Fear, greed & risk

VEGGIES

Risk is danger, or harm. When I ask people if they’re risk-takers or not, almost everyone picks the same word to describe themselves: conservative. These days I’m struck by how many young people want security. Sadly, it portends more government to come.

Risk is amplified by fear and assuaged by greed. Since 2008 most folks have feared financial assets and embraced real estate, for example. So, saving and investing are near record low levels. Home ownership’s at an historic high, along with prices. But meanwhile, some stock markets are also at their high-water mark. Bond prices, too. And families have never been more indebted. This is troubling for anyone taking the time to think about it – which is not many. It’s why risk is all around us.

The threat embedded in Canadian real estate is obvious. Look at the chart below. Speculation and debt have propelled the ‘safe’ asset of housing into uncharted territory. Prices have been bouncing off a resistance level for some time now, as they did in the US before a precipitous fall. For four years we have seen record sales, prices and consumer engagement in real estate, to the exclusion of retirement saving or simple diversification. Never before have Canadians been so massively invested in a single asset class.

This is risk. Anyone buying in now is a greater fool.

HOUSE PRICES

But what of stock markets? The fearful who pour onto this pathetic blog daily point out that the S&P or the Dow are also at peak levels. In numeric terms, it’s true. Inflation-adjusted, or viewing the market as a multiple of current corporate profits, absolutely not. And the Toronto market has been a distinct laggard – up less than 3% this year while the Dow soared 19%.

There are reasons other than speculation or debt for stock prices being where they are. I mentioned company earnings, which have rebounded since 2008-9. But there’s also the influence of government stimulus – it’s driven interest rates down, inflated bond prices, dropped yields and made stocks far more attractive. The result has been runaway gains for investors in 2013 in an economy which is barely moving. More risk.

Here is the S&P, the broadest measure of US equities, for the past couple of decades.

INVESTORS FAIL1

This tells us that, as with real estate, people move in herds. The greatest buying happens where there is the greatest risk – when assets are rising in value and greed suppresses caution. Conversely, the greatest selling happens when risk is at the lowest point – when prices are falling or have bottomed, and fear defeats reason. Smart investors would have swarmed in during March of 2009, for example. But instead, they bailed en masse. It’s why most fail.

Does this chart suggest US stock values will fall? Of course it does. And they will. A correction of 5-10% seems like a given, but a 2008-style collapse of 50% seems far-fetched, given profits and central bank support. Nonetheless, risk is higher now than it was at Christmas, when the doomers were wrongly forecasting a US recession in 2013.

Does this mean there’s no safe place to hide, if houses, stocks and bonds are overvalued?

Hardly. Here are some guidelines:

  • Owning a house is cool. You need to love somewhere. But not if it constitutes the bulk of your net worth, or if you have extreme leverage. In those cases, brace for losses.
  • Volatility’s likely to increase. So owning individual stocks is a bad idea for most people. A year’s worth of dividends can be wiped away in a day or two of price drops.
  • The best defence against risk is diversification. Combine home ownership with a fat TFSA and other liquid investments. Use index ETFs instead of individual equities. Spread money across various sectors of the economy, geographic regions and large and small-cap companies, for example.
  • The best remedy for volatility is balance. Hold fixed-income assets, not just ones that grow. Some preferred shares or corporate bonds (or ETFs based on them) will give you yield whatever markets do, rise in value if stocks fall, and stabilize your portfolio.
  • Risk is magnified if you can’t get out. The big danger with real estate is illiquidity – when a house turns into a wealth trap as buyers disappear. That murdered the US middle class. Financial assets can be bought or sold with a click.
  • Rebalance what you own regularly. Lately that means harvesting large cap stock gains, reducing real estate exposure or moving money into under-performers, like small companies or emerging markets ETFs.
  • Never buy or sell emotionally. You’ll blow up. Winning a bidding war for a house in 2012 or bailing out of equities in 2009 were equal mistakes. If you ape what most people do, you’ll end up like them. How droll.
  • If you’re too busy making a living, playing with your dog or loving your spouse and kids, then get some help. Simple is gone.

143 comments ↓

#1 Randy on 06.02.13 at 4:02 pm

Doesn’t vegetarian mean ‘crappy hunter’ in Greek ?

#2 Roodbwai on 06.02.13 at 4:06 pm

Phuh-phuh-phirst?

Spendin too much time on Twitter…

#3 City that smells like it sounds on 06.02.13 at 4:09 pm

Top 5 post isn’t bad really.

#4 skooby doo on 06.02.13 at 4:20 pm

I am going to sell very emotionally on Monday/tomorrow all my US stock holdings. Had really nice run in the last year with average 25 % up in nominal values, not to consider the decline of the CA$ against US$.

Dow will tank between 25 and 30 %.
This summer.
Then I will buy again.

#5 debtified on 06.02.13 at 4:24 pm

As mentioned in my previous comment, thanks to you, most of my equity investments are up. I have began harvesting some of the gains. Given that a correction of 5%-10% is likely, how come keeping some money on the sideline in the short-term is not one of your guidelines?

To me, right now, liquidity is paramount. Any investment becomes illiquid, even in fixed-income assets, during a correction because I am not likely to sell. If I have no cash set aside, then how am I able to buy anything after the correction to take advantage subsequent upside?

You have laid out some great strategies to weather a correction. Do you have any strategy specifically geared towards the possibility of profiting following a correction? If not keeping some reserve cash that can be readily deployed, what then?

Thanks.

Spend more effort building the properly-weighted portfolio and less trying to time the market. — Garth

#6 gogo on 06.02.13 at 4:26 pm

Garth, company profits are 70% above the historic norm. When they adjust, the stock market will not seem undervalued. Read more John Hussman and Stanley Druckenmiller. US is pouring 85 billion dollars every month, this produces midget growth. What do you think will happen when they stop. Thanks for educating people and me on real estate though.

Cheers.

#7 jess on 06.02.13 at 4:37 pm

http://www.mfi-miami.com/2013/05/was-a-detroit-real-estate-flipping-scheme-used-to-fund-hezbollah/

3 Detroit based real estate investment firms are being sued for fraudulent misrepresentation, fraud, breach of contract, and racketeering…. by investors who claim they are victims of an elaborate Ponzi scheme where defendants would buy “worthless” property in the city of Detroit and then sell them at inflated prices to investors.

Were the before and after pictures of the homes photoshopped?

#8 Tom Vu on 06.02.13 at 4:38 pm

What is star covering?

Can’t tell if sow or boar .

#9 Shawn on 06.02.13 at 4:59 pm

MORE STOCKS SOLD THAN BOUGHT? OR VIVE-A-VERSA?

Good advice today.

I must however, as always, quibble with the notion that there were times when investors as a population “bailed en masse” or times when investors as a population ever did more buying than selling.

Others on this board have pointed this out in the past as well.

In fact buying sentiment can ebb and flow from peak to valley as can selling sentiment. In this way investors as a population push stock prices up and down.

But, setting aside trades in the primary market (IPOs and stock buybacks) in the secondary market where investors trade with each other every stock that is sold is also bought. And market makers are just fellow traders and don’t hold much inventory and their existence does not change the truth of the preceding sentence.

What happened in March 2009 and the months that led up to that market low is that greater fools and the misguided sold to smarter or braver investors. On March 9 2009, it was smarter investors on average who owned stocks. Many fools had already bailed as stocks got too cheap to own in the minds of fearful fools or misguided investors.

In 1999 the smart investors were selling to the greater fools.

#10 jess on 06.02.13 at 5:02 pm

“Well three years ago the government pledged to
to introduce a law that would allow greater scrutiny of parliamentarians’ contacts with lobbyists. ”

===========
Suppose the undercover journalists posing as lobbyists wanted to press the issue!
===================
All three main political parties are bracing themselves for further allegations to come on Thursday when the BBC’s Panorama programme will broadcast further claims against politicians.

#11 Fear, greed & risk — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate – The Affluent Boomer on 06.02.13 at 5:16 pm

[…] via Fear, greed & risk — Greater Fool – Authored by Garth Turner – The Troubled Future of Real…. […]

#12 Renter's Revenge! on 06.02.13 at 5:21 pm

I see very little difference between rebalancing and market timing.

Market timing: “Stocks went up; I guess I should sell.”

Rebalancing: “Stocks went up (as percentage of my portfolio); I guess I should sell.”

Hindsight, of course, is always 20/20.

Rebalancing is reallocating gains. Market timing is converting an asset class into cash. Big difference. — Garth

#13 Nick on 06.02.13 at 5:22 pm

Cash is king. When the dust settles, those with cash will rule.

Wrong. Cash earns nothing. The fixed0income portion of a balanced portfolio today earns over 4%. — Garth

#14 AK on 06.02.13 at 5:28 pm

#4 skooby doo on 06.02.13 at 4:20 pm
“Dow will tank between 25 and 30 %.
This summer.
Then I will buy again.”

——————————————————————
Good Luck with that.

#15 Bob Copeland on 06.02.13 at 5:29 pm

2 “experts” have given me 2 different ways to “balance” a portfolio. I’d bet if I went to ten I’d have ten different ways.
Any advise for a reader to follow?

There is only one way. I described it previously. — Garth

#16 AK on 06.02.13 at 5:31 pm

#6 gogo on 06.02.13 at 4:26 pm
“When they adjust, the stock market will not seem undervalued. Read more John Hussman and Stanley Druckenmiller. US is pouring 85 billion dollars every month, this produces midget growth. What do you think will happen when they stop. Thanks for educating people and me on real estate though.

Cheers.”
——————————————————————-
The economy will be strong enough to sustain itself.

#17 Devore on 06.02.13 at 5:34 pm

#10 Shawn

Give it up already. It’s a figure of speech used to briefly describe a situation. When selling pressure increases, prices are depressed. When demand goes up, so do prices. Notwithstanding your clever book learned nit picking, everyone knows what is meant, and isn’t that what language is about, getting ideas across and communicating.

#18 Pt Bob on 06.02.13 at 5:40 pm

risk free mortgages in Victoria where you can’t lose in a down market using a League Equity Mortgage
http://skye.capitalcitycentre.ca/league-equity-mortgage

Yikes. — Garth

#19 I'm stupid on 06.02.13 at 5:50 pm

Hi Garth

Your missing the bigger picture. The gen y and x-ers are afraid of their own shadows. They are raising offspring who are bubble wrapped. Conservative, you haven’t seen anything yet. When all these kids grow up they will be too afraid to cross the street.

#20 Bob Copeland on 06.02.13 at 5:55 pm

#16
When-where? Help!

#21 T.O. Bubble Boy on 06.02.13 at 6:09 pm

Awesome link from Mish today:
Sweden Housing Crash Coming Up; Average Swede to Repay Mortgage in 140 Years; Swedish Central Bank Ponders New Rules
http://globaleconomicanalysis.blogspot.ca/2013/06/sweden-housing-crash-coming-up-average.html

Who knew all of the Nordic countries are even more house-horny that Canada?!?!?
(and – they can’t even blame the Hot Asian Money)

#22 T.O. Bubble Boy on 06.02.13 at 6:14 pm

I’ve used the run in U.S. equities to sell off most of my single-stock holdings (outside of Berkshire Hathaway and a few others) and re-invest/re-allocate in ETFs instead.

I’ve also been trimming my Canadian “defensive” holdings in things like Utilities (ZUT) and and Preferred Shares where the gains had pushed the price well above the “par” value of $25/share.

Sitting on a bit too much cash these days, but feeling good with significant 2013 gains already locked in.

#23 Morgan on 06.02.13 at 6:18 pm

When I saw a good chance to step into ETFs last November, I couldn’t because I didn’t have a dime to spare. I’ve since liquidated some GICs, managed to save some cash and I’m now waiting. Not forever, just until I have enough accumulated so that diversification doesn’t mean breaking it out in change. I know you don’t suggest it, but with my unstable self-employed income I feel like paying off my mortgage gave me the defensive cash flow position I wanted, and now I feel more comfortable taking risks elsewhere. Thanks for short-listing some options.

#24 espressobob on 06.02.13 at 6:24 pm

After taking profit on the dow, s&p 500 & international markets and stuffing the proceeds into fixed income, why worry about a pullback in the equity markets? I believe this is rebalancing even though those ‘yield to maturity’ rates are nauseating.

Actually a correction would be most welcome!

#25 debtified on 06.02.13 at 6:38 pm

Garth,
So, do you change your weighting of asset classes then? For example, do you increase your bonds and decrease your equities at times like this when you are forecasting a 10%-15% correction in the stock market?
I just find it hard to put money somewhere where I know I could potentially lose 15% of the initial capital in the short-term; making that investment illiquid at that time because I wouldn’t want to sell; even though I expect it to go up again in the long term and the income remains constant.
I think the answers I am looking for lie somewhere in this guideline:
• Rebalance what you own regularly. Lately that means harvesting large cap stock gains, reducing real estate exposure or moving money into under-performers, like small companies or emerging markets ETFs.
I have started off loading capital on large cap stock. I left the gain to let it ride. I did it this way, instead of the other way around, because my capital is bigger than the gain and I’d like to rebalance more drastically. I will focus my time on finding under-performers like small companies or emerging markets ETF.

Thanks!

P.S. A “Yes” or “No” on “More Bonds and Less Equities” (in principle) would be greatly appreciated.

#26 blokexistentialist on 06.02.13 at 6:44 pm

#23, Swedish housing crisis
In a country where people brag at parties about their 700-square-foot apartment (only rented or leased, mind you), actually owning your own postage-stamp-sized house is a very big deal. It’s been a part of Swedish snobbery for decades.
In a recent blog, the urban European tendency to rent was applauded as good sense, but I saw no mention of the fact that owning your digs is simply out of the price range of most.
The Girl Who Kicked The Hornet’s Nest (and the other two great books in the series) are fascinating reading solely from the perspective of the international lust for real estate.
We still have a CHOICE in Canada and the U.S. as to whether we want to be prudent or not.

#27 Piccaso on 06.02.13 at 6:53 pm

The Original Rib Tickler located in Tomball TX

#28 Dr. Hoof - Hearted on 06.02.13 at 7:22 pm

Over at the Vancouver sun there’s an editorial by former BC supreme court justice Ian Pitfield proposing a rental vacancy tax.

This would be a tax that municipalities could impose to discourage vacant units held for speculation.

A vacancy tax would oblige a non-resident who beneficially owns housing accommodation in British Columbia, wherever the non-resident resides, to ensure that it is ordinarily occupied by the owner as a principal residence or available for rent at a competitive market rate. Failure to satisfy the requirements would result in liability for a vacancy tax equal to the monthly fair market rental value of the housing unit. The tax would be payable annually and not just at the time of purchase as is the case with the property purchase tax, or at the time of sale, as is the case with the income tax.A vacancy tax could increase the rental pool by some 15 per cent across the board, and by as much as 25 per cent or more in certain areas, if Mr. Yan’s estimate is correct. An increased supply of rental accommodation would also tend to put downward pressure on rents generally. The tax need not be seen as a bad thing by speculators. Avoiding the tax will produce income for the owner and offset the cost of owning and carrying the property in the course of speculation.

etc. etc.

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

ROTFLMAO

THE problem is allowing the problem to be sown and germinate.

Gov’t is going to do a deft tapdance….. ie punish people…( while still collecting property taxes)…build more Big Brother bureaucracy.

#29 AK on 06.02.13 at 7:24 pm

#2 Roodbwai on 06.02.13 at 4:06 pm
“Phuh-phuh-phirst?

Spendin too much time on Twitter…”
——————————————————————–
Whatever. Nobody cares!!!

#30 Dean Mason on 06.02.13 at 7:27 pm

League Equity Mortgage is a last desperate attempt to keep the coming real estate bust on it’s last legs.It’s in Victoria but there will be no victories for these guys.

#31 Skooby Doo on 06.02.13 at 7:29 pm

Entirely exiting an asset class, like large cap US stocks, is plain dumb. It’s what amateurs do. — Garth
——————————————
Like George Soros? Lookup the smart money to dumb money index. God forbid Fed reduces the stimulus as they hint.

Should I expect further 10-15 % growth to keep my positions? The market correction is overdue, the market is driven entirely by the Fed’s easy money policy. Looking at the P/E of major US companies (yes the inflated earnings due to monetary policies) and comparing them to European stocks for example:.. not good for US stocks…

#32 Daisy Mae on 06.02.13 at 7:33 pm

“Smart investors would have swarmed in during March of 2009, for example. But instead, they bailed en masse. It’s why most fail.”

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

I remember that period. And I remember what was supposed to be the smart thing to do — stay the course. And so I did. While all around me, people were bailing. I was invested in mutual funds with Investors Group. *sigh* Anyway I lost, big time. What happened? Did it all boil down to bad management? Still furious about this….

#33 Skooby Doo on 06.02.13 at 7:37 pm

Read the Fed’s Council Advisory minutes

http://www.reuters.com/article/2013/05/31/usa-fed-council-idUSL2N0EC1KX20130531

What they basically say is that the US stock market and the housing recovery is a bubble due to the easy monetary policies/ZIRP.

This is not coming from Peter Schiff but from serious bankers. So if they are right market correction is due.
Just stop the money printing and watch it.

If they continue the printing? Well the answer is simple: Buy the most depressed ‘commodity’ out there. with the most negative sentiment. The ‘barbaric’ relic.

#34 Retired Boomer - WI on 06.02.13 at 7:41 pm

Well, Guess I’m just one dumb ass.

House Cars, and all the junk is paid for. Stock Funds & ETF’s that equal 8 years gross earnings. Even a small pension! No need to tap those retirement benefits from uncle Sam yet, why not let them grow, while I spend down some of that taxable 401K money first, leaving the ROTH’s to grow along with the uncle Sam social insecurity.

The world could blow up next week ya know. Then where would we be? Maybe it won’t, then where would I be?

#35 HDJ on 06.02.13 at 7:49 pm

I’m a vegan because it’s wonderful for my body, animals and our abused environment. Eating meat is really risky, unlike the overblown, alleged risk of Canadian home ownership. Truth is, the US economy is making a comeback that will limit the magnitude of our housing correction. So, worry about those hot dogs and hamburgers (cancer, blood pressure, diabetes, heart disease), but calm down about the housing market. At worst, you’ll lose a small percent of the property value gained over the last decade. Cheers.

#36 Bob in Kamloops on 06.02.13 at 8:12 pm

“Cash is king. When the dust settles, those with cash will rule.

Wrong. Cash earns nothing. The fixed-income portion of a balanced portfolio today earns over 4%. — Garth”

Garth wants you in the market all the time…how else can he collect on the mer’s ??

Sometimes (like now) I wonder why I try educating morons like you. — Garth

#37 Gary M on 06.02.13 at 8:12 pm

I see nothing wrong with shorting. My son -who, by the way, is a CFA charter, not some unemployable speculator with a Questrade trial account- refers to it as “God’s way of bringing rationality back”. I couldn’t agree more.

And Garth, not long ago you were encouraging people to sell their gold holdings, and rightly so. Why the double standard?

I told people to take profits at $1,900 an ounce, which is called ‘rebalancing’. Sure hope some listened. — Garth

#38 Godth on 06.02.13 at 8:14 pm

Greed and Fear, sums it all up. What a way to frame economic activity. I see pigs at a trough, beasts, the majority to be slaughtered while the few become bloated.
Are we there yet? Hey honey, pass the bacon, cannabalism is good; the younger the better.
Why do the clouds look like mushrooms…

#39 AK on 06.02.13 at 8:23 pm

#35 Skooby Doo on 06.02.13 at 7:37 pm
“This is not coming from Peter Schiff but from serious bankers. ”
——————————————————————–
Wow, that’s a relief.
——————————————————————–
“If they continue the printing? Well the answer is simple: Buy the most depressed ‘commodity’ out there. with the most negative sentiment. The ‘barbaric’ relic.”
——————————————————————–
Look. They will continue with the printing until the Unemployment rate hits 6.5%. It’s as simple as that.

#40 AK on 06.02.13 at 8:29 pm

“I told people to take profits at $1,900 an ounce, which is called ‘rebalancing’. Sure hope some listened. — Garth”
——————————————————————–

About 50% of the people that post on this blog have no clue when it comes to investing.

All the negative comments day after day. That’s what happens when they continue to read Peter Schiff articles.

#41 Ralph Cramdown on 06.02.13 at 8:40 pm

#6 gogo — “Garth, company profits are 70% above the historic norm. When they adjust […]”

What’s your theory on that?
– We’re at the top of the cycle, the economy is booming, and profits will shrink as the Fed tightens to slow inflation?
– Worldwide effort will lead to unification of corporate tax laws and rates, with no more holdcos in Bermuda, the BVIs, Channel Islands, Ireland etc.?
– US tax reform will close all major corporate loopholes?
– The rise of organized labour will tilt the profit sharing split back towards the workers a bit?
– Tariffs will stop imports of manufactured goods from low wage countries?

I’m not seeing any of those happening in the near future, and I can’t think of other theories why profits would adjust. Welcome to the century of capital.

#42 Timing is Everything on 06.02.13 at 8:45 pm

Speaking of ‘meat’, lamb is very popular in T.O. Cheap too.
There seems to be an endless supply.

http://tinyurl.com/njr2qhe

#43 rp1 on 06.02.13 at 8:48 pm

Many young people I know are conservative with their finances so they can take risks in their careers. Growth is hard to come by, so this is the correct thing to do. And interest rates and inflation are low, so markets are supporting this.

Investors should spend less time speculating in financial instruments and more time looking for people and companies who will make a difference. That’s where the returns are.

#44 JSS on 06.02.13 at 9:00 pm

If we”re talking diversification here, does anyone have XTR, through iseries diversified monthly income fund? I think it’s 50% bonds and 50% equities, an etf of etfs

#45 Skooby Doo on 06.02.13 at 9:20 pm

I told people to take profits at $1,900 an ounce, which is called ‘rebalancing’. Sure hope some listened. — Garth
——————————————–
You actually trashed gold.
——————————————–
# 41 AK:
Peter Schiff is usually right.

He sounds like a clown but is surprisingly accurate looking at the big picture.

As for the stop of the printing press: It might be forceful and sooner than you think. Then watch the markets.

#46 Paully on 06.02.13 at 9:29 pm

I love vegetarians. They come in beef, pork and chicken flavours!

#47 AK on 06.02.13 at 9:31 pm

#46 JSS on 06.02.13 at 9:00 pm
“If we”re talking diversification here, does anyone have XTR, through iseries diversified monthly income fund? I think it’s 50% bonds and 50% equities, an etf of etfs”
——————————————————————–
XTR Holdings

Net Asset Value….. $796,206,219
Number of Holdings… 2,248
Stock…………………….. 40.15%
Bonds……………………. 59.55%
Other* ………………….. 0.19%

#48 Skooby Doo on 06.02.13 at 9:34 pm

May 17, Record of Meeting of the Federal Advisory Council and the Board of Governors, unleased after FOIA requests were submitted

There are potential risks associated with current policy. The Fed’s securities purchases have reduced mortgage yields and, to a lesser extent, Treasury yields. Current low bond yields are disruptive to management of fixed-income portfolios, retirement funds, consumer savings, and retirement planning. They may encourage unsophisticated investors to take on undue risk to achieve better returns. MBS purchases account for over 70% of gross issuance, causing price distortion and volatility in the MBS market. Fixed-income investors worry that attractive mortgage-backed securities are in very tight supply. Higher premium coupons carry too much exposure to prepayments, potentially led by new government support programs for housing. Many are concerned about the Fed’s significant presence in the market. They have underweighted MBS in favor of corporate, municipal, and emerging-market bonds. There is also concern about the possibility of a breakout of inflation, although current inflation risk is not considered unmanageable, and of an unsustainable bubble in equity and fixed-income markets given current prices.

Further, current policy has created systemic financial risks and potential structural problems for banks. Net interest margins are very compressed, making favorable earnings trends difficult and encouraging banks to take on more risk. The Fed’s aggressive purchases of 15-year and 30-year MBS have depressed yields for the “bread and butter” investment in most bank portfolios; banks seeking additional yield have had to turn to investment options with longer durations, lower liquidity, and/or higher credit risk. Finally, the regressive nature of the artificially compressed savings yields creates pent-up demand within bank deposit portfolios; these deposits may be at risk once yields begin to rise and competitive pressures increase.

Uncertainty exists about how markets will reestablish normal valuations when the Fed withdraws from the market. It will likely be difficult to unwind policy accommodation, and the end of monetary easing may be painful for consumers and businesses. Given the Fed’s balance sheet increase of approximately $2.5 trillion since 2008, the Fed may now be perceived as integral to the housing finance system.

—————————————–

BIS Quarterly Review June 2013

Markets under the spell of monetary easing

Risk assets extended their rally as further monetary easing helped market participants tune out signs of a global growth slowdown. The spate of negative economic news between mid-March and mid-April did little to interrupt the rise of equity prices in advanced economies. The growth jitters left more of a dent on commodity prices while emerging market equities continued to underperform.

This new phase of monetary policy accommodation in the major currency areas spilled over to financial markets around the world. The prospect of low yields in core bond markets contributed to investors searching for yield in lower-rated European bonds and emerging market paper as well as in corporate debt. This drove spreads even lower while issuance in riskier credit market segments strengthened. Abundant liquidity and low volatility fostered an environment favouring risk-taking and carry trade activity.

… equity markets were quick to shrug off the uncertainty and extended their gains as investors expected poor fundamentals to be followed by further policy easing.

The S&P 500 posted several all-time highs in rapid succession, first on 11 April and again throughout May. Similarly, European bourses held up well in the face of negative economic news and political uncertainty. Throughout this period, the Japanese equity market continued its relentless ascent, fuelled by the prospect of massive monetary stimulus. The rapid gains left equity valuations vulnerable to changes in market sentiment…

#49 Here are the stats for May on 06.02.13 at 9:45 pm

http://recharts.blogspot.ca/2013/06/may-31-my-final-estimates.html

#50 Rex on 06.02.13 at 9:50 pm

The real danger of a real estate collapse is in the US where the genius at the Fed is holding rates near zero and buying $40 billion every month in mortgage backed securities (and $45 billion in Treasury Bonds). Look for the “Return of the US Housing Crash” coming to a news stand near you.

#51 Dr Hoof-hearted on 06.02.13 at 9:56 pm

DELETED

#52 espressobob on 06.02.13 at 10:09 pm

#38 Bob in Kanloops

Investing in equity’s or bonds shares risk. If your in it for the long run you might not be concerned about returns? Let them happen and rebalance.

If your looking for a quick buck or thinking short term, well good luck.

#53 Warren Buffet's Protege on 06.02.13 at 10:25 pm

I am always on the lookout for tsx stocks with low volatility and monthly dividends to add to my tfsa account. The wife is very risk adverse and I am looking for stocks to add to her tfsa portfolio. Any companies to watch for?

Currently, we hold LIQ, LW, IPL and DR.

#54 Aussie Roy on 06.02.13 at 10:33 pm

Aussie Update

Why you’re never too old for the banks

Heather Simmers turned 102 years of age this week. When she was 98, Westpac signed her up for a 30-year mortgage. Lending that personal touch, the bank manager even made the sojourn to the Clem Jones Nursing Home in Bulimba to sign up Heather for the ”Rocket” investment loan.

It may seem an act of supreme optimism by Westpac to be providing a $440,000 loan facility to a customer who would soon receive her letter from Her Majesty. Yet it is not beyond the realms of possibility that Ms Simmers may have met her obligations.

http://www.theage.com.au/business/why-youre-never-too-old-for-the-banks-20130531-2nhi7.html

Missing pieces in a low-doc lending trail that shattered lives

This $57 billion, low-doc loan sector required urgent investigation, said Brailey, who had brought a stack of documents to the meeting to prove her point.

http://www.theage.com.au/business/missing-pieces-in-a-lowdoc-lending-trail-that-shattered-lives-20130602-2njyk.html

Clarke and Dawe

Part time economists….

http://www.youtube.com/watch?v=S8iPH1OILHI&feature=player_embedded

#55 AK on 06.02.13 at 10:40 pm

#55 Warren Buffet’s Protege on 06.02.13 at 10:25 pm
“The wife is very risk adverse and I am looking for stocks to add to her tfsa portfolio. Any companies to watch for?”

——————————————————————–
“BNS” and “TD”

#56 AK on 06.02.13 at 10:43 pm

#52 Rex on 06.02.13 at 9:50 pm
“The real danger of a real estate collapse is in the US where the genius at the Fed is holding rates near zero and buying $40 billion every month in mortgage backed securities (and $45 billion in Treasury Bonds). Look for the “Return of the US Housing Crash” coming to a news stand near you”
——————————————————————–
Qualifying for a mortgage in the U.S. is not as easy as it was prior to 2009.

#57 Mark on 06.02.13 at 11:01 pm

Entirely exiting an asset class, like large cap US stocks, is plain dumb. It’s what amateurs do.

No its not. The large cap US stocks have dramatically outperformed over the past 5 years relative to foreign and Canadian stocks. Smart pro’s are taking money off the table and allocating to Canadian/International stuff. And those underperforming gold stocks as well.

Taking money off the table and reallocating is fine. Exiting an asset class is emotional and unwise. You have no idea what lies ahead. — Garth

#58 Delta5 on 06.02.13 at 11:19 pm

Hi Garth,

Given the close to 1600 listings in the K/W area, do you plan to give an update about this neck of the woods any time soon?

Thanks.

#59 al on 06.02.13 at 11:22 pm

“..The best defence against risk is diversification..”

only part of it, the best defence against risk is also and maybe mostly is putting the limit on losses

#60 Victor V on 06.02.13 at 11:31 pm

#55

I also own LW and IPL. Solid picks for income portfolios.

#61 Section8 on 06.03.13 at 12:12 am

http://ontario.kijiji.ca/c-services-financial-legal-A-MORTGAGE-DEAL-YOUR-BANKER-WOULD-WANT-5-YEAR-FIXED-2-74-W0QQAdIdZ480866790

Will this ever end!

#62 sven on 06.03.13 at 12:26 am

Any thoughts on how much REITs will drop in the short term? DI.UN and D.UN dropped about 5% in the last week.

#63 Shawn on 06.03.13 at 12:44 am

Currently, we hold LIQ, LW, IPL and DR.

Investors invest in companies traders invest in symbols

#64 Canuck Abroad on 06.03.13 at 1:11 am

Garth, I would second that request for an update of the K/W area. I think it has had more appreciation than London and Hamilton, no? So more correction coming?

#65 screwed on 06.03.13 at 1:30 am

What a gorgeous weekend in Vancouver. The city’s beaches packed with people from all 4 corners of the world. No sign of a recession anywhere.

This is simply the most liveable city in Canada and most definitely one of the nicest cities to live in the world – when the sun shines….

Overprices – Yes, you bet. But then again, what is not overpriced when trillions of paper assets are sloshing around the globe chasing yield.

@ScoobyDoo
Correction is coming. Make no mistake. The Fed will print. They have no choice. They are balls to the wall in their mandate to support the US economy. If/when they stop printing, millions will go unemployed without paycheques and millions will not get an upload on their EBT cards as SNAP runs out. Other benefits and welfare will have to be slashed as well.

The Fed is always choosing to inflate and devalue the currency as opposed to allowing deflation.

They can’t. Not saying they won’t. If they do, the music simply stops. Do you have a chair?

Word of advise. Cash is King in a deflationary world.

#66 Pulp Faction (Dorf) on 06.03.13 at 1:49 am

Damn Vegetarians !

How can I eat meat,
when they are eating all the animals’ food ?!

#67 leaving vancity 2nd time for good and for long on 06.03.13 at 2:22 am

the definition for the word “young” is to throw away “security” for freedom, for ambition, for dream.

being house-horny and get tied up to fulfill the ego/emotion is just pathetic.

#68 Buy? Curious? on 06.03.13 at 3:43 am

I know of these risk adverse type of people. In high school/university, they were very cool but now when I bump into them at the St Lawerence Market they are so lame that I almost want to cry. Khaki pants, sandals and a golf shirt is the tell tale sign that you’re a nerd. I wonder what is the tipping point from smoking doobs and going to art galleries to buying a golden retriever, a $1000 stroller and a house near Dupont and Dufferin then spending every gawd damn weekend up at the cottage?

https://www.youtube.com/watch?v=tqQbzmIcLhw&feature=player_embedded#!

#69 William M. Partridge on 06.03.13 at 3:46 am

>>but a 2008-style collapse of 50% seems far-fetched, given profits and central bank support.

Increased profits are unlikely in a declining market and central bank support is hardly a ‘given’.

The best forward indicator of economic cycles are ones which can’t be manipulated, such as commodity prices. These are all heading sharply down.

The market is not declining, and the anticipated correction will be just that. Central bankers are not going to quit, ever. Commodity prices are lagging indicators of anticipated growth, not leading. Stick to your day job. — Garth

#70 William M. Partridge on 06.03.13 at 3:51 am

>>Exiting an asset class is emotional and unwise. You have no idea what lies ahead. — Garth

If ‘exiting’ an asset class is ’emotional and unwise’ how can entering that same class be any less so? If stocks are going to tank (which you now finally admit) then it’s hardly being ’emotional and unwise’ to steer clear of them.

Having equity exposure means your portfolio paces economic growth – a very smart thing given the recovery of the US. Leaving that asset class because you’re afraid means you’re acting on emotion. That always ends in losses. BTW, where did I say stocks would ‘tank’? Learn what the word correction means. — Garth

#71 Indebted on 06.03.13 at 7:31 am

Garth,

I have way too much Debt from student loans and I kick myself everyday for pursuing higher education. It definitely does not give you a good financial start.

Is student debt good debt?

Psychology major with a minor in theatre arts? — Garth

#72 Ralph Cramdown on 06.03.13 at 7:42 am

Hah! While all the milquetoasts on here are trying to decide, a la Prufrock, “Dare I rebalance?” Japonica Partners is going for a controlling stake in Greece via restructuring! πανίσχυρη Ελλάδα!

#73 retired Boomer - WI on 06.03.13 at 8:21 am

Garth-

Reading some of these comments leaves me wondering if Garth’s treatises are ever getting through some of those thick skulled Canadians?

Geez readers, this is NOT organic chemistry, but mostly fatherly wisdom.

Garth says, avoid extreme leverage on house debts, save a portion of income for retirement, keep a diversified periodically rebalanced portfolio.

Exactly HOW difficult is that to begin to develop?

Yes, 2008 kicked the snot out of most everybody I know in the US. Some decided to stay the course (and now fully recovered plus) some panicked, and sold thereby locking-in their losses.

That is all history now. We live to invest, and spend anew today, and tomorrow. You can choose to make better choices, or do the same things, but expect different results.

Let me know how that’s working will you-

#74 not 1st on 06.03.13 at 8:29 am

When corporations actually start investing in the greater economy instead of cutting back on coffee and toilet paper, then maybe the stock market will be of interest.

#75 Wes Mantooth on 06.03.13 at 8:51 am

Past is not indicative of future performance… yet people always look to the past for guidance on behaviour. For those looking for a true contrarian view (being negative and bearish is not contrarian at the moment by the way… in face that is sentiment at the moment)

Have a look at 1995 and a chart of the S&P… Are we at 1995 now? I bet there was a lot of people looking to find another big dip (a 25% chop in any market is a big dip) and selling in 1995… The dip never came…

Bernanke is going to ensure your success… new highs await..

#76 denialbuster on 06.03.13 at 8:55 am

DELETED

#77 pbrasseur on 06.03.13 at 9:04 am

“Rebalance what you own regularly. Lately that means harvesting large cap stock gains” – Garth

I disagree with that, it really depends which individual stocks you are referring to, for example these days it may make sense to sell some JNJ ot PG, but certainly not IBM or US banks. When an investment is good you keep it unless you have reasons to think it has become overpriced. Just because a stock has risen a lot does not means it has become overpriced Also “harvesting” means making transactions for which threre are fees and if you are outside a RRSP or TFSA you will pay taxes on capital gains. The less transactions you make, the better. Just pick your investments carefuly and for the long term, you won’t have to trade so much and will delay paying taxes.

Also be aware that “rebalancing” as dump as trying to time the market if it means selling a rising asset for one that’s falling. Getting out of stocks to get into cash or bonds look very much like that right now…

First, I do not advovate individual stocks, partly because of increased volatility. Second, rebalancing means taking the overweight portion of an asset class and distributing it among the underweighted. Stop falling in love with rising assets. It will end badly. — Garth

#78 blase on 06.03.13 at 9:20 am

I’m sure you’ve mention it many times before Garth, but it bears repeating; Canada’s five-year mortgage rates are a relatively extreme form of leverage, especially in a central-bank supported loan-rate environment.

Most people have taken out 40-30 year mortgages in the last few years based on these rates, which allowed buyers to spend much more on homes, while lenders and home buyers have not had to factor in the effects of a doubling or more of the rate following the first or second reset of the loan. (not factored in due to the moral hazard of government guaranteed mortgages)

When these leveraged loans reset in the future, the “margin call” will leave debt-exhausted Canadians naked.

There will be regression to the mean, then past it. You might even see Wal-Marts closing in Canada. (shudder)

#79 pbrasseur on 06.03.13 at 9:58 am

“Stop falling in love with rising assets.” Garth

It’s not about loving rising assets, it’s about assessing the true (intrinsics) value of the assets you own. I repeat, just because an asset is rising does not mean it is becoming overpriced, it may simply have been underpriced before.

Rebalancing reduces volatility, it ensures your end of month statement will not fluctuate as much which most mistake for security. (It also pleases the industry, the more trades the more they money they make…). Right now selling stocks to get into bonds likely equate selling a correctly valued asset to buy a still grossly overvalued one.

Buying individual stocks may not be the best strategy for most since it requires a fair amout of work (they won’t do) and knowledge (they don’t have), BUT, in the end it is the ONLY proper way to invest in the stock market if your aim is to buy quality (and what else would you do if you are not a speculator?). When you buy ETFs or indexes you don’t control which companies you buy and you will inevitably end up buying some crap.

Because after all quality is where the money is. If you (or your advisor) manage to find great companies that grow 5% faster than average, in the end provided you give it enough time, as prices always end up giving the true value of things, you will make 5% more than the rest. It’s really that simple. But you’ll get nowhere near that while rebalancing into a bond bubble and buying ETFs.

#80 GTA Engineer on 06.03.13 at 10:00 am

Garth – glad to see you’re (finally) stating what I’ve been saying for the last 6-9 months – equity markets, having done so well in recent history, are quite risky at this point to get into. Of course diversification across asset classes and geographies is the way to mitigate this, but in terms of equity markets, they are being artificially inflated by central banking policies. Once these policies are ‘tapered’, I would expect to see markets revert to the mean (potentially undershooting the mean in the process). I don’t expect a crash like the GFC, but there will definitely be pain felt.

And don’t get fooled by increasing corporate profits – the second derivative of these (the rate at which they grow) has been slowing for some time. A lot of heady expectations for 2nd half of 2013 – and based on all economic indicators, there’s going to be a heckuva earnings problem very soon. Money printing will only serve to inflate earnings multiples(PE’s), so unless they print moar and moar until the business cycle corrects and company earnings start accelerating (unlikely, since central banks are already signaling potential restraint), markets will be falling by the end of the year..

There’s always risk after substantial price gains. The correction will trim that. I’m looking forward to it. — Garth

#81 GTA Engineer on 06.03.13 at 10:06 am

The market is not declining, and the anticipated correction will be just that. Central bankers are not going to quit, ever. Commodity prices are lagging indicators of anticipated growth, not leading. Stick to your day job. — Garth

———-

Central bankers aren’t going to quit? They’re already signaling concerns about bubbles in equities and real estate (real (not nominal) income-to-mean US real estate ratios are the lowest they’ve ever been, including the previous peak), and have indicated numerous times about the possibility of tapering. In fact, the low number of mortgage originations in the US have already begun this ‘tapering’ unofficially. The Fed simply doesn’t have enough MBS (mortgage backed securities) to purchase to meet that $85B/month outlay.. All we need is a catalyst to make this house of cards collapse on itself..

The Fed (and all central banks) have unlimited funds. Tapering is not quitting. It’s tapering. Relax. This is all going to work out just fine. — Garth

#82 calgary_rip_off on 06.03.13 at 10:09 am

http://www.calgaryherald.com/business/Calgary+housing+market+smashes+records/8470127/story.html

The latest nonsense from the Herald. I emailed the Gottlieb realtor and told her she was mistaken. Buyers dont buy because of “confidence” in Calgary, they buy because housing costs are the same as a rental and who chooses to subsidize landlord scum if they will live longer than say 5 years in Calgary given that rents keep increasing and housing too?

Maybe just maybe people want to buy a mortgage in hopes of eventually owning the place not as an “investment” but as an actual plot of land to own. But then again does a person really own it anyway, given all the rules and regulations in Calgary, you cant let your cats roam, cant wash the car in the driveway, cant have chickens in the yard, must keep the lawn mowed, cant park on the lawn, etc etc. Modern society’s members are no different than domesticated pet animals. But then again, the alternative of being dead, unemployed, or homeless or any combo of the three isnt appealing either. No wonder guys watch sports and drink beer and then take viagra. After the housing, jobs and women everyday nattering at work there’s nothing left emotionally or physically.

#83 pbrasseur on 06.03.13 at 10:16 am

“Having equity exposure means your portfolio paces economic growth” Garth

Not really. In the end a stock price maps directly to the performance of the company.

Companies can do very well in a slow growing economy (for example because of low interest rates…), and vice versa…

The stock market is not an instrument to measure the performance of the economy. Just ask Warren Buffet what he thinks about that and about macro economic analysis to direct investments…

The stock market is a place to invest (become owner) of companies, it you treat it any other way it will burn you.

The equity market is a leading indicator and, yes, it does pace economic growth. This is why for all but high net worth folks with seven figures to invest, index ETFs are the best bet. — Garth

#84 Rational Optimist on 06.03.13 at 10:24 am

#37 HDJ on 06.02.13 at 7:49 pm

Too much wealth in housing right now will increase your risk of having to eat hot dogs in the future.

Diversification will improve your chances of getting to enjoy veal, lamb, and fois gras.

#85 Sebee on 06.03.13 at 10:49 am

Toronto Star Article

7 Reasons your house may not be selling

Taken off-line.
http://www.thestar.com/business/personal_finance/2013/06/03/7_reasons_your_house_may_not_be_selling.html

Could there have been some reasons that the cartel didn’t like – like lower your price? And so they objected to this insane idea, requesting the article be taken down pronto?

#86 Van on 06.03.13 at 10:53 am

“Faber says he buys gold every month, adding that “I want to have some assets that aren’t in the banking system. When the asset bubble bursts, financial assets will be particularly vulnerable.””
http://www.prisonplanet.com/marc-faber-people-with-financial-assets-are-all-doomed.html

Of course. He’s so invested in fringe advice, what option does he have? — Garth

#87 Tom Vu on 06.03.13 at 11:00 am

The Fed (and all central banks) have unlimited funds. Tapering is not quitting. It’s tapering. Relax. This is all going to work out just fine. — Garth

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

Yes…it is much like nature calling.

Sometimes feels like door is slammed shut…or other times won’t close..but taper is the “happy” medium.

#88 Old Man on 06.03.13 at 11:04 am

I have not bought any common equity shares since the big crash, as that was the time to buy up the bluechips, and laughed all the way to the bank. I have been selling them slowly over the past 18 months as hooped the dividend tax credits, and now am working on the capital gain problems. I see no common stock worth buying, as they are maxed out more or less, so time to rebalance, so don’t roll the dice on common stock or you will lose.

#89 blase on 06.03.13 at 11:41 am

#90 Old Man,

They aren’t all maxed out, and Buffett is still buying.

Here’s a few that are below book value or trading at low p/e or low pegs:

AIG, AOL, Fairfax, WFC, GM, F, BAC, C, JPM, BP, Shell, Exxon, Chevron, even Berkshire B isn’t that expensive and is a great hedge considering how much cash it’s holding.

#90 BillyBob on 06.03.13 at 11:42 am

Quote: “Because after all quality is where the money is.”

You mean like Nortel? Bre-X?

Go ahead and pick your stocks, but unless you’re an institutional investor it’s so 1994.

Hard to believe the fear on this blog. — Garth

#91 Fed-up on 06.03.13 at 11:48 am

I actually enjoy watching HGTV and the W Network while I catch up on property psychos losing their marbles while getting royally ripped off on what is mostly worthless Canadian real estate.
It actually increases the contempt that I have for the bulk of mankind :p

#92 coastal on 06.03.13 at 11:49 am

“risk free mortgages in Victoria where you can’t lose in a down market using a League Equity Mortgage
http://skye.capitalcitycentre.ca/league-equity-mortgage

Yikes. — Garth”

Again, this “baby needs a condo”, “yard”. “mansion”, etc advertising and mentality is so ridiculous. It’s ingrained in these naive people that truly think a $400,000 plus mortgage with a newborn is “affordable” and the path to the holy grail. Wait til the reality of daycare costs of $800 a month kick in for the majority.

Of course if you think this line is true then the sheep will be fleeced worse than I thought. “the only mortgage with no interest to pay, no monthly payments, and no personal liability.” Yikes indeed.

#93 Doug in London on 06.03.13 at 11:53 am

@Daisy Mae, post #34:
During the period from 2005 to early 2008 when equities went way up, didn’t you take some profits periodically and move the money into bond funds as interest rates went up and bond prices dropped? Then during the correction of 2008-09 when stocks were on sale and bonds went up because interest rates dropped, didn’t you move money out of bonds and back into equities? I have some bore you to tears mutual funds (you know, the ones with the outrageously high management fees) with more than one company, including Investor’s Group, and I moved some money into equity funds during the correction.

Similarly, I moved more money into equity funds during the dip of August 2011 and am quite pleased with the results so far.

To this day I hear complaints from people who “lost” money in stocks and equity funds during the events of the last 5 years. That’s strange, those events of the last 5 years have helped my portfolio immensely and greatly increased my odds of being able to retire early.

#94 The Prophet Elijah on 06.03.13 at 12:01 pm

Looks like USD crashing today from worst manufacturing data since 2009:

http://www.zerohedge.com/news/2013-06-03/huge-manufacturing-ism-miss-and-lowest-print-june-2009-sends-markets-soaring

So much for the recovery. When Wallstreet is done with pumping up the broken housing bag then watch out down below.

“Factory activity has waned since reaching an almost two-year high in February as across-the-board federal budget cuts took hold and overseas markets struggled to improve. At the same time, demand for automobiles, the rebound in residential construction and lean inventories may spark a pickup in orders and production in the second half of the year.” Some disaster. LOL. — Garth

#95 Martin Lazi on 06.03.13 at 12:04 pm

Me thinks, from this point we will not see a correction of greater then 5%

—-

I will trade my thinking and idea.

#96 The Prophet Elijah on 06.03.13 at 12:05 pm

The equity market is a leading indicator and, yes, it does pace economic growth. This is why for all but high net worth folks with seven figures to invest, index ETFs are the best bet. — Garth
———————————————————
That was in the old days before ZIRP and QE to infinity and the global market blew up in 2008 thanks to the good ole boys on Wallstreet. Gotta keep up with the paradigm shifts, Garth. We’re not in Kansas anymore.

#97 The Prophet Elijah on 06.03.13 at 12:10 pm

The Fed (and all central banks) have unlimited funds. Tapering is not quitting. It’s tapering. Relax. This is all going to work out just fine. — Garth
———————————————————
There will be no tapering as they’ve been saying this since QE started in 2009. There are over 700 trillion in derivatives floating around, enough to blow the world up 10 times over, it will take 600 years of QE to cover it, we’ll see mind blowing hyperinflation before that ever happens. Sorry Garth but you’re wrong on the issue as usual.

It will be reality by the autumn. And it will be an orderly transition. Too bad for you. — Garth

#98 The Prophet Elijah on 06.03.13 at 12:17 pm

“Factory activity has waned since reaching an almost two-year high in February as across-the-board federal budget cuts took hold and overseas markets struggled to improve. At the same time, demand for automobiles, the rebound in residential construction and lean inventories may spark a pickup in orders and production in the second half of the year.” Some disaster. LOL. — Garth
——————————————————–
Garth are you pulling this out of your arse again, this isn’t even in the article I posted.

Here is what it really says:

•”Customers are anticipating resin price decreases and holding back orders.” (Plastics & Rubber Products)
•”Slight uptick in overall business but not substantial.” (Textile Mills)
•”Government spending has tightened, which has moved out program awards and caused some reduction in force.” (Computer & Electronic Products)
•”Market outlook is relatively flat, with some promise of raw materials inflation relaxing.” (Electrical Equipment, Appliances & Components)
•”General economy seems sluggish and pensive. Buyers are not buying much beyond lead times.” (Fabricated Metal Products)
•”Downturn in European and Chinese markets is having a negative effect on our business.” (Machinery)
•”We are having a difficult time hiring skilled employees.” (Transportation Equipment)
•”Business continues to increase, but over the past 20 days we have seen the trend flatten.” (Furniture & Related Products)
•”Market was holding strong until mid-month — then softened.” (Wood Products)
•”Decline in sales for FYQ2 over same period a year ago due to softer demand [in] both domestic and exports.” (Chemical Products)

Did you know reading Zerohedge will make you go blind? Worked on him. — Garth

#99 Holy Crap Whers The Tylenol on 06.03.13 at 12:25 pm

Garth-This is risk. Anyone buying in now is a greater fool.

“We are the Borg. Lower your shields and surrender your ships. We will add your biological and technological distinctiveness to our own. Your culture will adapt to service us. Resistance is futile.”

Is this the resistance coming on the chart? Holy Crap I’m selling the collective unit dwelling as we speak!

#100 Ahsan on 06.03.13 at 12:32 pm

Garth. What planet do you live on? This market isn’t tanking! Bidding wars still rule the day!

Tell us where you live. — Garth

#101 Holy Crap Whers The Tylenol on 06.03.13 at 12:36 pm

#96 The Prophet Elijah on 06.03.13 at 12:01 pm

Looks like USD crashing today from worst manufacturing data since 2009:

http://www.zerohedge.com/news/2013-06-03/huge-manufacturing-ism-miss-and-lowest-print-june-2009-sends-markets-soaring

So much for the recovery. When Wallstreet is done with pumping up the broken housing bag then watch out down below.

“Factory activity has waned since reaching an almost two-year high in February as across-the-board federal budget cuts took hold and overseas markets struggled to improve. At the same time, demand for automobiles, the rebound in residential construction and lean inventories may spark a pickup in orders and production in the second half of the year.” Some disaster. LOL. — Garth

Just don’t get it the market gods are crazy!
So please explain this crazy anomaly of pouring cash into the absolute worst investment any sane person could do.

http://www.ctvnews.ca/autos/u-s-auto-sales-rebound-in-may-expected-to-keep-boosting-economy-1.1308544

#102 The Prophet Elijah on 06.03.13 at 12:36 pm

Did you know reading Zerohedge will make you go blind? Worked on him. — Garth
——————————————————–
I sense fear in you Garth, I know you’re terrified of this mystic propeht. Like your US you have also turned facsist, once a jedi now Darth Garth.

#103 Old Man on 06.03.13 at 12:41 pm

#91 blase – I appreciate you comment, but stick with what I know in Canada, as do not mess with USA stocks, as will leave that for others, and they will ask me keeping CND on side, and need not a currency war with all this stuff; too complex for my small mind :).

#104 The Mummy on 06.03.13 at 12:41 pm

Looks like bullion banks dumping the dollar, covering shorts and going long gold, hang on everyone it’s going to be a big ride to the top:

http://www.arabianmoney.net/gold-silver/2013/06/03/bullion-banks-dump-their-gold-and-silver-short-positions-ready-for-the-coming-rally-in-precious-metal-prices/

The US$ will be the global reserve currency for your entire life. — Garth

#105 Doberman on 06.03.13 at 12:43 pm

It will be reality by the autumn. And it will be an orderly transition. Too bad for you. — Garth
——————————————————–
That’s what the Nazi’s said when taking control of the Reichstag.

Man, I give up. (BTW, the plural is ‘Nazi’ is ‘Nazis’.). — Garth

#106 pbrasseur on 06.03.13 at 12:53 pm

You can’t have it both ways. If you want to maximize your investment gains you have to remain invested and that means you have to accept short term volatility.

Historically S&P 500 common stocks will give you about 10% (including dividends)

But most people don’t make nearly that because they keep buying and selling, going in and out of the market. Some of them because they speculate, others think they can outsmart the market, many of them do it while rebalancing.

But in the end, no matter the reason, they all lose.

#107 Good Grief Charlie Brown on 06.03.13 at 12:54 pm

Excellent post once again Garth –

I enjoyed the pic “Horrifying Vegetarians” and some commenting on those “freaky” veggie eaters. Actually, the Vegetarians are horrified on the steriod injected beef, the slaughter of animals on a mass scale.

Take a quick look on you tube with pork – with a piece of uncooked pork, poor coke over the meat, within 10-15 minutes small white worms push their way out of the meat – gross beyond belief!! (Cook your meat or get worms in your belly).

Have you ever watched the hidden camera’s in slaughter houses – do yourself a favour and don’t – sickening – but we humans need meat – bs!

Seeing those hogs in the slaughter trucks, how they beat them, anyone with an ounce of compassion would keep their stupid mouths shut in here if you mock those who refuse to buy into the corporate meat machine –

Sorry Garth, this world is filled with really dumb people.

#108 Holy Crap Whers The Tylenol on 06.03.13 at 12:56 pm

Had an interesting knock on my door this weekend. An investor working with a couple of clients asked me if I was interested in selling my property here in Oakville. All I can say is my neighborhood is north of Lakeshore Drive between Morrison and Chartwell. My home is a 1970s bungalow around 2300 square feet. Beside me on one side is a McMansion and my other neighbor has just unloaded his home and is headed south. We have all been talking about the coming crash but for the life of us we can not figure it out here. Why are people willing to pay big bucks in Oakville? There does not appear to be any signs of lower sales costs. The market albeit has slowed but the money has not! Anyway not interested in moving out yet, this is my home not my investment portfolio. The offer was very lucrative as I watched the investor drive away in his flashy Maserati. Maybe next time, in Oakville there appears to always be a next time.

#109 Shawn on 06.03.13 at 12:59 pm

DERIVATIVES

99 the Prophet Elijah

There are over 700 trillion in derivatives floating around, enough to blow the world up 10 times over, it will take 600 years of QE to cover it, we’ll see mind blowing hyperinflation before that ever happens.

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

Well, no doubt derivatives can be weapons of mass financial destruction in the wrong hands and CAN lead to systemic problems and ripple effect failures if certain key companies allow themselves to become vulnerable (and regulators don’t prevent it)

But the fact that there is $700 trillion in itself is not reason to panic. First we must understand that is the gross or notional value. The net amount is much lower. (A $3 option on a $100 stock is a gross $100 but the net at risk is closer to the $3 in most cases) There may be substantial netting of net amounts as well.

Also derivative losses transfer wealth from party to another. They don’t actually destroy any real wealth or GDP unless it gets serious enough to cause a financial crisis and then recession / depression.

The $700 trillion simply does not convey the true amount at risk. Nor does it convey any information on the probability that it will cause a financial crisis.

Further whatever NET amount is at risk needs to be put in context. World GDP I believe is in the order of $65 trillion per year.

It boils down to the fact that a little knowledge is a dangerous thing.

None of us on the board has demonstrated ANY expertise with derivatives so why should we panic about something we have no clue about?

And I certainly will not panic about something written on a doomer site.

Throwing out that $700 trillion figure without talking about the net amount is sensationalism and fear mongering.

#110 Old Man on 06.03.13 at 1:17 pm

There is this old story is the glass half filled or empty, and the debate goes on. In the last crash had to come up with cash to join the party, so sold my Canada Bond portfolio, and bought the bluechips with logic. Went into a grocery chain, a restaurant chain, a pipeline, a telephone utilty, a few banks, and a drugstore chain.

I ended up with massive dividend tax credits in time on invested capital; doubled my money; and my gross yield came in at 10%, so for the past 18 months or so have been selling out with capital gains with 50% tax free, but has been a problem somewhat, but the Bond portfolio was interest earned that was fully taxable, so adjusted things a bit.

Now for those that bought Real Estate in the past year or more you did such out of emotion, and will pay a price, as most of you bought debt, and for those that had money with a big down stroke with your savings you too will lose as the bell tolls for you as well, as will not recapture the expense and capital loss for years, but renting was not cool. The problem is that to be cool is home ownership.

Mr. Turner blew off Real Estate, but did some target buying in the USA, and elsewhere in Canada which held a special ambience, and all will be well in the end, as he took an intelligent view going forward, and he will come out well, but for the rest of you will be eating cake for years.

#111 my thoughts on 06.03.13 at 1:22 pm

It will be interesting to hear those sale numbers. Vaughn is still booming.. no shortage of money in that area as I discovered this weekend. 2 million dollar homes in abundance. I’ve been told that the market for 1 million dollar homes and above is booming in that neck of the woods. It’s not for me… but the people in trades tell me they are super busy and not sure why there is talk of a correction.. at least in Vaughn they don’t see it. As far as Oakville goes… SE Oakville is desirable… but it can take 2 years to sell a new home there… prices are crazy everywhere still. Maybe losing house horniness and laying low is the better way to go in the long run. I remind myself that whats hot now won’t look quite as appealing in 10 years time.. because thats just the way trends go. I’ve been a firm believer in the inevitable correction, but I realize at least in the circle I live in that everyone believes in houses and very few of them believe in the financial markets. The majority are living large… these are interesting times. I now keep my opinions of real estate to myself and have put more money into the financial markets for the long term retirement plan instead. By the end of the year I should be half way to my goal.

#112 TEMPLE on 06.03.13 at 1:25 pm

#53 Dr Hoof-hearted on 06.02.13 at 9:56 pm

That is just a bit too much from a poster who almost never has anything intelligent to say. Is there any chance we can get rid of this guy once and for all?

TEMPLE

#113 sciencemonkey on 06.03.13 at 1:59 pm

@103, I know that a car is a depreciating asset. Nevertheless, buying a Honda for easy daily commutes has proven to be an immensely successful investment in my sanity. No more TTC!

#114 not 1st on 06.03.13 at 2:02 pm

Garth, why can’t you freely admit there is as much risk in the stock market as any other asset class. You argument for ETFs being some remarkable new instrument to smooth this all over is very thin at best. Look at a number of ETFs in any market and you will see they are right back to where they were a year ago, dividends aside.

Lets now look honestly;

In RE you have the central bank and speculators to worry about and maybe weather.

In stocks you have the central bank, speculators, hedge funds, QE, HFT, weather, bogus reports, stats, fridays, mondays, long weekends, witching, foreign wars, take over rumors, earnings hits and misses, oil, gold, dollar, bonds, derivatives, Goldman, JP, Buffet, new technology, elections, politics, congress, senate, EU, China, BRIC, natural disasters….etc etc.

You still going to tell me stocks are riskless or less risky than RE? Then you haven’t done a proper analysis. You are just looking at one price over another and thats incomplete.

I said: “Does this chart suggest US stock values will fall? Of course it does. And they will. A correction of 5-10% seems like a given, but a 2008-style collapse of 50% seems far-fetched, given profits and central bank support. Nonetheless, risk is higher now.” Next time try harder. — Garth

#115 Dr. Hoof - Hearted on 06.03.13 at 2:24 pm

#114 TEMPLE on 06.03.13 at 1:25 pm

#53 Dr Hoof-hearted on 06.02.13 at 9:56 pm

That is just a bit too much from a poster who almost never has anything intelligent to say. Is there any chance we can get rid of this guy once and for all?

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

I agree….these vegans are useless eaters.

Now, go stick some tofu and bean sprouts where the sun don’t sh*ne.

TEMPLE

#116 Nemesis on 06.03.13 at 2:25 pm

“It will be an orderly transition.” — Garth

Chortle!… [cough]…

[That’s what Instanbul’s UrbanPlanners thought, too. Just sayin’.]

I think central bankers know a tad more than even you. If not, I’m sure they’ll call. — Garth

#117 HD on 06.03.13 at 2:45 pm

#114 TEMPLE on 06.03.13 at 1:25 pm
#53 Dr Hoof-hearted on 06.02.13 at 9:56 pm

That is just a bit too much from a poster who almost never has anything intelligent to say. Is there any chance we can get rid of this guy once and for all?

TEMPLE

————————————————

I agree,

Comment #53 should be deleted.

Best,

HD

#118 jess on 06.03.13 at 3:05 pm

Whistleblowers continue to endure an increasing level of targeting and prosecution by an administration that touts its commitment to transparency.

The latest information comes from Karen Hudes, seen in the video below with Sean Stone. Her bio highlights her 21-year experience at the World Bank as Senior Legal Counsel:

http://www.activistpost.com/2013/06/whistleblower-reveals-world-bank.html

#119 Cowtown Moom on 06.03.13 at 3:25 pm

Garth – are you going to do another piece on Calgary soon? The market here seems as insane as ever. In fact, the local rag is claiming that we’re reaching new pricing heights… http://www.calgaryherald.com/Calgary+housing+market+smashes+records/8470127/story.html

#120 bob on 06.03.13 at 3:29 pm

Garth – could you provide advise on looking for hiring a financial advisor? ‘Simple is gone’ like you said… but spending the time to find a good advisor, figuring out how much to pay them, doesn’t seem trivial either. e.g. if they take 1-3% of my portfolio, then recommend their own funds with high MERs, then I may as well just employ the “couch potato” portfolio. Please do a post on this… maybe even welcome a shameless plug into your company.
Thanks!

#121 Deb on 06.03.13 at 3:55 pm

There is one thing, Garth, that I do not understand. First, you have said that you do not recommend the purchase of individual stocks, particularly for those with a net worth south of seven figures, due to the lack of proper diversification. Second, you do not advise the purchase of mutual funds, no matter who the investor is, because of the way in which high fees eat into returns over time. That leaves ETFs as the final option for most of us in this area of portfolio construction or, for some, portfolio reconstruction.

Here is where I am confused. I can recall that some time ago a comment was made regarding index investing, and your reply was, “Who would want to hold an index for ten years?” Well, I plan to hold onto, build, and rebalance my investments for at least twenty years, and everything is based on well-diversified domestic, U.S. and global ETF’s. Did I miss something as to why it is not prudent to hold index-based investments for longer than ten years, even if one is careful to rebalance regularly over time?

#122 The Mummy on 06.03.13 at 4:28 pm

#118 Nemesis on 06.03.13 at 2:25 pm
“It will be an orderly transition.” — Garth

Chortle!… [cough]…

[That’s what Instanbul’s UrbanPlanners thought, too. Just sayin’.]

I think central bankers know a tad more than even you. If not, I’m sure they’ll call. — Garth
——————————————————–
Naive. Proven time and time again “planners” ultimatley work for themselves in their best interest. Just ask Boris Yelsin and the Oligarchs who raped and pillaged Russia’s resources until collapse. Took Putin to start cleanings this up and exiling them out of the country. America is currently being pillaged, too bad it’ll be too late by the time the sheeple come out of their pop culture trance.

#123 Mike on 06.03.13 at 5:17 pm

My previous comments on Central Bankers’ actions have not been posted, not sure why but whatever, I hope that Garth allows at least some comments from Hussman …
http://www.hussmanfunds.com/wmc/wmc130603.htm
Will Central Bankers be able to carry the whole world on their shoulders for long? I don’t think so, and history is not on their side.

#124 happity on 06.03.13 at 5:55 pm

“but a 2008-style collapse of 50% seems far-fetched, given profits and central bank support”

Profits reported on public balance sheets do NOT include derivatives which is what did sink and will sink the future investments.

Central Bank support has crossed the rubicon, it is mathematically impossible to pay back the debt. A 2% rise in long bond and treasury interest rates will sink USA faster than a hawks butt in a power dive.

David Stockman has said there won’t be a bailout on the next collapse:

http://www.nytimes.com/2013/03/31/opinion/sunday/sundown-in-america.html?pagewanted=all&_r=0

No collapse coming. But suit yourself. Fear’s in. — Garth

#125 happity on 06.03.13 at 5:58 pm

Garth, ETF’s are derivatives and some of them use hypothecation to increase their gains…

Nobody in their right mind buys those. — Garth

#126 happity on 06.03.13 at 5:58 pm

Margin debt on the US stock market is at an all time high, period.

#127 telling it like it is on 06.03.13 at 6:00 pm

I think central bankers know a tad more than even you. If not, I’m sure they’ll call. — Garth
___________________________________________

they’ve done a great job so far, …
housing bubbles, stock market bubbles, commodity bubbles, currency collapses…

they’re really a bright bunch

They saved your ass in 2009. — Garth

#128 Ralph Cramdown on 06.03.13 at 6:18 pm

John Hussman? He’s a good writer. He HAS to be, given this:
http://goo.gl/dvXCb

I wonder how often his investors check their performance? I wonder what they think? (Full disclosure: The chart excludes dividends. But SPY trailing yield is 1.94%, HSGFX is 1.48%. Advantage: SPY)

If only his fund protected capital as well during favourable market conditions as it aims to during unfavourable market conditions…

#129 Uwinsome on 06.03.13 at 6:23 pm

#129 “They saved your ass in 2009. — Garth”

Right. But I was Mr. Greenspan who is widely credited for a big part of why the big bubbles formed and 2009 happened.

#130 Shawn on 06.03.13 at 6:44 pm

INDEX ETFs

Deb at 123 asked

Did I miss something as to why it is not prudent to hold index-based investments for longer than ten years, even if one is careful to rebalance regularly over time?

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

Let me try a response.

Deb, there are differences of opinion but I don’t think you missed anything.

It is perfectly wise to hold a good broad index ETF forever.

Warren Buffett (and I do not apologize for invoking the wisdom of history’s greatest investor and all around economic genius) has said if you would not be comfortable holding an investment for ten years, don’t even think about holding it for ten minutes.

ETFs are not all created equally.

The original ETFs (and Toronto Stock exchanged pioneered them as HIPS – hundred (stock) index participation unit back in the late 80’s before the U.S. started using them) were Exchanged Traded INDEX Funds. ETIFs. The broad index came first and then the ETF mirrored it. These days there are hundreds of ETF, many not based on a broad index. so-called indexes are now created to spawn the ETF rather than the other way around.

But yes you can easily build a diversified portfolio with just a very few ETFs. One or two for fixed income and a broad equity ETF for each country you want exposure to.

If you have no special ability to time the markets (and who does?) then buy and simply rebalance yearly. You will beat probably 70% or more of balanced investors over the long term. Maybe even 90%. You may die of the boredom, but you won’t die broke with this strategy.

#131 Curious! on 06.03.13 at 6:46 pm

Garth,
Churchill Meadows area in Mississauga seems pretty in demand..properties selling for over asking.

And I care why? — Garth

#132 Shawn on 06.03.13 at 6:48 pm

CAN YOU HANDLE VOLATILITY?

A certain equity investment has been around with the same manager since 1965. During that period it has four occasions where it lost at least 50% of its value.

Do you think you could have handled that? Would you have been angry with the manager. Those were stomach churning losses!

The investment is called Berkshire Hathaway and the manager is Warren Buffett. Very few people could have stuck with him to collect the resulting one million percent gain in the stock since 1965.

#133 tell it like it is on 06.03.13 at 6:54 pm

They saved your ass in 2009. — Garth
______________________________________

I don’t think so. Maybe they saved YOUR ass. But not mine. Of course, they actually CAUSED the problem in the first place. You seem to gloss over that issue.

#134 maxx on 06.03.13 at 6:59 pm

#56 Aussie Roy on 06.02.13 at 10:33 pm

Yikes!

I guess 98 is the new 50!

#135 jess on 06.03.13 at 7:05 pm

“moody” morality
http://www.accountancyage.com/aa/analysis/2272373/oecd-aims-to-fix-corporate-taxes-within-two-years

#136 GTA Engineer on 06.03.13 at 8:16 pm

#109 Good Grief Charlie Brown on 06.03.13 at 12:54 pm

Take a quick look on you tube with pork – with a piece of uncooked pork, poor coke over the meat, within 10-15 minutes small white worms push their way out of the meat – gross beyond belief!! (Cook your meat or get worms in your belly).

——————

Bwahaha.. Idiotic. Please people – do a simple google sometimes, hm?

http://www.snopes.com/cokelore/porkworm.asp

#137 Timing is Everything on 06.03.13 at 8:39 pm

GooBing Detroit. These asses never got ‘saved’…

http://tinyurl.com/m3qvkm4

#138 Nemesis on 06.03.13 at 9:00 pm

“I think central bankers know a tad more than even you. If not, I’m sure they’ll call.” — Garth

Egads! I have been publicly humbled…

Just a “tad”? I’m blushing. Let’s hope so.

Admittedly, I’m just an amateur.

On the other hand… ‘back in the day’, so was practically everyone at BletchleyPark. And they didn’t do such a bad job, did they?

And let’s not forget that the Medicos once thought that Leeches and the TobbacoSmokeEnema were the very epitome of ModernTherapeuticRegimens.

Either way though, you’re probably right.

Ergo, I think I’ve earned a JollyeGoodCaning for my impudence… or, at the very least, a SpiritedSpanking!

Are the Amazons doing anything tonight?

[PS – Oh yes, just between the two of us, OldPol – the only person in Whitehall who is likely to remember me and/or who knows who I really am would most certainly not entrust me with anything to do with money. Something to do with my terminal expenses submission. PPS – my favourite economists were both named Ricardo. One ‘discovered’ ComparativeAdvantage… and the other had the foresight to marry Lucille.]

#139 Martin Lazi on 06.03.13 at 9:45 pm

#134Shawn on 06.03.13 at 6:48 pm
———-
Pointless !!! How old were you in 1965 ?

#140 Martin Lazi on 06.03.13 at 9:46 pm

Just your name Shawn tells me that your father probably was around 2 years old

#141 Jason on 06.03.13 at 9:46 pm

Garth,

I spent too much of my youth as a stock broker. It is not the small investors selling into a bear market. It is my experience that they hang on until they get their money back. The volume in good or bad markets is the institutional investors. The capitulation that you are talking about is the smart money investors, not the little guy.

#142 Canuck Abroad on 06.04.13 at 1:17 am

“They saved your ass in 2009. — Garth”

Afraid I have to pile on here. Greenspan’s policies caused the housing bubble in the US. Those policies resulted from his attempting to “rescue” the economy from the dot-com bubble, which he refused to stop, despite warning several years earlier was in progress. So, I give him credit for both of those. Next up Bernanke, who has now blown the third bubble in a decade. Then there’s that clown in Japan, who just blew their upteenth bubble in a couple decades, now off around 20% and of course the equity returns in dollar terms are not so exciting, because he had to destroy the yen to pull it off. Which brings me to Carney, who is fleeing Canada just before it turns to ash, and is heading over here to UK, where he has made no secret that his plan is to destroy the pound and flood us with money, Japan style. There have been no competent central bankers since the 80’s.

#143 Stupesing in Cabbagetown on 06.04.13 at 7:21 am

#117 is needlessly nasty too.