, with a huge labour surplus, has been able to meet Japan’s demand for trainees through the development of labour export companies which can place large numbers of workers abroad. It is estimated that prior to the disastrous earthquake and tsunami of 11 March 2011, after which many trainees left, some 80 percent of the more than 150,000 trainees in Japan were from China.
new research report by China Labour Bulletin examines in detail how this conveyor belt supplying cheap Chinese labour to Japan developed over the last decade, and shows that while Japanese employers and Chinese placement companies may have benefited from the arrangement, the vast majority of trainees have not.

Trainees have to pay excessive fees and commissions just to get the job and, once in Japan, they are often forced to work long hours for low pay in frequently hazardous conditions. Their freedom of movement and association are severely constrained and the accommodation and food provided by their employer is often substandard. Many have their wages deducted at source and kept in a bank account controlled by their employer. Moreover, trainees are often forced to lie to Japanese labour inspectors about their wage levels and working conditions. Chinese trainees in Japan usually put up with such conditions because they risk retaliation from their employer and their placement company if they file a complaint.

The report provides a historical overview of the laws and government policies related to the export of Chinese labour to Japan, explains the process by which Chinese trainees are recruited and the fees they have to pay, provides a detailed picture of trainees’ living and working conditions in Japan and analyses the legal and practical options trainees have if their rights are violated by their employer or the Chinese company that placed them with that employer

http://www.clb.org.hk/en/node/101071

#158 disciple on 07.19.11 at 2:28 pm

#150 dd…Agreed. Fiat paper debt currency is not wealth either. So where does that leave us? You have not thought it through, my friend. You did not consider that politics can trump logical economics. The mind is mightier than the sword. And there are many like you on this blog, that greed has its grip on. You have misidentified the enemy. It’s time to advance your doomer rhetoric with some spiritual acuity. Join me.

Hoarding gold will not save you from yourself. YOU are the evil that you eschew; therefore, you cannot escape it, until you pass on, perhaps, but even then…hmm…

You see, it is hard to understand, but “money” is people. No people, no money, no wealth. As long as there are people, there will be plenty of money to go around. If you are productive in either labour or technology or both, you need not worry. Even the sparrows in the field are divinely taken care of, how much moreso YOU?

I know that this is what the Investors Fiend is trying to say as well, n’est-ce pas?

#159 Imstupid on 07.19.11 at 2:34 pm

Hi Garth

I was wondering what the vacancy rate is in the grater Toronto area. This is for high rise and low rise housing units? Condos, apartments, multiple- unit homes and sfh used for rental income? I think this is the only issue you have not tackled it might be the cannary in the coal mine. I don’t have the info and can’t seem to find it, so if you could comment on it I would appreciate it.

Thanks

#160 Peakoilist on 07.19.11 at 2:39 pm

#148 arctodus on 07.19.11 at 1:41 pm & #149 arctodus on 07.19.11 at 1:57 pm
Very well written.. A good quote I read a while ago went something like, “most people can’t handle too much reality”.
The victims of the Japan tsunami didn’t think that it was coming. they knew that one can strike 1 time out of 100. They didn’t believe it until they saw the wave coming..sadly it was too late for most.

#161 disciple on 07.19.11 at 2:40 pm

#142 betamax…

And the truth will set you free, brother…
Thomas means “twin”. Thomas, the brother of Jesus, ended up in Kashmir, India, where his tomb still lies, undisturbed until recently when the Vatican decided it needed to board it up from increasing numbers of visitors. His twin brother, let’s call him JK, faked his own death by crucifixion to escape the Roman and Sanhedrin authorities and returned to his Celtic ancestral home. Enter Dan Brown.

#162 crashing yuppy on 07.19.11 at 2:44 pm

Its over people. I have been reading this blog since its inception and prices have only gone up. Like many on this blog, I am patiently waiting for some form of correction. F and MC are determined to pump this thing until the bitter end and I cant see an end in sight.

People just arn’t afraid of debt anymore. I honestly dont think younger people expect to ever pay off a house and just to kick the debt down the road and live for the moment.

Guess its buy now and join them or rent forever.

You’re in Vancouver, right? — Garth

#163 chris on 07.19.11 at 2:44 pm

Just watched global TV on H.A.M
Canadian company is in Hong Kong,Bejing and Shanghai advertising Vancouver to the chinese and apperantly what we’ve seen so far as asian buyers here is just the tip of the iceberg as Vancouver prices are a bargain and there are countless multiple offers on pretty much all high end properties in West Van.
I sure looks like the orgy is not over yet, if anything its just begening.
Canada is for sale folks, any takers out there?
Will even include our pretty wifes for all your dirty needs to buyers with deep enough pockets,,,lol
What a shame that there are no limitations on foreign buyers in this porn addicted nation.
Just like a hooker,highest bidder takes all.
Enough said.

#164 Junius on 07.19.11 at 2:52 pm

#144 Utopia,

Good post. The confusion seems to be about the difference between doing absolutely well and doing relatively well.

Relative to most of Europe the US and Canada look great right now. However that doesn’t mean that things are good in absolute terms. We have the same problems as they do and still have tremendous overlaps in our economy. We cannot escape a similar fate.

#165 The InvestorsFriend on 07.19.11 at 3:05 pm

Junius at 114 said in response to me:

#104 InvestorsFriend,

You said, “Consider for a moment that it is not possible for the world as a whole to be in debt. No money was borrowed from outer space. Nor was any borrowed from the unborn since that is impossible.”

Are you serious? How can you possibly say this? The entire world is in serious, deep debt problems. It is an international epidemic from Greece to the municipalities of China.

How could you have missed this?

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

Junius what you miss is the obvious fact that the world as awhole cannot be in debt. One man’s (or country’s) debt is another man’s (or county’s) savings.

Fundamentally in the Real economy debt means that one party had a surplus of something real like food or energy or cars and lent that to another person. Debt allows all the production of the earth to be used now rather than stored up by rich people.

The first debt was when a starving caveman borrowed some meat from another caveman and promised to pay it back and more later on.

Debt was good then (as long as repaid) and it is good now (as long as repaid). Debt prevented starvation then and now. Although these days it also prevents going temporarily without a flatscreen TV for the simple want of cash.

#166 JohnnyBravo on 07.19.11 at 3:09 pm

#147 Peakoilist on 07.19.11 at 1:33 pm

I don’t think you need to compare stats like GDP or debt-to-GDP in order to understand the US today is different from Zimbabwe or Weimar in 1923. That said, Jens O. Parsson wrote a great book called Dying of Money that compares the Weimar hyperinflation to the great inflation in the US in the late ’60s and early ’70s. An interesting read.

#167 AG Sage on 07.19.11 at 3:27 pm

From last thread
>#149 Deano on 07.18.11 at 9:41 pm
>142 AG Sage…I bought my last house here around that time and just sold it to move into this place. Bought at 137 and sold for 158. Having said that, the place was an absolute dump when I bought it (toilets in the backyard…crap everywhere, paint peeling etc). I put my own sweat equity into it and 5k. I didn’t make out like a bandit, but I got my money back. If I hadn’t done as much to it I might have gotten 142ish? Bubble?

Doesn’t sound like it at first blush.

When you are dealing with improvements, the house’s rank in the neighborhood starts to matter. Was it the most expensive house to start with, in the middle, or at the bottom? A neighborhood may not bear much of any price gain on improvements if the house is already at the top of its immediate market. In that case any gain above inflation could be from a credit bubble, but it doesn’t sound likely from what you provided.

#168 JohnnyBravo on 07.19.11 at 3:35 pm

#146 Utopia on 07.19.11 at 1:26 pm

I’m the commenter formally known as JohnnyBGood (BGood = Bravo) A previous discussion with my paisan, bigrider, brought out the Italian in me. I honestly thought the regulars would make the connection. My fault. Not trying to deceive anyone. But thanks for the compliment.

#169 Junius on 07.19.11 at 3:42 pm

#151 Smoking Man,

You said, “Read it and weep bubble heads.”

Who is weeping? Who cares if people in Toronto or Vancouver continue to inflate the bubble?

So called bubbleheads are playing for the long term. In the meantime if the pumpers want to play musical chairs with the other greaterfools that is their business.

#170 clem on 07.19.11 at 3:44 pm

120 Brad K on 07.19.11 at 11:24 am
Toronto market news update –

July is shaping up to be an absolute bloodbath in Toronto – this data may be the canary in the coal mine
—-
and by bloodbath you mean, increase in sales, average price and median price?

#171 Junius on 07.19.11 at 3:57 pm

#158 Investor’sFriend,

You said, “Junius what you miss is the obvious fact that the world as awhole cannot be in debt. One man’s (or country’s) debt is another man’s (or county’s) savings.”

You should change your name to simple Simon.

There are simply not enough dollars, drachma or Euros to cover the world’s debt. Most of the debt is paper debt. The fact that is sits on balance sheets somewhere doesn’t make it will ever be “real” and certainly doesn’t mean it will ever be repaid.

I guess you missed QE1, QE2 and the entire Euro crisis. We live in the era of “extend and pretend” in regards to debt. No one has the political will to stand up the banksters and tell them the debt cannot all be repaid.

What do you think is happening in Greece, Spain, Ireland, Iceland and these other countries? We have reached the endgame where someone is going to have to take the losses – either the banks or the people.

#172 betamax on 07.19.11 at 3:58 pm

#161 disciple: “Enter Dan Brown.”

I bow to your encyclopedic knowledge of fictional events.

I’m encouraged by your example to learn ‘Klingon’ as a second language. Much thanks.

#173 Brad in Cowtown on 07.19.11 at 4:06 pm

woohoo!
I finally got censored (for no valid reason) by Garth. That must mean I’ve reached a certain level of quality commenting.
All for suggesting trailing stops are an excellent tool for protecting profits rather than arbitrarily selling PMs as Garth has suggested.
Shame on you Garth. Considering some of the garbage you allow in the comments, you censor a legitimate trailing stop strategy? Finger wags at the very least.

Couldn’t care less about your trailing stops. You were bleeped for comments on me. — Garth

#174 Thoughts on 07.19.11 at 4:07 pm

What is it about doomer, gold-bugs and conspiracy theories? Jesus pulled an Elvis, Jesus was Celtic. The Thule society still operates. The Germans colonized the moon!

Nordic Mysticism died with Himmler my friend.

DEAL WITH IT.

#175 Mr. Lahey on 07.19.11 at 4:22 pm

Garth, while I and the boys in the park (ok maybe not Ricky and Cyrus) generally agree with what you say, you are not presenting a totally fair picture both in what you have espoused in the past 3 years and your current outlook. If I recall, you had a site which offered doomsday, tin foil hat paraphernalia to survive the coming armageddon. Many on this site have really missed out on a large capital gain in properties (not I nor the boys in the park, we all kept our trailers as it is cheaper to buy a $20k trailer than to rent some SFH in the city but I digress…) because your logic on a housing meltdown was predicated on Canada following the US housing meltdown and it hasn’t. As for your current sanguine outlook for corporate profits and ever escalating stock markets, we in the park do read others and they don’t all have your rosy outlook. Any reader who wants to read what Randy, Ricky, Julian, Bubbles and myself glance at each quarter here you go. The author is a one Albert Friedberg, trader extraordinaire, and owner of the Friedberg Mercantile Group. Enjoy fellow readers, Randy just called and said Ricky is up to no good again. Just remember, the economic shit hawks have not left, they are circling and getting ready to pounce…

http://www.friedberg.ca/webpieces/reports/quarterly/Second%20Quarter%202011-%20Quarterly%20Report.pdf

#176 Rocket Boy on 07.19.11 at 4:23 pm

“Your age or mine has nothing to do with it. If a systemic collapse were to grip us, we’d be in it already. 2008 was as close as you’ll ever come, and crisis was averted. — Garth”

O–H G-Man, get real, are you serious with that statement because I just lost alot of faith in your opinion(S) if you make statements like that.

This is a new world order – has there ever been a time in man’s history where countries have had such high debt loads and continue to add on. My case in point, the all mighty U.S of A – has no where to turn but credit to substain itself for the foreseeable future. They can’t even come to grips that to even make this debt managable will require very painful cuts that no one will accept.

Europe is just kicking the can down the road, Japan will have to deal with its aging population and mountain of debt + the radioactive fallout that everyone seems to have forgotten about.

2008 will be known as the starting block to some very brutal economic developments in the next few years. Garth, come on, why sugar coat the facts – I start to wonder what all this was about if you make such comments…who in here believes we averted a financial mess and are moving forward. 43 million americans receive food stamps. Thats 1 in 7 that would otherwise go hungry if it wasn’t for handouts – an true unemployment rate of 22% and a industrial base that has been wiped off the map. Housing and the service sector is all what holds that country together (and we all know what happened to housing, let the other shoe fall and its lights out).

We haven’t seen nothing yet.

#177 garrulous squirrel on 07.19.11 at 4:26 pm

Prices will not break…they can only go up. But………………the reality is that you are not making any money. prices are going up because the unit of exchange is going down. Real estate has doubled….so has everything else…where’s the ‘profit?

Since 2000, when this ’emergency rate plan went into effect and the floodgates were opened for the massive paper money printing program. ( Gee, were the dot coms really that important?) Since then everything from taxes to toilet paper has quadrupled in price…..even gold….whats the big mystery.

Housing prices are all and only about government revenues……..the higher the value…..the bigger the tax bill.

Too bad private sector wages have been left out of the equation……thats why persoanal debt is at historic highs. people don;t borrow just to pay mortgages…they borrow to eat. The average Canadian can’t afford to feed himself from paycheque to paycheaque and has to put additional allowances on credit to make ends meet. Credit..like everything else has ballooned.

So…if you think that real estate is the canary in the coalmine….think again….that fat bitch won’t sing until we have housewives pimping their children to civil servants driving Bentleys. Oops……already happening.

Carney is jawboning a rate hike…won’t happen…the increases in property taxes is just too sweet a deal for local governments. Did you think that real estate is differant?

When the money supply doubles and triples it makes every previous dollar in circulation a little less valuable…get it?

#178 Herb on 07.19.11 at 4:28 pm

With to-day’s hot topic, it’s time to ponder reality imitating art:

http://www.youtube.com/watch?v=5jmuhZY2mgs&feature=related

#179 Willie wonk on 07.19.11 at 4:32 pm

“So what about bankrupt America? For sure, housing’s still a disaster and unemployment’s just as bad. But this will change over time. ”

Why, oh great font of vapid biliousness? How about backing up a statement like that with some sort of reasoned argument.

#180 Bill Grable on 07.19.11 at 5:00 pm

Got rid of the spear and loincloth – but I still feel better when the AK is in the underpriced rental. It is hard not to get freaked if you ‘buy’ the latest hysteria.
You would think that a wrinkled veteran of a certain media would be calm and rational – but Garth literally had to talk me outa the sniper tower.

Great post today.

Rupert Murdoch phoned and I have passed along Mr. Turner’s e-mail addy.

#181 The InvestorsFriend on 07.19.11 at 5:02 pm

Junius at 171 said:

There are simply not enough dollars, drachma or Euros to cover the world’s debt. Most of the debt is paper debt. The fact that is sits on balance sheets somewhere doesn’t make it will ever be “real” and certainly doesn’t mean it will ever be repaid.

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

Hey everyone go to your banks and credit card companies now and tell them that you are not going to re-pay any debts (especially not unless they lend you new money to pay the old debt). But tell them the debt you owed was only paper money. It was created from thin air and we all know there was never any real intention that it get re-paid. Tell them Junius said it was OK.

Also Junius, the beef jerky is on sale at Costco. Be sure to pay for it with American Express and then head for the hills. Joke’s on American Express as you will not re-pay.

#182 randman on 07.19.11 at 5:09 pm

Soooo….

Conversation with a Private Mortgage broker yesterday
Over 15 years in business in Vancouver
Conversation was off the record…..

He has been developing a second career out of RE business

Is making money hand over fist right now but everyone is fighting hard for their share of the lucrative mortgage pie…

He cannot believe what is happening in Vancouver market..

Is expecting a monumental bloodbath when TSHTF

Most clients have barely any cash flow or savings

Complete unpreparedness for a rate hike,or black swan event that is coming!!!

Doesn’t expect to have a job when it happens….

Say’s Chinese overseas market is only about !0,000 in all of Canada

Buying only in certain areas

Not enough to prop up a collapse

As an aside has a friend in Kelowna who is an agent

Last year income $300,000..this year $15,000…I wonder if it’s D.A.?

#183 Willy H on 07.19.11 at 5:16 pm

Not sure I share Garth’s bullish outlook on the US. I cannot see any return to the growth spurts of the 1980’s and 1990’s anytime soon. Yes, corporate profits are way up and they drowning in cash. Not surprising, when they have the flexibility to cut payroll expenses by laying off millions while simultaneously preserving their bottom line as revenues shrink or remain constant.

The Chinese and Indian newly minted consumer class is reaching critical mass, replacing the debt-ridden American consumer, the paradigm has changed completely. Asian interest rates are edging higher. Even with all the problems China and India face, they beam with economic confidence, something severely lacking south of the border.

As world resources are stretched (attempting to service this new consumer class), we are witnessing large multi-nationals consolidate their resource holdings taking advantage of almost certain global shortages as American style consumerism sweeps Asia. We are in beginning the stages of the “Age of Scarcity”, it’s not economic doom and gloom, just limp rates of growth in the West where consumers already have everything (even if it’s not paid for!). Tepid economic growth rates unable to deal with unemployment and national debt seem almost certain over the next decade.

Inflation (largely energy-driven) continues to threaten savings and economic growth. The Fed and the BOC report inflation based on fairy tale calculations that make Alice & Wonderland appear fact. Their inflation rates surely appeal to financial advisors as they lower the bar significantly in terms of the returns required to beat posted inflation.

In my opinion the financial crisis of 2008 was simply averted with fiscal smoke and mirrors (the transfer risky incompetent banker assets into the hands of equally incompetent governments and central bankers.)

#184 In Edmonton on 07.19.11 at 5:25 pm

Should the “vulching” beguin here in Edmonton?
Great location houses from $200,000 ish, they were $300,000++ ish a few years ago.

The Real Estate Market in Edmonton is definately going into a depression!

Check this cute little house out for example just west of DT…
http://www.mls.ca/PropertyDetails.aspx?&PropertyId=10888520&PidKey=1634268945

#185 Junius on 07.19.11 at 5:30 pm

#173 InvestorsFriend,

Lots of people have gone to their banks and told them they are not paying their mortgages in the US. Or did you miss the Mortgage Crisis.

Look up the words “default” and “bankruptcy”. Expand your vocabulary along with your mind. You are living a fairytale if you think all the world’s debt will be repaid jerky boy.

#186 Mr. Plow on 07.19.11 at 5:34 pm

#179 The InvestorsFriend & Junius

ZING! Haha Nice.

Watching you two debate this is pretty good stuff.

Junius, I believe The InvestorsFriend just scored one, and the ball is now in your possession.

#187 Burnt Norton on 07.19.11 at 5:36 pm

#149 arctodus on 07.19.11 at 1:57 pm

Thanks – perfect illustration of my point.

#188 Junius on 07.19.11 at 5:37 pm

#183 Willy H,

Great post. I like the part where you said, “In my opinion the financial crisis of 2008 was simply averted with fiscal smoke and mirrors (the transfer risky incompetent banker assets into the hands of equally incompetent governments and central bankers.)

What is scary right now is the rapid rise of more AAA investments on the balance sheets of banks and gov’ts. Of course, it should not be a problem if they are really AAA but we all know how the ratings agencies are gaming the system. We know that many hedge funds and pension funds have requirements to regarding AAA.

It looks more and more like the ratings are being skewed to give this capital a place to invest. Essentially reverse engineering in a world lacking quality investments. See the chart below.

http://av.r.ftdata.co.uk/files/2011/07/AAAratings.jpg

#189 Mr. Plow on 07.19.11 at 5:42 pm

#184 In Edmonton

4 blocks south of 118Ave. You know what kind of neighborhood this is right? Not really west of DT either, kinda north and west right by where the hookers and druggies hang out.

When you say west of DT you should likely be looking in the Glenora area which is west of DT, not in a seedy north DT area by the traintracks and muni airport.

Would cost you this though which is more accurate for west of downtown:

http://www.realtor.ca/propertyDetails.aspx?propertyId=10855514&PidKey=-682617740

You probably still have to wait on that depression. Its not booming, but let’s not jump off the high level bridge just yet.

#190 Mr. Plow on 07.19.11 at 5:44 pm

#182 randman

Your friend sounds like a shithead if he is making money hand over fist while lending to people who cannot afford a rate hike or savings.

You slam DA because he is realtor, but your friend sounds like a real prize him/herself.

#191 Mr. Plow on 07.19.11 at 5:48 pm

#184 In Edmonton

Sorry I gotta beat you down once more, on your link… See the map? That space between 122nd street and 120th street, those are train tracks.

See the area just north, where it says “Edmonton Municipal Airport”? That’s an airport.

Wasn’t sure if you noticed, you seemed to think this was a great “vulching” opportunity.

This property is crap regardless of what the market is doing.

#192 vyw on 07.19.11 at 6:10 pm

#177 and here is side B:

http://www.youtube.com/watch?v=q_qgVn-Op7Q&feature=fvwrel

#193 TurnerNation on 07.19.11 at 6:17 pm

Some bad industry new here:

http://tinyurl.com/3dd5dzo

GMP Capital Inc. (GMP) co-founder Brad Griffiths has been missing since yesterday after last being seen at Ontario’s Lake Joseph north of Toronto, police said.

Griffiths, 55, was seen in the water in distress at about 12:43 p.m. on July 18, the West Parry Sound Ontario Provincial Police said in an e-mailed statement. A motorboat was also seen in the area, about 200 kilometers (124 miles) north of Toronto, moving without an operator.

Several people in boats searched the area without success for the Toronto man, who wasn’t believed to be wearing a lifejacket, police said

#194 Willy H on 07.19.11 at 6:20 pm

Lisa on 07.18.11 at 10:35 pm

… how rotten the fundamentals are in the U.S., the shift in power to China, the unprecedented debt loads held by consumers. 2008 was just the beginning, the first rock on a long rocky road after 20 years of unravelling. History repeats itself in rhymes and echos. It doesn’t have to LOOK exactly the same as 1929 in order to be as
bad.
__ __ __ __ __

Excellent observation.

Paul Krugman asserts:

“Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

“We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.”

http://www.nytimes.com/2010/06/28/opinion/28krugman.html

The causes of the Long Depression (that lasted 65 months in the USA and much longer in parts of Europe) are open to debate. Most center around monetary crisis, post-war debt, speculative financing and stock market crash in Vienna. There are many similarities (and some difference). When you add to this mess the fact that we are taxing the planets resources to the limit (contrasted with 1870’s when we were just beginning to exploit them!) and the unstoppable shift of economic power from West to East ,we are indeed in very stormy uncharted waters. All these factors point to a decade long slump at the very least, in my opinion.

Resource abundance inevitably led us out of the Long Depression of the 1870’s – that world is long gone I fear!

#195 Blog Dog Turn housing Bull on 07.19.11 at 6:21 pm

Garth There is no housing crash. I believed you when you said housing would crash but now I do not. People will borrow until they go bankrupt and Mark Carney knows if he raises interest rates 1-2% Canadians will be bankrupt and thus Canada will be bankrupt. People who are buying houses with nothing down have no intent of paying off a mortgage….ZERO intent and hope prices will continue going higher. I know of two people who tell me they WILL GO BANKRUPT. They LAUGH and when I tell you they laugh I am not joking. Watchtil debt to you part on tv and look at the faces of those in debt. When Gale tells them the debt they have they smile and try not to laugh. You are 100% wrong Garth. I bought into the market last week. My plan is to ride it out and hope for the best. We put down 5% using our RRSP’s. I will pay off the mortgage like I pay off rent. My wife and I have 75K of avalible credit and plan on using every penny before we go bankrupt. We have a plan to leave Canada if worse comes to worse. We will not be leaving empty handed. My wife and I could no long take watching people without money live it up and making more money then actually doing work as homes have gone up in value. She and I are sick of living within our means while others laugh at us. Maybe this is the top now that I bought in. What do I care if I go bankrupt? Now my wife is on board. FU Mark carney for ruining my life but now i will enjoy the free lunch.

#196 Junius on 07.19.11 at 6:24 pm

For all of the climate change refusniks and peak oil doubters comes a movie that tells you they don’t care if you believe or not; green energy is still a better way to go:

http://www.carbonnationmovie.com/home

About time.

#197 vyw on 07.19.11 at 6:39 pm

Excellent post today Garth.
People have counted the USA out in the past. Yes, times are tough – high unemployment, million ‘underwater’ in their homes, and a massive jobs stimulus is needed not an austerity package or QE3. Also banks need to write down the mortgages so people can breathe. But either way, the US will recover. Their debt is $15 Trillion and equal to their GDP; at 7% debt payment per year, that’s $1 Trillion a year to service the debt. Its still manageable but they need to slow the growth of debt and the debt payments.

People holding PMs should also beware that central Govts can (and perhaps will) coordinate a massive sell off of gold reserves to crush the speculators and then buy back in when the price corrects. Garth’s advice is excellent: assess risk, take profits. It’s great for people who bought in over the last 2 years.

Re RE, well this is one area where I agree that numerous markets are already correcting except for Vancouver and Toronto which still in my view have a ways to go. To go to 2005 price levels, Vancouver SFH would have to correct from $900K to $500K, if we build in inflation of 2% over 10 years (2005-2015) = 20%, then the target correction is $600; still about 6-7X income. Calgary has been correcting since 2007 and all markets will eventually follow suit.

#198 Mr Buyer on 07.19.11 at 6:54 pm

In the neighborhood I live in the land costs about $24000 Canadian per 3.3 sq meters and a big house by Japanese standards can be built for around 300 to 350k Canadian. One of these new homes is renting for around $900 Canadian per month (pre Fukushima, prices have held the same post Fukushima). This is in an area with a population density that is small by Japanese standards but would dwarf any found anywhere in Canada. On top of this the unemployment rate is below 5% (less in this area I am sure but I only have national number) with many manufacturers in the area. These rental rates in Canada are insane. People on this blog are throwing around numbers like 2k, 3k and 4k per month. This reverting to mean expectation still leaves a real estate market floating above where it could and likely should be. All these vital dollars to feed the beast of intrest rate payments to the banking sector. I heard people speak of the elephant in the room. It costs double the agreed price for a house. What value do we as Canadians get for that level of cash being siphoned out of circulation only to return in the form of debt (with more interest payments)? This is quite a ‘tax’ to be laboring under. A private entity in effect gets to set a kind of tax rate in the form of intrest payments and utilise its influence to ultimately have larger and larger portions of the economy pay the tax. Of course we always have the option of buying bank stocks and profiting off this cancer. I guess this is where I am supposed to say something like ‘if you can not beat em, join em.’

#199 randman on 07.19.11 at 6:58 pm

“Reading Lawrence Summers in the Financial Times yesterday I came across this statement as his third principle of dealing with the Euro crisis:

“there must be a clear commitment that, whatever else happens, no big financial institution in any country will be allowed to fail.”

And so we have a clear unambiguous statement of the principle of socialism for the rich and powerful, and capitalism, red in tooth and claw, for the poor. Notice that too big to fail has now gone global. Over the past 24 hours this has been sitting out there with no push back or comment from the media. Is it simply an accepted fact that governments around the world — including our own — will now maintain a system where no large financial institution — no matter how corrupt or incompetent — will be allowed to fail?

This while the same financial and political elites demand that all social safety nets be sacrificed on the pagan altar of the Free Market?

Trying to create a world financial system where “no big financial institution in any country will be allowed to fail” is an unsustainable act of hubris and is itself doomed to failure. Doing so while simultaneously casting the poor adrift is shameful.”

Arthur Fullerton

my.firedoglake.com

#200 Mr. Lahey on 07.19.11 at 7:15 pm

Not sure why my previous post is still in moderation Captain Garth. Anyhoots, I have to question your logic with a rebounding USA and dropping Canadian real estate prices. Since they are Canada’s largest trading partner, wouldn’t this be a boon for Canadian business and job creation? By extension, wouldn’t this continue to bode well for house prices in Canada? “Randy, get the car and let’s head over to the Kmart. Bubbles is stealing shopping carts again”. The shithawks they are a circling…

#201 Devore on 07.19.11 at 7:18 pm

#6 mouthagape

I don’t have an opinion either way. Whether “wealth effect” exists or not or what it is called is immaterial to the damage borrowing for consumer spending does to household wealth.

Debt is at historic highs. Conspicuous consumption, vacations, toys, cars, boats, electronics, home renos, TV shows about people blowing 100s of thousands on same (which is just a reflection of popular attitudes), all that is not being supported by income growth.

It is supported by lending. What kind of lending is a consumer able to obtain? Well, revolving (credit card) which is very high interest, and will not pay for a bathroom reno. The other kind is amortized/secured loans, which are made against house equity. In other words, household wealth is up, due to asset appreciation and thusly growing equity, and loans are made against it.

Voila, wealth effect. It is an effect, because it must be realized to be real. Easiest way to tap into it is to borrow against it. If you simply spend the money on non-income producing consumer goods, you become less wealthy, because the hole you made needs to be replenished out of future income. If you instead buy something which produces sufficient income to pay off the debt, then you have made good use of your otherwise dead and non-productive wealth in house equity; you’re purchased an asset which will pay for itself.

People are borrowing lots of money. That is beyond question. You can call it whatever you like. They are borrowing because interest rates are low, low interest rates allow people to borrow more money to bid up asset prices, asset-based lending allows people to borrow yet more money backed by their over-inflated assets.

A stock market bubble is different from a real estate bubble. You can’t readily borrow against your stocks. Hell, you can barely even leverage into them, while you can buy real estate with zero down. There is no consumer wealth effect from a stock bubble, because the equity cannot be extracted without selling the assets.

If there is one thing you will have learned from this blog it is that real estate makes people irrational and emotional. Borrowing $950k to buy $1M worth of IBM shares is unthinkable and terminally stupid. Doing same to buy a house perfectly normal.

#202 TurnerNation on 07.19.11 at 7:26 pm

There are many mid to large cap US companies with excellent earnings and growth. This is driving the stock market up.

http://blogs.investors.com/capitalhill/index.php/home/35-politicsinvesting/2495-ibd-50-lululemon-netflix-lead-top-5-consumer-stocks

#203 Utopia on 07.19.11 at 7:30 pm

#168 JohnnyBravo to #146 Utopia

“I’m the commenter formally known as JohnnyBGood”
—————————-

Paisano! Good to have you back. I am less confused now. I have been threatening in the past to admit my own Italian heritage but never got around to it. I will tell you a short story today though about how my great grandfather made the family fortune.

It is a classic “buy low, sell high” story.

In the late 1800’s my great grandfather came to Canada and eventually ended up in British Columbia working on the CPR. He was earning big bucks. A dollar a day, free accommodation and a few meager benefits.

He had come from Napoli, had a wife back there and wanted to return home. After the railway was completed in 1896 or so he finally returned to her and invested his grubstake in some cheap property in his province.

The land? Well it was half a mountainside near Vesuvius. Dirt cheap. Seems nobody else wanted it because it kept erupting and spewing ash and lava all round. He built up a huge farm there, went into tobacco and other cash crops. Created a vinyard and winery and employed dozens in the region.

But that is not what made him rich. Little did he know the treasure he really had. You see, he had purchased some of Pompei itself and when the Italian government eventually expropriated his land beginning in the Fifties he was set for life.

So was everyone else. The Italian side of the family is doing quite well today I hear. Very well indeed.

#204 Mr Buyer on 07.19.11 at 7:30 pm

Why do we even have a private entity between the people of Canada and their tax dollars anyways? People are saying CMHC needs to be done away with. We have a private entity in the form of banks that stands between CMHC and the people of Canada and rakes in large sums in interest payments. Why is the bank necessary, the Canadian people assume the risk? A government agency could have just as easily issued these loans at terms beneficial to the economy and set limits on the levels of loans available (I know popular media derides government efficiency but that seems to serve the status quo). I am thinking heavy taxes on the banking sector or the government assuming the vital aspects of the banks role in society could go a long way towards addressing current excesses. PS…The spell checker is not working on my machine. Anyone else with this problem?

#205 TurnerNation on 07.19.11 at 7:32 pm

I was hoping if we ignored the doomers and metal heads they’d flee this blog. Seen but not heard.

#206 Derek R on 07.19.11 at 7:33 pm

#104 The InvestorsFriend on 07.19.11 at 10:44 am wrote:

Consider for a moment that it is not possible for the world as a whole to be in debt. No money was borrowed from outer space.

That’s irrelevant because even if savings always balance borrowings, it’s certainly possible for 99.9% of the people in the world to owe money to the other 0.1%. And if the 0.1% own everything worth owning, they might as well be Martians as far as the 99.9% are concerned. So it makes sense to say that the whole world is in debt even if, pedantically speaking, it’s only roughly true.

But the real problem lies in your assumption that all debt arises as a result of borrowing. If only that were true! Unfortunately it can also arise as a result of gambling. And it does. Credit Default Swaps, anyone?

If I wager 1 quintillion dollars with you on the toss of a coin and I lose then, pedantically speaking, world debt has just increased by so much that it makes the current debt crisis look positively small. However as I don’t have savings of a thousand dollars, never mind a quintillion, we just have to agree to forget the debt because I couldn’t make good on it if I spent the rest of my life trying. But that’s only because you don’t need the money and gambling debts aren’t enforceable in court.

Except that some forms of gambling debt are enforceable in court and some people do need the money. In particular, for insurance claims. So any insufficiently capitalised insurance company runs the risk of bankruptcy. And worse, that bankruptcy may be contagious since the insurance company’s clients may in their turn have to declare bankruptcy if the insurance company defaults.

So it is certainly possible for world debt to be larger than world savings – and by a considerable margin too.

#207 Adam on 07.19.11 at 7:36 pm

House prices in oakville dropped 3% month over month!

#208 Jon in Cowtown on 07.19.11 at 7:45 pm

I think Garth you’re just trying to provoke a little discussion here with this latest post and you’ve certainly succeeded judging the number or doomers who believe that the days of happy investing are rapidly drawing to a close, myself included. As I said yesterday, we are witnessing the collapse of a credit bubble which in turn was fueled by an energy bubble. No more cheap and ever increasing energy supplies = the inability to “grow” our way out of this mess by lending money in to existence. The state of RE market is just a bell weather of the larger malaise as is much of the other noise going on in the world right now.

All they did in 2008 was kick the can further down the road but we’re still heading in the same direction, it’s called shit creek. Now perhaps you know something we don’t having cruised the corridors of power for a while. If so, please educate us. For my part I’m still a firm believer in first principals, you can’t have infinite growth on a finite planet and we certainly seem to be hitting the wall on a number of fronts.

#209 Utopia on 07.19.11 at 7:53 pm

#164 Junius : Thanks Junius. There is no doubting that rates will soon be on the rise here exactly as they are almost everywhere else. Bondholders have had enough and they want a better return now that inflation is creeping back into our lives. The longer it is put off, the sharper the eventual reckoning will be too. You have to feel bad for the poor saps who took out half million dollar mortgages that will renew in a frightening new rate environment. The crazy part is, that despite how far US real estate has already fallen, it could fall significantly more as interest rate increases make even the current low prices non-appetizing. I was even bullish on US R/E for a short time. It did not stick though (thank God). Rising rates force even low prices lower. Always. Only fools will buy now.
—————————————–
#183 Willy H on 07.19.11 at 5:16 pm

“Not sure I share Garth’s bullish outlook on the US. I cannot see any return to the growth spurts of the 1980′s and 1990′s anytime soon. Yes, corporate profits are way up and they drowning in cash. Not surprising, when they have the flexibility to cut payroll expenses by laying off millions while simultaneously preserving their bottom line as revenues shrink or remain constant”.
——————

I hope you realize your post made a very good case for owning certain classes of dividend paying stock. I harp on about owning defensives fairly frequently. Why? Because in the kind of world in which we now live it only makes sense to buy strength and dump weakness.

Forget the optics of how those companies operate for a moment. Just consider the money. If they are profitable and consistently deliver income then why would we not want to own them?

By that same virtue, why would we want to speculate on assets that we know factually are going to decline in value over the coming years or fail to deliver reasonable returns?

Like residential housing.

#210 Helicopter Ben on 07.19.11 at 8:05 pm

its impossible to pay back all of the debt as it is created out of debt with interest. its a fraud, there is a reason why most people dont know how money is created cause they want you dumb while they keep stealing from you, your going to have to learn somethings outside of school and tv for your self

#211 totalchaos on 07.19.11 at 8:06 pm

I became involved in city politics a few years ago and was blown away with how things are done. People often compare the running of a city/province/country to a household and say “we’d be bankrupt by now”. The fact is, countries have special rules that do not apply to mere mortals. Big contries that like to consume lots of stuff have even more special rules.

I believe Garth has it right that things won’t collapse. That doesn’t mean that things are not going to change and that there won’t be a lot of carnage. My goal is making sure the carnage is not me.

Garth has repeatedly said to prepare for higher taxes. He has repeatedly shown examples of people who look prosperous on the surface, but will be working until 80 in order to survive. For many people, it will be the end of days. But even those financially crushed will still need food, shelter, clothing, transportation, heat, electricity and other essentials. Which companies do you think have a healthy balance sheet? I’m guessing they do not produce granite counter tops.

Position yourself well.

#212 squidly77 on 07.19.11 at 8:09 pm

185 In Edmonton

Thats a nice pocket for homes, the hookers don’t start till about 95 street, your a long ways from that problem. It’s also very close to DT. The plow fool knows nothing.

#213 Trailer Park Boys on 07.19.11 at 8:15 pm

Why you guys ragging on Garth?

Can’t you read the coded language ?

Gov’ts can’t go broke..because they can…but they will stop it….just because.

I mean…we have an IPO on a Soylent Green machine….you guys in ?

#214 BrianT on 07.19.11 at 8:16 pm

#200Rand-Lawrence Summers is almost the poster boy for the global financial economy circa 2011. Look at his record-every single thing he touches turns to shit while he personally prospers from the destruction.

#215 Utopia on 07.19.11 at 8:41 pm

#202 Devore

“If there is one thing you will have learned from this blog it is that real estate makes people irrational and emotional. Borrowing $950k to buy $1M worth of IBM shares is unthinkable and terminally stupid. Doing same to buy a house perfectly normal”.
————————–

Man, you said it. We really need to wrap our heads around the concept of buying quality and growth in this country.

When it comes to stock there is little to fear in my mind. Sure, the market may sell-off from time to time. You can even lose money if you sell after a drop. But one thing we do know is that good companies eventually come roaring back. And they pay you to hold them.

Compare that to owning a great big fat mortgage liability in a market that looks set to decline and remain flat for years to come, possibly for more than a decade.

It is a no-brainer. Dividends, income, growth, strength.

A mantra.

#216 salonist on 07.19.11 at 8:42 pm

garth’s evil twin
http://financialuproar.com/category/alternative-investments/
Insolvency
http://en.wikipedia.org/wiki/Insolvency
the girl,the harley, the vehicle,the gardner,the bunker,garth
http://www.youtube.com/watch?v=TVRzk3VWOKY

#217 Utopia on 07.19.11 at 8:53 pm

#196 Blog Dog Turn housing Bull

And I hear rope is on sale at Canadian Tire. You can hang yourself for cheap now too. Get in before the sale ends (or be priced out forever). You seem to be a blamer on a suicide mission to financial damnation anyway…..

#218 Utopia on 07.19.11 at 9:05 pm

#185 In Edmonton on 07.19.11 at 5:25 pm

“Should the “vulching” begin here in Edmonton?”
——————–
Don’t even think about it. Prices have a long way to fall once the serious declines really begin as you are now noticing. More fools will be minted on the way down than on the way up too. This is the season to save and invest so start getting ready for that instead. The deals will no doubt be great sometime down the road but not for five years or more by my guess, possibly even further out if the US and Europe are any guide.

#219 disciple on 07.19.11 at 9:08 pm

Let’s not confuse cash with currency.

The Federal Reserve and Bank of Canada can keep on adding to the volume of currency in circulation to infinity. Only 3% of all currency is in the form of cash and coin. And even this is debt.

Debt runs the show. Without it, there are no corporate profits and no economy. But the irony is that to solve the world’s problems we have to get rid of it.

Imagine no possessions (money)
I wonder if you can
No need for greed or hunger
A brotherhood of man

That’s why I believe the doomers on this blog are shooting themselves in the foot by condemning the debt fiasco, while at the same time participating in it. You can’t have your pipe and smoke it too.

#220 Willy H on 07.19.11 at 9:14 pm

Utopia on 07.19.11 at 7:53 pm

I hope you realize your post made a very good case for owning certain classes of dividend paying stock. I harp on about owning defensives fairly frequently. Why? Because in the kind of world in which we now live it only makes sense to buy strength and dump weakness.
__ __ __ __ __ __

Point well taken!

I do own stock and completely agree with your logic. Many blue chip stocks (bank stocks are a good example) can and often do actually increase in value during the initial phases of a downturn as the market salivates in anticipation of lay-offs which bolster bottom line profits in many cases right back to levels enjoyed under robust economic conditions – keeping dividend yields intact. It’s often win-win for the investor.

However this sort of behaviour in markets and within corporations is not the harbinger of good things to come in America. It’s the same short-term growth at all costs mentality that leaves us with economies constructed of fiscal paper-mache, no resilience and completely unsustainable growth rates. I just cannot envision growth levels enjoyed during past economic booms (or artificial economic bubbles orchestrated by governments and Wall Street to enrich the few at the expense of the working bloke!) returning any time soon.

Wall Street has quite simply left itself with no one left to short!

#221 nonplused on 07.20.11 at 12:02 am

104 The InvestorsFriend

You think you are smart but you are not acting like it. Yes, we always produce exactly what we consume and then build some capital. But we cannot give what we produce for one person to two people at once. Even Alan Greenspan managed to grasp this concept in congressional testimony. The young cannot support themselves and outsized promises to the old at the same time, barring a productivity revolution.

The boomers have promised themselves a lot of wealth that they haven’t created yet. The people who may or may not actually create some wealth in the future, aren’t going to want to part with it.

#222 Nemesis on 07.20.11 at 1:57 am

Your such an Optimist!, GT!… [and that isn’t necessarily a bad thing, nay – it’s admirable]…

Nevertheless, there’s an old axiom in the BlackArtsBiz that goes something like this, “Optimal event modelling is a poor methodology to employ when contingency planning for worst case scenarios.”

We’ll leave it at that.

PS – I hope you’re right, GT – but personally, I’m taking the other side of that bet… and as it happens, so is Ray Dalio @ Bridgewater…

http://tinyurl.com/6gwyqzm