The ‘mistake’

Jim and Val sold a house in a not-so-hot part of Vancouver four months ago and walked away with $1.3 million. Good thing. Their RRSPs had dust bunnies in them and Val’s job just vanished. The sale price was $1.85 million, for an unconscionable gain over the $675,000 they paid five years ago.

“Trust me,” she says, “we knew this was lucking out. Thank god we got off that street in time.”

Indeed. There hasn’t been a sale since.

“The hard part is listening to our friends telling us what a horrible mistake we made,” Val adds. “I think about that every time I go online and check out our cash flow. Then I laugh.”

The 30-somethings took their mil and (diversification be damned), dumped the whole load into a mess of preferred shares in Canadian banks, paying an average of 5%. Now they have an income of about $5,000 a month, and rent a far better house (with no suite, no tenant and more privacy) in a far  better neighbourhood. They live free. They have a million dollar investment account. Peanut taxes. Life’s a beach.

“Best of all,” Val told me in one of her rambling update emails, “when the rest of the world was going apeshit last week and guys like you were freaking over the markets, our stuff hardly moved.” And she’s right. The preferred shares of banks and big insurers did what they’re supposed to do – sit there and behave, while forking over income. The market values barely changed more than 1% a day, while stocks screamed higher and lower by six times that. And all the while, they continued to pay the rent.

Hard to see why anyone in VanCity (or hunks of 416, Calgary and The Peg) would not follow suit. After all, the insane runup in real estate values is a once-in-a-lifetime event, a windfall, bestowed on people who happened to be in the right place at the right time – people who, without this gift – were headed for a diet of day-old bread and Alpo in their golden years. For the reasons this pathetic blog keeps telling you about, this asset class will soon disappoint mightily.

Of course, most people don’t believe it, and won’t until illiquidity moves onto their street. Can’t blame ‘em, though. They keep getting lied to. For example, the Vancouver real estate cartel is telling people the market is balanced (that sounds soothing) with buyers and sellers in “an equilibrium range.” More accurately, it’s a state of advanced delusion.

In reality, this market’s weakening faster than Barack Obama. The inventory of homes for sale is moving relentlessly higher and just unexpectedly spiked in mid-August – hitting levels not seen since the market collapse in 2008.

Sales last week dipped below the year-earlier mark and have fallen closer to the worrisome level seen as the financial crisis was bubbling. The average condo price already flatlined and is now drifting down. Sales and prices of SFHs have been wobbly since late Spring.

Says one of my confidential realtor sources: “My current prediction is that sales will not be as bad as 2008 and may exceed 2010 by 8% — but 2010 was a terrible year (36% down from 2009).  Listings are very high now and will probably be the highest august ever. Not good omens.”

And he passes on this story: “My parents are the typical Baby Boomers.  Bought house in 1979 for $79K now worth $1.1M in that wonderful place called Richmond.  They want to sell – Neighbour 2 doors down just listed – – however, they know that the next door neighbours on both sides also want to list – – so it could start to be a flood gate and they don’t want to be last out the gate!!!

“In trading we move by fear and greed – – and I think my parents sense those initial moments of fear!”

That’s the thing about real estate, of course. Laden with emotion. It drives people to make bad decisions. Blinds them to alternatives. The ultimate social gauge. It can create wealth from nothing. And when it turns, it’s ravenous.

Unlike falling stocks, with a five minute exit, a house you can’t sell in a declining market becomes a wealth trap. How we can live next door to a middle class housing largely destroyed, and not get this, is beyond me.

Val knows.

“I may buy our old place back, when it costs half what we got,” she says.

“Nah, screw that. I’m just going to watch.”

173 comments ↓

#1 squidly77 on 08.12.11 at 10:06 pm

Your post tonight, plunges a stake directly through the heart of CMHC, or the fools that back CMHC.

#2 MarcFromOttawa on 08.12.11 at 10:09 pm

1st

#3 squidly77 on 08.12.11 at 10:11 pm

The idiocy that now dominates America.
White House Press Secretary Claims “Unemployment Benefits Could Create Up To 1 Million Jobs”

#4 shanks on 08.12.11 at 10:12 pm

what FIRST!!!

#5 moremiles on 08.12.11 at 10:14 pm

Garth would you include etf’s that consist of preferred such as CPD as being desirable as well?

#6 steve p on 08.12.11 at 10:22 pm

first

#7 Calgary Illusion on 08.12.11 at 10:24 pm

Quick question Garth:

If an RRSP is converted to a mortgage product – can the wife pay 1/2 the mortgage and the husband the other half (i.e. the mortgage is 200,000 and the husband has 100,000 in RRSP and the wife has 100,000 in RRSP?)

No. — Garth

#8 ryzer on 08.12.11 at 10:28 pm

Jim and Val putting all their windfall in preferreds is a grand mistake at their age. They may feel smug not having to experience the same periodic dips as they would had they invested in equities, but for their peace of mind they’ll pay a huge price in foregone upside.

#9 squidly77 on 08.12.11 at 10:31 pm

Grammar mistakes, mostly intentional.

#10 tigerbaby on 08.12.11 at 10:33 pm

there have been all kinds of talk about how much $1 use to buy in the good old days. what I would like to know is how long did people had to work to make that $1 back then?? is it not the case that people actually have more these days? especially considering how many more people we have now …

and I don’t think we need to worry too much about the collapse of the economic system, whether it’s because of hyperinflation, low EROEI or whatever … if that is happening any time soon, all the people “in the know” would be spending all their money instead of trying to make more, wouldn’t they?

regarding energy requirement, well I’ve heard that e=mc^2. so as long as someone comes up with a bright idea to squeeze a bit more out every say hundred year or so I think we’ll be fine :-O

#11 mid-Ontario on 08.12.11 at 10:36 pm

Live Under Your Means – on BC.
“Just learned that our electricity rate will increase 20% over the next 3 years. We already have one of the highest rates in the country. We’ll be adding another Electric Thermal Storage heater on the main level this fall.”

You are somewhat fortunate that your rates will remain but a fraction of Ontario. Here they upped rates with a HST kicker and “smart meters” last year in the range of 25 to 50% all the while denying it. Then, they announced a rate increase of 100% over the next 5 years.

With higher local taxes due to Provincial cutbacks, higher service costs and a Hydro increase as described, there will be many on the streets in the future no matter what happens to mortgage rates.

The word is once the HST is nation wide, the Feds will move to collect property taxes.

Ultimately we will all loose this rigged game.

#12 Calgary on 08.12.11 at 10:44 pm

Bought some pfd in RY and GWO today….a lot better than cash or GIC!!!

#13 Snowboid on 08.12.11 at 10:45 pm

Val states…

“I think about that every time I go online and check out our cash flow. Then I laugh.”

I have the same feeling every time I do the same and I must admit it trumps any negatives from friends and relatives who thought we were bonkers to sell.

Here in Harley alley they have a new way to describe the current situation (courtesy of a local paper):

“The Central Okanagan real estate market continues to be good and bad based on July sales numbers”

Take your pick!!!

#14 kimi on 08.12.11 at 10:52 pm

The best way to rid yourself of the E-Motion that sets one up for disaster… is MOVE! Run, walk, do something to avoid getting all e-motional. It screws you up in real estate and screws you up in life.
To keep a level head … exercise, just simple motion (not the shopping mall kind) will help those of us who are extremely emotional. It helps your esteem, mind, relationships, health and everything!! Get off the tread mill and run in nature or walk … hell ‘whatever’ just move.
Dare anyone, who thinks I’m wrong.

#15 Devore on 08.12.11 at 11:02 pm

#8 ryzer

Jim and Val putting all their windfall in preferreds is a grand mistake at their age. They may feel smug not having to experience the same periodic dips as they would had they invested in equities, but for their peace of mind they’ll pay a huge price in foregone upside.

What upside? How can you say that knowing what you know? They can sell all their preferreds instantly with one click.

#16 Snowman on 08.12.11 at 11:04 pm

Take that million and buy uself a business, a franchise or something, you can easily pocket $250k++/year instead of a few coins a month. You are in your 30s, why live, think and act like a 75?

#17 Eric on 08.12.11 at 11:07 pm

@#170 (from yesterday’s entry) Mister Obvious

“The world now brims with marauding yahoos including (but not limited to): Illiterate foul-mouthed punks, drunken partiers, hockey rioters, vandals, muggers, taggers, thieves, aggressive panhandlers, road-ragers, transit seat hogs, pushy salespeople, and rude oblivious cell phone jockeys.”

A beautifully written description of a dark world, Mister Obvious.

Since I’m currently using a lot of public transit in my travels around China, I am particularly attuned to descriptions of public rudeness. People in China hork and spit all over the place, and every public space is polluted with the stink of countless cigarettes. There are lineups for everything, and unless you keep your body right up against the butt of the person in front of you, ten people will instantly budge in front of you. I have been in lineups where people have defecated and urinated right beside the queue because they didn’t want to lose there position in line. The stench can be overwhelming at times. The roads are the same as everything else. Horns are constantly blaring as people continuously try to squeeze their way into someone else’s space. Within a day of of my arrival in China I couldn’t take it anymore, and I started screaming at people who tried to budge into queues. Of course they just pass it off as the ravings of a crazy foreigner.

The Chinese treat the whole world as a big garbage can. As soon as a wrapper or drink bottle is no longer needed, it is simply tossed aside. On the Great Wall, I saw a mother teach her child how to dispose of plastic garbage by simply tossing it over the side of the wall.

Mister Obvious describes a dark side of life in urban Canada, but I would suggest that there are far worse places on this planet. There is a massive gulf between rich and poor in China, and those with means know exactly what they are doing when they emigrate to Canada. They are moving to a much better place.

#18 Coho on 08.12.11 at 11:15 pm

Was the “American Dream” to own a paid off house or become financially independent? I guess at one time these two were almost one and the same, but not anymore.

To even have a shot at financial independence, the approach appears to be in selling one’s house particularly if the situation resembles anything like with Jim and Val.

Good for them! They’ve achieved financial independence. They essentially replaced Val’s job by doing what most won’t, and that is take advantage of a once in a lifetime major capital gain opportunity and derive good income from it. How many average working stiffs will ever accumulate one million in liquid assets? “Free” shelter and living expenses on the interest yet their friends laugh at them!

The “dream” appears to be so corrupted that today it means to buy an overpriced house with no money, and put every spare dime you have into servicing it, work until you’re 75 (the last 15 years working as a Walmart Greeter) and then…

And we hear every day that “life is too short”.

#19 Rich Renter on 08.12.11 at 11:21 pm

House prices in Ireland are 50% on average off from the peak of 2007 and are still dropping 4% per quarter. I can only imagine the poor people who bought at the top, not funny at all.

#20 syd on 08.12.11 at 11:22 pm

Garth,

Can you please answer this question once ?
How can people in Van qualify for 1 Mil mortgages when their incomes are below 80 k ? Dont banks look at some type of payment ratios ? Thanks in advance

#21 uk lad on 08.12.11 at 11:26 pm

so, jim and val invest $1,000,000 in bank shares at 5%, canadian inflation rate of 3.0891% plus whatever tax they pay and they will be lucky to break even.

all of their wealth in one asset class( banks of all things!!) just to tread water.

as for investing in the stock market, from it’s peak in 1999 the dow is down 86% when measured against gold and still falling, with falls becoming deeper and more violent.
house prices down a similar amount.

this is the deflation garth, robert pretcher and others are waiting and looking for but it has happened under their noses for the last 10 years because they still calculate in fiat currency and refuse to accept gold as money.

#22 Carp on 08.12.11 at 11:28 pm

As you know, I was in Vancouver seeing friends, living in Richmond and listening and only at times warning – depending on the crowd. I did refer folks to this site as well. For the crowds, mostly in the mid-30’s, I drank beer and listened to them making more on RE than their jobs in the past x years but still having significant debts. All I could do was drink more beer and image sheep head on my friends ….

#23 Smoking Man on 08.12.11 at 11:37 pm

To tired to say much tonight much to the delight of a few on here.

What a week , ca ching…but with all the money I made over last few months haven’t even added it all up, I have six trading accounts, but my mark to market is over the moon..

Picking the turn right down to the minute this time was sort of amazing, but not as amazing as this….

This week Garth said my spelling errors where Faux, I looked it up…He thinks I am faking it…..

Can’t tell you how hard my wife was on the floor laughing, see knows I’m f-d in the typing and word dept….

What ever you do , let them think you are a faux speller. Your off the hook…

Too late honey, have a great weekend all. time to re charge for great philosophy next week…….

#24 Smoking Man on 08.12.11 at 11:43 pm

Grath I can’t beilive I am asking for advice, but I really don’t know…….
the answer to this..

Where can I move (country) so I don’t pay one dime in tax…..Note book computer and a fridge to keep the beers cold is all I need. Hopefully nice weather.

Suggestion?

#25 Nostradamus Le Mad Vlad on 08.12.11 at 11:58 pm


Really good column about an unexpected windfall, investing the money well and living free off the net monthly proceeds.

Part of the amount can also be used to top up TFSAs / RRSPs, and to keep a rainy day fund. Akin to the workers in Ottawa who were given pink slips one day, then collected the 6/49 a day or two later.

Good on the couple in the post, as they will have the last laugh on the homeowners who view their houses as ‘investments’.
*
#156 disciple on 08.12.11 at 3:16 pm — “The government’s attempts to eradicate this problem in its War on Drugs is having some success in supply rates of marijuana and opiates.”

When a govt. is in control (sic), turns out the “problems” don’t exist! — Fast and Furious.
*
Italy Austerity for the masses, not Berlusconi; QE3 Not as shapely as QE2, and QE3 — From a ladies’ perspective (more spending and taxes); UK Pensions Almost 25% will retire in poverty; Goldbugs, rejoice “Gold is back, for good.”

Financial WW3 first, then the physical one; Germany and France are running scared, and Nonsense and Euro-Recession; Soros and other investors buying farmland; Booga Booga! Now the political BS against S&P and Moody’s begins.

Monsanto Five contributions to society; Gaining Momentum Pre-secession plans; Libya, Syria and anyone else — “The lies used to justify the NATO war against Libya have surpassed those created to justify the invasion of Iraq.”

Eat Junk Food to counter; The Brits. are doing the same thing here as they did to Sadaam; 2:18 clip Very colorful language — those behind the London riots; Link in Yemen and Chile. Add in China and this world is fast becoming a basket case.
*
These two links are supposedly in different worlds, but basic research shows otherwise.

#26 Pat on 08.13.11 at 12:12 am

@ #8 ryzer,

And what do you suggest – dumping 1mil. at once on growth equities?

#27 WI Boomer on 08.13.11 at 12:13 am

Oh VAl-
$660K in preferreds?
I’m OK with that, IF you are fully funding your RRSP (the after-tax kind of vehicle thart is in broad market funds or ETF’s for growth). IF you are not, suggest putting 100-150K into some diversified funds as 5% while good is not great.
Glad you got out of the lunacy before the listings boom and it becomes a buyers market – for both of the buyers left- and the sellers cringe on a product no one wants at the current price a haircut might generate interest, if you can afford the hair-cut. Ask a seller in Phoenix AZ today if the should have listed when the market was “only” off a few points for 10% less. Trapped would be a TERRIBLE place to end up, and who knows where this will end. We do know HOW this will end. The US hasn’t hit bottom yet. Our politicians are now on stupid pills, and man-made inflation seems the cure du hour. We are in trouble.

Well, dinner & drinks were fun tonight, after a frustrating week of work & maarket turmoil. Hope people made a few bucks in all the volatility, it was there for the scarffing.

#28 Jon B on 08.13.11 at 12:27 am

This post tries to suggest that Val’s experience cashing out of overpriced Vancouver RE is or should be the ultimate objective of every RE owning Vancouverite. Not true. It is far better to own Vancouver RE debt/mortgage free AND have a pile of cash in the bank to invest than it is to pay a landlord every month from proceeds that might come directly out of the gains/principle from those investments.

Not once values fall. — Garth

#29 Patz on 08.13.11 at 12:34 am

@ 10 tigerbaby

Wonderful Panglossian viewpoint tig. Better than phenobarbies!

#30 Samsara on 08.13.11 at 12:47 am

lie, cheat, deceive, connive
buy now, pay later
consolidate your loans, take more, give less
drive big, eat all you can
survival of the fattest
shock and awe
regime change
do as i say, not as i do
eye for an eye
free money if you fall over, sue the company
diminished responsibility
everything is acceptable, as.. long…. as….. house….. prices…… don’t……… crash…

Ott – Roflcopter:

http://www.youtube.com/watch?v=lh8_ebhKQzM

#31 Mr. Reality on 08.13.11 at 12:54 am

If we get a major commodity correction those single industry resource towns will be the worst liquidity traps of them all.

Mr. R.

#32 Dr. Fred on 08.13.11 at 1:04 am

Must be why you have time to post here so often. — Garth

Wrong…again. Sigh. My sympathies to you and yours.

#33 Peakoilist on 08.13.11 at 1:14 am

GT wrote “a windfall, bestowed on people who happened to be in the right place at the right time – people who, without this gift – were headed for a diet of day-old bread and Alpo in their golden years.”
Garth ..LOFL !!

#34 Tony on 08.13.11 at 2:04 am

#8 ryzer on 08.12.11 at 10:28 pm

You’ve got that right, when this bear market really sinks in and the bank shares around the world are worthless then the Canadian banks will follow suit just like back in 2008.

Rubbish. — Garth

#35 waterloo Resident on 08.13.11 at 2:23 am

I don’t know what people are complaining about, home prices in Canada WILL NOT fall, they only go in one direction and that is UP . I’m talking about home prices in general, overall, even though in some places there are examples of home prices falling a lot ( like Windsor ).

Yes, sometimes average Canadian home prices do fall down 2% to 5% in one year, but then the next year they bounce back up 10% so the 5% drop is quickly forgotten.

Here is something that I read on another web site (this one: http://ca.finance.yahoo.com/news/For-real-estate-deals-look-yahoofinanceca-3816834820.html?x=0#mwpphu-container ) :

((( ” House prices will never DROP as expected. We are in for inflationary times which make our money worth less! So, in fact the price of houses will continue to increase by at least the inflation amount. Other than that, houses in good areas will raise dependant on demand.
The only way that house prices will drop is if we have a depression causing the masses to lose income and thus foreclosures.. and I do not think Canada is in for that. US is in their state as they all bought houses they could not afford. Canadian banks do not allow that to occur. Most USA people live beyond their means on credit…BUT NOT CANADIANS ! ” )))

I sort of believe that too. I wish home prices would drop like the American market because personally I think that home prices in Canada are 2-times too high and our young just cannot buy a place of their own, but I don’t see that happening for the next 50 to 100 years. It will take a near depression / world-war before that happens here because we are Canadians and things are different here. Yes, THINGS ARE DIFFERENT here in Canada, our housing market is different, it never falls. When I say ‘never’, what I am saying is that IN GENERAL it doesn’t fall, yes there are odd spots like Windsor where they do fall, but on AVERAGE our prices don’t fall, not like America’s prices fell.

======

As for that article on investing in Bank Shares; If you want to invest in Canadian Bank shares then this is a good ETF to get: XFN.TO

And here is the chart of it over three years:
http://stockcharts.com/h-sc/ui?s=XFN.TO&p=D&yr=3&mn=0&dy=0&id=p52924359462

If you want an ETF with double the gains and losses, then this is a good ETF to get: HFU.TO

And here is the chart of it over three years:
http://stockcharts.com/h-sc/ui?s=HFU.TO&p=D&yr=3&mn=0&dy=0&id=p85228070582

( Notice with these stocks that there are times when they do fall, sometimes a lot, so its not all worry-free.)

#36 Kilby on 08.13.11 at 3:41 am

Victoria and surrounding municipalities, number of price changes (residential) from July 1st to July 30th this year, 479. Will check August to see if this changes…..

#37 Thetruth on 08.13.11 at 3:49 am

Too much of this doomer talk (without facts) regarding housing is starting to wear thin. Interest rates will stay low for years to come. Maybe 5 years or longer now.

Plus demand will stay strong in Cities. Surrey has tens of thousands of basement suites….plus many future immigrants to come.

When the USA raises theirs in a few years time, we will let our currency suffer rather than raise rates.

Toronto and Vancouver’s prices aren’t going down anytime soon.

And people, stay in variable. This is reality and not fiction.

#38 Canuck Abroad on 08.13.11 at 4:09 am

Post from Doomed / 162 /
GTA Girl on 08.10.11 at 12:29 pm

GTA Girl that was a great post re Toronto condos –

“…And I am hearing from those inside the industry, that there is no way any of them would buy the crap that is being built now. Workmanship is shoddy, building codes are being fudged, some will have concrete issues in times…People don’t seem to clue in that the swim up bar pool on the roof shown in artist rendering in sales brochures are not a guarantee. Even if built, the condo owners have to maintain and pay for it…And if it is like the mess of the Mystic Point condos on the lake, beer bottles tossed from balconies, 20somethings partying at the pool till sick and drunk. Fire extinguishers let off in the elevator….paying %450k before tax, fees etc. to live in a frat house, doesn’t strike me as a wise investment…Don’t even want to skip forward to think what some of these condos will be like in 7yrs…”

Excellent! Reminds me of High Rise by JG Ballard. Anyone thinking of buying a condo should first read that book.

#39 arctodus on 08.13.11 at 8:04 am

#10..more whistling past the graveyard my friend.

The Priest kings of the Mayan empire knew damn well that sacrificing the masses with obsidian knives and invoking the sun gods powers would do nothing to break the droughts and the famines that where hammering the Mayan Empire.
All they knew was that they had to desperately keep control by any means necessary and that meant attacking their neighboring City states…..and hiding the truth from the citizenry.

For the Mayans, “peak corn” was not solved any more than our current dilemma of “Peak Oil” will be.

The Mayan empire collapsed in less than 100 years driven by a destruction of their energy base and greatly exacerbated by their social response to said reduction.

We will be no different….just a lot faster….

#40 Form Man on 08.13.11 at 8:35 am

#1 squidly 77

” the fools that back CMHC “……………um….. that would be us…….the Canadian taxpayer…………….

#41 allister on 08.13.11 at 8:51 am

Markets are most volatile at turning points, be they tops or bottoms.

Any bets that Bank Of America has a problem? – this is a significant bank and may cause a cascade of non confidence.

#42 Moneta on 08.13.11 at 8:55 am

Mister Obvious describes a dark side of life in urban Canada, but I would suggest that there are far worse places on this planet. There is a massive gulf between rich and poor in China, and those with means know exactly what they are doing when they emigrate to Canada. They are moving to a much better place
————–
A decade ago, our company hired a consultant to determine whether we were high tech enough. ‘The results came back confirming we were behind the US but in the middle of the pack when it came to our Cdn competition. That was proof that we were fine.

I was disgusted as I didn’t want to be just average in high tech because for a 25-29 year old worker average was a hindrance to my future career prospects. But most of those in charge, boomers, were still not using computers so what did they care about technology?

Anyway, every time someone tells me that I should put up and shut up because I have it good relative to someone else, I cringe because honestly, I will never stop doing my best and help others do their best just because someone out here has it worse than I do.

I think that growing populations are hard to manage, especially when everyone thinks they are so special and better than their neighbor. If Canadian cities keep on growing, those issues of respect will only intensify if we don’t fix them now. And I don’t care if Chinese spit in China, I don’t want them spitting here.

#43 Mike on 08.13.11 at 9:02 am

There is a big school of argument that Canadian real estate ain’t seen nothing yet. Why? Stable – ish government, oil, water, gold, silver, nickel, copper , we can grow our own food, fertilizer …. ohhh and nat gas if you really care. Where else is there in North America… US is circling the drain but in denial of course. Europe.. well you know the answer to that…. Maybe Brazil which is why Stevo is heading there. Anyone wonder why he is there. Cause he knows the US is in deep deep sheit unless they pull another Bernanke. But that’s another story.
In our very decent area in Toronto everything is selling. Bungs in original condition from 50 plus years ago selling for around 800K.. psycho.. Million plus also sells …nothing like the Val story of course. Just look at guava.ca to see the stats if you don’t believe me.
Prices should flatline for quite awhile but sink 30 % …no way. If it drops 15 then it is still higher than 2008-9. Anyone owning for 5 years or more with decent equity will be sitting on a decent return in 10 years plus.

#44 Purrfect on 08.13.11 at 9:05 am

Have been purchasing preferred shares over the past year and like the young couple who cashed in on VAN RE, I’ve been happy with the cash flow. However, I’m concerned the rate reset preferred shares may be redeemed early by the issuer. This would create a loss of 5-10%. Are the perpetual preferred shares a better way to go?

#45 Aussie Roy on 08.13.11 at 9:33 am

Aussie Update

Blogger versus spruiker, you be the judge.

A complete analysis of relative housing valuations also requires a comparison of rental yields. And on this score, Australia again compares unfavourably with the UK.

First, consider Australia’s gross rental yields as measured by RP Data

http://www.macrobusiness.com.au/2011/08/housings-straw-man-argument/

Surge in Repossessions

MORE than 400 repossession writs have been served on home buyers in the past two months.
They are the highest figures for almost two years, more than double the number of repossession writs filed in the Supreme Court of Victoria six months ago.

http://www.news.com.au/money/surge-in-home-repossessions/story-e6frfmci-1226100520336#ixzz1UuoAYHG5

PROPERTY investors are facing fresh headwinds with rental income growth stuck below the pace of inflation.
As new research from RP Data shows, capital city rents over the past year have grown just 2.7 per cent, and financial experts say there are wider long-term forces at play for real estate investors to consider.

Australia’s latest annual inflation rate is 3.3 per cent, and will be updated next week.

http://www.news.com.au/money/property/flat-rents-a-fresh-headwind-for-investors/story-e6frfmd0-1226096532118#ixzz1UuoiNRa5

#46 Moneta on 08.13.11 at 9:47 am

GTA Girl that was a great post re Toronto condos
—————-
A friend of mine bought a condo a decade ago when they were still 120K on probably 40K income. She has been tight but OK. I don’t want to think of those buying the same unit today fot 250K on the same income.

The balconies, in wood, were rotting and needed to get done. She voted for doing the work ASAP but everyone else decided to delay. By the time they got to doing it, lumber had more than doubled thanks to the real estate bubble in the US and she was stuck paying double what it would have cots had it been done when she wanted to do it. Fun!

A friend of my dad’s owns a condo on the Plains of Abraham. Last year, the garage needed to get redone so I think he had to contribute 30K and this year it was the windows for something like 40K. He has the money but I don’t want to think of those who had to tack on an extra 70K onto their mortgage to finance this.

Every time I mention the real estate bubble, people around me point out that everything I say is only based on anecdotal evidence or borderline conspiracy theories. I chuckle. I know I’m onto something because not long ago, they used to only laugh at me. Now they use big words!

Recently someone told me that I was judging without facts. What if these people were using inheritance money. So I asked her how many people she knew had bought houses priced over 500K over the last few years. Then I asked her how many she knew had died in the same time frame. Now answer.

#47 Gord In Vancouver on 08.13.11 at 10:11 am

#20 syd

How can people in Van qualify for 1 Mil mortgages when their incomes are below 80 k ?
________________________________________

People who earn less than 80k but made money off their previous homes can, theoretically, qualify for a 1 Mil+ mortgage.

Kudos to those who made money but if you need a large, long term mortgage to get into a bigger home now, you’re not much different from a naive first time buyer.

#48 timo on 08.13.11 at 10:12 am

http://www.latimes.com/news/local/la-me-bus-benches-20110812,0,3944723.story

Los Angeles is so broke that even the bus benches are being foreclosed on.

#49 The InvestorsFriend (Shawn Allen) on 08.13.11 at 10:19 am

SYD at number 20 ASKS:

How can people in Van qualify for 1 Mil mortgages when their incomes are below 80 k ?

Syd, who says they do qualify? Not everyone is average.

The buyers’ incomes are far above average. The average homeowner bought when prices were FAR lower.

#50 City Slicker on 08.13.11 at 10:24 am

Thanks Garth another enlightening and fun write up. “apeshit” – haven’t heard that word in awhile!

#51 TurnerNation on 08.13.11 at 10:30 am

R/E tours?

The Globe and Mail reports in its Thursday edition the Canadian tourism industry is increasing efforts to target the Chinese market, after the strong loonie scared away American visitors. The Globe’s Tamara Baluja writes that while other countries such as the United States and New Zealand have been able to capitalize on Chinese outbound tourism for years, it was not until June, 2010, that Canada finally received approved destination status from China. The designation allows Chinese nationals to travel to Canada in large groups, a popular model that gives tourists the advantage of group discounts. The approved status also means Chinese tourists can skip the hurdles, such as obtaining the required permission and visas to visit Canada. The first group of 230 tourists crossed the Pacific last August. The Canadian Tourism Commission has seen a 26-per-cent increase in arrivals from China over the past year. Air Canada doubled its capacity between Toronto and China with the introduction of daily flights year-round to Shanghai, Beijing and Hong Kong, in addition to its flights between Vancouver and all three cities. The Fairmont hotel chain is spending less on the Canadian market in favour of Asia.

© 2011 Canjex Publishing Ltd.

#52 Adviser on 08.13.11 at 10:36 am

One thing I don’t really understand is why would anyone move all their net worth from one asset class into another, without even attempting diversification.

The chance of both assets falling is rather equal I would state, as financials have not been making higher highs in a while now, but let the market be the judge.

At least spread the funds across several sectors with some bonds and defensive stocks to achieve diversification and some degree of negative correlation.

#53 Imstupid on 08.13.11 at 10:38 am

#35 Waterloo resident

You quote yahoo finance as your source as to why home priced will only go up. That is like going to a auto mechanic for open heart surgery. Remember that Internet posts on sites like yahoo are intended to draw traffic, as traffic generates ad dollars, given that fact the best way to get traffic is to update site so any story that will attract traffic will be posted. Think about it.

#54 'kin loving it on 08.13.11 at 10:47 am

hey BIGBOY, I just saw your comment from a few days back with regard to the Foothills Lottery Home being for sale. you mentioned that if you won it you would sell it as well…no shit Sherlocke

My point is that the home was advertised for $1.2M during the lottery, was listed for $1M and is now at $.875M

Times – they are a changin

#55 'kin loving it on 08.13.11 at 10:55 am

ps BIGBOY

dont respond back, I’m not paying attention these days. Tired of listening to all the 21 year old Millionaires/Interest rate experts/Economists.

#56 ryzer on 08.13.11 at 10:58 am

Devore and Pat,

If Jim and Val are in fact in their thirties, then presumably they have 30 years left to work, and about 50 years left to grow their investments. Over such a long horizon, it is likely that a diversified basket of equities will vastly outperform other asset classes, including their chosen preferreds. That’s what I mean by foregone upside. I’m not suggesting they should put everything into stocks. But they should do as Garth wisely advocates: invest in a balanced portfolio that includes various instruments. What they have done instead is trade long-term purchasing power for short-term protection.

#57 Kilby on 08.13.11 at 10:59 am

#32 Dr. Fred.
It WAS you what mucked up my cat wasn’t it? Hope you invest better.

#58 Aussie Roy on 08.13.11 at 11:00 am

Mike on 08.13.11 at 9:02 am

There is a big school of argument that Canadian real estate ain’t seen nothing yet. Why? Stable – ish government, oil, water, gold, silver, nickel, copper , we can grow our own food, fertilizer …. ohhh and nat gas if you really care.

LOL.

Umm ever heard of Australia, big Island on the edge of Asia, small population with an abundance of natural resources. Food, energy and mineral exporter?. Small public debt. (sssh about the private debt at 160% of GDP, that’s the mortgage debt).

Didn’t stop the bubble popping down here on Asias door step, sorry but Canada isn’t different housing bubbles burst.

Slow the inflow of debt into your housing sector and it will implode just like ours is, right now. Watch your mortgage growth figures when they slow or go negative that’s the time to set up the deck chair and grab the popcorn. Who knows how many years it might take for our markets to become a good investment again but the next 5 to 10 years wont be pretty, IMO.

#59 wonderwoman on 08.13.11 at 11:03 am

#17 Eric

Not sure how much you said about China is true. I was in China last year for a month, and I saw beautifully landscaped cities with wide clean streets and helpful people.

Where did you go exactly anyway?

#60 ts harpoon on 08.13.11 at 11:06 am

Ottawa eh?

Thank you Garth.

Check out the link from the Ottawa Citizen below. I thought I was reading an excerpt from your blog.

http://www.ottawacitizen.com/business/defenceless+economy/5231396/story.html

#61 T.O. Bubble Boy on 08.13.11 at 11:06 am

30 Hard Facts on Toronto’s Condo Market

2 facts are quite interesting when you put them together:

>> Average price of new condominium, currently at $459,122, represents an increase of 10 per cent from July 2010 ($418,675).

>> Average rents of existing apartments in the GTA is at $1,045 for all types of accommodation compared with $1,044 from last year.

So, condos get 10% more expensive every year, but the rents they can generate do not grow.

sounds “balanced” to me

#62 Beach Girl on 08.13.11 at 11:13 am

I cannot imagine living in a condo, over which I have no control. Board members, who are probably drugged up, drunk or demented. Or worse, like to hear themselves talk. These are just glorified apartments. Actually they are way smaller than the apartments of the 70s and 80s.
I used to own a large house in Parkdale. It is still standing after over 150 years. Will these condos be there? Expressways made of concrete are falling down in Montreal and Toronto.
No thank you. I have control over my paid for property and can sink my ass in my own 86 degrees salt water pool. Also I rent out every available space, garage, driveway and all, live for free.
Have a nice weekend.

#63 BPOE on 08.13.11 at 11:21 am

Everything sells in BPOE. Folks, sometimes other people just ask too much for a house. Sometimes you get lucky and get more than you asked. But mark these old prospectors words. The people selling are Canadians. Canadians are also known as weak bids as they have no cash.. The big boys are moving in and mopping up everything in site. Buy it , bulldoze it and rebuild. If you have trouble sleeping at night because of your home then SELL. A big boy is waiting in the wings to snap it up. Breaking news from the World bank today basically saying the world is in bad bad shape. What the bank is saying is dont buy stocks and dont have debt you can’t afford to pay. Game plan for all you naysayers out there is to be in CASH ONLY

#64 Miko on 08.13.11 at 11:23 am

ryzer-
“im and Val putting all their windfall in preferreds is a grand mistake at their age. They may feel smug not having to experience the same periodic dips as they would had they invested in equities, but for their peace of mind they’ll pay a huge price in foregone upside.”

totally agree, they could have gotten some amazing dividend companies on sale this week yielding far more than that, with a much greater chance of capital appreciation. The pipelines, utilities, oil and gas companies, telecommunication companies and some reits were on fire sale this week. Had they bought on Monday they would have already yielded 4% in 5 days.
The pipelines are yielding 6% right now, I picked up more Canfor Pulp, Pembina, Daylight, Atlantic power and Bell alliant, providing an average yield of around 7%…..yippeee!

#65 BDG-YYC on 08.13.11 at 11:46 am

#7 Calgary Illusion on 08.12.11 at 10:24 pm

Quick question Garth:

If an RRSP is converted to a mortgage product – can the wife pay 1/2 the mortgage and the husband the other half (i.e. the mortgage is 200,000 and the husband has 100,000 in RRSP and the wife has 100,000 in RRSP?)

No. — Garth

————-
Garth that is incorrect. We have our RRSP held mortgage split between our 2 accounts. Each RRSP holds a portion of the single mortgage. The bank administers accordingly. RBC/Action Direct/Royal Trust.

Have fun with the CRA. — Garth

#66 TurnerNation on 08.13.11 at 11:54 am

In the business news this weekend:

Honda building a $800m factory in Mexico and hiring 3200 workers, producing 200,000 cars a year.
Viva free trade? For how long will their Ontario plant last?

And: “318 of the 457 S&P 500 companies to report second quarter results through Thursday topped consensus expectations”.
– Earnings reached a record level and pointing towards record earnings levels in third and fourth quarters.

Sounds like a good investment to me! Did you know, Verizon – symbol VZ – pays .48/share quarterly divdend? Stock is around $34 which is in the high range compared to 25-30 average range. Augmented with covered call income, this stock would produce a nice return.

US ETF: symbol PFF – preferred share ETF – pays about .20/month div/income I think.

#67 Killer Chicken or Imploding Boomer? on 08.13.11 at 11:54 am

42 Moneta – recently had dealings with computer savvy gen x/yer. Looked at CAD drawing derived from GPS readings she had prepared. Asked here what she had
done. After telling me, I told her that was great, but
youre about to put $3M worth of stuff in the wrong place.

Dont give me people who “understand” CAD, GPS or computers. Give me people who know what they are doing.

#68 Ausben on 08.13.11 at 11:54 am

Maybe old news here but here is a link to Stewart Lee’s comedy piece about global financial crisis and the UK’s doomed property fetish;

http://www.youtube.com/watch?v=NqTvPn82qLU

Enjoy the blog Garth!

#69 Daisy Mae on 08.13.11 at 11:54 am

Form Man on 08.13.11 at 8:35 am #1 squidly 77

” the fools that back CMHC “……………um….. that would be us…….the Canadian taxpayer……

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

The Canadian taxpayer is represented by the current government. And we, apparently, have no say….

#70 this is wonderland on 08.13.11 at 11:56 am

I’m wondering what’s going to happen when the U.S gets back on their feet. How many of our young, well educated and creative people will look over the border to the south and see cheap housing and a low cost of living and think what the hell am I doing here. Could we in the next 5 or 7 years see another Brain Drain in this country?

#71 timo on 08.13.11 at 11:58 am

http://www.yattermatters.com/2011/08/changing-conversation/#more-25714

“Should that continue and the calculated losses prove greater than now known, the fall season of Vancouver’s West Side party invitations will have a new twist asking you to come to a pot luck. Don’t be surprised if the invitation includes the obligatory BYOB.

If this proves true, expect to hear post introduction conversations that begin with these words: “wow – can you believe the decline in Vancouver’s real estate!”

run kick and punch your way to the exit !!

#72 confused and a little crazed on 08.13.11 at 12:07 pm

houses in van are still selling…it may take 3-4 monthes but they are moving. The older ones are bought by developers b/c once it is sold . they put a sign up and state “built to suite”

as for my stocks. I have bought again and it is currently down about 16 – 22 % from when i bought it . each gives about 4 % dividends.

Of course if i had not sold before i would be down 25-42 %. do i think it will go down further this year yeah sure but hopefully it bring in some better buys

it certainly is tough to get ahead

Simple. Don’t buy stocks. When the market was down 16% last week my balanced portfolio had slipped 4%. It will soon recover and advance, while paying me to own it. — Garth

#73 Gord In Vancouver on 08.13.11 at 12:19 pm

Just the beginning?

http://www.vancouversun.com/technology/Boat+slip+offer+bonus+with+strata+purchase/5251068/story.html

#74 Suede on 08.13.11 at 12:36 pm

Finally received an offer for our condo in vancouver yesterday. Buyer put down a huge low ball (5%) and we countered with 1% below but they wanted us to pay their broker’s commission of $4k on top of what she’d split with our One Percent Realty lady (~$3k). Never heard of this before, but obviously trying to appease the whole low commission structure of 1%.

Needless to say, it was my wife’s condo and she was ‘offended’ at the buyer’s initial and counteroffer and in fact livid to the point of no reason. I let her blow steam and even call our realtor while fully enraged with emotion saying “How dare they offer that” and “Tell them to go screw themselves if they want to demean my place like that”. The whole time, there was no talking sense to her as she was completely emotional about the home as she lived there for 4 years and then we rented it out when we got married, making net zero cash flow (rare in this market). The point of me keeping my blunt trap shut was to let her experience the emotion of the situation. When she calmed down and asked “what would you have done babe?”…..

“Phone our realtor and tell her to take the offer and sell the thing.” We’re now in the subject phase and the deal is supposed to wrap up and exchange the keys on August 30th.

Garth, I asked our realtor if she could get them to remove all the frivolous subjects, which wasn’t a problem, as well as provide a non-refundable deposit – but apparently this is illegal as the cheque is held in trust? Thought it was worth a shot if the buyer was serious and not going to back out during the subject phase.

Rock n Roll….

You wife freaked at an offer for 95% of the asking price? I hope she’s better at the rest of her life. — Garth

#75 Moneta on 08.13.11 at 12:41 pm

Dont give me people who “understand” CAD, GPS or computers. Give me people who know what they are doing
———

It’s nice to know what to do but if you don’t have the right tools to be leading edge well…

They go hand in hand.

#76 Killer Chicken or Imploding Boomer? on 08.13.11 at 12:45 pm

65 BDG – seems to make sense. If it’s doable on an arms-
length mortgage, why not an RRSP one? Garth – can you
be specific on your concern with CRA? Thanks.

You cannot co-mingle registered assets in two taxpayers’ names. — Garth

#77 Snowman on 08.13.11 at 1:10 pm

“Now they have an income of about $5,000 a month, and rent a far better house (with no suite, no tenant and more privacy) in a far better neighbourhood. They live free.”

There ain’s such thing as free lunch, or free living for that matter (unless your parents let you stay in their basement and feed you fish heads). With the inflation, tax and service fees all that “free living” comes off your 1mil stock value. Not to mention, if banks need to recapitalize and issue stock, you may end up with far less than 1mill …
Always beware of people who offer you free stuff … these things never end well

You’re just jealous. And you’ve obviously never owned preferreds. — Garth

#78 Pat on 08.13.11 at 1:18 pm

@ #56 ryzer,

The key word in my comment was “at once.” Nobody argues against a diversified portfolio. But building it over a period of time time, especially with the present market volatility, would be much better imho.

#79 BrianT on 08.13.11 at 1:27 pm

#70This-How is it possible you could be totally unaware of the USA fiscal situation? Back on its feet? look-when you borrow money you elevate your standard of living, and as long as you keep borrowing ever increasing amounts things are great. That is, mathematically speaking, where the USA is RIGHT NOW. Things are great in comparison to how they will be when the borrowing can no longer increase and actually needs to be paid back. Then you will see what “off its feet” actually looks like-these are the good old days.

#80 Bottoms_Up on 08.13.11 at 1:32 pm

#17 Eric on 08.12.11 at 11:07 pm
——————————————
Coincidentally I recently drove past a ~10 year old Chinese boy urinating on a fire hydrant beside a busy street in Ottawa (St. Laurent/Smyth intersection).

Instead of his parents encouraging him to go into the nearby library, blockbuster, Kelsey’s etc. they were standing there, absolutely fine with him doing this at the side of the road.

I guess there are families that don’t integrate/respect local culture or at least respect certain aspects of local culture.

#81 Bottoms_Up on 08.13.11 at 1:37 pm

#74 Suede on 08.13.11 at 12:36 pm
————————————-
Perhaps the non-refundable deposit Garth discusses is on top of the deposit that is held in trust? (i.e. a cheque is handed directly to the sellers, not the lawyer?)

#82 Canayjun on 08.13.11 at 1:42 pm

arctodus

We are not good at reading the signs from the past and learning from our mistakes. The cycles we go through and the cycles the earth goes through have been happening for thousands of years, but for the most part, people in general are completely unaware that cycles even exist, except for the economic cycle, which everyone seems to care about. And the greatest mistake we make, individually and collectively, is believing cycles don’t exist OR that we can alter a cycle.

#83 Snowman on 08.13.11 at 1:51 pm

“The hard part is listening to our friends telling us what a horrible mistake we made,” Val adds. “I think about that every time I go online and check out our cash flow. Then I laugh.”

What cash flow? As for laughing, at your age having $1mil blocked to get $4000/month of it, I would be crying if I were you. After you retire that $1mil will be gone after a few trips to your local Starbucks.
Better ask Garth how to make some real coin, he didn’t make his fortune by living of preferred stock dividend.

#84 Snowman on 08.13.11 at 2:23 pm

“You’re just jealous. And you’ve obviously never owned preferreds. — Garth”

Yeah, me jealous. Preferreds are good for people who can’t do better or don’t know better. Get $4000/month of a $1mill in your 30s this how you’ve built your fortune? I didn’t think so.

#85 Killer Chicken or Imploding Boomer? on 08.13.11 at 2:34 pm

You cannot co-mingle registered assets in two taxpayers’ names. — Garth

Hmmm. Interesting. But I have seen mortgages where the interest is split between multiple parties as an undivided (ie a percent or fraction of the whole) interest,
where a party can dispose of its interest to any other
party, or a new party ie each interest is its own entity
(though remaining undivided).

So 7 calgary Illusion’s title would show one mortgage with 50% (or 100000/200000 more typically) interests to each separate party.

BDG – can you elaborate on your arrangement?

#86 Rocket Boy on 08.13.11 at 2:45 pm

I just don’t see the reasoning in here – buy perferred bank shares and it’s guranteed to give you a lifetime of economic bliss?

So, I own my home – in the final stretch of our mortgage, instead of selling, I rent out a few rooms to people I know personally. They pay me $450 each a month. Hey, multiply that by 3 and I too live rent free PLUS the money I would use towards my mortgage payments are additional payments to have this mortgage beast slayed in no time. My house will be here tomorrow – next week and next year. Investments, of any kind – are not fool proof, G, I understand your view, just don’t agree that you can’t go wrong with them.

I picture Val with all his eggs in “one”basket, for his sake, lets hope he doesn’t trip. Nothing is without some level of risk – because if it was such a sure thing, everyone and their uncle would be in it – and that itself would destroy it.

You can thank me later.

You mean like houses? — Garth

#87 Meth Place on earth on 08.13.11 at 2:51 pm

Garth what do you make of larry’s chart at http://www.yattermatters.com?

Looks like van west is getting it’s arse kicked!!!!!!!!!!!!!’!

#88 betamax on 08.13.11 at 3:18 pm

#47 Gord In Vancouver: “How can people in Van qualify for 1 Mil mortgages when their incomes are below 80 k?”

People buying at 1 mil probably have household incomes above 80k, but not necessarily by much. They’re move-up buyers who have sold their condo or townhouse and thereby have a large down-payment, though they also have to take out a far larger mortgage than before.

Regrettably for them, they took their bubble gains and plowed it right back into the bubble while taking on even more debt.

From their perspective, they’re doing the smart thing: the more you borrow, the bigger the gains. Leverage is magical till the market turns.

#89 betamax on 08.13.11 at 3:21 pm

#67 Killer Chicken: “Dont give me people who “understand” CAD, GPS or computers. Give me people who know what they are doing.”

The two are not mutually exclusive, and expertise in one is never excuse for ignorance in the other.

#90 Harlee on 08.13.11 at 3:27 pm

#80 (Bottoms-Up)
How,in anyway,does this relate to housing or economics? Or to anything else Garth has written about? Enough.

#91 Sp on 08.13.11 at 3:48 pm

Garth,

I am getting sick of bloggers turning this supposedly financial blog into a bash-people-of-Chinese-origin forum with unsubstantiated facts and biased opinions. Disgusting behaviors come from all races, including oversized “Canadians” who emit bad body odor and sweat. Don’t like their behaviors, do your duty and confront them directly but don’t come here and just whine about it. Don’t like HAM, then don’t take it. Discussions should be limited to finance and RE, and not singling a race out and place them on the guillotine. By the way growing up in Canada, I can confirm that Canadian spits a lot. Much more than where I came from BTW.

#92 Devore on 08.13.11 at 4:09 pm

#47 Gord In Vancouver

Kudos to those who made money but if you need a large, long term mortgage to get into a bigger home now, you’re not much different from a naive first time buyer.

People often justify the “ladder” strategy during boom times saying while the bigger house you buy has gone up in price, so has yours, so you have a larger downpayment. But you still end up with a much bigger mortgage vs trading up when prices are affordable. Another problem is, if prices decline while you’re on the ladder, you’re gonna be stuck there for a long time. Enjoy raising a family in your 1 bed+den condo, or are you gonna put your life on hold and buy a purse dog instead?

#93 Devore on 08.13.11 at 4:16 pm

#56 ryzer

Should have, could have. The point is they are in a far better place today. They own very liquid and stable assets (whose price is very stable, barring sudden interest rate shocks) that pay them to own. Ya, they should be more diversified, but one step at a time, eh? They’re on the right track. Like people who throw all their money into GICs, they don’t know any better, and need to get educated, or get some help.

#94 Andrew on 08.13.11 at 4:21 pm

I would love to hear your take on who is buying these Vancouver homes (chinese?). It is ridiculous how much money is being spent on Vancouver real estate. It is going to be interesting to see what happens….

#95 the floor on 08.13.11 at 4:24 pm

I can tell you right now if you own a condo anywhere in the GVO/LM you are going to be in a heap of trouble. Two to three weeks the MLS is going to have a glut of listings as the ride is over.
I remember when people sell they always spend money to “detail the home”.
New flooring…..yup.
And a lot of that going on right now….
Here comes the Tsunami….see if you have a good piece of laminate to get you out the door. :)

#96 Bill Gable on 08.13.11 at 4:25 pm

And we all know Rocketboy is paying taxes on income from his renters, right? Sure.

The Realtor dropped the price of the condo we had been renting, and she dropped it a ton, and still nothing. This is a zillion dollar view and a crazed 600 a month maintenance hit, and did I mention it was nearly a million for 1100 square?

She owns three properties in Shanghai and this buddy.

We told her to get stuffed, when she gave us a two year lease and started planning open houses.

Now, bottom of rental pool. Can’t rent. Can’t sell at price she needs.

How many other leverage kings and queens are feeling like schmucks now?

Mr. Turner has been trying, begging, cajoling, teasing, prodding, kidding, semi-ordering you out of having a heavily weighted RE portfolio, since this benighted blog first hatched behind the bunker.

Time to find out what downside pressure feels like.

Oh, and one more thing. Noticed a welter of signs in WE of Vancouver again. No big lineups. I bet there are a ton of RE agents, in GVRD, that are practicing their Wal Mart greeting skills about now.

#97 Nostradamus Le Mad Vlad on 08.13.11 at 4:28 pm

#24 Smoking Man — Try Malaysia or the Phillipines. Singapore and Hong Kong are a little more expensive, but worth it.

Cheers!

#98 Victor on 08.13.11 at 4:38 pm

#24 Smoking Man on 08.12.11 at 11:43 pm
Grath I can’t beilive I am asking for advice, but I really don’t know…….
the answer to this..

Where can I move (country) so I don’t pay one dime in tax…..Note book computer and a fridge to keep the beers cold is all I need. Hopefully nice weather.

Suggestion?

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

Panama.

#99 Snowboid on 08.13.11 at 5:20 pm

#86 Rocket Boy…

How did Val become a he?

#100 BDG-YYC on 08.13.11 at 5:44 pm

#85 Killer Chicken or Imploding Boomer? on 08.13.11 at 2:34 pm

You cannot co-mingle registered assets in two taxpayers’ names. — Garth

Hmmm. Interesting. But I have seen mortgages where the interest is split between multiple parties as an undivided (ie a percent or fraction of the whole) interest,
where a party can dispose of its interest to any other
party, or a new party ie each interest is its own entity
(though remaining undivided).

So 7 calgary Illusion’s title would show one mortgage with 50% (or 100000/200000 more typically) interests to each separate party.

BDG – can you elaborate on your arrangement?

_______________
Actually none is necessary. You have it. The fact is that when you “hold a mortgage” in your RRSP you don’t actually. The BANK holds and administers the mortgage like any other with you as Debt Slave. But they securitize it and it is the security that is held in your RRSP. That is an “MBS” Mortgage Backed Security. So if its split into 2 securities … each is a seperate obligation of the bank and each stands and is administered alone.

But I’ll be sure to get on the phone Monday and let all the dumbass bankers and lawyers know they screwed up :-)

#101 maxx on 08.13.11 at 5:46 pm

#60 ts harpoon on 08.13.11 at 11:06 am –

Interesting article, ts.
Just returned home from visiting a cottage about half an hour from Ottawa. I always make a point of talking to the neighbours to get a sense of the area and any “quirks” that aren’t visual. An hour or so into the conversation, the neighbour I spoke to mentioned that he works for the federal gov’t and is in charge of setting up outsourcing contracts for many of the coming departmental cuts. These cuts are going to be much more significant than back in ’95. I didn’t realize the size of what’s coming down the pipe.

#102 Patz on 08.13.11 at 6:09 pm

@ 24 Smoking Man
Where can I move (country) so I don’t pay one dime in tax…..Note book computer and a fridge to keep the beers cold is all I need. Hopefully nice weather.

Suggestion?

SM your question, albeit facetious, is reflective of the zeitgeist of modern rapacious capitalism. Let someone else pay for the infrastructure, the services, the upkeep. I just wanna come in with my (ill–gotten?) gains and reap the benefits. In return I promise that should any of the above falter and no longer meet my standards I will not pay a cent but move on to greener (=more lucrative) pastures. Sincerely, SM.

P.S. don’t tell me all you asked for was a fridge. You’ll need roads, electricity, a hospital, etc.. however primitive.

#103 Patz on 08.13.11 at 7:09 pm

@ 102 Patz

After posting the above, I came across this:
http://tiny.cc/ii9i4

Among other things it reports on Sir Richard Branson’s plans to move his HQ to Switzerland to avoid taxes. I guess his opulent lifestyle, power and prestige are just not enough to consider paying back the country in which all that became possible.

#104 Daisy Mae on 08.13.11 at 7:38 pm

#62 Beach Girl on 08.13.11 at 11:13 am “I cannot imagine living in a condo, over which I have no control. Board members, who are probably drugged up, drunk or demented. Or worse, like to hear themselves talk…”

Re council members and stratas, you’re correct. They generally don’t have a clue about legalities or human rights. You wouldn’t believe how ours screws up! Someone suggested it’s their last ‘kick at the cat’ — last chance to be bossy in this world. “Don’t wash your car in the driveway, take down your bird feeders (rats, ya know!), take down your wind chimes”.

Absolutely hilarious! LOL I just ignore them…

#105 Adam on 08.13.11 at 7:46 pm

Anyone know what kind of positions I could take to bet against Canadian housing?

#106 Beach Girl on 08.13.11 at 7:50 pm

Still like the Smoking Man. He does not care for anyone. Good for him. Life is hard. I actually volunteer, but for the life of me, it gets no one any better off. The people you help resent you, I get that. There is a real small line for being okay in life and not. No answers here. Worked hard for years, bought properties, rented them out. Dealt with scumbags. I have a soft spot for people who are never going to make it. Call me a slum landlord. But it is a slippery slope to pallokaville. It is only a moment away.

#107 Daisy Mae on 08.13.11 at 7:58 pm

The above (#103) is just in a lighter vein.

There have been a number of very serious issues in which legal action has been taken on behalf of the homeowners.

Council stupidity and ignorance has been astonishing….and they NEVER win.

#108 Live Under Your Means on 08.13.11 at 8:24 pm

#67 Killer Chicken or Imploding Boomer? on 08.13.11 at 11:54 am
42 Moneta – recently had dealings with computer savvy gen x/yer. Looked at CAD drawing derived from GPS readings she had prepared. Asked here what she had
done. After telling me, I told her that was great, but
youre about to put $3M worth of stuff in the wrong place.

Dont give me people who “understand” CAD, GPS or computers. Give me people who know what they are doing.

………………..

My husband was extremely proficient with AutoCad many years ago. Actually designed & did our renovations based on it. He worked for a couple of years for a co. developing systems using AC. He spent a year at NSIT on robotics and then another year at a computer college (forget the name now – but it cost us big bucks). I recall him helping engineering students from Dal. His credentials from Europe were not accepted here. Disgusting – as he was more qualified than most of the locals.

#109 Deliverator on 08.13.11 at 8:53 pm

It’s inflation stupid.

http://www.itulip.com/forums/showthread.php/20102-You-re-not-going-to-believe-this-Eric-Janszen?p=205428

#110 Mr. Reality on 08.13.11 at 9:13 pm

#105 Adam on 08.13.11 at 7:46 pm

Anyone know what kind of positions I could take to bet against Canadian housing?

Short the TSX (inverse ETF). Our economy is going in the tank no matter what. The impending housing and debt crisis will further the pain economically.

Mr.R.

Thoroughly bad advice. — Garth

#111 Paul on 08.13.11 at 9:23 pm

http://www.ctvbc.ctv.ca/servlet/an/local/CTVNews/20110813/bc_mansion_vs_fruit_stand_110813/20110813?hub=BritishColumbiaHome

#112 Beach Girl on 08.13.11 at 9:40 pm

To Daisy Mae #104
#62 Beach Girl on 08.13.11 at 11:13 am “I cannot imagine living in a condo, over which I have no control. Board members, who are probably drugged up, drunk or demented. Or worse, like to hear themselves talk…”

Re council members and stratas, you’re correct. They generally don’t have a clue about legalities or human rights. You wouldn’t believe how ours screws up! Someone suggested it’s their last ‘kick at the cat’ — last chance to be bossy in this world. “Don’t wash your car in the driveway, take down your bird feeders (rats, ya know!), take down your wind chimes”.

Absolutely hilarious! LOL I just ignore them…

I think I would be doing time, if someone told me that. I cannot abide by ridiculious rules. But by and large you will find that the assholes, who have zip to do, are starting to look like their mothers are on tack. Avoid effeminate looking old men and really big old women. No one liked them in high school, and no one likes them now. I mean it. LOL.

#113 Bill Gable on 08.13.11 at 10:14 pm

Condo once. Never again.
Bought 55 unit building cheap, sold well.
End of dealing with that.
Rent for the rest of my days, if it is broken a nice cat fixes it.
The concierge likes my Christmas tip and honest respect, as much as he does the owners.
Time to sit back and watch the show.
It has already started.
Ottawa will be a bloodbath, just like Victora, the Okananagan, and the GVRD.
Sad, and upsetting for many people who thought this time that ZIRP is real.
Welcome to Japan, on steroids.

#114 Pat on 08.13.11 at 10:22 pm

#108 Live Under Your Means:
“His credentials from Europe were not accepted here. Disgusting – as he was more qualified than most of the locals.”

Yeah, the infamous “Canadian experience.”

Provincialism is one of the prevailing characteristics of Canada.

#115 Onemorething on 08.13.11 at 10:46 pm

#24 quite simply you need to move somewhere that will accept you. There are a number of countries that will offer you work visa’s or stay visa’s so start there.

No right to abode, no stay bro!

Second, you may have to put some skin in the game ie. secured money in bank or RE purchases to gain 5-10 year visas.

Third, decide what you are going to do there. Some let you work, some dont!

Fourth, divest yourself from most of your Canadian assets especially RE and then you can give up your residence (not your passport) and stop paying CAN taxes

Last, many of the Asian countries as described by NosLMV dont require you to pay taxes on any income made from out of country so it is potentially possible to not pay tax on income earned outside of the new country you live in.

I personally like Malaysia My Second Home which no longer requires you to buy RE (small amount of about 80K CAD if over 55) for a 10 year visa.

Let’s you work 22 hours a week to earn income with a very low cost of living. Sing and HK both very expensive to live, Phillipinnes is questionable on a good day, Indo maybe, Vietman or Thailand also a thought.

#116 Jeff on 08.13.11 at 11:04 pm

re: Suede’s comment

I love how in Vancouver, any offer at or below asking price is considered a ‘low ball’ and a deep insult, to boot.

LMFAO!!

#117 Zor on 08.13.11 at 11:43 pm

#24 Smoking Man on 08.12.11 at 11:43 pm
Grath I can’t beilive I am asking for advice, but I really don’t know…….
the answer to this..

Where can I move (country) so I don’t pay one dime in tax…..Note book computer and a fridge to keep the beers cold is all I need. Hopefully nice weather.

Suggestion?

————
Saudi Arabia tax free zone

#118 Tim on 08.13.11 at 11:48 pm

I liked the pic you had on the previous post…keep up the good pics-work

#119 Nostradamus Le Mad Vlad on 08.14.11 at 12:01 am


Hot, sultry and sensuous day 2day, full of nothingness. Just the way it should be!
*
Somalia Course in food and population control; Thailand Another gateway to the orient; Europe’s angry youth (and middle-class sheeple); China riots increasing; Collective Punishment and the Geneva Convention.

Moral Decay A protest / revolution here and there but in a couple of hundred years or so, the whole thing begins to take on new life; NATO Evidence of war crimes against Libyans; Sick Society The woman who jumped and survived describes life in the UK; Smart Meters Disconnecting users (us) without telling us; Undecided Libya has never invaded us. I’m not sure what Harper is undecided about, other than he hates Muslims; Facebook The more I learn about these social networking sites, the less I am inclined to use them; Iowa Missing votes, nowhere to be found.

2008? Nah. More like 1987! Gold Standard Abandoning it was a mistake; Gold and Silver Tungsten and lead bars; Western Economies Suck “From December 2007 to present, we have lost 10.6 million jobs.”

UK Grads miss out; CNN doesn’t know how to tell the truth, which explains why they are m$m (insider trading); 10:37 clip “Mr. Trumka’s comments were made months prior to the Financial Meltdown of Oct., 2008.” wrh.com; Border Wars (farming) and Spanish Towns just like American cities (bankrupt).

#120 smartalox on 08.14.11 at 12:36 am

@ smoking man:

I’ve got just the place for you: Sealand.

A man made structure in the North Sea, declared its own principality back in the 1970s. A beer fridge and laptop are about all you’re going to get!

#121 brucey bonus on 08.14.11 at 12:53 am

the fact that 30 somethings have a million bucks proves that life is not fair…

#122 LB on 08.14.11 at 1:29 am

#62 Beach Girl

Not quite. One doesn’t have any more control over changing neighbours and neighbourhoods,interest rates, rental rates,property taxes and values,maintenance costs or government expropriation of private property for “the public good” – be it house,condo, or commercial property.

Read the fine print. That sense of control and security in property ownership is a carefully constructed fallacy that you have figuratively and literally “bought” into.

#123 nonplused on 08.14.11 at 2:05 am

The Bernanke says rates will be 0% for 2 more years. I say:

No, they won’t. And;

Time to panic, avoid the rush.

#124 Utopia on 08.14.11 at 3:05 am

#24 Smoking Man asked of Garth plaintively….

“Where can I move (country) so I don’t pay one dime in tax…..Note book computer and a fridge to keep the beers cold is all I need. Hopefully nice weather”.
——————————————————–

Funny guy. You don’t get around much do you?

Here is an idea that might help. It is in a little known continent called Africa where white folk like you still rule the world and the locals absolutely love North Americans.

Funny you should worry more about taxes than the cost of living though. Your perspective is just too local and imbued with all the wrong concerns.

What you don’t get is that you can live cheap, have high speed internet, drink happily (no alcohol) to your hearts content and even eat like a king with no worries whatsoever about taxes or bureaucracy or the outside world.

Here is an address you should learn.

It is called Siwa and it is an Oasis in North-Eastern Egypt near the Libyan border. I lived there a long time. It is a wonderful place to be honest with an incredible culture that spans more than two millenia.

Fresh water springs up from the earth everywhere you go and the main pastime is bathing to cut the edge off the summers heat. But there is air conditioning for Westerners and the hotels are dirt cheap.

How cheap?

Well, in a small hotel with only an overhead fan the nightly cost is a mere 87 cents (or it was before the tourism sector in that country was rattled by the protests). Perhaps it is cheaper now.

A better place might cost as much as three or four dollars per night (GASP!!!!). That will break your budget for sure. There is no gambling though. The place is very (very) conservative and good food, family, hard work and swimming in the ancient artesian pools rule the days.

The food actually is beyond reproach. Delicious. The locals are friendly but don’t even think of approaching their women (unless getting dead is high on your agenda).

The Bedouin run tours into the desert nightly and the salt and fresh-water baths are terrific. Bring your own girl because Western style women are in very short supply there.

No hookers available there either Smoking man. Sorry buddy. So be good or the locals might just shoot you. No booze either so its a good place to dry out and get normal again.

Berber culture is not very tolerant of drunken fools.

You can live really, really cheap though but just don’t be too much of yourself. Still need to normalize with the natives daily. Lots of good small ethnic shops and everyone is incredibly helpful and friendly.

Most don’t even speak Arabic so don’t even bother learning that language before you go. They can’t speak much English either.

Hand signs will do just fine.

Give it a try. The salty-mud or hot-sand baths incidentally are both famous, therapeutic and tortuous. There is volcanic activity there I think or maybe it is just really freaking hot sand simmering in ancient water and surrounded by palm trees and sweet green olives.

The evenings are enchanting and very cool if you don’t mind looking at the stars and being alone in a mind altering silent desert community that has virtually no street lightning to speak of. There is so much more that is good there. Not sure where to begin.

Don’t miss it if you travel. The place is a living museum and the landmarks are both startling and enthralling. This is a wonderful place that absolutely must be seen and lived in to be appreciated. Trust me Smoking Man, this is THE place for you to go to dry out and straighten up if that is your goal.

No booze, no loose women, no gambling, no smokes, no tolerance for bullshit and lots of really great food that you will sweat off every single day (ergo, you won’t get fat living there).

Here is how to get there. Take a 1700 dollar return flight from Toronto via London to Cairo. Catch a bus to Alexandria and onward to Marsa-Matruh then follow the trip deep into the desert along the modern paved road until you arrive at Siwa which is in the absolute middle of freaking nowhere in the midst of a baking hot desert.

It is an Oasis. An enormous one. Pure paradise, friend.

Take a bathing suit and plenty of tanning lotion. Bring a book and your best girl. Get local and eat to your hearts content. Stay good and be remembered by everyone as a decent guy from Canada (and don’t forget to tip well).

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

#125 T.O. Bubble Boy on 08.14.11 at 7:58 am

@ #87 Meth Place on earth:

Garth what do you make of larry’s chart at http://www.yattermatters.com

Looks like van west is getting it’s arse kicked!!!!!!!!!!!!!!

The most bizarre thing about those stats – the of days on market went down from 27 to 20 despite the poor sales/listings numbers and the price drops.

#126 T.O. Bubble Boy on 08.14.11 at 9:10 am

WATCH OUT – get your PVR ffwd fingers ready for the advertising, here comes the next “Economic Action Plan”, i.e. Flaherty stimulus!

http://ca.reuters.com/article/businessNews/idCATRE77C2H420110814

Is this just a scam to fund special projects and keep F’s buddies like Rob Ford from raising property taxes 35% and looking like giant liars? (and his buddies in the construction industry rich with federal dollars)

#127 Markey on 08.14.11 at 9:12 am

#124 Utopia – beautiful!

#128 Herb on 08.14.11 at 9:53 am

The state of the United States and the engine driving our economy:

http://www.ericmargolis.com/political_commentaries/break-the-power-of-big-money.aspx

#129 Daisy Mae on 08.14.11 at 10:05 am

#122 LB on 08.14.11 at 1:29 am #62 Beach Girl

“Not quite. One doesn’t have any more control over changing neighbours and neighbourhoods,interest rates, rental rates,property taxes and values,maintenance costs or government expropriation of private property for “the public good” – be it house,condo, or commercial property….”

We understand this. Living in a condo or gated community means we share some communal costs. However, we are homeowners first.

There is need for a strata corporation, a council, a few bylaws. That’s where problems can occur.

A homeowner recently requested a hot tub. Council said ‘no’ and actually had the gall to take a vote amongst homeowners. It was voted down. What ‘power’ everyone wields! Or…thought they did.

I voted in favor figuring it was no ones damn business…and the Human Rights Tribunal agreed.

The hot tub has been installed. I understand there are more to come since it was so conveniently brought to everyones attention. LOL

#130 Min in Mission on 08.14.11 at 10:42 am

#124 Utopia – great link, thanks, very interesting.

But, I think that would be to much of a “culture shock” for many of us.

#131 Bottoms_Up on 08.14.11 at 10:48 am

#105 Adam on 08.13.11 at 7:46 pm
————————————-
Rent.

#132 TurnerNation on 08.14.11 at 10:54 am

In Soviet Canada, condo kill you!

http://www.thestar.com/news/article/1039130–glass-falls-from-annex-condo

No one was injured when the single, large pane of glass fell, bounced off the front-door overhang and smashed onto the ground, police said. But numerous instances of falling glass from downtown buildings have been reported this year.

Glass has fallen from a Grosvenor St. highrise in at least four instances this year, including three times in July and August. Glass from the tony condominium building over the TIFF Bell Lightbox has fallen at least twice onto John St., shattering all over the road. And in the spring, glass fell from a highrise near Yonge St. and Eglinton Ave.

#133 Cow Man on 08.14.11 at 10:56 am

#70 this is wonderland

Good point; but high US unemployment, good luck getting a TN Visa or a Green Card. They really don’t want us down there.

#134 Daisy Mae on 08.14.11 at 11:06 am

“Still, Flaherty again emphasized the need for the United States and some European countries to follow Canada’s example on fiscal responsibility.”

Are you KIDDING? Do Canadians actually buy into this crap?

#135 Bottoms_Up on 08.14.11 at 11:36 am

#90 Harlee on 08.13.11 at 3:27 pm
—————————————
Wow, chill. My anecdotal story was not meant to be harmful or derogatory in any way. I posted because of the coincidence (I read another blogger’s post and posted my related story).

I thought what I saw was interesting in the fact that the toilet manners (and those obviously considered acceptable by the parents) were totally different from what I expect to see in the Canadian culture (I would think urinating openly in public is illegal in Canada?).

Anywho, there’s also a very interesting discussion of “Cholera and the super-loo” on page 55 of The Economist (July 30 – Aug 5, 2011 edition) where they discuss how the invention of the toilet (and public sanitation) has saved more lives than any other health device.

And this post is related to Garth’s forum because we live in a great country, where our houses for the most part have toilets and running water.

#136 Timing is Everything on 08.14.11 at 11:37 am

I like my bunker.

#137 X on 08.14.11 at 11:38 am

Even if Canada is forced to keep rates low b/c of economic pressures, I expect gov’t to make further changes if needed to stop the RE bubble from becoming greater than it already is…..

#138 dd on 08.14.11 at 11:59 am

preferred shares in Canadian banks, paying an average of 5%….

Yips … not even covering the cost of inflation.

Does your gold send you a monthly cheque? Nah, I didn’t think so. — Garth

#139 Lead Paint on 08.14.11 at 12:02 pm

#128 Herb on 08.14.11 at 9:53 am

Great link! Thanks. He’s right on the money.

#140 Moneta on 08.14.11 at 12:16 pm

Anywho, there’s also a very interesting discussion of “Cholera and the super-loo” on page 55 of The Economist (July 30 – Aug 5, 2011 edition) where they discuss how the invention of the toilet (and public sanitation) has saved more lives than any other health device.
———-
One really annoying thing in North America is that it is so much easier to find food and much harder to find a place where you can make more space for more food. In fact, you usually have to go into a private business to find one, obviously guilting you into buying even more food that you don’t need.

#141 Sp on 08.14.11 at 12:24 pm

#135.

I have seen “Canadian” urinating on highway, drunken “Canadian” yelling aggressively in downtown TO, fully-able body “Canadian” street kids and good looking ladies begging on the street, and “Canadians” allowing their dogs urinating on the street, you want more? I guess that if you saw these, you would have dismissed or justified them away. But when it comes down to people of color doing exactly the same thing, and they happen also to be “Canadian”, you start your sniveling whine.

#142 Helicopter Ben on 08.14.11 at 1:45 pm

Canadian Bonds in High demand, Canadian Banks have already stated this year that interest rates would be rising, The U.S. will keep theirs low till the whole thing implodes. I am not sure then if Canada will try keep theirs low or allow them to rise. The U.S. Downgrade has put a wrench into things.

#143 Lorne on 08.14.11 at 2:17 pm

#135.

I have seen “Canadian” urinating on highway, drunken “Canadian” yelling aggressively in downtown TO, fully-able body “Canadian” street kids and good looking ladies begging on the street, and “Canadians” allowing their dogs urinating on the street, you want more? I guess that if you saw these, you would have dismissed or justified them away. But when it comes down to people of color doing exactly the same thing, and they happen also to be “Canadian”, you start your sniveling whine.
……………………………………………………………………
I’m sure you have seen all these things….so have I (especially the dogs urinating on the street…guess they haven’t been talked to about that yet!) but, having spent a year in China I can tell you it very commonplace there. The worst I saw was in a bus depot in Hangzhou where a woman held up her less than 1 year old baby, and had her pee on the floor of the depot, while she continued talking with her friend. Nobody seemed to think anything off it. In fact, nobody even came and cleaned it up. Just the facts. Pretty sure that would not go over too well here!

#144 Robert Dudek on 08.14.11 at 2:22 pm

Smoking man,

I hear Ted Kaczynski’s place is available.

#145 Bottoms_Up on 08.14.11 at 2:28 pm

#141 Sp on 08.14.11 at 12:24 pm
————————————–
I think you missed my point……

The average Canadian family (i.e. parents, responsible for the behaviour of their children, especially when present) would not allow their 10-year-old son to piss on a fire hydrant beside a busy street, especially when there are public bathrooms nearby.

It was an eye-catching for everyone around, people were, in fact, hysterical at the sight.

I think you are very sensitive. It has nothing to do with colour. Or race. It has everything to do with culture.

#146 Neo on 08.14.11 at 2:35 pm

#134 Daisy Mae

“Still, Flaherty again emphasized the need for the United States and some European countries to follow Canada’s example on fiscal responsibility.”

Are you KIDDING? Do Canadians actually buy into this crap?

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

Flaherty just came out and said we will have a second round of stimulus, that’s worked sooooo well in the U.S., if/when we slip back into recession. Therefore, that will blow our budget right out of the water along with our “fiscal responsiblity”.

#147 Utopia on 08.14.11 at 2:40 pm

#109 Deliverator wrote….

“It’s inflation stupid”
—————————————–

I read that article by Eric Janszen and to be honest…I was really unimpressed. Mish Shedlock on the other hand has made a concise and convincing case without adding all the insults and hyperbole.

So it is deflation stupid. And how do we know that?

One quick look at real estate prices [alone] indicates just how much wealth has been stripped out of the US economy over the past few years. Since when are falling prices a sign of inflation, and if that is really inflation then I am a very confused writer.

And why are home prices and incomes not rising then?

Mr Janszen does not give consideration for the fact that commodities are heavily speculated upon. Nor has he noticed that resource prices have fallen sharply of late and he also seems to not understand that the only outcome in this situation is falling prices despite an expanding money supply, and not true inflation pressure.

The only factor that seems to mesmerize his camp of analysts is the money supply itself. They ignore a hundred other variables and are simply blind to what is actually taking place meaning that their ideas are still the realm of theory whereas Mish has made statements of fact.

The assumption of theirs that liquidity infusions will always lead to a much feared hyperinflation are also incorrect. That is not what is actually taking place.

Without lending to good credit risks and a concomitant borrowing as an outcome then the very act of infusing the system with liquidity is not even relevant. The liquidity, while available goes unused or simply leaks out of the system to achieve return elsewhere and thus drives up foreign inflationary pressures.

Money shifts around based more on carry trades than real economic reinvestment and little of productive value is achieved to assist governments in raising revenues through real growth.

In the US, deflation still rules the day. Did everyone of the inflationist’s fail to notice that there has been no growth or that the massive commodity spike was only a phenomenon generated by Quantitative easing? That inflationary pressures have abated as QE ended thus negating the fears?

Furthermore, we live in a world awash in goods.

Inflationist’s almost always point to the fact that shortages develop as buying power declines. So my question to them is this……If there is no shortage of goods then how can too many dollars chase too little production?

They have failed to appreciate, in other words, that we live in a globalized community of cheap goods and are no longer part of an isolated island where governments had the necessary tools to leverage the domestic economy to their liking.

A goods shortage is actually an impossible outcome at this time and so I have already told all of you that what we face instead is a recession and low growth environment characterized by an excess of goods rather than a shortage.

I have termed this an “inventory recession/depression” and while that is not a popular expression amongst economists (I coined the term) it is surely one of the answers to why inflation has not broken out despite the excessive money printing we have all witnessed.

In an “inventory recession”, consumption cannot recover or rise in a significant way until past purchases have been reconciled with future needs. This can only result in slow or declining growth in the future as the economy adjusts to the past excess.

The analogy we can make here is to housing for example where 70% of families already own and the market is overbought. There is little buying power available to further propel the market and thus no good growth prospects as that part of the cycle is already mature.

That is why you want to sell homes now. Not buy.

We cannot recover in other words until we have burned off the excess of consumption goods of the past and this simply will take many, many years to achieve before real demand will kick in again.

So of course, the correct answer to a situation of declining buying power in the face of an excess of supply is to note that a devaluing dollar will be matched by falling prices in a high unemployment environment thus yielding little noticeable effect.

That is exactly what we are now seeing in the US as real housing costs have declined precipitously even while the dollar faded.

We have therefore less ability to make purchases yet the most significant of those purchases are also falling in price. They are falling in fact more quickly than the dollar erodes and some good economists have already noted how this situation has actually improved the balance sheet of some households in America.

And because housing makes up the largest share of a family budget there cannot even be a reasonable discussion of inflation versus deflation until the inflationist’s recognize that asset wealth is being destroyed far more quickly than the loss in the dollars buying power can be accounted for.

Yes, we may be paying more for gas and cheese and onions but it is hardly relevant as household net worth plummets.

When the inflationists can show me that US home prices are rising as fast as fresh wage gains in percentage terms then you might have the beginnings of a case for inflation. What we are witnessing instead is not that incomes are increasing on the heals of massive stimulus efforts but rather that the costs of commodity based goods are rising even while wages stagnate. And so we are getting squeezed at both ends.

Where is the inflation then?

If dollar devaluation did not improve salaries or asset prices then there was really no inflation at all insofar as that inflation was artificial and only impacted commodities to promote growth. What we have seen to date is only that periodic and temporary speculation in commodity markets has put pressure on the family budget as certain key cost rose.

Incomes are in decline though. Debt, which is less volatile and lives on until paid, presses in on us daily as our real wealth erodes and the life is drained from the consumption economy. The impacts on retail trades have devastated malls and business strips in many US cities.

That is surely not inflationary. That is just a vice that harms the prospects of future production, drains our savings and kills growth while lining the pockets of a very small group of active investors.

In the meantime it is a fact that average wages are falling in real terms and almost all assets other than those in stock markets are also heading downward. The appearance of higher food and fuel costs only exacerbates this imbalance and makes us all the more miserable. But it is only temporary.

Nobody is yet filling wheelbarrows with cash to buy bread. And nobody will. Low rates tell us that inflation is not our battle for the moment. As that stage arrives, liquidity can be withdrawn with almost the same ease it was introduced thus offsetting the risk.

Real inflation may come later but for the moment what we face more directly is the risk of economic relapse into a fresh recession. This again spells falling prices and slower growth despite the panic warnings of those who only view the economy through the lens of Gold prices (heavily overbought by the way).

It is very clear too that the recent inflation spiral was altogether brought about as a result of Quantitative Easing and Stimulus measures and that as those interventions have abated that prices have again begun to fall.

So in fact, price deflation has now appeared even in commodity and input costs. We can only benefit as our lower earnings meet with production and pricing that properly reflects this new environment.

The outcome of this is very bullish naturally for consumer staples and defensive stocks as bottom lines will improve substantially in the coming quarters due to those same reduced input costs.

Others have already noted that stock markets will be effectively monetized as investors seek return and safety for invested capital. The so-called risk trade may in fact be the best and safest option as the globe slowly delevers it’s debt burdens and I do expect significant gains there despite the fear trade who keeps insisting on a coming stock market collapse.

They are wrong because they are always trying to mirror our current situation with past events. None of the rationalizations resonate though as the period of the 1930’s was one in which a Gold standard still existed.

They never ask themselves why capital might shift to equities to avoid debt risk and default and they cannot appreciate that monetary intervention can actually result in increasing stock prices to offset losses brought on by devaluation of currencies. It is my belief that stock markets will provide the relief valve in this unique situation even as Gold continues higher.

So no stock crash despite warnings we may eventually even enter a depression on this continent.

This will no be your grandfathers recession either. It is a fiat world we live in now we will see that in fact stock values can rise despite slow growth. Dispense with those other ideas as they do not apply to our current environment.

Corporate strength on their balance sheets incidentally is not indicating a growing weakness there. I anticipate that stock values will rise even as economic activity falls in Western markets and much of the growth will materialize out of a combination of foreign exposure to developing and young markets in concert with a weakening of currencies.

This will also be an outcome of gains achieved due to falling input costs and average consumption as already noted while in the background an aversion to risky debt issues has emerged. We note that a great number of States and Municipalities face the very real prospect of default as past spending and future obligations exceed revenues by a wide margin.

Equity markets will therefore benefit from this discord.

On the face of it, that does not make much sense but the optics of intervention tell us that as rates remain artificially low exactly while domestic consumption is shrinking and our productive base is in decline that capital will seek yield and growth in the one market that is still active and dynamic given it’s global reach and outlook.

The dollar meanwhile has not crashed as so many writers predicted proving that they do not know what they are talking about.

So we can rightly assume for example that while many of our favorite public companies raised prices or reduced packaging sizes to offset higher commodity prices that they will be less willing to lower prices as commodities fade.

Can the price of a candy bar, for example, change daily or weekly and can we still have price stability in such a situation? Of course not.

Prices for many consumer staples are essentially fixed and business will generally only respond to sharp price hikes while being more dismissive of price declines in a volatile environment. In effect, our companies will become reluctant to reduce consumer prices as urgently as those prices were raised to protect bottom line earnings.

I told you all that some stocks would see excellent appreciation over the coming years and I am unrepentant in that regard because it is just so plainly obvious to me where the markets are now headed.

Should consumption goods providers deliver above average results and should our standby blue chips come through with good earnings as I expect then these factors will carry all markets much higher in the future.

Deflation at home is still a real concern though and our own countries housing deflation will bring that back into perspective soon enough.

For the global economy though there is a balance between lower oil costs for example and the stimulus that lower energy costs provides to a weak economies versus outright (and sharp) resource price declines that tell us consumption has been killed and the real economy is in a tailspin.

There is still an ongoing competition for scarce resources across the globe, particularly in Asia and the emerging markets, and growth continues unabated in countries beyond our shores. It is quite healthy elsewhere actually.

We need to find some balance here at home amongst interventionist measures that will not distort commodity prices unnaturally and we need to get it right if we are to see sustained growth in the future. I believe that the Fed and the group of G20 Finance Ministers in conjunction with the many Central banks are seeking to find just such a solution and a balance.

In the meantime, if borrowing and reinvestment of the excess liquidity in the system were to resume we might just begin to see a burst of economic activity. This is almost always the field and purview of small business and new startups. It helps if there is optimism and positive sentiment amongst the public.

I worry that this is not a good likelihood though as most of our Western nations have already brought forward consumption to the extent that even the prospect of lower prices for real estate and other assets does not stimulate a rush into goods and fresh consumption. Instead it results in retrenchment and paralysis as confusion about the future reigns.

Let me repeat:….. we are not suffering a shortage of supply and this is one of the keys to understanding why inflation cannot break out despite a weakening US dollar. Another is that everyone and his cat is devaluing their currency at the same time and this also defeats the objective while only resulting in a general impoverishment of all as governments siphon off the economy through monetary policy gone awry.

It is a self defeating exercise. What we need is greater cooperation between governments to begin to address some of the serious systemic imbalances.

Mish Shedlock laid out an excellent case for deflation incidentally and his bullet points and notes on the impact of credit in the economy were timely and appreciated. He is correct in seeing deflation as an outcome despite the excessive production of liquidity to offset our debt overhang and to charge-up and enable new consumption.

In the end though, debt will overwhelm the ability of households to manage day to day affairs effectively as they respond to the tremendous losses we now witness on the family balance sheet.

Only an act of insanity on the part of governments and Central Banks will now reflate that which cannot be reflated.

But that will require the cooperation of bondholders and holders of debt to passively relinquish their positions in favour of the indebted classes.

That is not going to happen anytime soon.

#148 Helicopter Ben on 08.14.11 at 2:55 pm

“It costs $5 to get a barrel of oil out of the ground. Who gets the difference between that and $80 or $130 a barrel? Saudi Arabia sells it to the oil bourse, not to Shell or Exxon.” – DISCIPLE………………………………………………..
True but they need Oil prices to be high cause they are a socialist welfare country , the minority royalty pays off its citizens to not riot and keep them inline through handouts, low oil prices will cause social unrest there.

#149 NFN_NLN on 08.14.11 at 2:56 pm

#141 sp

…good looking ladies begging on the street…

———–

Silly foreigner, those aren’t beggars… those are gainfully employed “hookers”.

Once real-estate crashes the streets will be full of them.

#150 Form Man on 08.14.11 at 3:11 pm

# 134 Daisy May

apparently Canadians do buy into this crap. What amazes me is the media congratulating Flaherty for ‘tightening’ mortgage rules………he was the one who loosened them in the first place ! Harper and Flaherty chose to cut taxes and raise spending during a boom, thereby heating up an already hot economy, and removing the possibility of doing just that during a downturn, which would make a lot more sense. They squandered a budget surplus during good times……..and for what ? During the last election the media referred to Harper as a ‘trained economist’ ( as opposed to the untrained variety )…….yikes !

#151 Kitchener1 on 08.14.11 at 3:20 pm

What i notice a lot of in south western ontario is the amount of manufacturing plant closures.

Fram just closed their plant in Stratford, 300 people gone (moving to the US)

Navistore offically announced its plant in Chatham is down down, that 1000 people out of work (most have been out of work the last 2 years) (most production moved to Mexico and the US)

Seimens in Hamilton closed (moving to US)

A cookie making factory closed in Kitchener

RIM 2000 jobs in Waterloo etc..

Most of these dont make huge headlines as it 300-500 people losing their jobs.

oddly, a lot our moving production to the US, lower tax rates (federal and state) lower wages, non-union (for at least a few years) etc.. the high dollar is really cutting into Canada’s ability to compete, needs to be at 80-85 cents US.

Toyota will be annoucing a lot of new hires– basically contract only etc.. The Federal govt is going to cover up to 1/3 of the cost– corporate welfare.

When was the last time a company annouced it was going to open up a new factory in Ontario and employee 300-500-1000 people?

These smaller urban centers do not have the ability to absorb all those being laid off, some might get part time service sector jobs but what about the rest?

Without a domestic manufacturing sector, these communities are going to be toast. A lot of perssure on RE markets, pressure on wages to the downside etc..

#152 Form Man on 08.14.11 at 3:24 pm

I took a tour this morning of a couple of the more ‘high profile’ residential developments underway in Kelowna right now. ‘West Harbour’ and ‘ Sopa Square’. There has been little to no progress on either site for 2 weeks now. In the case of Sopa Square, the underground parking garage is below the water table. Unfortunately the concrete is incomplete. For now the temporary water pumps are working, but seem to be losing the battle. Some creditor is going to be left with not only an unfinished site, but considerable expense to make the site safe. It was obvious before construction began, that the market could not absorb any more development in the region. It amazes me how so many supposedly intelligent people, with extensive education, ignore all the data, and proceed anyway because ‘everyone wants to live here’………..West Harbour does have a couple of homes complete, but since there are no paved roads to(or in) the development, they are not selling, unsurprisingly….

#153 COTTAGE COUNTRY FOR SALE on 08.14.11 at 3:41 pm

Drove up north to cottage country and the never ending sea of for sales signs outside of the GTA. I heard and read about it but it truly is the canary In a coal mind. How many are on the verge of going bankrupt? No joke for every 50 signs up one maybe sold. It was an eye opener. No wonder realtor post non stop on this blog

#154 Dan in Victoria on 08.14.11 at 4:02 pm

Kitchener @ 151
You want to see what happens? Just look to BC when the wood products industry imploded.
Not going to be any diffrent then what happened here.
Lots of high paying jobs gone, gone, gone.
Little towns crippled economically.
Now we just cut them down put em on a truck drop them in the ocean, load them on a frieghter, and send them to be finished somewhere else.
Your turn is coming.
I was building a house about 15 years ago, the lumber order showed up from the supplier, manufactured in Washington State.
Phoned them and told them to come and get it.
Don’t send any more unless it was from a BC mill.
Salesman thought I was goofy.
Sorry I said, I’ve got my principals.

#155 Cookie Monster on 08.14.11 at 4:13 pm

#152 Kitchener1 on 08.14.11 at 3:20 pm
Nice post Kitch. The reality of the situation in Canada is indeed sad. I like article on Navistar, killed by the CAW, what’s new?
Navistar;
http://www.windsorstar.com/business/Navistar+closing+Chatham+shop/5196896/story.html

Businesses will not stay around to be sacrificed on the alter of government in the name of socialism. Nice to see the CAW pound sand.

#156 NFN_NLN on 08.14.11 at 4:20 pm

#148 Utopia on 08.14.11 at 2:40 pm

#109 Deliverator wrote….

“It’s inflation stupid”
—————————————–

I read that article by Eric Janszen and to be honest…I was really unimpressed. Mish Shedlock on the other hand has made a concise and convincing case without adding all the insults and hyperbole.

So it is deflation stupid. And how do we know that?

————————————————–

You’re both “stupid”. It’s STAGFLATION.

I could jam a 3000 word essay into a comment box but you’ve already done that. You acknowledge all the characteristics of stagflation, you just didn’t know the term; and now you do: http://en.wikipedia.org/wiki/Stagflation

#157 jess on 08.14.11 at 4:38 pm

private prison insiders

Sunday, August 14, 2011

Mark Ciavarella Jr. (AP Photo) Accused of perpetrating a “profound evil,” former Pennsylvania judge Mark Ciavarella Jr. has been sentenced to 28 years in prison for illegally accepting money from a juvenile-prison developer while he spent years incarcerating thousands of young people.

Prosecutors said Ciavarella sent juveniles to jail as part of a “kids for cash” scheme involving Robert Mericle, builder of the PA and Western PA Child Care juvenile detention centers. The ex-judge was convicted in February of 12 counts that included racketeering, money laundering, mail fraud and tax evasion.

28 YEARS (by Terrie Morgan-Besecker, Wilkes-Barre Times Leader)
Ex-Judge Ciavarella Angry, Defiant at Sentencing (by Dave Janoski, Wilkes-Barre Citizens Voice)
U.S. Attorney: Largest Corruption Investigation in Local History (Wilkes-Barre Times Leader)

#158 TurnerNation on 08.14.11 at 4:50 pm

Can we expect mass, general strikes in Toronto soon?
Austerity is on the way and property taxes will rise, again and again.

“In an interview with the Sun News Network on Friday, Ford indicated “the last thing we want to do is put somebody out on the street,” hence the buyout offer made by the city to about 17,000 municipal workers.

“Now if they don’t take the package, what else do we have to do? We might have to lay them off. I don’t know if we have a choice,” said Ford, who is looking to aggressively pare labour costs, which account for around 48 per cent of the city’s $9.4 billion budget.”

http://www.cbc.ca/news/canada/toronto/story/2011/08/12/mayor-ford-toronto-layoffs654.html

#159 Nostradamus Le Mad Vlad on 08.14.11 at 4:59 pm


#123 nonplused — “Time to panic, avoid the rush.” — ‘Sright. No time like the present, ‘tho I wouldn’t necessarily panic — just adjust investments to take advantage of the downturns (see link further down).

#155 Dan in Victoria — Yep, and the raw logs still keep rolling across the border because, under NAFTA, it’s okay. Secession for the four western provinces? It’s taking shape in Texas.
*
Squirrel Quiche Garth — any variations? Turkey “Note that this statement about Turkey participating in an international military intervention only comes from a Turkish newspaper, “Hurriyet”, and no specific person making this threat is ever sourced in the “Haaretz” article. But in looking at the last paragraph, it is very clear what Israel wants as an outcome here; a “back-door attack” against Iran, because Iran and Syria have a mutual defense pact, and if Syria is attacked, Iran must respond in some way militarily.” wrh.com; Iceland’s new constitution comes from 25 ordinary people, like the US Constitution. “Frankly, considering how badly our professional politicians have screwed up this planet, I am ready to listen to the amateurs on the blogs more closely.” wrh.com.

UK Riots Caused by TPTB; Secession and de-centralization (somewhat) taking shape; Yet another reason to avoid using social media;

These two may have something in common.

Market Volatility Getting moreso since 2008; Ron Paul has zero chance of winning. TPTB don’t like him one little bit, but R.P. II. Also — “Dear US Government. A Ron Paul Presidency is the only chance you have to avoid what just happened in Iceland, Egypt, and Great Britain.

Try to hold the greed in check and think clearly about what is best for the entire nation for once in your lives.” wrh.com; Kwik Fixes “The Psychopaths in Control of the Asylum.”; Gold There may be some truth here; Who Cares if the market crashes? Copper JPM bought 80% of the copper market several months ago; Dancing With A Corpse in other words.

#160 Timing is Everything on 08.14.11 at 5:20 pm

#157 NFN_NLN

Could be…but I’m no ‘economist’, that’s for sure.
We’ll just have to wait and see. Luckily, I stocked up on sno-cones.

“Stagflation is a term used by economists to define an economy that has inflation, a slow or stagnant economic growth rate and a relatively high unemployment rate.” – Investopedia

http://www.miseryindex.us/

#161 betamax on 08.14.11 at 6:02 pm

#146 Bottoms_Up: “It has nothing to do with colour. Or race. It has everything to do with culture.”

Well said. My wife is Chinese but left China partly because of the culture. The anecdotal descriptions here accord with her experiences there.

On the other hand, the Chinese could just as easily categorize us as lazy schmoes whose biggest health problem is obesity. Every culture has its dark side.

#162 dd on 08.14.11 at 6:04 pm

#138dd
preferred shares in Canadian banks, paying an average of 5%….

Yips … not even covering the cost of inflation.

Does your gold send you a monthly cheque? Nah, I didn’t think so. — Garth
…………………………………………………………………………..
CPI for canada is approaching 4% in 2011. I have made 50% yoy in the metals. Actually since 2001 the metals have returned about 17% yearly. Not bad for a asset class that was suppose to top – according to Garth Turner.

And do they send you money? Oh, bummer. — Garth

#163 timo on 08.14.11 at 6:19 pm

http://www.safehaven.com/article/22146/yes-virginia-us-back-in-deflation-inflation-scare-ends-hyperinflationists-wrong-twice-over

Just got to love the debate. We shall see how your going to see a higher interest rate and higher prices vs wages that will be depressed due to outsourcing threats and very high debt levels.

Again, never go into debt at this point in the business cycle. You will be trapped and not be able to realize a profit for years.

#164 the floor on 08.14.11 at 6:31 pm

Smoking Man – try Taiwan(south).
I lived there for 6 years. Great food and warm, plus the Taiwanese treat you well and don’t mind people making money…. and you can date the women if you like.
:)

#165 randman on 08.14.11 at 6:35 pm

“Does your gold send you a monthly cheque? Nah, I didn’t think so. — Garth”

Garth…remember what they tell rookie lawyers….?

Don’t ask a question that you don’t know the answer to!

Proof that gold pays interest

Statements are sometimes repeated to the point that they acquire the status of truth despite being deceptively false. In my mind I am undecided as to whether the greater xxxxxx are those that make such statements or those that accept them. The statement that “gold pays no interest” is one of the finest examples of intellectual bankruptcy and dishonesty.

http://www.gold-eagle.com/editorials_08/souleles061611.html

And how about people who plagiarize? BTW, gold pays nothing unless you sell it. — Garth

#166 dd on 08.14.11 at 7:19 pm

163 dd on 08.14.11 at 6:04 pm

And do they send you money? Oh, bummer. — Garth

If I need to cash in … sure. I am well ahead in purchasing power. Using the old method of accounting for CPI your 5% of nominal return is actualy negative 5%. Swim against the current if you wish. With your method you and your followers are getting further and further behind.

Hard to feel behind when your investments are paying your rent or your mortgage. What’s the point of money, if it’s not to finance life? Just to grow a bigger pile? Sad. — Garth

#167 Killer Chicken or Imploding Boomer? on 08.14.11 at 7:41 pm

155 Dan/160Mad Vlad

Interesting article here:

http://www.canada.com/nationalpost/story.html?id=e4d64590-a566-44f5-83e7-089431f31030

IIRC there is a huge issue with the export of raw logs from private land. Logs from Crown land are supposed to go through a sale process to ensure they are “excess” to the domestic mill market. The private land logs do not,
as the landowners affected may be the “little guy” as
well as the large companies. Arguement being that they
should be able to sell to whatever market they please.
There was a date in there is well (1911?) for the original grant of the land.

Now if a mill processes logs from both, and the private
logs are cut-off, then the mill supply dwindles and they
shut down. With fewer mills, the excess criteria is easier to meet. A no-win situation.

This is how it was explained to me about 10 years ago. I
dont know if anything has changed. I was in Pt Alberni a
week ago and cant believe the change from when I was a youngster.

#168 squidly77 on 08.14.11 at 7:42 pm

dd

I have made 50% yoy in the metals.

So how many times have you taken your profits?
Let me take a wild guess. Never.
Nope Gold bugs are way to emotional if not passionate

Emotion and money don’t mix very well.

#169 squidly77 on 08.14.11 at 7:45 pm

dd

I have made 50% yoy in the metals.

So how many times have you taken your profits?
Let me take a wild guess. Never.

Gold bugs are way to emotional if not passionate about their holdings, most will hold it till it drops, by the way, Schiff is always buying and selling his Gold holdings, thats how you make money.

Emotion and money don’t mix very well.

#170 Daisy Mae on 08.14.11 at 7:57 pm

Neo: “Flaherty just came out and said we will have a second round of stimulus, that’s worked sooooo well in the U.S., if/when we slip back into recession. Therefore, that will blow our budget right out of the water along with our “fiscal responsiblity”.

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

Idiots are running the world, screwing things up royally…..and taking us all down with them.

#171 Daisy Mae on 08.14.11 at 8:16 pm

Form Man on 08.14.11 at 3:11 pm # 134 Daisy May

“Apparently Canadians do buy into this crap. What amazes me is the media congratulating Flaherty for ‘tightening’ mortgage rules………he was the one who loosened them in the first place!”

Yes, Harper, Carney and Flaherty CAUSED our problems. And now Flaherty is going to rectify that by creating more problems.

Following this blog has really opened my eyes. But family/friends still have theirs closed. Are we this stupid…or just so terribly gullible?

#172 BrianT on 08.14.11 at 8:29 pm

#146Bottom-I gotta call B/S on your whole premise-every single 10 yr old Chinese kid I have ever seen was very well behaved and very polite by North American standards, so maybe all your pissing in the street is good for kids and society in general.

#173 Dan in Victoria on 08.14.11 at 8:50 pm

Killer Chicken/imploding boomer @168

I was in Port Alberni a week ago and can’t believe how much its changed….
True.
Did you go to the J & L drive in ?
Some things never change.
Mmmmmmm J & L combo, onion rings, choclate shake.
Some nice rods on Friday / Saturday night…
Life is good.
I’ve given up on the lumber deal its toast.