Reality bites

There were four showings on the long weekend. Some smoke, no fire. No sparks, actually. Jim emailed me weeks before we listed, looking for support. Now he seeks reassurance.

“This morning I woke up before my alarm in a bit of a panic attack,” he wrote me last night. “After having my house on the market for about a week and a half, and lots of interest over the and even an offer of $70k below asking (which we politely refused), and yesterday with complete silence, I’m wondering if the interest was just curiosity about a new property on the market, and that’s it, I’m too late.  Like the guy on the ship who’s just figured out it’s sinking, and the seaman says, “oh sorry, the last lifeboat just left”.  We’ve told friends, family and co-workers what we’re doing, and the responses range from complete boredom to “you’re completely crazy – that’s never going to happen – real estate prices will not fall like you think they will”.

Jim’s house is in a distant suburb of Vancouver. Unlike the steamy west side of the city itself, where two million buys you a bidding war with an Asian dude, here middle class families can still afford family homes. When they’re buying. But lately, crickets.

I can tell Jim is adrift. “So this does give me some hope that maybe I’m a little ahead of the wave of lemmings and greater fools and I might still be ok (for a change), but still I wonder.  I’m just like the people you talk about in your book – I was told to forget about my dream of being a musician (too risky), go out and get a good education, a good job, and buy a house.  Nobody taught me when I was young or even told me to go learn about finance, investing, or even managing my own little bit of money wisely, and stopping the destructive practice of spending money I don’t have on depreciating assets (including of late, real estate).”

Called him and his wife. I asked what the place was listed for. Would you, I then asked, pay $700,000 for your own home?

They laughed.

This is human nature doing its relentless job. When it comes to real estate we expect others to see worth where we view encumbrance. The highest sale price on the street becomes the floor value of our home. And while we’d never pay what we’re asking, like Jim, we’re indignant when somebody offers us 90% of the price we manufactured. How dare they?

As I’ve said so often, real estate is the most emotional of assets. The market’s nothing more than a thermometer up the backside of society, taking the collective temperature, gauging how covetous or cautious people are at any one moment. And as with any market, we all want in when it’s rising, grow uncertain when it drags, and bail when it declines. It’s why Canadians fled in panic from stocks and mutual funds in March of 2009, and flocked to soaring real estate two years later. Sell low. Buy high. And wake up in a panic. Before the alarm.

On the weekend I read a piece in the Globe on why record levels of personal and household debt are okay. “Canadians may have household debt that’s 1.5 times higher than annual disposable income, but they also have assets valued at 7.5 times their annual disposable income. Basically, assets continue to trump debt,” it said.

Of course, debt has never been at this level before. As I’ve repeated, house prices have risen on the back of increased obligation, not higher income. And now that RIM, Cisco, Merck and HSBC are laying off thousands, even tens of thousands, of people, it makes you wonder. How is it possible that so much debt can be set aside as inconsequential?

As the MSM article said, quoting the chief economist of our largest bank: “Those saddled with a serious debt load will be a fraction of Canadians. The group that will become imperiled is the Canadians who will be newly defined as being heavily indebted. Their numbers will increase from 6.4% up to 7.5%. And even they are not delinquent or defaulting.  (Economist Eric) Lascelles has faith in the system. “There are good checks and balances in place,” he says. “It’s amazing what you can do by grabbing a second job. It is quite disruptive to lose your home, and people will manage to avoid that outcome.” “Debt isn’t necessarily a sign of weakness. It can be a sign of expansion” Part of growing is borrowing.”

But do they get it?

The very value of homes today – which constitute the lion’s share of personal assets – is bloated because of the competition for those assets that cheap money created. People could borrow and spend more for the same real estate when mortgages were 3%, so they did. When the price of money rises, or the demand for homes falls – both of which will roll across Canada – asset values decline. But mortgages remain. Hence, the 7.5:1 ratio of assets to income could, and will, change fast.

More importantly, it’s not the 6.4% of people who are heavily indebted that we need to worry about, but the effect on the rest of us. After all, subprime borrowers in the US accounted for just a fraction of the market, but when the system chewed them up it chilled it all. Reduced momentum, fewer property virgins and worrisome headlines were enough to kill deals and scoot buyers.

It was never the subprime dross which murdered the middle class, but the general decline in property values which burned off equity and left the smoldering hulk of debt behind. This is now our future.

It should be what wakes you.

 

164 comments ↓

#1 Ex-Cowtown on 08.01.11 at 10:16 pm

864,0000th!

#2 money road on 08.01.11 at 10:20 pm

Hi Garth,

Is Money Road available as an ebook?

No. Just Gbook. Call me and I’ll read it to you. — Garth

#3 Davey Boy on 08.01.11 at 10:20 pm

Garth, I was thinking you would be defending yourself against all the nay Sayers from your previous post. :(

For what purpose? Arguing won’t change the future. Pick your path. — Garth

#4 Bench Warmer on 08.01.11 at 10:31 pm

Glad I’m already in the life boat. Been adrift for almost two years now. Pretty much have the thing all to myself. Just me and my booty ARGGGGG! Even after she goes down I don’t plan on getting on board another for few years. Looks like nothing but rough waters ahead for all of us, for as far as the eye can see. FIRRRRRRRRRSSSTTT!!!! AAAARRRRGGGGGG!!!

#5 tigerbaby on 08.01.11 at 10:34 pm

Can the mortgages, (HE)LOCs … etc be viewed as (in effect) a collective short on the dollar?

#6 Ex-Cowtown on 08.01.11 at 10:36 pm

On the weekend I read a piece in the Globe on why record levels of personal and household debt are okay. “Canadians may have household debt that’s 1.5 times higher than annual disposable income, but they also have assets valued at 7.5 times their annual disposable income. Basically, assets continue to trump debt,” it said.

____________________________________________

And that in a nutshell is the essence of the problem. There is a fundamental financial illiteracy that refuses to acknowledge that the debt is inviolate. Things only work out as long as the Ponzi scheme keeps going around and that there are new fools to sucker in.

When there are no new fools left, interest rates are irrelevant and down she goes.

#7 Joe Robertson on 08.01.11 at 10:45 pm

Garth sooner or later you’ll get this real estate correction you’ve been calling for correct…whats it been 3 years now? Your comment “poisoned by gold” in your last shout shows just how big your ego is…please stick with what you think you know…being real estate, and let us that understand the currency market continue to make fantastic gains owning precious metals as they have outperformed every investment sector these past 9 years. A blind man can see $1600 gold is telling the world the reserve currency (US$) is continuing its devaluation since 2002. I laugh all the way to the bank when the top callers in gold come out with their idiot comments…it pays no interest, pays no dividends…hello! who cares!! owning gold since 2002 has been the best investment of my life $300-$1600, Silver $4-$49 and my fav silver stock .21-$25 First Majestic and fav gold stock $13-$53 GoldCorp..can you eat your dividend stocks Garth?…of course not but you pound your chest over their 7% returns, big deal! I’ll stick with the continued devaluation of the US$ as they raise their debt limets with no real cuts to ever take place. QE3 is now in the works as the US economy rolls over yet again and everything priced in US$’s is going alot higher including gold and silver…but hey I know that because I have a Forex background and gold is the worlds true reserve currency its why central banks of the world are buying it by the ton…Korea bought over 10 tons in May.

We are not all nutty gold bugs Garth because we have enjoyed fantastic gains these past 9 years just investors who understand currency markets.

I’ve watched countless top callers in gold from $400 and its no where near a bubble, how could it be the average joe doesn’t own it, nor the average hedge fund they too have missed the great % gains.

I have a motto “Follow the Best Forget the Rest” and I follow those that have become Billionaires from making correct investments calls like gold and silver since 2002…Eric Sprott, Jim Sinclair, Jim Rogers…..sorry Garth but your still selling books

Good luck!

Right or wrong about their asset choice, PM investors continue to be the rudest of visitors to this site. — Garth

#8 squidly77 on 08.01.11 at 10:48 pm

Check this article out from the U.S. circa Feb 21 2007.
Can 4% of Homeowners Sink the Entire Market?

#9 Uki_one on 08.01.11 at 11:02 pm

I think after that: “It’s amazing what you can do by grabbing a second job” every citizen has moral rights to punch him in a face.

#10 smartalox on 08.01.11 at 11:08 pm

Garth, now that the US has come to some sort of an agreement on cutting spending and raising its debt ceiling, could the bond rating agencies still cut America’s credit rating?

The process of raising the cap went to the 11th hour, and was certainly dysfunctional – could all the acrimony the world witnessed, coupled with softening economic indicators and consumer confidence still result in a downgrade?

Absolutely. But the impact will be less than dramatic. — Garth

#11 Aussie Roy on 08.01.11 at 11:09 pm

Aussie Update

While Govt tells us we have the strongest banking sector in the world.
APRA (Banking regulator) Warns banks about falling home loan standards.

http://www.afr.com/p/business/financial_services/apra_warns_banks_over_home_loans_CGbIRNWPVpSZ0Kd7NSIksJ

As the MEGA motgage mugs hold their breath
Industry groups warn of ‘perfect storm’ as Reserve Bank prepares for interest-rate decision

http://www.news.com.au/money/interest-rates/battlers-warned-as-rate-rise-looms/story-e6frfmn0-1226106309068#ixzz1TpwPdACl

Prof. Steve Keens view on rates and where they might be next year.

http://www.debtdeflation.com/blogs/2011/08/01/high-noon-tuesday-at-the-rba/

As the economy gets hit from all sides, thanks to the high AUD and the expensive cost of living overseas student numbers plummet.

http://www.theaustralian.com.au/higher-education/offshore-applications-still-spiralling-out-of-control/story-e6frgcjx-1226106148900

#12 Math Teacher on 08.01.11 at 11:09 pm

Ben Bernanke’s opinion about the US housing market in 2005:

July 2005

INTERVIEWER: Ben, there’s been a lot of talk about a housing bubble, particularly, you know [inaudible] from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?

BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it’s important to note that fundamentals are also very strong. We’ve got a growing economy, jobs, incomes. We’ve got very low mortgage rates. We’ve got demographics supporting housing growth. We’ve got restricted supply in some places. So it’s certainly understandable that prices would go up some. I don’t know whether prices are exactly where they should be, but I think it’s fair to say that much of what’s happened is supported by the strength of the economy.

http://mises.org/daily/3588

#13 Alan on 08.01.11 at 11:11 pm

Big difference between the US “jingle” mail real estate scenario and Canadian legal recourse if you want to compare the US property decline vs any potential CDN real estate correction. The US decline was excaserbated due to people being able to just walk away from their homes. Canadians that have jobs, equity or net assets on their balance sheets won’t behave the same way. Those that do default will be a small enough percentage that can be absorbed by the existing interest in CDN real estate. Price will move inventory.

Lastly, developers are not over-building like they use to in the past. The net migration and in-migrations continue to provide support. The only thing that can derail the market today is a series of interest rate hikes that would double someone’s mortgage payments. Otherwise, most stay the course.

Actually the US has recourse and non-recourse states, and real estate tumbled in both. As for reduced supply, in Toronto there are 17,000 new condo units coming to market in 20111 alone. The evidence does not support you. — Garth

#14 Min in Mission on 08.01.11 at 11:12 pm

GBook – great response.

The last three paragraphs are “right on”, IMHO this is what will happen (or very closely).

#9 Uki_one – I think that there would be quite a line up.

#15 tigerbaby on 08.01.11 at 11:13 pm

> … they have outperformed every investment sector these past 9 years …

sounds suspiciously like … … RE
I find the investors sound similar too :-O

#16 Nemesis on 08.01.11 at 11:20 pm

Actually, OldChap – altogether different ‘Bogeymen’ keep me awake in the wee hours… Regardless, ‘funny old world’, “eh what?” – for as it turns out, we were both right.

#17 westcanguy on 08.01.11 at 11:22 pm

No. Just Gbook. Call me and I’ll read it to you. — Garth

Turner, you owe me a new keyboard…..

#18 Mr Buyer on 08.01.11 at 11:28 pm

Debt is okay because houses are so valuable, houses are so valuable because of debt…hmm, sounds like a recursive argument to me…a rather large logic fail

#19 Vishy on 08.01.11 at 11:30 pm

Joe Robertson

You just got lucky period. For all your talk about precious metal gains you made, you probably lost a lot in other stocks that you thought were gold too!! But then you won’t mention them right ;-)

To think you beat the market by your smartness is just fooling yourself. Also your talk of picking all the right stocks from the absolute bottom to the current peak seems very made up.

But if you really are doing so good, then you should sell now and retire.

#20 doc on 08.01.11 at 11:41 pm

Well Jimmy boy the polite decliner (How Canadian). For perspective, consider my brother who “invested” in a state of “irrational exuberance” in a couple of condo’s in Kelowna 2-3 years ago at the height of the madness. Finally sold one for a loss of 110K. It was the 2nd offer in 4 months. He is in negative equity of 150K on the other one he lives in. Now of course the market has spoken here and he is taking the hit for gambling with money that wasn’t his. He knows the consequences are his own fault. He is in his 50’s and had to borrow a lot of money to get that condo off his hands. There is now a shortage here of greater fools looking to buy and I don’t think my brother will be stimulating the economy of this region any time soon. Real economic pain in a small percentage of the population has a way of impressing the rest of us. Word gets around. Lessons are learned. Sometimes greed hurts.

#21 Snowboid on 08.02.11 at 12:08 am

Question for the PM holders…

I must admit to ignorance about gold and silver, other than the WWII medals I inherited and the nuggets my better half collected from her pre-marital-bliss mining days I haven’t been close to the real stuff like bars (except in Vegas but couldn’t touch them).

So my question is, when you talk about all the gold and silver you own – is this the physical metal (like bars or coins) or a piece of paper that says you own same?

Based on the ‘raw’ excitement this topic seems to bring forth on this blog, I assume the former.

I envision PM owners looking like Richie Rich (or his parents) sitting in a vault surrounded by glittering coins and maybe some precious stones for variety.

I must admit I get a wonderful feeling with a handful of silver coin (medals) and gold nuggets – the weight has something to do with it I guess.

Next question, do you have your own vaults or is it kept in your safety deposit boxes or?

I guess I could just Google this, but after sitting on the deck sipping some fine wine and watching the Snowboids put on their aerial display I can’t seem to think straight!

#22 Boombust on 08.02.11 at 12:10 am

The “Pareto Principle” alone is enough to bring this baby down . Think 20/80.

#23 Gord In Vancouver on 08.02.11 at 12:32 am

“It’s amazing what you can do by grabbing a second job. It is quite disruptive to lose your home, and people will manage to avoid that outcome.”
____________________________________________

Don’t laugh at Garth folks, it was originally printed here:

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/relax-your-household-debt-is-not-out-of-control/article2113941/

#24 Snowman on 08.02.11 at 12:34 am

” As for reduced supply, in Toronto there are 17,000 new condo units coming to market in 20111 alone.”

GTA gets 100000++ immigrants/year. 9 mil boomers are expected to retire over the next 20 years, of those 2 mil are in GTA which will give you an average of 100000/year who may also look to downsize. So, how’s that supply again? Or is it that 20111 is not a typo after all?

#25 Utopia on 08.02.11 at 12:34 am

“Canadians may have household debt that’s 1.5 times higher than annual disposable income, but they also have assets valued at 7.5 times their annual disposable income”
—————————————-

Once again we are being fed a line that does not really add up. The very asset cushion that is being used as a metric to reference and minimize the debt numbers becomes much less significant in a declining real estate market.

Homes, first amongst those assets are predicted to decline in value. The debt remains the same though and thus the ratio of debts to assets changes thus making everyone feel much poorer.

In the case of our American friends and so many countries in Europe we have seen direct evidence of how stark the changes in these relationships can become.

This is why time shares, for example, plummeted 85% in the US, RV’s now sell for a fraction of resale value and auto sales fell off a cliff. It is why resort property that once sold in the high hundreds of thousands of dollars cannot bring a bid and it is why Canadians can pick up quality, near-new used vehicles for thousands of dollars less than those available in our country.

So why is that?

Because assets values fell of course. Some of them dropped in price precipitously as the housing crisis there took its toll and unemployment rose.

Assets became cheap because the market was flooded with them at a time when buyers were sparse. Where is the market for pianos when so many are losing their homes and their livelihoods? How about that collection of antiques, the ATV, Seadoo and all that expensive sporting equipment?

Did they hold their value? I don’t even need to mention sailboats and other marine craft. You will recall the stories out of Florida where thousands were simply abandoned for lack of buyers. The owners could not afford the moorage and dock costs anymore.

That is not all. Lets recall how home values are skewed by regions so that national numbers average higher. So it is with assets too. Vancouver and Toronto will reflect too heavy a weighting when assessing the true value of Canadian assets particularly where property is concerned.

The bank may be putting a comforting spin on our asset strength but they are being disingenuous by not considering the losses that naturally occur during a property deflation.

Those losses can be considerable depending on the makeup of the assets a family owns. Even financial assets are not secure in this kind of an environment and the returns can be dismal.

Just ask the Irish what their asset deflation did to them.

#26 Phil on 08.02.11 at 12:37 am

Agreed, Joe Robertson is rude. I enjoy reading this free blog, even if sometimes I disagree.

Garth, in the previous blog you referred to Vancouver hitting the tipping point. What made you say this? The Craigslist posting or something else?

#27 joycer on 08.02.11 at 12:56 am

Your advice about Vancouver topping out is quite timely,
http://www.yattermatters.com/2011/08/vancouver-average-flip-and-bounce/

Average detached (the hottest market of them all) is now down by almost 100K since its all time May high.

#28 Nostradamus Le Mad Vlad on 08.02.11 at 12:57 am


“Sell low. Buy high. Before the alarm.” — Sound advice for sheeple, the blind leading the blind.

“This is now our future. It should be what wakes you.” — More a case for not following the herd instinct or reading the m$m. The latter is pure propaganda, which hasn’t shown profits for decades. All bluster, no substance.
*
#1 Ex-Cowtown — Hotdamn! You beat me!
*
Credit Woes Not sure if it would affect people who have chosen not to be part of this mess; Pix The Ruins of Rome? No — Detroit; Global Banxters or criminal syndicates; Libya, like Ireland is being destroyed because it doesn’t owe money to anyone (debt free). The banxters succeeded with Ireland, but may find Libya a tougher nut to crack.

Links in. This stuff is way outta my league. “Last Monday, I wrote that Tropos would rock the markets in the coming weeks. Let me explain why.”; IMF and CFR insider now Obama’s quiet right-hand aide; Trust Lost China may look to Russia now; Unions Killing me softly, and Recession? In yer dreams!

Grid Cockups Never mind fiscal gridlock; Rupert Murdoch ran more than the NOTW and The Sun and this; Pakistan Blackmailing the elite. India, Pakistan, North Korea and Israel all have nukes, and all have refused to sign the NNPT, which wouldn’t make a difference anyway (just a goddamn piece of paper); 2:35 clip Giving Monsanto free reign by ending small farms, plus this.

Link in. Evidently, gardening (fruit and veggies) is a crime in Canada, too; Link in. Turns out Obama’s environazis are having a negative effect; Although a few days old, this dam is another sign of failing infrastructure.

Heads Up! At least that’s what part of the headline says. Keep yer eyes on the Persian Gulf for a possible uptick in activity, ‘tho cat and mouse games have gone for quite a while now: “. . . . In actions more reminiscent of the Cold War than modern times . . . is reporting that the Northern Fleet’s Yekaterinburg nuclear powered submarine successfully fired an RSM-54 Sineva (SS-N-23 Skiff in NATO classification) ballistic missile from the Barents Sea across the North Pole into the atmosphere over the Pacific Ocean where upon its deploying of an electromagnetic pulse (EMP) “device” succeeded in destroying an American Minuteman III ICBM fired from Vandenberg Air Force Base in California.”

#29 Utopia on 08.02.11 at 1:16 am

Just a follow up to my previous post…

There is a common confusion of what an asset is when we are referencing family balance sheets. These assets are not to be confused with the common accounting terms used for business’s that divide tangible and intangible assets. There are differences.

Examples of these are such line items as plant and equipment, copyright, inventory, mineral rights and goodwill. For homeowners and families on the other hand, we are usually discussing more ordinary terms like land, personal property, investments, cash on hand, RRSP’s and mutual funds etcetera.

The family home is typically the largest single component.

I hope this helps explain my objection as noted in the prior post. The assets of an individual can include items like artwork, vehicles, appliances, furnishings and electronics as examples. During a recession (or housing deflation), their values can become highly subjective due to supply and demand fundamentals and pricing can become unpredictable.

They can vary wildly in other words depending on where you live and the state of the regional economy. Banks do not in general accept personal property and similar assets as good collateral when credit tightens either.

As we know, real savings rates in this country are abysmal. Financial assets are not therefore representing the lions share of assets that the bank is referring to. It is still real property that is under discussion and that is the one asset class that is set to decline.

The banks argument does not hold water.

#30 Chris on 08.02.11 at 1:18 am

What wakes me up is the thought of reading another blog article by squiddly, which is guaranteed to contain more high school drop-out grammar (always good for a laugh).

I live to laugh at how many times a wanna be Alberta blogger can misuse “your” and “you’re”, or “their”, “there”, and “they’re”.

That, and seeing how idiotic he can come across, when he pretends to be the next GT, and tells his 3 followers to never bet against uncle sam. Or when he posts his numbers of wisdom regarding foreclosures in Alberta relative to the USA…

Hey squiddly, all those realtors in Calgary and Edmonton who you have attacked are right to assume you’ve made dumb ass comments on their blogs. It’s hard to conceive anyone else would have the same high school drop out grammar (sentences starting with ‘but’, common words consistently spelled incorrectly). It’s like your posts are a grammatic finger print. Even if I agree with most of your comments (which I do), the wanna be writer act has gotten old.

That and the fact you require posters on albertabubbleblog to login (i.e. no anonymous postings). What are you afraid of? You delete the comments you disagree with anyways. Unlike Garth who actually has a head on his shoulders and values a good debate, you just want to pick fights with people who for the most part are a lot smarter than you.

#31 Peter Pan on 08.02.11 at 1:32 am

It just goes to show how foolish most (especially Bank) economists are… They are simply unable to “connect the dots”.

The feedback loop of cheap money inflates asset values, which is then used to justify the high debt levels… because asset values are so much higher than the debt incurred to acquire those assets.

Isn’t it obvious the asset values are inflated in the first place?

#32 timo on 08.02.11 at 1:34 am

According to him, due to the amount of people enlisting because they’ve run out of options in the job market, enlistment goals have already been exceeded for the year

http://www.dailykos.com/story/2011/08/01/1001638/-Guy-Walks-Into-an-Army-Recruiting-Center?via=spotlight

New York State’s second largest union of public workers, facing thousands of layoffs that had been scheduled to take effect within days, agreed on July 16 to significant wage and benefit concessions in order to save the jobs of its members

http://hrm-partners.com/hr-news/new-york-unions-approve-big-concessions-to-save-jobs

reality is here, downsizing is in full swing. Canada is going to be just fine, right?

#33 Utopia on 08.02.11 at 1:34 am

OK. One last comment.

Lets pretend for tonight we are in the average American city. Next we will reduce the value of our current real estate holdings by 35%.

Then we will assume that most of our personal property and other non-financial assets are worth mere pennies on the dollar. It is all yard sale prices when there is no buyers remember.

Following that, we reduce the amount of cash and other financial investments on hand that were consumed to service the surviving debt and feed our mortgages. Just like most Americans without jobs have done.

So where do we really stand?

I think you all get the picture. We are broke in that scenario. And that is why puffing ourselves up by using theoretical asset values is a mugs game.

Reality brings everything into sharper focus. Do not get complacent when you read Globe and Mail stories like the one referenced today. It will only breed a false sense of security and make you stupid.

Now I am in a bad mood.

#34 Thetruth on 08.02.11 at 1:49 am

#13

Garth said: …in Toronto there are 17,000 new condo units coming to market in 2011 alone.

Yeah, is that 17,000 condos enough to house the 100,000+ immigrants coming to that city in 2011?

Another fact you made up. — Garth

#35 Mean Gene on 08.02.11 at 1:52 am

Just saw Property Virgins on HGTV for the first time, I feel ill now.

#36 Smell The Coffee on 08.02.11 at 2:08 am

The world is not ending, but it is getting pretty bruised. We are in a culminating 300 year economic regression and progressive collapse cycle. The unworkable and unsustainable exuberance of global-isim and other political ‘isms have poisoned the social commonwelath.

There now will be a consequent and progressive repudiation of sovereign debt over the next 18 years. No social security, welfare state demolished, with mild socialism turned into soft fascism.

This is a global economic tsunami in relentless slow motion and is turning everything in front of it into garbage, just like the waves in Japan turned everything of value, grinding it into flotsam and Jetson.

In Canada we are just a little higher up the cliff, but the depression wave will wash over us as well eventually. No Arab spring here.

Most recessions last less than2 years, depressions last 6 to 12 years in cycle. This one is a doozy, and will take us into the next 2 decades to the low mark and then after 2020, a new economy will form, but only after the US, Canadian and other currencies have been destroyed by excessive debt.

You can’t get out of a hole by digging deeper. Trees don’t grow to the sky, and you can’t borrow money forever. At some point someone with a gun shows up to collect.

#37 timo on 08.02.11 at 2:24 am

http://www.prosper.org.au/category/press-releases/

Australia’s call to action with some interesting facebook information.

http://www.prosper.org.au/2011/03/15/prosper-calls-for-buyers-strike/

#38 Euro_trash on 08.02.11 at 2:49 am

Its almost like everyone knows that the enevitable price corrections are comming, yet, unrelated to this post, I keep seeing the real estate people and media pumping the same bs down everyones throat. They are relentless, and uderstanding the situation, its now easy for me to see how someone might give up waiting and just give in to all this propaganda and go out and buy a house. TD has been predicting price corrections all across Canada, and there are also a few others that I heard about that are predicting either a flat line or correction based on some facts such as and including some of the things that Garth is talking about like the Canadian debt level and interest rates going up. These predictions are based on some facts and make sense to a sensible person, but if some of the people you know and respect are so confident constantly telling you everything will be rosy, even when you see signs of otherwise, its difficoult to wait.

Sometimes I think that we have gotten ourselves to the point where everyone is so much in debt that the governmet cannot afford to make drastic moves to change this situation because they have to protect the economy from falling appart. I especially get this feeling with the recent interest rate annoucements. Every little sign of the economy going south is a reason for Mark Carney not rase the rates. To me this is insane, its almost like we are rewarding the speding and indebtness even more. At the rate we are going Mark Carney will let even more people borrow free money, spend it, and then over many many years let them pay it back because he doesn’t want to ruin the economy. The economy is only going to get worse and yet he cannot hit the brakes on the spending because he doesn’t want it to get worst……..wait a minute this reminds me of an infinite loop or people on drugs that cannot get out of that cycle of doing drugs.

To me this whole situation is starting to take on a grusome picture where the government will allow us all to get just enough in debt where we can pay it off and be in debt for a long time. This looks great for the banks which will profit, this also looks great to the majority of the people who have a mortgage and want to take a life time to pay it off, but terrible for someone with savings and no debt. If the government lets this drag on for years, which it is looking like because they have no choice, then this puts someone with cash and savings and no debt in the same boat as some one with large mortgage.

The economy is not going to get better any time soon, and government is not going to let it callapse, so the only way that there will ever be a reasonable price correction in the house market is if there are more corrections to the rediculous mortgage rules that we still have, 30 year mortgages, and 5% down…great message to send to everyone – borrow more, but at the end of the day if the economy is driven by bank money and we can all afford it then its all good, so the government won’t be quick to change that.

Mortgage changes will only happen if the government starts realizing the the housing market is a drag to the economy which I hope they will. Unless they are driven by expanding the banking industry and profits, the real estate industry, and no other industries…I hope not.

All of this talk may sound desperate and like I’m giving up. But no I still not going to buy a house any time soon.

#39 Brad in Cowtown on 08.02.11 at 3:00 am

The very value of homes today – which constitute the lion’s share of personal assets – is bloated because of the competition for those assets that cheap money created.

Classic line. Great article Garth. You definitely have your mojo back lately. I don’t know where you started your hate-on for the metalheads, but your tangents are usually short and sweet, so I must admit you do not deserve even a fraction of the crap you receive from “us”. I guess I have to say I’m part of that group because I’m a big dollar bear. That means, by definition, I have to be bullish on gold. No, I don’t think it’s money either. And no, I don’t think we “need” it. Not really.
But… I still think it’s goin higher. As long as more and more people think we need it.

So hey! I’m a PM investor (ok, speculator – if you prefer) and I’m not rude. Why paint us all with the same brush Garth? It’s unfair. So very unfair. (Sniffle)

#40 Utopia on 08.02.11 at 4:06 am

#150 TurnerNation on 08.01.11 at 7:21 pm

“Ok Doomers here’s your top 100 list: time for shopping!”
—————————————–

Doomer’s? That was a good list but are you just bugging me because I told you I bought canning jars and seeds this past weekend?

What an odd comment to make.

Every one of the 16 lines of items you listed can be found right now (today) on any farm in this country. They are purchased and owned without a second thought. Very typical stuff. Nobody gives it a second thought and this is not even close to a real list of preparedness on the farm.

Are you saying farmers are all “doomer’s”?

Well they have a closer connection to reality than most I suppose. You might appreciate that the artifacts of the past litter their lands and they can still see, feel and touch the past in a way that city folk cannot.

A hundred years ago this country was still dominated by horse and buggy. There were few cars to speak of. We did not have a welfare system or pension plan. There was no social safety net, no dental plans, no medicare and almost no help at all if you fell through the cracks.

Everyone owned those so-called “doomer” goods.

There was only a thin veil of physical resources and practical skills separating most from the eternal damnation of poverty if you lacked family and other resources. So why is it you might suggest that anyone who possesses those items (some of them modern) is a doomer?

What you don’t get, TurnerNation, is that the list of basics required to ensure good chances of success in this life are just as valid today as they were a century ago.

Perhaps more valid in a world fraught with so many risks.

This is incidentally a hat-tip to the Gold-Huggers who also recognize the vulnerabilities of our financial system in the same way I am drawing attention to our weakness in common daily survival skills.

Skills and ideas that have been taken for granted for centuries prior to modern technical innovations, cheap energy and telecommunications are not what we want to discard as our world becomes riskier by the day.

We do so at our peril.

Having your own food supplies, means of preservation, clean water, easy access to practical energy and holding a stock of mechanical devices that are not dependent upon our power grid just makes good common sense.

They always made sense. Now more than ever.

We are not so distant from the memories of the days when electricity and natural gas did not flow like molten lava through the veins of this country. When a family member 2000 miles distant was not just a phone-call away but instead a six months journey from your homestead.

Not far at all. A mere hundred years is a blink of an eye.

Wake up pal. Look it up too while you are at it. The idiocy of how our society functions means we are highly vulnerable to sudden unexpected shocks to what we consider essential services.

There is but a thin line between technological advantage and total failure as a society.

So mock farmers and all the other so-called Doomers all you like. But are you really that secure my friend? Think about it…..oh wait………what’s on channel six……..

Oh, screw that Utopia guy. He is an idiot. We got more important stuff…..like Dancing with the Stars.

Luck with that. But will you be ready when the lights go out?

#41 Andrew on 08.02.11 at 4:11 am

“Right or wrong about their asset choice, PM investors continue to be the rudest of visitors to this site. — Garth”

I apologize on behalf of my fellow metalheads. Success can lead to cockiness. As long as it doesn’t lead to complacency, that’s the most important thing.

I think you should continue to focus on the real estate bubble aspect of this blog. While I think you’re dead on balls accurate regarding Canadian real estate (though I’m quite a bit more bearish than you), I think you’re just way out of your comfort zone in other areas of investing.

#42 timo on 08.02.11 at 4:12 am

http://ftalphaville.ft.com/blog/2011/07/29/638071/terry-smith-says-the-world-is-living-in-a-fantasy/

the radio interview is an eye opener

#43 timo on 08.02.11 at 4:30 am

http://www.youtube.com/watch?v=rZntCQ_Me_o&feature=player_embedded#at=492

very good video about our future

#44 Pyra on 08.02.11 at 5:23 am

Wait, that economist seriously thinks it’s better that people get second jobs rather than get a grip on their spending? Was he a C student or does he simply work for VISA and therefore have vested interests?

Certainly that’s what many will need to do, but the implication that it is what people *should* aspire to rather than get a reality check on what they can afford boggles my mind.

#45 What are you thinking man on 08.02.11 at 5:35 am

“offer of $70k below asking (which we politely refused), ”

You are mad. Take the $70k below asking and laugh all the way to the bank man! You only think it’s a “loss” because you think you can sell higher, but in a month or six, you’ll reduce down that and take even lower.

In Calgary we had 50+ showings on a weekend and no offers on a starter home when we listed. Took 10% off list at the end.

“Called him and his wife. I asked what the place was listed for. Would you, I then asked, pay $700,000 for your own home? They laughed.” – Garth

You nailed it on the head Garth. People are expecting go get what they wouldn’t pay. It’s why we are renters even though we can afford in any city without a mortgage.

#46 Taipan on 08.02.11 at 6:43 am

From aussie – a view of the Canadian future.

Interesting Garth. The neighbour’s house went to auction tonight at prices down 25% below what he was originally asking. The guy is smart. I don’t blame him, just a casualty of the market moving against him. It hits the smart and the dumb alike.

We are doing pretty well. Bought the land, and built the house 10 years ago. House is now paid off. We didn’t suddenly think – oh we have all this equity – let’s make that 10% as a deposit and buy something overlooking the sea with a loan of 90%. (Like most in Vancouver borrowing at 5%)

Tonight we have our nice home, paid off, and not over the top and it doesn’t matter what happens with prices.

Your reference to the 7.5:1 is frightening. That people believe it, as if capital value is income.

I can continue to live in my house because i owe nothing. The sales price won’t affect me because I’m not a seller. If I was a seller id be forced to accept market up/down whatever. Thank goodness that my cost is still another 20% lower.

When property prices fall, that 7.5 can drop quickly and where are they then?

Been here since not long after the start Garth. Your Canadian anecdotes have been very illuminating.

#47 BrianT on 08.02.11 at 6:46 am

#21Big-It isn’t just PMs-look at the Swiss Franc-the USA is very weak and it is dragging the loonie down with it.

#48 BrianT on 08.02.11 at 7:28 am

#32Andrew-You summed up the situation accurately.

#49 Tim on 08.02.11 at 8:02 am

Right or wrong about their asset choice, PM investors continue to be the rudest of visitors to this site. — Garth

A well thought out, objective statement, thank you Garth

#50 T.O. Bubble Boy on 08.02.11 at 8:21 am

@ #25 Snowman

GTA gets 100000++ immigrants/year. 9 mil boomers are expected to retire over the next 20 years, of those 2 mil are in GTA which will give you an average of 100000/year who may also look to downsize. So, how’s that supply again?

First of all, I’m pretty sure that I’ve heard those arguments before — in Florida and Arizona (2 of the worst-hit states in the housing crash).

As far as Toronto goes: of those 100,000 immigrants and 100,000 boomers per year (stats which Garth disputes), how many are living in the thousands and thousands of 1 bdrm condos by the Skydome and Yonge+Sheppard? If ANY of these stupid new condos are being built for either boomers or new immigrants, that’s news to me — nearly all of the floorplans are for twenty-somethings just out of university.

And, as for those 2M boomers over 20 years, most of those will need to sell a house before they can move to a condo — so how does that factor into the supply/demand argument? Maybe the 100,000 new immigrants will all come with a few million dollars in hand and buy all of the houses off of the 100,000 boomers downsizing?

#51 TurnerNation on 08.02.11 at 8:24 am

Garth could start up a R/E help line: call 1-800-SELL-NOW, only $2.99/min + PST, GST, HST, OST, BST, NST.

The Doctor is IN.

#52 jess on 08.02.11 at 8:29 am

and some thought muni bonds were safe. There is only so many parking spots to sell.

How many cities have declared chapter 9?
and 7 states that have no income taxes , but high sin and gas taxes etc. Alaska for example, had foreclosures due to job loss….

Sandy Hoskins, interim chief executive of Sierra Kings Health District in Reedley, Calif., worked for nearly 30 years as an auditor and financial consultant. He says he never heard of Chapter 9 until October, when Mr. Hoskins filed a bankruptcy petition for the hospital system. “There was no other way around it,” he says. With low cash balances, “there were vendors not even willing to do business with us. It was a critical situation.”
http://finance.yahoo.com/taxes/article/108866/muni-threat-cities-weigh-chapter-9

#53 TurnerNation on 08.02.11 at 8:31 am

Heee’s back! The “Bin Laden Group”

Say, weren’t these ‘fine gentlemen’ also meeting with the Bush crime family on Sept 10th, 2011? And the next day three steel towers (WTC 1, 2 & 7) free-fell into dust particles on cue?
If nothing else the collapse of the WTC marked the end of USA as a Center of World Trade. Get it?
Humans fight over two things, only: money and sex. Think about this for a second. If there’s war you can bet it’s about MONEY and nothing else.

RIYADH—Saudi Arabia’s Kingdom Holding Co., run by billionaire Prince Alwaleed bin Talal, said Tuesday its associate firm Jeddah Economic Co. had inked a 4.6 billion Saudi riyal ($1.23 billion) deal with the Bin Laden Group to build the world’s tallest tower in Jeddah.

The planned tower, which will have a height of more than 1,000 meters, will include a hotel, serviced apartments, luxury condominiums and offices, and will occupy an area of 500,000 square meters, Kingdom Holding said …

http://online.wsj.com/article/SB10001424053111903341404576483540742054836.html?mod=WSJ_World_LEFTSecondNews

#54 Oasis on 08.02.11 at 8:43 am

“Right or wrong about their asset choice, PM investors continue to be the rudest of visitors to this site. — Garth”
____________________________________________

right OR wrong? you’re not sure?

Thanks for validating the point. — Garth

#55 TurnerNation on 08.02.11 at 8:49 am

Lazy Proletariats! Why can’t they just get second jobs!

Take the average Miltonite – up at 6am, 1 hr getting kids and family ready, 1 hr 407 commute, leave office at 5pm, 1 hr 407 commute, 2-3 hrs dinner and family/school events. Rinse and repeat, living the dream in a 600k house on a 50′ lot. Freedom 65.

Our elite leaders fly to hockey games by private jet (Stephen who?) and enjoy 5 and 6 star hotels. During the war they rationed not and enjoyed sumptious feasts every night, while little people lined up with ration cards. V is for victory!!??

#56 timo on 08.02.11 at 8:50 am

http://www.transitionlinks.org/?page_id=803

and we are off!!!

#57 appraiser on 08.02.11 at 8:50 am

For the record, Realnet reports that low-rise new home inventory in the GTA it at an all-time low, due to land shortages, green-belt legislation, etc.; thus high-rise developments have taken their place.

Furthermore, despite the fact that 17,000 condos are coming on stream in 2011, they are being absorbed by the market easily. The month of May alone saw 2,433 new condo sales in the GTA, according to Realnet.

In addition, I keep reading about a declining real estate market on this blog, yet the latest report from Teranet indicates that prices are up in all markets surveyed, yet again.

Reality bites alright.

#58 timo on 08.02.11 at 8:51 am

http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif

2000?

#59 Carruthers on 08.02.11 at 9:24 am

“Debt isn’t necessarily a sign of weakness. It can be a sign of expansion” Part of growing is borrowing.” – Globe & Mail

In a recent article on the collapse of the Icelandic banking system it was stated that “in 2007 that fast economic growth with a large trade deficit and ballooning foreign debt were signs of success: “Iceland should be a model to the world” said supply side economist Arthur Laffer.

Heh!

“I am a rich man…as long as I do not have to repay my creditors” – Plautus

#60 Expat in NC on 08.02.11 at 9:28 am

“The market’s nothing more than a thermometer up the backside of society, taking the collective temperature…”

Hilarious….Classic Garth!!

#61 jane54 on 08.02.11 at 9:39 am

The comment about immigrants grabbing up all the spare TO houses is pathetic. Both my parents and in-laws were immigrants to Canada in the 50’s and 60’s and they came not because they had money but because they wanted to make some. Took both families years of sacrifices to get houses and make it in the new world. No way can current immigrants afford $700,000 for a SFD. They are coming to Canada to try to make a future, from lands where they believe they don’t have one.

Strangely enough once they had made some money some of the kids in our families returned to the EU as they couldn’t stand the Canadian climate or high taxes, leaving both sets of parents alternately boiling and freezing in Canada.

I do think of their sacrifices though as I sit on my patio watching the English channel and also while sitting on my roof terrace in Italy.

#62 thinktank on 08.02.11 at 9:49 am

enjoyed your post today on real estate and the probable outcomes that lie ahead – there is only so much debt Canadians can carry and current home prices account for the lions share of that debt.

having said that … SP-500 futures getting POUNDED -21.25 … 10YR bond yields at NOV. 2010 lows and the VIX is ready to explode to the upside. What does all that mean – Garth you know this better than anyone …
“Supposed” flight to quality, dump stocks … run to bonds but that scenario lowers yields hence lower interest rates – which is like dangling the carrot a little longer to entice potential home buyers to spend what they otherwise wouldnt. Funny thing is regarding this drop in yield on the 10YR – this by all accounts is NOT government manipulation (at least todays move anyways) … thats just pure institutional fear looking for a “safe haven” …
For all you traders out there … take a look at the open interest in the August AND September PUTS to CALLS options contracts …. WOW … basically 3:1 (great for selling strategies and collecting premium … produces superior yield if you know what youre doing – spread,spread and spread ;))
there are 2 ways to interpret this lopsided ratio …
1) the institutional LONG portfolio managers are still somewhat bullish for the balance of the year and are buying protection to hedge un-realized gains or …
2) the markets have definitively turned bearish and are making bearish bets on where we are headed … only time will tell … just remember this … 1260 on the SP-500 needs to hold … otherwise we could be in for a nasty leg down – hence all the PUT buying we are seeing in the open interest data.

oh ya … GOLD at all time high … and again – IM NOT a gold bug … but as I said yesterday … I trade what I see …. NOT what I think or believe … another example of flight to quality. When GOLD loses its run or starts to turn … then I will dump my GLD CALLS … until then the trend is my friend !

#63 squidly77 on 08.02.11 at 10:00 am

What wakes me up is the thought of reading another blog article by squiddly, which is guaranteed to contain more high school drop-out grammar (always good for a laugh).

I live to laugh at how many times a wanna be Alberta blogger can misuse “your” and “you’re”, or “their”, “there”, and “they’re”.

That, and seeing how idiotic he can come across

Absolutely I am a high school drop out, grade 10 was enough of the public education nonsence for me.
———————

Because it’s usually still much cheaper to rent than to own the same size and quality house, in the same school district. In rich neighborhoods, annual rents are often 2.5% of purchase price while mortgage rates are 5%, so it costs twice as much to borrow the money as it does to borrow the house. Renters win and owners lose! Worse, total owner costs including taxes, maintenance, and insurance come to about 9% of purchase price, which is more than three times the cost of renting and wipes out any income tax benefit.

3.Because it’s a terrible time to buy when interest rates are low, like now. House prices rose as interest rates fell, and house prices will fall if interest rates rise without a strong increase in jobs, because a fixed monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down. Why It’s A Terrible Time To Buy

Be sure to read all 4 pages.

#64 The American on 08.02.11 at 10:20 am

Wow. It sounds just like the U.S. only 8 years ago. The Americans said, “Yeah, we’re perfectly fine! Our debt is about 1.4 times the average disposable, but our assets are value about 7.3 times the debt. We’re fine, everybody! We’re perfectly fine! Nothing to see here…. Move along…” Ahahahahahahahahahaha.

It is amazing the Globe would have the audacity and nerve to print what they printed. Have they not realized that one’s asset worth in the lion’s share of housing means absolutely nothing? Apparently not. Asset worth in housing is incredibly fluid anyway. My “asset worth” means nothing if rates rise and I can no longer afford to cover the debt service on my asset base. What a ridiculously stupid and pathetic approach to continue keep the Canadian consumers in the dark. Sounds to me like everyone is starting to wake up and smell the coffee. Articles like this in The Globe are only printed because they now need to thwart a panic of the masses. They’re simply trying to create a “soft landing” which simply will not happen.

Once it peaks, the RE market stays stagnant for a little bit, then comes small price reductions here and there and refusals to sell at THAT price, increasingly picking up more steam as time passes until there is no looking back. Takes a couple of years. But one thing I know and that it HAS started now in Canada without question.

Stories like this where he refused a 90% offer sadden me. I remember what that was like. First, if someone had the balls to even make a 90% offer, that simply means the market is shifting. What happened to all these “at asking or over” offers we Yanks have been hearing about? I would have simply countered with a 95% offer instead of refusing an offer all together. Its this kind of greed that will ultimately kill the market, not the one’s trying to make a “reasonable deal.”

#65 dd on 08.02.11 at 10:30 am

#8 Squidly77

So squid. Wrong on your gold call. You said that the metal would fall once the debt ceiling was passed. What is your next prediction?

#66 Small Steps on 08.02.11 at 10:41 am

“Debt isn’t necessarily a sign of weakness. It can be a sign of expansion” Part of growing is borrowing.”
There your go – consuming as the road to enlightenment. Get out your credit cards everyone and start – er – growing.

#67 Kevin in Winnipeg on 08.02.11 at 10:43 am

Unless interest rates go up, this excessive spending will continue. Australia is a good example. It was in a similar situation as Canada during the recession. Their bank rate is now 4.75%, 1.75% higher than the April 2009 low rate of 3%. Their housing market is just starting to correct.

Inflation needs to become rampant or the BOC will need to step in to curb spending with rate hikes which would then derail the economy during this slow growth stage. Neither will happen. I see household debt and house prices continuing to rise.

Personal debt is a big number and makes headlines. I hate to say it but it’s irrelevant in the next 2-3 years. Economist say a rate hike of only 1% bursts an asset bubble but I don’t believe that would cut it this time.

#68 Daisy Mae on 08.02.11 at 10:48 am

“On the weekend I read a piece in the Globe on why record levels of personal and household debt are okay. “Canadians may have household debt that’s 1.5 times higher than annual disposable income, but they also have assets valued at 7.5 times their annual disposable income. Basically, assets continue to trump debt,” it said.”

DEPRECIATING assets, all of them…

#69 Amarillo on 08.02.11 at 10:49 am

Amarillo in Sooke on the island. What’s propping up the high RE prices & local economy besides lacklustre tourism and modest retail sales? Most likely herb production & distribution. Heard scary story about the control weilded by those guys with the cartoons on their backs.

#70 Denisa on 08.02.11 at 10:52 am

Grab a second job to pay your serious debt load… = no quality of life for some. What happens when the stress of working two jobs ruins your health and you end up on sick benefits?

#71 BrianT on 08.02.11 at 10:54 am

361Carr-These MSM economists like Laffer, Krugman, etc.etc. will literally say whatever they are paid to say-calling them salesmen is an insult to salesmen. The logic wouldn’t fool a five year old kid if you explained the parameters to the kid-you mean I make money by borrowing and spending and then having to pay back more than I just spent on trinkets?

#72 Daisy Mae on 08.02.11 at 10:58 am

“money road on 08.01.11 at 10:20 pm Hi Garth,

Is Money Road available as an ebook?

No. Just Gbook. Call me and I’ll read it to you. — Garth”

WILL you? You’re so kind….

#73 BrianT on 08.02.11 at 10:58 am

#56Oasis-You are supposed to shut up and keep eating your raccoon stew in your cabin in the woods-it is guys like you that are driving the Swiss Franc to record highs against the greenback and loonie.

#74 squidly77 on 08.02.11 at 11:03 am

Last I looked Gold was $1572 CAD.. There are much better investments to be had.

#75 squidly77 on 08.02.11 at 11:03 am

By the way DD, what’s your sell price?

#76 Daisy Mae on 08.02.11 at 11:06 am

Joe Robertson on 08.01.11 at 10:45 pm “Garth sooner or later you’ll get this real estate correction you’ve been calling for correct…whats it been 3 years now?”

Well, I remember years ago investing $1000 in precious metals…only to discover months later it was down to $500. Very volatile. Haven’t touched them since — “once burned, twice shy”.

#77 timo on 08.02.11 at 11:11 am

The US just showed the world how high an oil price their economy could take before going back into recession. This is going to be ugly.

http://www.calculatedriskblog.com/2011/08/personal-income-increased-01-in-june.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29

#78 Andrew on 08.02.11 at 11:13 am

I know that Garth believes that U.S. treasuries are the safest investment in the world because the U.S. will never refuse to honor its treasuries. While I agree with the latter, I disagree with the former. I’m going to explain why I believe this, and why it all hinges on China…

When China lends money to the U.S., what they’re technically doing is buying U.S. treasuries from America’s private banks. First, they take their printed Chinese Yuan (or it could be computerized money, doesn’t really matter) and with it buy US dollars (again, can be literally US dollar bills or just a number in a bank account somewhere). They can do this because the Yuan has value and they can find lots people and banks who own US dollars who want to buy Yuan. After all, China has lots of great merchandise for sale and very competitive prices, and multi-national companies such as Nike and Mattel love buying and selling this merchandise to Americans, and they use Yuan to do this. So then, China will take those US dollars and buy what are called treasuries from US banks. These treasuries are essentially IOUs – a promise to pay back the cash at some point in the future with interest. The rate of interest is determined through an auction. In other words, banks offer up a limited amount of IOUs to the world, and buyers offer the lowest interest rates that they’re willing to accept for those US dollars. If American banks can’t sell enough of their treasuries, or if the rate of interest that buyers demand are too high for the banks to afford, the banks run out of money, become insolvent, and go bankrupt. That is, unless someone bails out the banks. Of course, as we all know, this is what has happened. When China, Japan, Germany, etc don’t want to buy enough treasuries to keep the banks afloat, the U.S. Federal Reserve, known as the central bank, must print enough money to buy the treasuries to keep the banks solvent. In doing so, they’re balancing out the supply/demand equation of US treasuries. This keeps interest rates low. But here’s the catch. The more treasuries America’s Federal Reserve buys in order to keep banks afloat and interest rates low, the less appealing US treasuries are to the real buyers because of the low rates of interest they get in return. This turns into a downward spiral, until eventually, the Federal Reserve will be the only buyer of bank treasuries. When this happens, it is the realization of the hyper-inflationary nightmare that should scare every person on this continent to the pit of their stomach.

Right now, the world at large is running on the assumption that US treasuries are the safest investments in the world because America will never default. While I agree that America will never refuse to honor its treasuries, it will do something equally as bad which is make those treasuries worthless because their interest rates will trail the real inflation rate so badly – i.e. a huge negative real rate of return on treasuries. When this happens, the only way the government can hold onto power and keep control of its most important ally, the military and the police, is to print enough money to pay its soldiers and police officers enough to not quit their jobs. This is exactly what happened in Zimbabwe, and it’s why like a spreading wildfire, hyperinflation can never be controlled once it begins. You think those 100 trillion dollar Zimbabwean bills are funny? We’re probably going to see those things in in the next 10 years, maybe even with Obama’s face on them.

This is why gold will never stop increasing in price in dollar terms. This is also why I believe that not physical gold, but rather gold mining stocks are one of the best investments to be overweight in right now, because the price of these stocks have trailed the price of gold badly over the last couple of years. Equity investors are expecting bullion to fall, and when it becomes apparent that they won’t, mining stocks will go up quite violently. I would not hesitate to borrow two years’ income to invest in these stocks. I would still hold some physical bullion, however, as there remains the risk that hyperinflation could happen so violently that you can’t extract your stock profits fast enough to protect them with hard assets.

I personally believe that the U.S. has enough revenue to pay for essential government services. The problem is that nobody in power really wants to accept the fact that America can’t afford its non-essential services, no matter how much money they siphon from the economy with its taxes.

#79 maltesehamster on 08.02.11 at 11:41 am

Now there’s an option for those of us wanting to invest in real estate, yet survive the coming apocalypse caused by greater fools:

http://all-that-is-interesting.com/post/4956385434/the-first-zombie-proof-house

#80 thecomingdepression on 08.02.11 at 11:48 am

Right or wrong about their asset choice, PM investors continue to be the rudest of visitors to this site. — Garth

I think the radiation has seeped into your thoughts. PM investors are right, you’re wrong. Admit it. Or you don’t have the balls? America is BANKRUPT, its all just a charade.

More proof. Thanks. — Garth

#81 squidly77 on 08.02.11 at 11:54 am

Realty bubble monitor

Oh no say it ain’t so.

#82 Mr. Reality on 08.02.11 at 12:03 pm

Recession coming to a country near you!

Mr. R.

#83 kc on 08.02.11 at 12:14 pm

HSBC … Has anyone called a bank lately to do simple things like open a new account? My guess is you will get on the press 14 merry-go-round until you finally are on hold to talk to a REAL person … however, are you aware that 99 of 100 you are talking to a person over seas in a call center? HSBC uses call centers in Malaysia where people work for 2000 Ringgits /month average or a third what a CND dollar is worth.

How many of these job cuts do you think are going to be in Malaysia, or any part of the Asian continent? (Unless HSBC is moving many of the offices into India and paying 10,000 Rupees a month)

Anyone here directly affected, or personally know someone affected and can shed light on the subject?

#84 Devore on 08.02.11 at 12:15 pm

#37 Mean Gene

Just saw Property Virgins on HGTV for the first time, I feel ill now.

The US episodes can be rather interesting, the Canadian ones with Sandra’s perpetual smirk and smart ass comments make me want to punch my TV. But then I’d have to buy a new one.

You should watch My First Sale and Buy Me for a peek into our future (some of those are from Canada circa 2008, boy, those almost make me shed a tear. Almost.)

#85 OMG on 08.02.11 at 12:24 pm

This is the reality of it for Vancouver West Side summer of 2011.

True story, just happened.

Buddy’s girlfriend, (chinese national, works in the middle kingdom right now, just to be part of making a once in a lifetime killing) flew into YVR 3 fridays ago and on the sunday drove to upper Kits and bought a home for 2 mil with no conditions on the sale. Cash.

Some lucky ass white guy is now renting his home back for $6000 per month and now has a nice cushion in the bank to withstand whatever comes next. Bet his sleep is extremely peaceful.

The reality is, HAM must get it’s money out of China to someplace stable and beyond the reach of the apparatus. This is really not an immigration situation, it’s just business. The owners of HAM have no real intention of leaving China unless the secret police are hot on their heels.

HAM bears no relationship to immigration that has happened in the past and therefore cannot be compared to what everyone’s immigrant relations endured when they got to Canada.

Much HAM is owned by Chinese bureaucrats that earn a salary in the middle kingdom. Their HAM is acquired by kickbacks for their co-operation in approving commercial projects in China. The rub comes when these bureaucrats have so much slush cash and no way to explain it.

So what of the guy and his family in Langley township?

Well it’s apples and oranges or HAM and eggs. It’s two different things. Ham is not coming to Walnut Grove or Brookswood. It’s not.

And therefore, if you live in Walnut Grove your eggs are cooked. No Ham for you. Next!

Those are quite the extrapolations from one property sale. BTW, the possessive of ‘it’ is ‘its’. — Garth

#86 Junius on 08.02.11 at 12:29 pm

Good chart at Big Picture that compares US, Canada, Australia and UK homes. Note that Canada has now deviated from historical norms by 32% which is close the 35% the US was at when their bubble burst.

This should be enough to make Smoking Man light up.

http://www.ritholtz.com/blog/2011/08/us-vs-canada-vs-australia-vs-uk-realty-bubble/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29

#87 Devore on 08.02.11 at 12:33 pm

#59 appraiser

In addition, I keep reading about a declining real estate market on this blog, yet the latest report from Teranet indicates that prices are up in all markets surveyed, yet again.

Teranet: Only months behind!

What will you be smugly saying when they’re “indicating” declines across Canada in a few months?

#88 Junius on 08.02.11 at 12:34 pm

#69 Kevin in Winnipeg,

You said, “Personal debt is a big number and makes headlines. I hate to say it but it’s irrelevant in the next 2-3 years.”

I don’t follow your logic. Our economy is between 60-70% consumer consumption driven. With debt levels now at their highest level ever don’t you see why an economic slowdown is inevitable?

#89 Devore on 08.02.11 at 12:43 pm

#72 Denisa

Shush you, we’re building equity here!

It is true though, most home “owners” will hang on, whatever it takes. Instead of looking down their noses at renters, they will join the ranks of the already disillusioned who are forced to share their family home with strangers living in the basement (or even upstairs), as they trudge off to their part time weekend jobs to make ends meet and feed the beast.

#90 Buyright on 08.02.11 at 12:43 pm

Looks like the Condo King is getting out at the top of the Condo Mkt

http://www.theglobeandmail.com/life/home-and-garden/real-estate/done-deals/the-condo-king-sells-his-own-home/article2112809/

Look out below

#91 Time Machine on 08.02.11 at 12:44 pm

#32 Chris

re: Squidly

I think Squidly said it all(and confirmed everything you said) with his reply…”Nonsence”

LOL

#92 fallout on 08.02.11 at 1:06 pm

politically speaking, I believe the US dems just lost the 2012 election.

#93 Davey Boy on 08.02.11 at 1:11 pm

How’s this for a theory. The government has purposely allowed people to live well above their means as a way to curtail the mass exodus of baby boomers from the work force. IE if you’re heavily in debt, real estate, credit cards, what have you, then retirement at 65 is unattainable and the future workforce shortage is averted without the government raising the retirement age and facing rebellion as seen in European countries

#94 vyw on 08.02.11 at 1:12 pm

#7
Dear Joe:
CDN housing was correcting in spring 2008 and actually froze up in fall 2008 when the financial markets tanked. It was revived by BoC crashing the rates. But if you check in places like Calgary and Kelowna, you will find that they haven’t recovered to their 2007/8 highs.

Garth actually called the housing correction back in 2007.

All markets, save for Vancouver and Toronto, and only for in choice SFH neighbourhoods at that, are now forming a top. But, IMHO, BoC rates would have to move up 2-3% to trigger a correction. In late 2007, BoC rates were 4.5%, they are only 1% at present.

#95 Junius on 08.02.11 at 1:13 pm

#66 The American,

You said, “Wow. It sounds just like the U.S. only 8 years ago. The Americans said, “Yeah, we’re perfectly fine! Our debt is about 1.4 times the average disposable, but our assets are value about 7.3 times the debt.”

That is precisely right. It reminds me of the famous debate between Peter Schiff and Art Laffer about the coming crash in Real Estate values.

What blows my mind is how easy it is too see where this is going based on the US experience. It was one thing for people who had never seen a bubble miss it. However it unbelievable that people in Canada can’t look to the US, UK, Ireland, etc. and see their future. It is just mind-blowingly stupid.

#96 Dr.NickRiviera on 08.02.11 at 1:19 pm

… Or ScotiaBANK. I don’t think Scotianank sells gold bullion. Neither does the Ben Bernanke.

BNS is the country’s largest precious metals retail dealer. Does no one research any more?– Garth

#97 Junius on 08.02.11 at 1:23 pm

#90 OMG,

Your explanation of HAM in Vancouver is pretty consistent with what I have heard as well. Much of the money is either dirty or at least stained.

There remain a limited number of places in China that people can safely place their money. There are increasing concerns of gov’t crackdowns on corruption and an overall tightening of monetary policy.

One new element is that the Chinese are becoming increasingly concerned that in the long term money leaving their banks will impact on their reserve requirements.

One thing is for sure. This is not a long term trend. It is a short term phenomenon that will end.

It would be progress if this blog could move beyond hearsay. — Garth

#98 Junius on 08.02.11 at 1:29 pm

#61 Carruthers,

Good post. The quote from the article is just so stupid in the context of consumer debt.

Here it is again:

“Debt isn’t necessarily a sign of weakness. It can be a sign of expansion” Part of growing is borrowing.” – Globe & Mail.”

Borrowing is only a sign of expansion when it is done for investing in the productivity of the future. Consumer debt operates as a drain on the economy and as money is siphoned away from consumption and into the financial services industry. This is economics 101. The Globe and Mail should be embarrassed.

#99 waterloo Resident on 08.02.11 at 1:30 pm

Garth says: ((“When the price of money rises, or the demand for homes falls – both of which will roll across Canada – asset values decline.”)).

Garth is right about that, but what happens if he’s wrong, what happens if interest rates continue to go DOWN because the economy is in the toilet? What then?

Will the continuously falling rates make home prices keep skyrocketing, or will the continuously decreasing number of jobs in the economy lead to FALLING home prices instead?

My guess is this:
– Interest rates will fall, they will fall as the economy falls back into recession. This will make home prices keep rising for the next few years. Then with the economy clearly in decline even low rates won’t be able to hold up the housing market and prices will fall even along with falling interest rates. (but that won’t happen for another 2 or 3 years time.)

The Bank of Canada rate will not fall. — Garth

#100 Abitibi Doug on 08.02.11 at 1:36 pm

@Davey Boy #98:
Interesting theory. Of course you can’t blame government, as these people who borrowed so heavily brought it on themselves. They should have used the record low interest rates to pay their debts off and be in a better financial state instead. That way they could retire and leave more job vacancies for younger people to fill and deal with the nagging youth unemployment problem.

#101 timo on 08.02.11 at 1:38 pm

http://www.economonitor.com/blog/2011/08/consumer-update/?utm_source=rss&utm_medium=rss&utm_campaign=consumer-update

And those attempts to push through price increases where when the economy was “good.” Imagine now. Those worried about runaway inflation vastly underestimated consumer’s ability to absorb higher prices

perfect, people are broke and they do not spend. welcome to deflation.

#102 Dr.NickRiviera on 08.02.11 at 1:42 pm

… Or ScotiaBANK. I don’t think Scotianank sells gold bullion. Neither does the Ben Bernanke.

BNS is the country’s largest precious metals retail dealer. Does no one research any more?– Garth

—————————-

I was correcting my spelling mistake / iPhone keyboard fail of “Scotiabank” in a previous post (which apparently never got posted) – I had typed it as “Scotianank”.

Yes, I know Scotiabank sells bullion. My point was that you stated on July 31st that anyone who had loaded up on bullion from Scotiabank last Friday was pretty much screwed.

Not so much, gold is up $30 since then – and heading higher.

My point was that speculation in PM at this point is unwise. — Garth

#103 timo on 08.02.11 at 1:46 pm

http://www.businessinsider.com/heres-the-hilarious-debt-ceiling-comic-strip-you-need-to-see-2011-8?op=1

lol….!!

#104 Devore on 08.02.11 at 1:50 pm

#103 Junius

This is economics 101. The Globe and Mail should be embarrassed.

This is 21st Century Reporting 101:

“Debt isn’t necessarily a sign of weakness. It can be a sign of expansion” Part of growing is borrowing.”

Everything they said is 100% correct and true.

#105 Petro on 08.02.11 at 1:53 pm

Squidly 77 at 11am wrote,

Last I looked Gold was $1572 CAD.. There are much better investments to be had.

Guess you looking in awhile, at 11am Gold was trading at about $1640, it hasn’t been below $1600 since July 22

#106 waterloo Resident on 08.02.11 at 1:57 pm

If you are a Canadian and you want to buy a GOLD ETF, check this one out:

Horizons Betapro COMEX Gold Bullion Bull Plus ETF

( HBU.TO )

Check a 2 or 3 year chart of it and you will find that it really looks good !

#107 Dr.NickRiviera on 08.02.11 at 2:03 pm

I agree with you on most things Garth – we’ll see what happens with gold.

Your blog is one of the prime reasons we chose to sell our house last month and invest our equity before it evaporates. We move into our new rental condo in a shiny new tower next week – with zero debt and peace of mind (which is priceless) as the economic madness takes place this coming fall/winter.

Thanks for all your hard work in writing each day, we appreciate it!!

#108 Renting in leaside on 08.02.11 at 2:04 pm

Without malaise towards any profession or its customers, and I would give credit to the author if I knew but this line has always help me put things in perspective: “There are no thousand dollar hookers, only thousand dollar Johns”
Not to put anyone in the same boat, just saying, enjoy reading Utopia’s entries, Brad from Cowtown and even the Smoking man. Keep up the interesting posts.

#109 Helicopter Ben on 08.02.11 at 2:21 pm

Gold is really going nuts today, makes sense when they are putting a few more trillion in the system or atleast the idea of it anyways. same old story though Gold is the constant base line on the chart its Fiat money that is getting devalued. its an inverse chart, same with stocks it has more to do with the credit bubble and creates false wealth. Kinda like here in Calgary everyone has has a nice truck, nice new home nice Quad and boat but ask them for a 100 dollars and they dont have it as they are money poor and bloated on credit. I am not gloating about gold or silver though as deflation does scare me, i dont care about 24 hour PM charts as thats not the reason i own it, i own it cause i am betting on high inflation and stimulusin the long term. but i am not dumb enough to believe i know what the future brings, there will come a day when stimulus has no effect. either deflation then hyperinflation will happen or vice versa. i think hyper or atleast high inflation happens for a few years before the whole thing blows up then deflation. get your popcorn ready.

#110 Moi on 08.02.11 at 2:25 pm

Gbook? That sounds fun! LOL. :)

#111 Devore on 08.02.11 at 2:29 pm

http://househuntvictoria.blogspot.com/2011/08/july-sales-data.html

Greater Victoria market is officially dead. MOI at nearly 10.

As HHV points out, price declines are already here, and have been for a long time. Buyers are getting more house for their money. But (average) prices remain high, even though there are heavy discounts on individual properties, often below tax assessment. That is because buyers can still borrow ridiculous money, so, as common wisdom has it, they are buying the most house they can afford. Thus average prices remain steady, but product mix has changed quite a bit.

#112 Hell in a Handbasket on 08.02.11 at 2:29 pm

Here is a thought on the unpayable debt. I was reading some Tarpley and he quoted Volcker as saying his greatest achievement was to prevent a “debt cartel” from forming among the Latin nations back in the 80’s. The worry was all the debtor nations would band together and demand debt relief by threatening large scale default.

Thus that is why you see round after round of bailouts. More money loaned just to keep paying the interst on old loans. What is that saying? Borrow 1000$ and that is borrowers problem, borrow a million dollars and that is the lenders problem.

#113 Alex on 08.02.11 at 2:37 pm

GTA gets 100000++ immigrants/year. 9 mil boomers are expected to retire over the next 20 years, of those 2 mil are in GTA which will give you an average of 100000/year who may also look to downsize. So, how’s that supply again? Or is it that 20111 is not a typo after all?
____________________________________________
Source: http://www.toronto.ca/demographics/pdf/profile_tor_bulletin.pdf

Toronto population 2011 – 2,855,084
Projected Population 2016 – 2,885,035

2855084-2885035=29951
Let’s say average family = 2 persons = 14975 new families in 5 years

Toronto needs in addition – 7487 units/5 years

Now we build 17000/year condo only

#114 appraiser on 08.02.11 at 2:38 pm

#92 Devore: Re: Teranet.

“What will you be smugly saying when they’re “indicating” declines across Canada in a few months”?

So along with perpetually being the smartest guy in the room, you can now tell the future. Very impressive.

You and your cohorts on this blog have been bleating for many months now that the real estate market is in decline, yet the steady price increases say otherwise.

It’s one thing to try to predict the future, it’s quite another to misrepresent the present.

#115 Kevin in Winnipeg on 08.02.11 at 2:40 pm

#93 Junius on 08.02.11 at 12:34 pm

I don’t follow your logic. Our economy is between 60-70% consumer consumption driven. With debt levels now at their highest level ever don’t you see why an economic slowdown is inevitable?
—————————————————————-
Do you honestly see current consumer spending slowing down? There is still plenty of room to go. I personally know several people who are using their home equity like they won the lottery. Banks are throwing money at home owners and they are using it. As well, you can still get a 0% car loan for 60 months or buy furniture without paying for years. Why wouldn’t people take advantage of this? I doubt consumers will just stop without a catalyst.

Don’t get me wrong, all this debt will rear it’s ugly head sooner or later but not for a while.

#116 Dad on 08.02.11 at 2:43 pm

Sorry garth bud Dad is on vacation from the comments section until the gold bugs take their infection elsewhere. There are few, if any, political or economic blogs or forums I can read anymore that haven’t had the gold-doomer crowd shout everyone else out of the place with their online flaming.

#117 Devore on 08.02.11 at 2:54 pm

#110 Petro

/facepalm

http://goldprice.org/gold-price-canada.html

I did a “fun with numbers” episode a few weeks ago showing how, even though Canadian gold bullion investors have done well over the past 10 years, they haven’t done nearly as well as their US counterparts.

If you believe US dollar will continue to decline and gold increase, the way to exploit it in Canada is not though gold.

#118 jess on 08.02.11 at 3:04 pm

Securities lending

“Most accounts of the crisis give a headline role to SIVs, money funds, securities dealers and, as I
shall come on to, the RMBS market. There has been rather less daylight, especially outside the US,
around the somewhat obscure but very significant role played by the securities lending markets.
The vanilla securities lending market is straightforward and important: it intermediates the loan of
securities (equities, bonds or whatever) by asset managers to short sellers who need to deliver
securities to settle their transactions. Securities lending is absolutely vital to effective market
making, and thus to efficient capital markets. Asset managers hold their securities with custodians
and, ultimately, in Central or International Securities’ Depositaries. Many enter into a service
agreement under which their securities can be lent out by an agent. That provides the basis of a
parallel, financing market. This is big, perhaps $3½trn at its peak.

Say a Treasury Bond is lent out not against collateral in the form of securities but against cash, as is normal in the US market and had been growing in Europe before the crisis. The cash collateral can then employed in the market,ie it is lent to counterparties, usually secured. During the boom, risky assets, including ABS and
CDOs, were increasingly accepted as collateral via so-called triparty repo arrangements, under
which they were sometimes grouped with more innocuous securities with similar ratings. This
effectively financed the inventory of dealers and other leveraged investors. Demand was strong.
The financing tail came to wag the securities-lending dog. I doubt whether all asset managers
understood the instruments they would have been holding outright in the event of a counterparty
default.
But that is only the beginning. Some asset managers used the cash generated by securities lending to
buy risky assets outright. AIG’s escapade in and massive losses from the CDS and CDO business is
well known. Less remarked upon, although public,7 is that the insurance parts of the group – not the
derivatives part – lost enormous amounts of money from securities lending, as they ended up
reinvesting vast amounts of cash in securities. These investments had maturities of years not
months, notwithstanding that a securities lending contract typically gives the borrower as well as the
lender (ie the underlying owner of the securities) a right to terminate the transaction on demand.
Again, I suspect that many asset managers did not understand their exposures. They had leveraged
up, and exposed themselves to liquidity risk. Securities lenders like AIG were effectively assuming
robust liquidity in the secondary market for their reinvestment securities. They were wrong. As the
value of those assets fell, ‘securities lending’ counterparties called their repos. In effect, to add to
the problem of accumulating investment losses, AIG suffered a repo run – just like a bank run, in
fact.
And as the crisis progressed, our sense is that securities-lending-based financing of leverage was
withdrawn, exacerbating the deleveraging in the system, the erosion of market liquidity, and falls in
asset values…+ (bofEng)

#119 Chris's Teacher on 08.02.11 at 3:10 pm

Dear Chris,

I thought you were taught to be a polite boy. Instead, I find you bullying squidly.

Let’s take a look at your letter to him.

“That, and seeing how idiotic he can come across,…”

Chris, how many times have we gone over the difference between adjectives and adverbs? You must know it should be “idiotically” here.

“….never bet against uncle sam.”

Christopher, just because squidly chooses not to capitalize his name, doesn’t mean you can forget to as well. Uncle Sam from now on please.

“Or when he posts his numbers of wisdom regarding foreclosures….”

So squidly can’t start sentences with “but”, yet you can merrily dash of a missive beginning with “or”? I’ll let you think about that one young man. As for “numbers of wisdom”, what mangling of our good Queen’s English is that?

“It’s like your posts are a grammatic finger print. ”

Now Chris, this looks like you’ve taken to making up words now. It’s “grammatical” of course. You better behave young man, as it’s not too late for summer remedial classes.

#120 Devore on 08.02.11 at 3:27 pm

#120 appraiser

Huh? Fact: Teranet index has significant lag time, because of its methodology, same as Case-Shiller index. Fact, real estate remains grossly overpriced in Canada. Another fact, real estate is in various states of decline in many markets already.

The rest is my personal opinion, and I do not believe opinions can be wrong.

#121 Junius on 08.02.11 at 3:30 pm

#121 Kevin in Winnipeg,

You asked, “Do you honestly see current consumer spending slowing down?”

Yes. All of the economic data suggests that it already is slowing down.

Perhaps it is different in Winnipeg but in the debt capital of Canada – Vancouver – you see the signs everywhere. More store closings and GOB sales then I have ever seen. Lots of restaurants and retailers complaining.

#122 Junius on 08.02.11 at 3:32 pm

#109 Devore,

Not when debt refers to personal debt related to consumption and asset acquisition only. There qualifier is misleading. I don’t agree.

#123 jen on 08.02.11 at 3:33 pm

Interesting comparison of bubbles in english speaking world:

http://www.ritholtz.com/blog/2011/08/us-vs-canada-vs-australia-vs-uk-realty-bubble/#comments

#124 S-J on 08.02.11 at 3:46 pm

Slightly off topic, but it is not just housing that is expensive nowadays in Canada. If you look all around you, just buying ordinary goods is so much more these days.

Trundling around the food store today, I was stunned to see a leg of lamb priced at over $37.00! Actually, it was amazing to see how prices have increased overall. Luckily for me, I bypassed the leg of lamb and picked up five items totalling the same price – obviously, I got a deal today!

Just returned from good old England – “Rip Off Britain”, I used to hear! The surprising thing is that food costs and lots of other items are now quite a bit cheaper in the UK than here in Canada (even adding in the exchange rate). There are sales and bargains everywhere. Saw an advert for kitchens at 65% off.

I also just went to Amazon Canada to order the first Looney Tunes DVD Collection for my son. On Amazon UK, it is 5.99 pounds. Here in Canada, the same DVD is $59.99 and in the U.S. it’s $25.48. Surely, there is a typo here. Why are we being charged $59.99 for a DVD? I suppose, it’s because here in Canada everything is hunky dory and we are all doing so well?!!

So, when housing prices fall, will everything follow and will I also be able to get that Looney Tunes DVD for $5.99 ?

#125 Abitibi Doug on 08.02.11 at 3:51 pm

All this talk about the merits of gold suggests it may be in a bubble, even if it’s not at the peak. The time to buy gold was when it was dirt cheap in 1999, not now. If you have a lot of gold it would be a good time to sell some of it and buy some equities, seeing as they have dropped in price. Better yet, if you have excellent timing and just sold your house, use the money to buy some cheap equities.

#126 waterloo Resident on 08.02.11 at 3:51 pm

(( “The Bank of Canada rate will not fall. — Garth ” ))

I sure hope you are correct about that, because if you are wrong then MORE suckers are going to be betting their future on this housing casino, and they are going to get burned if housing does fall.

Lets hope you are correct.

#127 brainsail on 08.02.11 at 3:52 pm

#110 Petro on 08.02.11 at 1:53 pm

I will sell you 1000 oz at $1642/oz CDN. Offer ends today. Call me.

#128 Bankers pulling the plug on 08.02.11 at 3:52 pm

#121 Kevin in Winnipeg

People are maxed out and broke. Look at the stock market crashing since countries face going bankrupt from debt. All this will put pressure on interest rates. Banks are now getting tight with lending deadbeats more money. Everywhere you go all you see are deals deals deals since people are not spending due to being maxed out. It’s game over for those indebt. Welcome to the redit crash of Canada and look to the US for our future.

#129 Golden Stewie on 08.02.11 at 4:00 pm

"…I don’t think Scotianank sells gold bullion. Neither does the Ben Bernanke.
BNS is the country’s largest precious metals retail dealer. Does no one research any more?– Garth"
 
Scotia Bank are good at selling paper certificates, there is a tiny fraction of the PM in their vault that they have "sold". Same goes for the LBMA in London.
 
Most the world believed the LMBA was THE premier source of "Physical" gold on earth, how ever don’t forget that last year it was admitted that the LBMA have trade on a fractional basis. It was admitted they have sold 100 ounces of gold for every ounce of actual physical gold they have.
 
You could easily argue the real market price for PM is already 100x what the spot price is today.
 
The Gold market is THE largest comodity market in the world, well over $35 Billion per day traded and 99% of people think they are buying gold when in reality they are given a peper certificate. Basically if more than 1% of its customer said, "show me the gold" it would be game over.
 
"That is the granddaddy of all short positions.
The fractional reserve operation of the LBMA is likely to be the next Madoff scandal, except multiplied by 100 — a $5 trillion fraud as opposed to a $50 billion fraud.

P.S.
As much as the differences in opinion rages over the collapse of the housing market to the pros & cons of PM’s, anyone reading this site already has more info than most the population.

For a public figure such as Garth to stick his head above the trench and make his views public, puts him in a very welcome minority and he is to be commended for it.

#130 Victoria Tea Party on 08.02.11 at 4:11 pm

“FRAGILE GLOBAL ECONOMY…”

That’s the headline, and today’s excuse from those apparently in the know from Bloomberg news this date, for the following tantalizing bits of “news” from our economic dark side:

–US GDP near to zero growth;

–US manufacturing in the tank;

–US consumer spending likewise;

–China officially worried about it’s most prolific debt customer’s ability to repay those debts (of course it is and of course it won’t!);

–German stock market’s DAX index solidly in the tank, two days in a row, (indicating future growth problems resulting in its probable inability to keep on bailing out the Rest of Europe’s debts);

–US Congress’ awful mess of its debt-ceiling raising resulting in 265 plus points DOWN on the DJIA. The S&P index is underwater for the year;

–Gold pushing through $1,654.00 US!

So, for the don’t discount the US crowd, a word to the wise. It’s OK to discount it because it’s not coming back to it’s so-called consumer-driven good old days.

Why? Because of a key difference between the Great Depression of the ’30s and today’s much larger economic disaster.

Back then the Yanks had actual productive industries on site. The problem was a lack of customers.

Today they have offshored those industries and soon they won’t have any customers for their foreign-made stuff!

What’s the next shoe to fall?

Oh, let me see. How about a US bond downgrade threatened by S&P? That’ll kill off the middle class in the US, Canada and in all of the American trading partners.

China already downgraded the US, today, the second time in the past couple of months.

Maybe the Dagong credit agency bean counters don’t cut much mustard in the West. But in the Shanghai bourse, they sure as hell do!

I have no clue where all of this economic dross is leading. It’s too soon to tell. It’s mighty unsettling in the meanwhile.

But those Canuckleheads who’re deep into house-porn will shortly have a few of life’s lessons to learn.

Oh, do you hear a knock on your door? It’s your bankster!

#131 Dan in Victoria on 08.02.11 at 4:15 pm

Devore @ 117
Thats pretty much what I see in the Victoria market also.
I priced out a house to build for myself, decided to wait, (big boss saw what was/is happening and agreed.)
Am now getting calls from suppliers and trades wondering if we were building.
Willing to review their prices.
KC @88
Hi KC sorry didn’t get back to you.
Didn’t get up to north end of the island, spent a lot of time out on the wet coast.
Alberni seems ok, but talked to a lady at my favorite resturant, buisness is poor.
She was hoping this summer would make up for last fall, not happening.
No tourists
Lots of hiway logging trucks running, but they seem to be hauling 8 inch logs with purple tags, not sure about that.
Very few large loads.
Was waaaay out in the bush cutting campfire wood, nothing going on, heard no saws, no heli logging and no off road trucks running.
Roads are not graded and are starting to over grow.

Housing in Alberni appears to have stalled and prices are off.
Nephew bought last year against my advice and houses on his street are now listed for about 20K less and not selling. OPPS.
The few areas that we stayed seemed to have a large number of european, asian tourists, didn’t see any americans.
Fishing charters could be booked in the morning for that afternoon, unheard of in years past.
Float planes on the day I was in Tofino were sitting, weather was okay.
Thought that was odd.
Sorry to hear about the garden, fishing here has been spectacular. Have my years supply of sockeye canned and am just going to go get my springs for smoking.
If you get over here drop by and i’ll give you some smoked fish.

#132 timo on 08.02.11 at 4:15 pm

http://www.cnbc.com/id/43988195

http://www.bloomberg.com/news/2011-08-02/commercial-mortgage-late-payments-hit-record-in-signal-of-market-distress.html

http://www.banktech.com/management-strategies/231300026

no panic?

#133 jess on 08.02.11 at 4:22 pm

wages are falling/stagnant but prices are increasing hence no inflation? I suppose a global asset manager thinking macro sees no problem since wages are seen as a break to inflation.

Economy Lab
Relax, your household debt is not out of control
may jeong
Globe and Mail Blog
Posted on Friday, July 29, 2011 12:58PM EDT

Nothing like a cut and paste article from a political science student who does a good job at translating english to chinese. The article quoted the GLOBAL asset manager, Mr. Lascelles who has faith in the system. The credit cycle is done. When you read that the Indian family of 4 is paying 6% on his mortgage and now rising to 12% or the Brazilians with the HSBC credit card who are maxed out….those interest rates are a killer.

#134 bigrider on 08.02.11 at 5:04 pm

Garth your investment/financial advice is sound ,needed and responsible but your predictive abilities have become somewhat suspect.

This politely comes from someone who wants you to be right about the coming ” RE melt “more than anyone on this blog

I think a on

#135 Kitchener1 on 08.02.11 at 5:34 pm

Gold is up huge today. HUGE.

Folks, if this trend goes vertical to past $1700 in a few weeks something bad this way comes.

From my experience, when ever we see a huge run up in gold– it usually foreshadows something serious coming up in worldwide events.

Its a huge flight to saftey– but almost worse then even t bills as it pays you nothing to own it.

#136 Rich Renter on 08.02.11 at 5:47 pm

Garth, where are we headed given all that’s happening in the economic world?
You mentioned a while back that we cannot have a jobless recovery and that more then anything is spooking investors. Given the current scenario, i can’t see how the BOC can raise rates and turn off the taps to cheap money.

#137 kc on 08.02.11 at 5:53 pm

dan 132

Sorry to hear Alberni is that far down…. i remember years back you had to practically book a boat launch time 2 days in advance and to get charters… if you didn’t reserve 4 months before … forget it. it was the Americans i was wondering about. They seemed to flock to the valley there every year. I guess that the salmon festival will be showing less of a turn out.

Thanks for the offer, doubt I will be heading over anytime soon thou.

#138 Conflicted Pumper on 08.02.11 at 5:58 pm

Nobody knows what will happen tomorrow, but so far Broken Clock Shedlock got it right with his call for a “Gap and Crap”, while Garth’s pump for a pop was way off.

This is a setup for QE3, and when that happens, Canadian real estate will be levitated for the duration of that USD devaluation exercise.

#139 English Teacher on 08.02.11 at 6:10 pm

I want to let Chris’s Teacher know that I enjoyed his or her post immensely. I had a good laugh.

#140 BPOE on 08.02.11 at 6:17 pm

Debt deal was a smoke show as I stated. Proven by todays markets. Gold hit a record high. Bounced back quicker than I thought. Cheap money is flooding Canadian mailboxes. Vancouver goinup folks as the world looks for a safe haven

#141 miketheengineer on 08.02.11 at 6:35 pm

Garth et al:

Thoughts on Gold

Very few own more gold than what is on their neck and wedding ring. Not very useful, hard to carry about in your pocket and spend at Loblaws.

Garth has posted this many many times.

For most it is “institutional” in nature, owned mostly by banks and richie rich types who hoard it. You pay a premium to purchase it, and they you sell it at a discount. The guys who buy that stuff when you go to sell it when the SHTF, and everyone else goes to sell, will have the “gold brokers” buying for scrap prices.

Better off to have some productive Real Estate than gold. The bad guys have a lot harder time trying to carry off a 2400SF home than 2400 gold coins.

But hey, if you feel that Gold is your thing, go for it. I personally wouldn’t touch it till I had a whack of free cash and all RE paid off. (Which won’t be any time soon)

Good luck to all the Gold Hoarding Richie Rich types on this blog! Whoopie…………………………

Just my opinion.

#142 Nathan in Van on 08.02.11 at 6:42 pm

Hahaha. “Safe Haven”. Classic BPOE.

Honestly, ARE there any safe havens left? I’m seriously considering my frigging mattress at this point.

#143 from kits on 08.02.11 at 6:54 pm

@ Joe Robertson

sounds like someone listens to money talks….

awful lot of defence for someone so certain in their position, compensating? :-)

#144 Imstupid on 08.02.11 at 7:12 pm

#13 #35 the truth

I don’t know the number of immigrants coming to Toronto but I can say for sure that they cone with little or no money. A certain percentage will come with money or transferred here for work but the majority are poor from third world countries looking for a better life. They don’t come for our outstanding water front or our great weather.

#145 timo on 08.02.11 at 7:23 pm

http://patrick.net/forum/?p=926243

jump, wall street, jump

#146 Oasis on 08.02.11 at 7:34 pm

right OR wrong? you’re not sure?

Thanks for validating the point. — Garth
________________________________________

and it thought i WAS being polite. gold $1660. by the time this is all over, that number will look small.

#74 BrianT on 08.02.11 at 10:58 am
You are supposed to shut up and keep eating your raccoon stew in your cabin in the woods-it is guys like you that are driving the Swiss Franc to record highs against the greenback and loonie.
____________________________________

sadly, the world would be a really different place if I could move markets.

the reality is that the USDollar is going to become toilet paper soon. there’s nothing that can stop that from happening.

what is Bernanke going to do for an encore? the US economy is going into another tailspin. he can’t lower rates any more. … so.. he’s going to do the ONLY THING HE CAN

PRINT PRINT PRINT TRILLIONS and cause a precipitous drop in the dollar. everyone knows this… it’s going to get ugly.

#147 Mr. Reality on 08.02.11 at 7:40 pm

“Debt isn’t necessarily a sign of weakness. It can be a sign of expansion” Part of growing is borrowing.”

What a joke. I wonder what the author would have to say about fractional reserve lending and how it has destroyed growth.

Mr. R.

#148 Ozy - Stupid Stats on 08.02.11 at 8:05 pm

This averaging is insane, 1.5 times in debt and 7.5 times in assets. The assets do not belong to the 95% that have massive debts (crap in garage does not count ). Assets are owned by upper-clas with no personal debts, and debts are owned by so called middle-class that have no assets paid off…funny times Canada

#149 Devore on 08.02.11 at 8:09 pm

#142 miketheengineer

Thoughts on Gold

I don’t know that many people hoard physical gold, but lots of people trade it. If you just trade, there’s zero reason to hold physical. This means you can buy at a discount, and sell at a premium, with something like CEF or GTU, which always overshoot extreme movements in either direction.

#150 Nostradamus Le Mad Vlad on 08.02.11 at 8:11 pm


#37 Smell The Coffee — “At some point someone with a gun shows up to collect.” — Agreed, but what will ‘they’ end up collecting?

If anything, I say the reason the WH is looking to bring gun control in, is to stop a forthcoming revolution, as many citizens are hoarding bullets and firearms with the express intent of taking out their frustrations on govt. levels of all kinds.

So-called officials are running scared in the US, which is probably the reason for the TSA grope-downs and Homeland Security, neither of which existed prior to dubya’s reign of terror.

dubya is Caligula rebirthed; Obama is Nero, both playing the same roles they did eons ago and the end result will be the same — just as the Roman empire finished their cycle, so will the west.

#54 TurnerNation — “Heee’s back!” — Surely you jest! Not Osama bin DeadforalongtimenowLadin? Obama resurrected Osama when he realized there’s another erection (Chinese for election) next year, and needed an excuse for re-erection.

Re-erection, retirement, resurrection and rebirth suck for some!

#84 kc — “. . . until you finally are on hold to talk to a REAL person . . ..” — A very good reason to walk to a local credit union, have basic savings and chequing accounts set up while keeping investments (with DRIPs) and TFSAs with a trusted and smart CFP or fee-based advisor.
*
Strawberry Rhubarb Crumble (with blueberries, boysenberries, raspberries and gooseberries tossed in), topped with custard or french vanilla ice cream. Why is it that there is not enough time to experience all the culinary delights of this world? We all have a best-buy or expiry date, but I would like to extend mine by three or four centuries. Maybe Dr. Who can help with the Tardis!
*
Obama Austerity only a first step (to martial law). Austerity measures have gone down really well in Europe; Provocation Guess who provoked first? Revolting Rebels The rebels in Libya have gone wacky; Police State Official — the US is now a police state, another reason to confiscate guns, gold and ammo; Super Congress “When six Republicans, six Democrats and the President have complete control over the legislature, we need to be concerned.”; Pix of Vesta asteroid; Polar and Teddy Bears Something strange; NATO Interfering again.

Fudge Covered debt deal; 3:50 clip Now the debt deal has passed, sheeples’ revolutions will begin! It’s all orchestrated by TPTB; Honeybunches Wall St. still loves Obama. Hmmm. Would the US$27 trillion bailout have anything to do with that? 5:04 clip Yesterday, Putin referred to the WH as a parasite, and he wasn’t too far off the mark, living off the blood of others; No one in their right minds would expect a default — a downgrade maybe, but no default; Tungsten Gold Cdn. wafers may be a better investment, and Gains / Losses or Yins / Yangs, Positive / Negatives, etc.

Egypt Remember Ireland’s ‘Infernal M-F*&kers? Consumer spending falls in June. Expected, but the result to the retail outlets is presently unknown; Cut US$20 trillion Another POV; Failure To Communicate or re-negotiate; Italy and Spain, you’re on you’re own plus other links; South Korea buys gold (lots of it).

#151 yawbawdy on 08.02.11 at 8:22 pm

“It’s A Tradition… It’s A Religion…It’s A Barbarous Relic… It’s $1,650”

#152 kc on 08.02.11 at 8:59 pm

#151 Nostradamus Le Mad Vlad

#84 kc — “. . . until you finally are on hold to talk to a REAL person . . ..” — A very good reason to walk to a local credit union, have basic savings and chequing accounts set up while keeping investments

I tried that crap with one here that advertised ZERO bank charges…. you might have remembered the ads… (Westminster cred union) since all i have are cash GICS with over 50K and no credit cards nor any credit ratings they said sorry, we can’t give you an account. I am not a entitled to free anything for that would cost them blood suckers money every month to have me as a client. You can only guess where I told them to shove their shitty PR works. Then I contacted Olsen on your side and asked him what gives … (CTV News guy in Van) he said yes I am not the only one to complain about the banks policies however, cred unions are just that… CREDIT scams…. have you noticed that they don’t advertise those ads anymore?? I raised holy shit with the managers and then top brass with them.

cheers

ps last laugh is mine… my bank now has ZERO charges for any deposits over 25K so screw all banking establishments.

#153 HouseBuster on 08.02.11 at 9:08 pm

You goldbugs are giving goldbugs a bad name. Go back to your parents’ basement and STFU!

#154 TurnerNation on 08.02.11 at 9:10 pm

Attn. Doomers, the shelves will not run dry!

This is how corporations earn profits and they will not cut off their golden goose. Now, whether we can afford the food products is another matter.

Did you notice today, during the market carnage, the US Grains ETF was up 3.2% – symbol JJG – IPATH DJ-AIG GRAINS TR ETF

#155 kc on 08.02.11 at 9:11 pm

actually it might have been coastcapital cred union i can’t remember now that was 6 months ago

#156 Markey on 08.02.11 at 9:22 pm

#82 squidly77 – that site looks like a contender for WebSitesThatSuck.com .

#157 Mr Buyer on 08.02.11 at 9:35 pm

#125 S-J … Prices of many things are way out of line in Canada now. It is way cheaper to go out for dinner in my neck of the woods in Japan. 500ml of chocolate milk is like $1.20 Canadian at the local corner store. Things were way cheaper in Canada ten years ago. I can not understand why Canadians are being gouged as they are. Supply is much more restricted here in Japan.

#158 OMG on 08.02.11 at 9:40 pm

Wow, spanked by Garth for grammar.

You don’t live here Garth. You have no idea.

Extrapolate that!

#159 appraiser on 08.02.11 at 9:56 pm

Devore:

“But (average) prices remain high, even though there are heavy discounts on individual properties, often below tax assessment.”
——————————————————————–

Pretending to analyze local pockets of real estate or even worse, individual transactions, with imaginary insider knowledge, in a wide open and free real estate environment; and then extrapolating your simplistic conclusions to represent the entire real estate “market” is amatuerish.

P.S. You sound like you are 12 years old, wanting to punch T.V. ‘s and such, while apparently addicted to watching HGTV. Just another disgruntled bubble-head who can’t tolerate the success of others.

#160 Devore on 08.02.11 at 10:33 pm

#160 appraiser

/yawn

You sound like you’re a little obsessed with me.

If you have an issue with my facts, provide a counter. If you have an issue with my opinions, provide your own.

Or, keep calling me names, working out great so far.

#161 dd on 08.02.11 at 10:33 pm

#76 squidly77,

I don’t have a “sell” price. My analysis is based on fundamentals. When these change or if there are better investments on a comparision basis then I would sell.

#162 disconnect on 08.02.11 at 11:54 pm

I’m get’n a bit tried of all the folks that keep saying people migrating to Canada (Van/Tor) will keep home prices up. Sure it can’t hurt, but do you know how many people leave Canada each year? Well, do you? Last I read, the government does NOT TRACK THIS (until you apply for benefits, that is). Maybe Garth could challenge/support this. But I seem to recall there are over 1 million Canadians in California alone. And what Country do some new Canadians move to, hmmm, I wonder. And when were going down and the USA is going up, what do you think will happen to migration.

#163 BrianT on 08.03.11 at 5:02 am

#147Oasis-I assume you recognized a sarcastic comment relating to the absurd belief expressed here whereby guys in the woods are the main demand driver for gold.

#164 Roland on 08.03.11 at 5:58 am

Caligula and Nero came EARLY in the history of the Roman Empire. The Roman Empire lasted nearly four hundred years after Nero.

Of course, the Romans had become decadent, corrupt, perverted, and murderous even before Caesar Augustus.

The American Empire is not about to end soon. This monster has scarcely out of its adolescence. Its greatest “glories”–and most horrid crimes–still lie ahead.

The problem in human history is not that empires collapse. The real problem is that it takes so long for it to happen.