Bad dogs

doghouse1

Let’s clear up two sad misconceptions some piteous people bring to this blog.

Myth: REITs are toast.

Real Estate Investment Trusts own portfolios of income-producing properties and pass cash flow on to investors in the form of distributions. For example, the giant sucker office tower where I occasionally hang out is owned by a couple of REITs which bought it for $1.27 billion. In fact, scads of landmark buildings and shopping malls are REIT-owned, as are thousands of apartment units, along with industrial parks, big box campuses, grocery store locations and nursing homes.

REITs pay you to own them, and the units usually trade on the stock market. Over the last few years not only have the distributions been great, but the funds themselves have soared in value, hitting historic highs last spring. In a balanced and diversified portfolio, a smart investor might have about 5% exposure to REITs as part of the growth component of, say, 60%.

So, why a lot of negative REIT comments on this pathetic blog lately? Because REITs were sideswiped along with preferred shares and all other income-producing assets when the US central bank mused about cutting back on its stimulus spending. That caused bonds to tank and interest rates to rise. The real estate trusts went along with the ride, and are now worth about 15% less, scaring investors who forgot they bought them for yield.

So, will REITs fall more if rates rise? Unlikely. The recent sell-off was kneejerk – more a buying opp than an exit point, most analysts say. Check out this view, from Sentry Investments:

While slightly higher rates may seem negative on the surface, REITs are not static cash flow investments and will benefit from improving economic conditions through higher rents, occupancy and greater access to capital. Historically, the negative reaction to interest rate changes has been short-lived, as investors realize the cash flow from REITs will grow at a stronger pace in better economic conditions. The two biggest risks to the REIT sector are a deep economic recession or a credit crisis, and we don’t foresee either of those scenarios playing out right now.

And that brings us to the next failed belief.

Myth: America’s not in recovery. It’s all a scam.

Hardly. Concurrent with the US jobless rate falling from close to 10% to the current 7.4%, American stock markets rising 20% this year and 75% of companies beating quarterly profit expectations, the housing market to the south is in full recovery mode.

This matters, of course, because 70% of the US economy is driven by consumer spending, and when consumers feel good about their real estate again, they spend. So, unleash the endorphins. The latest industry stats show house prices just climbed in 87% of American cities, compared with 75% at the same time last year. At the same time, the share of people with seriously delinquent mortgages (no payment in 90 days) has hit the lowest level in five years.

By the way, median house prices have jumped 12% in twelve months, which is the most since the bubblicious days of 2005. The typical American house is worth $203,500. In Canada CREA says the average house costs $386,585 – or 88% more. Plus, Yanks can write off property taxes and mortgage interest.

No wonder we’re jealous.

If you want to worry about something, worry about us.

expectations

Back on track? Consensus expectations are that US house prices are reverting to the mean after a decade-long inflationary bubble that burst, destroying $6 trillion in wealth and almost tanking the global economy.

 

160 comments ↓

#1 Hello Nice People on 08.08.13 at 6:38 pm

Great post Garth

#2 RPM on 08.08.13 at 6:42 pm

Financial Post article on 9 steps to win a real estate bidding war.

Step #4: Suck up to the listing agent

Step #6: Bid on the ugliest fixer-upper on the block

Step #9: “The more you offer, the better”

http://business.financialpost.com/2013/08/08/9-steps-to-help-you-win-a-real-estate-bidding-war/

#3 Dr. Wanker on 08.08.13 at 6:46 pm

WOOF

#4 Anonycal on 08.08.13 at 6:57 pm

It obviously really sucks in cowtown!…. Jeez Garth, what ya say?

http://www.calgaryherald.com/business/commercial-real-estate/Calgary+real+estate+industry+heading/8765365/story.html

Groundhog Day. — Garth

#5 LH on 08.08.13 at 6:59 pm

I love my REITS, but I also like my SFH’s in C01.
Nothing like having a sense of place.
I have been following guava.ca and TOSOLDS for years and while some parts of 416 are well supplied even for SFHs, there is almost no inventory in the C01 neighborhoods (and C02 below Dupont) clustered around UofT. Like Smoking Man, I think this market still has further upside before the year is out.

LH

#6 Derek R on 08.08.13 at 6:59 pm

I like toast. REITs are pretty good too!

#7 Chickenlittle on 08.08.13 at 7:03 pm

I think it can be hard to believe that the US as a whole is in recovery mode. My inlaws live just outside of Detroit, and Detroit is by no means in recovery mode! But then again, Michgan has been a welfare state for a while now, so some long term residents of that state tell me.

Anyways, I just wanted say thank you, Garth! I have been reading this website for a year now. I appreciate the way you turn a dry, boring subject (for me anyways!) into something interesting and always humorous! Until I found you, I knew that housing was overpriced and not worth the money. You explained things so well and now my husband is on board!
I think for him not owning a house was a strike against his manhood. Maybe he felt that he wasn`t a good provider. All I have to say is, guys, don`t listen to what other people say. As long as your wife is happy, who cares!

Thanks again, Garthy-poo! :)

I will tolerate abuse, mockery and being ravaged by Amazons. But ‘Garthy-poo’ crosses the line. — Garth

#8 Duke on 08.08.13 at 7:07 pm

Yes the US is recovering! Yes JOBS are back! McDonalds has never hired so many fry cooks. Better go out and buy a hummer!

#9 harbottle on 08.08.13 at 7:07 pm

FFFFFFuuuuuuuuuuuuuuuuurst

Noooooooooooooooo. — Garth

#10 Renter in Markham on 08.08.13 at 7:07 pm

Garth, I don’t believe that there will be a sustainable recovery in US housing…

Too late. It’s here. — Garth

#11 Brian Ripley on 08.08.13 at 7:09 pm

Garth said “If you want to worry about something, worry about us.”

The “real” Canadian 10 year yield has zoomed 179 beeps since February against a slumping TSX Real Estate Index. Chart: http://www.chpc.biz/real_10yr_chart.html

It seems that the cash TSX real estate buyers are feeling some fear. Are they a leading indicator to physical real estate?

#12 Notta Sheeple on 08.08.13 at 7:09 pm

“…..The typical American house is worth $203,500. In Canada CREA says the average house costs $386,585 – or 48% more……”
=========================

Shelter (mortgage or rent) is a citizen’s largest expense.

Expensive houses require expensive wages.

Ever wonder why Canadian jobs are being outsourced and off-shored to countries whose citizens don’t require high wages to pay for half-million-dollar-bungalows?

#13 Gold Backed REIT on 08.08.13 at 7:10 pm

What’s the relationship between mortgage backed REITs and equity REITs? From what I read, mortgage-backed REITs borrow regularly causing the changes in mortgage rates to eat their income and slaughter the principal when there’s a slight change in rates.

If that’s true, I would think that mortgage backed REITs are highly sensitive and will continue to tank when rates go up.

The two types of REITs (are there more?) seem completely unrelated to one another.

Might as well call a gold mine a REIT because they buy real-estate to extract minerals.

We’re only talking about equity REITs right?

#14 Ford Prefect on 08.08.13 at 7:13 pm

The picture brings back an ultimately funny episode.

We agreed to dog sit, for a fee (it actually paid well and was, except for this episode, a lot less hassle than being a landlord). On the first day the dog, a Shepherd, ran up the stairs in the house to the second floor and leapt out an open window onto a steep roof. Since it did not know us, it would not respond to any commands and the drop from the gutter to ground was about 18 feet. Anyway after going out on the roof and retrieving the mutt all was well.

#15 Mark on 08.08.13 at 7:14 pm

7.4% unemployment, eh Garth? Do you have any idea how they generate that number? Did you know that the US calculates it differently than most other countries? Did you know that if they calculated things properly (ie not leaving out long-erm joblessness or involuntary part-time workers) it would be double that rate?

More jobs every month, dude. — Garth

#16 Donald Trump on 08.08.13 at 7:17 pm

Hey hey hey numero uno

#17 Bill Gable on 08.08.13 at 7:18 pm

How are things in Ottawa, where the Realtors are saying all is calm, all is bright – and Mike Duffy is making more headlines……

“Building permit values plunged like a dropped hammer in the capital in June, reversing earlier momentum in the construction sector.

Ottawa builders took out permits for projects worth $179 million, a 20.6-per-cent drop from a month earlier, according to seasonally adjusted figures released Wednesday by Statistics Canada. The decline in Gatineau was sharper yet, with values falling 63 per cent to $20 million.”

Oops.

http://tinyurl.com/nxdrrht

#18 Bad dogs — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate | The Affluent Boomer on 08.08.13 at 7:19 pm

[…] via Bad dogs — Greater Fool – Authored by Garth Turner – The Troubled Future of Real Estate. […]

#19 Yitzhak Rabin on 08.08.13 at 7:19 pm

REIT’s will run into problems currently facing mining companies – Asset Impairment charges. The same low interest rates and credit tsunami that fueled the residential real estate bubble is also valid for commercial real estate, although to a lesser extent. Very few of them can withstand the hurt that will come from higher interest rates on their balance sheets and cash flows.

To the extent that you think Canadians are over-leveraged in housing and that the market will tank, how can the domestic economy improve? It’s difficult to see a shoe store in a mall paying increased rent when the Jones’ are underwater on their McMansion. Yesterday you mentioned Royal Lepage’s profits being down 57%, let’s say the drop another 57% are compaines like them going to be just chomping at the bit to pay more money to lease an office tower?

REITs had everything working for them, now the tables have turned.

As far as the US, nothing has changed and the economy is still screwed up thanks to the FED and Washington. The economy is 100% addicted to low interest rates. The FED is trying to reflate the housing bubble but ordinary Americans are still priced out of the market, which is why home ownership continues to fall. In case you don’t remember, the double digit % increases in home prices did not end up being a good thing in the US the first time. Prices there will make new lows.

Meanwhile in China, which every publication would have you believe is ready to collapse, their economy is still growing strong. The Yuan hit a 20 year high today and they are buying gold at a faster rate than ever.

This is where money will be made in the next 10 years. The US has the largest adjustment rate mortgage in history and they are about to experience sticker shock when rates normalize.

#20 ILoveCharts on 08.08.13 at 7:25 pm

Anyone have a similar version of that Zillow chart for Canada?

I made an offer on a place today. Owners wouldn’t budge enough on price. I will keep holding out.

#21 David in Nanaimo on 08.08.13 at 7:27 pm

Keep in mind Warren Buffet’s famous maxim “be fearful when others are greedy and greedy when others are fearful” when evaluating REITs just now. I wish I had spare cash to buy more.

#22 AisA on 08.08.13 at 7:29 pm

Our housing market simply has to die so that jobs other than construction and selling houses can continue to exist. The deeper the crater, quite frankly the better for the country in the long run. Paying top dollar for used dead space is not the path to prosperty or brighter future for anyone.

#23 Gor Gon Lin on 08.08.13 at 7:30 pm

I can’t take the house prices anymore. I think I am going to bail on Canada and head to the U.S.

#24 Dean Mason on 08.08.13 at 7:32 pm

If you hold your income yielding investments over 5,10,15 years plus like Reit’s,bonds,dividend paying stocks the price changes up and down will even out.

You will benefit from the higher yield,income rather then getting low returns in cash,GIC’s.You don’t buy these types of investments to make a huge capital gain.It’s not their purpose.

#25 Devore on 08.08.13 at 7:32 pm

#135 The Prophet Elijah

Why? If you think something is grossly overvalued or going down it’s not different when you ‘invest’ in something you think is going up.

You can tell something is overvalued, it is rather easy in fact, but it is very difficult to tell whether it will become even more overvalued or correct, and impossible to tell when. If it pays dividends, you might well lose money even if the price goes down.

So yes, gambling.

Not gambling would be to close out an overvalued position, and find an undervalued opportunity.

#26 CrowdedElevatorfartz on 08.08.13 at 7:34 pm

Hmmmm, as I swelter in my concrete beehive rental in Burnaby.
I contemplate my navel.
He who shall not be “dissed” aka Garth has said the US economy is in recovery. Unemployment is dropping. 10% to 7.4% .
I’m just a tad dubious when I read that the majority of the jobs created are part time and/or of the minimum wage variety.
people may have short memories but having a bank repo your car or house has a tendancy to make borrowers a tad shy on getting burned again OR buying “new” vs “used”.
The US consumers seem to be on a bit of a money saving binge these days are they not?

#27 Dean Mason on 08.08.13 at 7:37 pm

As interest rates,bond yields rise there are better opportunities to invest in these type of investments are higher bond yields,dividend yields.People forget this very important point.

You are not putting all your money at once and that’s it.You will have other earnings,income and cash flow that can be deployed into these income and yield type of investments.

#28 peter on 08.08.13 at 7:44 pm

REIT’s & Pref’s have been top recommendations of this blog for some time. Problem is, both XRE & CPD are down double digits in the last few months & continue to drop. Yield chasers are being punished while growth is being rewared.
How can you promote a bank preferred if you think Canadian housing will drop? Will Canadian banks be unscathed in a real estate correction? Confused.

You certainly are. Bank commons won’t be hurt much by a real estate correction, and preferreds won’t be touched. If you bought assets for yield, then enjoy the yield. Capital values will recover. Of course, preferreds and REITs together should not be more than a quarter of your overall portfolio. BTW, why do you keep asking the same question? — Garth

#29 Devore on 08.08.13 at 7:58 pm

#26 CrowdedElevatorfartz

I’m just a tad dubious when I read that the majority of the jobs created are part time and/or of the minimum wage variety.

Still missing the point. For the economy, and country overall, a job is better than no job. Minimum wage is better than welfare.

Things are getting better. Everyone is digging out. Explosive high growth will not return, probably ever. And for every two steps forward there will be a setback.

Were you expecting an unprecedented, miraculous recovery right into millions of six figure dream jobs?

#30 The real Kip on 08.08.13 at 8:04 pm

Just watching Hot Property, they say the condo market is normalizing. Al Sinclair says housing will continue to increase for the next 12-14 months and he’s never lied before.

REIT’s are toast!

#31 not 1st on 08.08.13 at 8:10 pm

Careful Garth, a recession and online retailers could hollow out that mall traffic you are relying on. Same thing for industrial parks as more and more manufacturing jobs go overseas or are replaced by tech advances. Apartment block rents could plummet as condo buyers become landlords and flood the market with rentals.

And ask yourself honestly what is the driver of U.S. growth? tech? nope, manufacturing recovery?, nope, commodities? nope, infrastructure? nope, energy? exports of any type? nope U.S. still has massive trade deficit.

The growth is simply printing of money, throwing at wherever it will stick and hoping the recipients will spend it recklessly just the exact same thing you jump all over here in Canada. They threw it at Wall Street and it just got pocketed, they threw it at Corporate America and it just got pocketed, now they are going to try throwing it at mom and pop and see if it goes somewhere.

Your analysis of the U.S is based on nothing but wishful thinking hopping can ride a short term trend and is flawed. Its not a recovery.

You’ve been wrong to date. Stick with it. — Garth

#32 AK on 08.08.13 at 8:11 pm

#26 CrowdedElevatorfartz on 08.08.13 at 7:34 pm
“Hmmmm, as I swelter in my concrete beehive rental in Burnaby.
I contemplate my navel.
He who shall not be “dissed” aka Garth has said the US economy is in recovery. Unemployment is dropping. 10% to 7.4% .
I’m just a tad dubious when I read that the majority of the jobs created are part time and/or of the minimum wage variety.
people may have short memories but having a bank repo your car or house has a tendancy to make borrowers a tad shy on getting burned again OR buying “new” vs “used”.
The US consumers seem to be on a bit of a money saving binge these days are they not?”
====================================
I know you are not going to believe what I will tell you but, here it goes anyway.

I work with Americans on a daily basis, which I consider many of them my friends. Yes, you are correct that they do save quite a bit lately.

You must also remember that they make more than we do, and they pay less taxes and in general their cost of living is lower than ours.

Have a nice day.

#33 takla on 08.08.13 at 8:11 pm

garth ,your in some fine company along with Bernanke and his central banker buddies continually trying to purpetuate the myth that a full economic recovery is just “around the corner” as long as they continue to print money to goose said economy.We recently seen what happened to the markets when they let slip that easeing was in the cards.My view is that you are being far too optimistic continually stateing the U.S has this recession in thier rear view mirror.On a litter note GOLD was up over 25.00 per oz today….imagine if you you had 1000 oz’s buried in your back yard……

Gold is down $600 an ounce. Imagine that. — Garth

#34 takla on 08.08.13 at 8:20 pm

re garth”gold is down 600 an oz” yes garth but not every one bought at golds high.Many have been into gold for years when it was bought well under 1000.00 per oz.My dollar cost averageing reflects this,If you have a good core holding and have the smarts to sell the highs and hold buy the lows it can be quite adventagous to ones portfolio

Gold kaput. — Garth

#35 brainsail on 08.08.13 at 8:20 pm

#15 Mark on 08.08.13 at 7:14 pm

“Did you know that if they calculated things properly (ie not leaving out long-erm joblessness or involuntary part-time workers) it would be double that rate?”

Does the single metric that Canada uses to determine employment numbers include long-term joblessness or involuntary part-time workers?

#36 John on 08.08.13 at 8:27 pm

“5% exposure to REITs as part of the growth component of, say, 60%” That makes it just 3 percent of the whole portfolio. In comments (#28) you say that “preferreds and REITs together should not be more than a quarter of your overall portfolio”. You are contradicting yourself.

Not at all. Reits, 5%. Preferreds, 20% max. Lots of room left for a wide array of ETFs and various bonds in a balanced portfolio. — Garth

#37 East Van on 08.08.13 at 8:30 pm

“Myth: America’s not in recovery. It’s all a scam.”

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal:

http://www.counterpunch.org/2013/08/07/the-new-economy-is-the-no-jobs-economy/

This will really blow your mind:

http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

Recoveries take many forms. This one is slow and unconventional, but still a recovery. — Garth

#38 Ahead of the Curve on 08.08.13 at 8:31 pm

If only the market was ruled by logic and fundamentals Garth…

But then again, it’s easier to make money knowing that in the short term the markets are moved by emotion and greed. The long term of course, is a different story.

#39 Old Man on 08.08.13 at 8:38 pm

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#40 Smoking Man on 08.08.13 at 8:41 pm

Can not find a valid argument for your post this evening.

As an investor this is great news, but one wee problem,

The slaves, you know, people with name tags on the uniform, they have no surplus to get on the gravy train, their number’s are growing, and they have guns.

Go thing we havev NSA that Watches them like a hawk.

Party on……….

#41 Hh on 08.08.13 at 8:43 pm

Go beyond the headlines for once. You do when analyzing Canada but gloss over in the US:

Job participation is worse than yr 2000. 75% of all new jos are part time. Most are service sector Fact.
Stck market – take away the $trillion in stimulus and let’s see the increase
Housing stocks and lumber is off 25% (official bear market) and is forward looking. Watch housing fall as rates increase

#42 East Van on 08.08.13 at 8:46 pm

Garth: Of course you are absolutely right – recoveries take many forms. But there has never been a “recovery” like this one. I think we are on new ground, and are never, ever getting back to what we once called normal. Do you really think the American middle class will ever recover? How so? Where will the middle class jobs come from? Will Starbucks start paying a “living wage”? Will Wallmart start giving employees full time hours and benefits? If not, where will consumer demand come from?

I think Americans are just as smart as you. They’ll figure it out. — Garth

#43 bob slydel on 08.08.13 at 8:46 pm

Recoveries take many forms. This one is slow and unconventional, but still a recovery. — Garth
————————————–
So you truly believe in 0.7 % inflation? … sigh…

There is recovery in Europe, not in US. If you count the real inflation – shadowstats.com there is no recovery but deep recession for the last 5-6 years, so it is really a depression that the inflation and it’s miss-measurement are obscuring. CPI index is a fraud.

The S&P’s 20% return isn’t. House price recovery is tangible. Corporate profits are real. This is recovery. The depression is all yours. — Garth

#44 Devore on 08.08.13 at 8:47 pm

Someone finally spots the business opportunity in cross border shopping: cross border retailing. How can US retailers be so much cheaper than Canadian ones? Easy, they’re located in the US!

http://www.vancouversun.com/business/bc2035/Vancouver+dress+shop+owner+goes+fight+cross+border/8760509/story.html

Six months ago, the owner of After Five Fashion stores opened his first retail outlet in Blaine’s Birch Bay Square.

/…/

Now, 70 per cent of business at that outlet is from Canadian customers.

/…/

The Vancouver store, at Oakridge Centre mall, offers alteration services to the Blaine outlet’s customers.

/…/

Chenkis has found the rent for his shop in Blaine is “very reasonable.” His operating costs are a tenth of what he pays in Vancouver.

Now that’s some out of the box thinking.

The loser here is, as with all things overpriced, the Canadian worker.

#45 AisA on 08.08.13 at 8:48 pm

The market is always right. Prices always equal what people are willing to pay for anything. Everything in the universe is in complete and utter balance at all times, when positive shifts to negative it is to an exact degree to which the positive over asserted itself and vice versa. Long live the universe and all that regurgitated new age hippy crap, and of course the 200 period moving average price magnet of course.

#46 Junkieman on 08.08.13 at 8:50 pm

Americas back baby

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#47 John on 08.08.13 at 8:56 pm

You should’ve explained earlier not to go over 5% with REITs. I think based on the interest REITs attract in comments here most people have far greater allocation… That’s why 15% drop in prices hurts, after all that vouching from your side.
On the other note, can you spend more time explaining how to invest? I think most readers already get that buying a house now might be a bad idea, but what do we do with down payment set aside? Say 50k..

Asset weightings have been dealt with here before. Sorry you were sick that day. A hallmark of amateur, naive investors is to pile into one sure-thing asset. They never achieve diversity, and they never rebalance. So, they fail. — Garth

#48 Dan on 08.08.13 at 8:57 pm

“You’ve been wrong to date. Stick with it. — Garth”

…and so have you on Canadian real estate for quite some time. I also believe that over-leveraged Canadian flippers, Ys and boomers are in for considerable pain in the near future. But your comical level of bearishness over the years has been dead wrong so far.

Preferreds, REITs and fixed income are not toast, but there may be considerably more downside ahead. Yes, you’ll still have your yield, but the volatility could scare off a lot of the risk-adverse types who piled into these things after getting fed up with 1% in their savings accounts.

If you are not so obsessed with chasing yield, trimming your exposure to these assets classes in your portfolio (especially if you have been holding them for a few years and enjoyed the capital appreciation), and moving small amounts in to beaten down precious metals might not be the craziest idea in the world.

Inb4 “gold bug metal head nutjob, don’t listen to him”.

I admire your final advice. — Garth

#49 bob slydel on 08.08.13 at 8:59 pm

The S&P’s 20% return isn’t. House price recovery is tangible. Corporate profits are real. This is recovery. The depression is all yours. — Garth
——————————————–
I had my luck with 40 % returns on the US portfolio in a year, but I am not pushing it, diversified promptly in international and European stocks with P/E half of the US counterparts.

Housing recovery is due to the Fed buying mortgages to the tune of 40 billions per months.

I still like some large US multinationals and I won’t sell them, but the overall market is overbought.

And I am really interested in the tapering scenario, I am betting if it happens it will show the detachment of the american and world markets and the beginning of the end of the dollar as a reserve currency.

Junior minors look very tempting, any comments on the action today? (+8-9%)

#50 JSS on 08.08.13 at 9:01 pm

Another excellent article tonight Garth.

Thanks and thumbs up!

#51 Peter Shift forever!!! on 08.08.13 at 9:04 pm

THE USA IS A PONZI SCHEME OF EPIC PORPORTIONS!!!! THE BEN BOY IS BLUFFING!! THEY CANT RAISE RATES!!! THERE WHOLE HOUSE OF CARDS WILL FALL!!! YANKS WILL LOAD UP ON DEBT AGAIN AND NEXT TIME THE FALL WILL BE THE END!! ONLY THE THIRST WORLD WAR FOR ALL THE MARBLES WILL GET THE USA OUT OF THE MESS THEY ARE CREATING!!!

GARTH IS A PART OF THE WHOLE PONZI SCHEME KNOW AS DEBT BACKED CAPITALISM. WHEN WE WENT OFF THE GOLD STANDARD IT WAS ALLWRITTEN. MAKTUB!

See what gold does to a brain? — Garth

#52 bob slydel on 08.08.13 at 9:05 pm

Asset weightings have been dealt with here before. Sorry you were sick that day. A hallmark of amateur, naive investors is to pile into one sure-thing asset. They never achieve diversity, and they never rebalance. So, they fail. — Garth

Spot on.

#53 Nick on 08.08.13 at 9:06 pm

You’re young and just bought your first ETF? Congratulations! Now pray that the market stays flat or, even better, goes down.

“Why The Baby Boomers’ Children Should Hope For Falling Stock Prices”

http://andrewhallam.com/2013/07/why-the-baby-boomers-children-should-hope-for-falling-stock-prices/

#54 T5_INCOME on 08.08.13 at 9:09 pm

Mr Turner,

The haters are really hating on you the last two weeks. I took your advice on REITS during the selling off and I am glad I did, $178 every month in distributions added to my income.

Also in case you’re wondering about all those IP’s popping up over Southern Japan last month. That was me. People hate on America but Japan is the country where the pessimist’s may gain some respect.

Will be buying more of the ETF CHB.TO next every pay day.

Keep up the great work

#55 bob slydel on 08.08.13 at 9:11 pm

See what gold does to a brain? — Garth

———————————-
silver bug rants are worse…

#56 jess on 08.08.13 at 9:11 pm

origination problems

http://www.justice.gov/opa/pr/2013/August/13-ag-886.html

Mark Carney says banks need to reconnect with society ?
http://www.theguardian.com/business/2013/aug/08/mark-carney-banks-need-to-reconnect-with-society#start-of-comments

———————————————————-

Is B of A the Most Embarrassing Department of Justice Suit Ever?
By William K. Black
http://neweconomicperspectives.org/2013/08/is-b-of-a-the-most-embarrassing-department-of-justice-suit-ever.html#comments

#57 Donald Trump on 08.08.13 at 9:22 pm

#39 Old Man on 08.08.13 at 8:38 pm

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#40 Smoking Man on 08.08.13 at 8:41 pm

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

Hmmmm…

#58 peter on 08.08.13 at 9:26 pm

Thanks for replying Garth. As you know, I’ve been on the opposite side of your REIT & PREF trade. I thought, at some point, you would come around. Not yet I see. Maybe a reader or two (who is likely risk averse) will realize REIT’s & PREF’s best days are behind them. That’s it for me on this issue till year end. :-)

#59 TheCatFoodLady on 08.08.13 at 9:29 pm

I thought we were adults here? We spend a lot of time tut-tutting over the house hornies ploughing everything into an illiquid asset. Then… when one or more SECTORS of the market take a downward turn, some of us freak & shrillingly shout: “J’accuse!” because we sank too much into that particular area?

Come on, DIVERSIFICATION. If I buy cat food futures, turn a nice %20 profit over 5 months & crow about it, a few more put 35% of their money into it then get caught on a downturn, how would that be my fault? Did I hold a loaded gun or hissing, spitting cat to your head?

No.

Diversify to a point that makes sense to you, avoid sectors you’re really not confortable touching with a ten foot pool & don’t blame the recommendations of others if some of your stuff doesn’t do well for a while. Our very own ‘Oracle of Ottawa’, (beats the ‘Lunatic of Lunenburg’), knows his stuff. That being said, his advice is based on what he’s learned, what he’s seen & his experiences as well as those of his clients.

If you honestly don’t think anything of what he says makes sense for you – don’t do it. Or better yet, seek other advice, check what all has been said & decide. No matter what or how you decide – it’s YOUR choice.

Wear it.

And we won’t talk about my idiotic position in Blackberry.

#60 TO and GTA Sales and stats 2013-08-08 on 08.08.13 at 9:30 pm

TO and GTA Stats and Sales 2013/08/08
http://recharts.blogspot.ca/2013/08/416905-condo-sales-and-stats-2013-08-08.html
http://recharts.blogspot.ca/2013/08/905-sfh-sales-and-stats-2013-08-08.html
http://recharts.blogspot.ca/2013/08/416-sfh-sales-and-stats-2013-08-08.html

#61 MiddleClassGuyInTheGTA on 08.08.13 at 9:35 pm

Garth, thanks to your blog, I woke up and started investing. All our cash was just sitting in a “high interest” account and some invested in the Scotia Canadian Balanced Fund. Both awefull. So we started a TD waterhouse account have a mixed portfolio (based somewhat on the Complete Couch Potato, but instead of International Equity I bought TD Health Sciences). All your talk of aging baby boomers made me think the Health Care field is only going up. It has been doing really well since we started in Dec.

After all your mentioning of Reit’s in the past month I sold off some bonds yesterday and just bought 10% of my Portfolio worth in VNQ EFT Reit). I guess after reading todays post, that is probably too much. But I will wait for it to go up a bunch then reduce it to 5%. I am no financial guru, but for sure this is better than doing nothing. Your daily advice does rub off on some of us, so thanks! And I should have voted for you instead of Lisa Reitt. We all make mistakes sometimes. But then again your probably doing more good for the common folk now than as a MP.

#62 Dr. Bunsen Honeydew on 08.08.13 at 9:35 pm

Lovin my REITs and US ETFs.

Friend covets his gold bars. Lives off grid way up north somewhere. Nuff said.

Other friends ask in disbelief “you don’t own any real estate?”

“Oh, but I do” I reply somewhat smugly “I do”.

Leaves em thinkin I must have inherited a castle in Lichtenstein or something.

Actually, it’s just a few square feet of Scotia Plaza, among others. Ya boy.

#63 Barry Lainof on 08.08.13 at 9:41 pm

You’ve been wrong to date. Stick with it. — Garth

Not the best barb coming from you, sir.

Hmmm. Gold. US housing. BC real estate. GTA condos. American markets. — Garth

#64 Half Full on 08.08.13 at 9:42 pm

“The two biggest risks to the REIT sector are a deep economic recession or a credit crisis”

Garth, is this a commentary on American credit? Who is the credit crisis comment referring to? I thought highly indebted Canadians were in a credit crisis. Can you please clarify? Thanks

Credit has no borders. — Garth

#65 kilby on 08.08.13 at 9:53 pm

Will Starbucks start paying a “living wage”? Will Wallmart start giving employees full time hours and benefits? If not, where will consumer demand come from?

I think Americans are just as smart as you. They’ll figure it out. — Garth

That was a valid observation Garth, not a fair response…

#66 Notta Sheeple on 08.08.13 at 9:57 pm

In other news, there have been unconfirmed reports that so-called ‘Freedom Cruise’ passenger Ezra IrreLevant, accompanied by other salivating, bigoted, feces-flinging, tea-partying, right wing-nuts, have jumped from the railings of their so-called August 3rd ‘Freedom Cruise’ into the frigid waters of Alaska upon hearing the CRTC decision to deny the Slum News Network mandatory carriage on basic cable.

A Coast Guard search for the victims failed to materialize due to lack of interest by the majority of Canadians.

http://www.freedomcruise.ca/

#67 gogo on 08.08.13 at 10:07 pm

house prices in the us are the result of 30 year 3% interest rate. if this is real for you should just write…

That was funny. Like in Canada? Thirty-year rates are currently 4%, BTW. — Garth

#68 gogo on 08.08.13 at 10:10 pm

read everything you can read by Stanley Druckenmiller. Us will print money untill they are forced to stop and at this point will be too late

#69 valleyrenter on 08.08.13 at 10:16 pm

#19- just of the top of my head, China is expected to be short 40 million workers by 2030…so much for their growth

Seriously? — Garth

#70 souvereigninternational on 08.08.13 at 10:31 pm

I will not disagree on REITS, as to US recovery remember the title of your yesterday’s post.

It was meant for you. — Garth

#71 Brendan on 08.08.13 at 10:40 pm

Sooooo many gold humpers, America doubters, and lazy investors that want Garth to spoon feed them.

How to invest:
Diversity: Lots of different investments.
Type: Good ones, read any blog and Garth has probably mentioned them.
Re-balance: If one investment sky rockets, great, sell some of it and buy others that are on sale, maintaining a balanced percentage of different types of investments is the goal, NOT owning 100% of one thing that will always go up!

#72 wonk on 08.08.13 at 10:43 pm

carefull with the unemployment chart. Participation rate is down the same amount as the unemployment rate. I believe this would indicate that a portion of the improvement has been made by people no longer looking for work, this may not be a good thing?!

#73 Gary M on 08.08.13 at 10:52 pm

Hmmm. Gold. US housing. BC real estate. GTA condos. American markets. — Garth

Well, how about your track record going back to the 80s?

You just made scotch come out my nose. — Garth

#74 souvereigninternational on 08.08.13 at 10:54 pm

It was meant for you. — Garth

Thanks Garth, I already lease a Beemer and happy renting my house. Now that US is doing better will store my gold and Silver there :)
On the other hand good time for Global X Silver Miners ETF in my doomer portfolio.

#75 economictsunami on 08.08.13 at 10:55 pm

The US economy may be healing but the recovery has mainly been felt in the financial services sector.

The housing sector is largely being fueled by large, cash only transactions to be used for rental units; so the economic spin offs are minimal. (This is why Bob Shiller has so far been non commital to the sustainability issue.)

As for US employment, it is not so much the quantity of jobs, as the quality of comp offered.

Personal Consumption Expenditures or the rate of discretionary spending are the only things that matter in a consumer based economy…

#76 Doug in London on 08.08.13 at 11:06 pm

Just as I thought. REITs and preferred shares are on sale now, they are a good investment because of yield, and now is the time to scoop them up if you haven’t done so already. Seems like a simple no brainer to me.

@David in Nanaimo, post #21:
No cash on hand? If you’re more of a risk taker you could get a margin trading account and buy more on margin. Just don’t go overboard borrowing too much, that’s how people get burned with investing.

#77 SpoonFed on 08.08.13 at 11:26 pm

Anyone sane and literate can easily see that Canadian real estate is overvalued, if they consider the evidence. That doesn’t mean that anyone can predict where prices will be next week or next year.

I’m an exploration geologist in the oil business and we’ve got some of the smartest people in the industry trying to predict where oil and gas prices are going. Not only are they consistently wrong about exactly where prices will be, but they are often wrong about which direction they will go. These people are not subject to herd mentality, the constant nagging of realtors, mortgage brokers, banks, main-stream media and baby boomers and yet they still can’t figure it out.

Even Warren Buffet is quick to admit that he doesn’t know where the price of his own Berkshire Hathaway will be next year and I would argue he is pretty good at understanding the relationship (or lack of relationship) between price and value.

Garth, you’ve been right in principal for several years now but you are not as smart as you think you are. If you knew what you were doing, you wouldn’t be recommending ETFs and Diversified portfolios, you’d be recommending cash and undervalued equities (which happen to currently be few and far between). You seem to think that markets are efficient which many people smarter than you convincingly argue isn’t true.

The Stock market’s in Canada and the US have both been overvalued for some time now and are due for a significant correction. Add to that the declining Energy Return on Energy Invested and all nations heavily reliant on petroleum (almost all nations) are due for a major #(&* storm. 2008 was nothing, anyone paying attention should be able to see that the worst is yet to come.

#78 Martin Lazi on 08.08.13 at 11:26 pm

Myth: America’s not in recovery. It’s all a scam – Garth’s friend
————–

I love it. If America was a scam then you wouldn’t have a computer to write it down.

#79 Doug in London on 08.08.13 at 11:31 pm

@Dr. Bunsen Honeydew, post #62:
Good point you make. Not many people ask if I own property, but if they do I’ll say I’m a landlord who owns a good portfolio of income producing properties all around the country. Yes, some of those properties I own are in my home town of London.

#80 Tony on 08.08.13 at 11:46 pm

Wasn’t a good day for Zillow. We all remember Japan of old and all the deceit all the lies. Now simply change the name to modern day America. It’s as simple as that.

#81 presley1000 on 08.08.13 at 11:49 pm

Another issue for condo owners to worry about. Even free BMWs might not fix this stupidity… http://gizmodo.com/the-builders-of-this-spanish-skyscraper-forgot-the-elev-1065152844

#82 peter on 08.09.13 at 12:03 am

Garth, time to recognize there was not or there wont be any lower price in housing.

#83 Mark on 08.09.13 at 1:00 am

Don’t know why you’d suggest that REITs are not toast. They are highly correlated with residential real estate. Developers can easily switch from building condos to building office buildings and shopping malls if there were ever to be a shortage. The prices on both REITs and residential RE are supported heavily through credit. The accounting for REITs is garbage with “appreciation” now being allowed to be part of “earnings”. REIT promoters use bullshit non-GAAP measures (AFFO) in their promotion.

So no, it is not a myth that REITs are toast, if residential RE is also toast. The only question is the degree of ‘toast’ that REITs will suffer versus residential RE in a broader RE downturn. The banks, the Loblaws, and Shopper Drug Marts’ of the world have been selling their RE to REITs for a reason, as have the banks and most other companies. They’re dumping overvalued assets into the hands of bagholders.

That was stunningly ill-informed. — Garth

#84 Son of Ponzi on 08.09.13 at 1:16 am

See what’s wrong with the Canadian Economy.
A bunch of losers think that they can time the market, bragging that they invested in Bre-Ex.
Garth, it’s time to remind the people that true value comes from hard work and honesty and not from bottom feeding off the financial markets.

#85 Riding the Pine on 08.09.13 at 1:57 am

The cult of home ownership is the same in Canada, the UK, AND the US. They are all in bubble territory, and this is as straight up an analysis as you’ll probably get.

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

In this episode of the Keiser Report, Max Keiser and Stacy Herbert drink the KoolAid in order to get into the minds of the cult members climbing the suicidal property ladders in the US and UK.

#86 A Nightmare on Bay Street on 08.09.13 at 2:02 am

Garth, the average household income is about 50 000$ in USA.

I know its basic economy 101 but the houses are back to a sustainable level in US.

If home prices were to keep rising, banks will have to lend the difference like they did in 2002-2008.

They wont. Not this time.

Unless american citizens find a second full time job on night shift and sell chocolate on weekends.

It wont happen. Houses will reach a limit.

Just like here? — Garth

#87 Donald Trump on 08.09.13 at 2:04 am

You just made scotch come out my nose. — Garth

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

Its really painful when they wear a kilt…its even worse when they go “commando”…..at least that’s what Smoking Man sez.

#88 Rob aka Mr BTSX on 08.09.13 at 2:54 am

Morning Garth

Out of curiosity I looked up both FAP (Abeerdeen Asia Pacific) and RIO Can a REIT that I own and noticed that both are on sale, and for once I happen to have some spare cash on hand, nice feeling!

Especially nice is RIO Can has hit almost 6% yeild!!!

While I do own individual stocks rather than ETFs I do follow a clear investment strategy, proper balance no emotions and no penny stocks here.

#89 sour cream and bacon on 08.09.13 at 3:50 am

House prices are rising because of REITs, private hedge funds and speculators (including foreigners) who are betting the US is recovering. It is not recovering based on the average american buying homes. Also why does garth convienently forget that interest rates in america are even lower than they are in canada?

70% consumer based economy, is unsustainable, think about it only 30% are producing something of value, it is the exact opposite in China.

REITs are a risky investment for the future because we havent seen the bottom in housing.

America is not recovering over 50 million americans on food stamps.

REITs unaffected by residential housing. Sigh. How many times must I repeat? — Garth

#90 CrowdedElevatorfartz on 08.09.13 at 7:51 am

@#29 Devore

“Were you expecting an unprecedented, miraculous recovery right into millions of six figure dream jobs?”
+++++++++++++++++++++++++++++++++++

Ahhhh, no. Im a late bloomer Boomer
Thats the expectation of Gen X and Y.
(outraged X’ers and Y’ers please line up here….)

I just dont think that part time jobs and or minimum wage jobs paying essintially poverty wages should be given the same hype by the media that jobs earning a livable wage would justify.

If you think a job at McDonalds, or waitressing deserves the same status as say a skilled maunfacturing job…….ok fine.

I just think that before we all clap our hands and sing Halleluja that the recession is over we should be taking a hard look at the types of jobs created.

The US economy is throwing off jobs. We just lost 39,400 of them. Your words ring hollow. — Garth

#91 fancy_pants on 08.09.13 at 7:53 am

I’ll give you two guesses of what happens after every “recovery” in a debt-based (and debt ridden) economy. Take your time and your first guess doesn’t have to count.

It is logically impossible for gov’ts to ever pay off their national debts without reform of the monetary system. The US debt has gone from 34% of GDP in 2000 to over 185% today. But if we are told this is sustainable, it must be true.

But you say sure, up here we’re busy building a society in which we’re obsessed with selling each other bigger homes financed by money we borrow, not earn, but down south, it’s real growth dude.

Down in the land of milk and honey food stamps are free, homes are cheap and helicopter Ben throws money from the sky. Yeah, let’s move along, no smoke and mirrors show there.

#92 Stickler on 08.09.13 at 8:33 am

More specifically, more part time jobs, less full time jobs….also higher population, but less working population.

I think the confusion is people hear “recovery” and think people are saying things are really good and getting awesome.

What it really means is things are no longer getting materially worse. There are major structural changes afoot.

What is your take on Bonds now, and what part of a balanced diversified portfolio they should make up now?

If you are 20% Preferred (and 60% growth), does that mean you think 20% in Bonds is the way to go?

#93 JimH on 08.09.13 at 8:34 am

Grrrrreat post, Garth!

Of course, you’ll ever convince the ‘anti-just-about-everything permabear crowd who have always used emotion, prejudice, outright anti-USA bigotry and paranoia rather than sound analysis and disciplined decision-making.

The venom with which they launch their broadsides speaks volumes about their general abundance of ignorance and their paucity of integrity.

Yes, I read zerohedge.com first thing every morning… scary stuff and coffee helps me wake up.

Then it’s on to abnormalreturns.com to get an overview of other investment posts, followed by ritholtz.com/blog/and pragcap.com/and bloomberg and marketwatch &etc with a final look at the futures…

Winnowing the facts from the opinions is a valuable exercise. So is a quarterly review and rebalance/reallocation.

Please keep up the good work! Your advice has been invaluable!

#94 JimH on 08.09.13 at 8:38 am

Also… some of the more active traders here might want to follow some of the bloggers on http://ibankcoin.com/flyblog/

#95 Ballingsford on 08.09.13 at 8:49 am

Garth, thanks for the chuckle when I read your response to the dog who called you Garthy-poo! Garthy-poo to me seems like a term of endearment! She’s hot for you!
BTW, what do your Amazons call you?

#96 Squatter on 08.09.13 at 8:49 am

S&P/TSX Composite Sectors (1 Year % Chg):

S&P/TSX Capped Info Tech 43.64
S&P/TSX Capped Cons Discretion 35.22
S&P/TSX Capped Cons Staples 30.18
S&P/TSX Capped Health Care 26.73
S&P/TSX Capped Industrials 21.14
S&P/TSX Capped Financials 19.95
S&P/TSX Capped Energy 0.71
S&P/TSX Capped Telecom Serv -0.79
S&P/TSX Capped Utilities -7.84
S&P/TSX Capped Materials -24.75
————————————————
S&P/TSX Indexes (1 Year % Chg):

S&P/TSX Cdn Dividend Arist. 7.97
S&P/TSX 60 Capped 6.96
S&P/TSX 60 6.96
S&P/TSX Comp Capped 6.55
S&P/TSX Composite 6.55
S&P/TSX Completion 5.45
S&P/TSX SmallCap -3.09
S&P/TSX Capped Real Estate -4.45
S&P/TSX Preferred Share -5.98
S&P/TSX Income Trust -10.44
S&P/TSX Capped REIT -13.05
S&P/TSX Capped Metals & Mining -13.69
S&P/TSX Global Mining -17.28
S&P/TSX Global Gold -39.34

http://www.theglobeandmail.com/globe-investor/markets/indexes/

So far in 2013: Dow and S&P +20%. The TSX +2.8%. Canadians who own stocks have 70% of their exposure to Canadian equities. Fools. Diversification is the key to sustainable and consistent wealth creation. — Garth

#97 bguy1 on 08.09.13 at 9:01 am

How about a REIT ETF @ 10% of an entire portfolio (purchased one week ago)?

#98 Grantmi on 08.09.13 at 9:07 am

Oh oh..

Lost yobs in July for Canada. Rate UP.

http://www.ctvnews.ca/business/canada-loses-39-000-jobs-in-july-unemployment-rate-rises-to-7-2-1.1404058

And here all these America-haters dis an economy which is actually employing more people every month. Bizarre. — Garth

#99 Ballingsford on 08.09.13 at 9:31 am

Garth, I have a serious question; purely hypothetical.

If and when you decide to run for Prime Minister as you’d surely get elected; would you ever consider giving some of us blog dawgs senate appointments?

We could assist you in reforming it.

#100 Howie on 08.09.13 at 9:46 am

So why are REITs going to stay inflated but Canadian Real Estate is going to fall? You go on and on about the past performance of your beloved REITs, and they have done well….like Real Estate. REITs have delivered very healthy returns, like Real Estate.

I always thought past performance is not to be used as an assurance that they are predictive of future returns.

(a) REITs are but one asset class a balanced and diversified portfolio should contain, and a small position is sufficient. (b) Most people buy them for income distributions, which are unaffected by capital values. (c) Major REITs are completely disconnected from the residential market (how often must I repeat this?). (d) REITs are normally inversely correlated to equity markets and not overly impacted by rate fluctuations. (e) If you can’t stand one asset in your portfolio temporarily declining in value, buy a GIC. (f) Or, learn to rebalance. — Garth

#101 Gotthardbahn on 08.09.13 at 10:00 am

Hey Garth – Nice try, but I’m not terribly worried about Canada.

The first is a news report on Reuters.ca and the second is my breakdown of the numbers. P.S. As I write this, TSE is flat and CAD is rallying against USD, gaining back roughly half what it lost after the jobs numbers were released at 8:30 am

1) (Reuters) – Canada’s economy unexpectedly shed 39,400 jobs in July, as public sector and youth employment plunged, according to Statistics Canada data released on Friday.
Public sector work fell by 74,000, led by declines in health care and social assistance, while employment for youths aged 15 to 24 decreased by 46,000. The unemployment rate rose 0.1 percentage points to 7.2 percent in July.
(Reporting by Alex Paterson; Editing by Louise Egan)

2) N.B. If the public sector lost 74K jobs and youth employment declined 46K for a total of 120K jobs lost, but the net was 39,400 jobs lost, then there had to be massive job creation elsewhere. And in the private sector too. This might explain why CAD has dropped, but not that much.

#102 Herb on 08.09.13 at 10:06 am

#5 LH,

C01 may be the centre of the navel of the universe, but what does it have to tell us about the RE market in Canada?

#103 NoOneOfConsequence on 08.09.13 at 10:22 am

This blog attracts more arm-chair economists than a dog does fleas.
One only needs google and youtube and 18 minutes to garner enough “mcknowledge” to start posting nonsense into the blogosphere…with absolute authority of course.

I am confused about one thing….

So…if the printing press running in the good ol’ US of A has ‘saved’ them and their economy…why shouldn’t Canada be following suit? Would that work in Canada?…would this prop up the housing market, begin a trend of more and more jobs and recovery?

If the central bank buying of billions of bonds each month works for them…what the hell are we waiting for in Canada? LETS GET PRINTING!!

#104 Evangeline on 08.09.13 at 10:24 am

#100 “If and when you decide to run for Prime Minister as you’d surely get elected; would you ever consider giving some of us blog dawgs senate appointments?”

I’d be happy being his lowly executive assistant or p.a. :)

#105 Evangeline on 08.09.13 at 10:33 am

#102 “This blog attracts more arm-chair economists than a dog does fleas.”

LOL!!!

I resent the canine slur. — Garth

#106 johnanddagney on 08.09.13 at 10:46 am

#47 and #92
See Garths blog Oct. 15 2012 “Non Cowboy Portfolio”

#107 Evangeline on 08.09.13 at 10:47 am

“I resent the canine slur. — Garth”

I humbly apologize to all canines.

#108 earlybird on 08.09.13 at 10:49 am

#77 Such a good point, and overlooked a lot of the time! Energy return on energy invested is thee problem looking at the big picture. I read a great article years ago speculating that the high energy prices before the GR, was the silent pin, that set off the housing bust in the US. Housing that was barely affordable, just needed little cost rises in everything, to start the defaults rolling. I see that in Canada, higher energy prices squeezes you in all directions. Keeping in mind the lendors/banks were stinkers in that mess as well Cheap energy is a must for this globalized economy. $150 to $200 a barrel will shut it all down again…just a thought! Long oil/NG, and long the potential of the US.

#109 Chickenlittle on 08.09.13 at 11:03 am

I will tolerate abuse, mockery and being ravaged by Amazons. But ‘Garthy-poo’ crosses the line. — Garth

Sorry Garth! How about Uncle Garth?

#110 neo on 08.09.13 at 11:11 am

See the jobs report this morning? Maybe you should worry more about you. — Garth

As much as people critique the U.S. jobs data. At least it is a stable reading. It seems like every month in Canada we are up 50,000 then down 50,000 the next month. What it really says is there is zero net job growth in the economy right now.

That said you can’t keep talking about a recovery in the U.S. when they are still fighting the deflationary abyss which was 2008. That is all the Fed accommodating monetary policy is about. We are 5 years in with another 2-5 years minimum of zero rates. That is how much damage was done to the economy. To say otherwise is incorrect. When the Fed is no longer manipulating rates and bond yields to prop up this “recovery” you speak we will know a TRUE recovery is taking place and you know that. Doth protest too much.

#111 no one on 08.09.13 at 11:24 am

Shi-ite flows downhill, look up the real reason for high-heeled shoes…

#112 Doug in London on 08.09.13 at 11:30 am

@Spoon fed, post#77:
That’s one of the best, most informative posts I’ve seen in some time. It serves to remind you that even the best and brightest minds can’t always predict what’s going to happen next. For example did anyone see the drop in potash prices coming? That’s why, as Uncle Garth keeps reminding us, until you perfect the art of reverse time travel diversity of investments is your best defence against the unexpected. As some wise person said: making predictions is difficult, especially when they are of the future.

You’re probably also right about declining EROI in oil production, I would trust the geologists more than anyone else on this topic. Is peak oil dead? Not so fast, the reason for all this activity in shale oil development is because the easy pickings (where it just oozes out of the ground) are largely used up and the higher price now makes tight oil economical. Some analysts think it’s a short lived boom, where the easy to get at oil will be depleted by the end of this decade. Only time will tell, but I wouldn’t bet on easily available petroleum at an affordable price being around by the middle of this century. I see renewed interest in nuclear power coming, but don’t trust my murky crystal ball.

#113 Peter Shift Radio on 08.09.13 at 11:36 am

DELETED

#114 Evangeline on 08.09.13 at 11:41 am

#51 “WHEN WE WENT OFF THE GOLD STANDARD IT WAS ALLWRITTEN”

why didn’t the gold standard prevent the stock market crash of 1929, and the ten years of great depression following?

#115 jeff on 08.09.13 at 11:41 am

outsourcing has destroyed the middle class in the US and available jobs are not what they used to be; coupled with trillions and trillions in debt and a huge toxic real estate problem (which is still on the books) I can’t see a strong recovery, ever…the halcyon days of the American dream are gone and the stock market does not reflect the everyday man; otherwise, I love your personal finance advice

#116 NetCentric on 08.09.13 at 11:51 am

#20 ILoveCharts
Canadian Housing Price chart I like is at
http://www.housepriceindex.ca (Teranet)

More econ/fin charts and data for you here
http://rickbateman.com/weekly.htm
(note that this site is meant for a BIG screen and links are edited regularly)

#117 Randy Randerson on 08.09.13 at 12:05 pm

Another great post Garth. Thanks to your preaching I’m invested in ETF’s. Pretty good feeling to know that a lot of things are on sales lately, it’s just too bad I don’t have any spare cash at the moment.

Anytime the market takes a downward turn and I feel a bit melancholic, I just have to think about Warren Buffett and his analogy about hamburger and the stock market.

#118 Happity on 08.09.13 at 12:06 pm

Garth is right, here are a few signs supporting an economic renaissance:
– the FED needs to buy $45billion every month in toxic financial instruments no one else will
-the USA stock market has record level margin debt
-the faith in the gov who backs the dollar is so high that 100% of treasury issuance needs to be bought by the FED because no one else will
– globally major trade partners are dumping the dollar
– the law suits against the US big banks are increasing every year
-80% of the population is living pay check to paycheque
– the USA stock market has very thin volume and participation
– part time jobs are becoming the new normal, yup the ones that support a real estate market
– big banks are buying US real estate and then renting it out
-nothing has been done regarding the $400trillion interest rate derivatives and growing
– the trillions in LIBOR scandal has proven 18 banks globally worked closely together yet nothing fundamentally effective has been put in place to correct this

And the list goes on

And the recovery continues despite the America-haters. — Garth

#119 Gotthardbahn on 08.09.13 at 12:08 pm

#117 JEFF –

Right on. It will be some time, likely many years, before the US economy is back on track. Having a radical lefty in the WH doesn’t help but, frankly, I don’t see anyone in the GOP ready to take on the job. Perhaps Bill Clinton could run again – he was the last capable US president and the economy BOOMED under his watch, especially 1996 – 2000

#120 TnT on 08.09.13 at 12:11 pm

Witnessing first hand condo and credit crunch. Dude I know – early 30’s buys condo and shacks up with girlfriend 3 year ago – 5% down in GTA. Girlfriend leaves, dude making condo payment alone, barley breaking even at the end of each month. Prices in building for comparable condos makes it 20% loss if he sells. Rent for his condo won’t cover costs. He’s racking up credit card debt to stay afloat. Car breaks down and is beyond repair now need new vehicle. Goes to bank for Line of Credit and the Loan to Value ratio leaves no equity available for secured LoC. Because he missed the odd payment on credit card this shatters his credit rating and his un-secured LoC is above 9% but the banks will give it to him.

The great squeeze is upon us…. get liquid and diversify….

#121 TorontoBull on 08.09.13 at 12:14 pm

“The US economy is throwing off jobs. We just lost 39,400 of them. Your words ring hollow. — Garth”
so now LFS is good to quote?!

#122 rosie "moving forward" on 08.09.13 at 12:18 pm

#117

Then screw America. This is where the action is. Outsourcing works. Shanghai 1987-2013. (Shanghai is in China) http://cdn.theatlantic.com/static/infocus/shanghai080713/s_s01_RTX1292L.gif

#123 Evangeline on 08.09.13 at 12:23 pm

REIT angst: investors first and foremost have to know exactly why they invest in a particular equity. He whose name must not be mentioned (WB) advises writing down on a piece of paper your reasons for buying. If your goal is to hold the purchase for the long haul, then short term up and down blips shouldn’t make you lose any sleep. (If you are drip investing, you will be happy during the down times that your average share price is lowering, therefore yield is increasing.) If your goal is to make a quick capital gain you should never have invested in a REIT to do that. So, long story short, you just have to answer, and keep reminding yourself, why did I buy this?

#124 Daisy Mae on 08.09.13 at 12:25 pm

#110 Chickenlittle: “I will tolerate abuse, mockery and being ravaged by Amazons. But ‘Garthy-poo’ crosses the line. — Garth”

Sorry Garth! How about Uncle Garth?

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

NOW you’re making him feel OLD… ;-)

#125 Ballingsford on 08.09.13 at 12:25 pm

#108

I humbly apologize to all the arm chair economists who have fleas.

No wonder they are always scratching their head while trying to make their next prediction.

#126 rosie "moving forward" on 08.09.13 at 12:36 pm

Is the MSM whispering into our ears? http://www.thestar.com/news/insight/2013/08/09/renters_are_part_of_the_canadian_dream_too.html

#127 Squatter on 08.09.13 at 12:40 pm

#100 “If and when you decide to run for Prime Minister as you’d surely get elected; would you ever consider giving some of us blog dawgs senate appointments?”

Can I replace Poloz as boss of Bank of Canada?
Must be fun to have lots of people analyzing every word you say!

#128 Mister Obvious on 08.09.13 at 12:49 pm

A lot of confusion comes from inaccurate and poorly conceived acronyms.

‘Savings’ as conceived by most Canadians means parking money in a bank at minimal interest while the bank invests that same money more lucratively.

But since 2009, Canadians have had the ‘TFSA’ thereby allowing average citizens do the same thing as the banks while escaping tax altogether. It should therefore be correctly called a ‘Tax Free Investment Account’. The term ‘Savings’ used in lieu of the term ‘Investment’ has caused a world of confusion. Keep in mind though, that most Canadians actually have a ‘Saving Free Account’ (SFA).

The RRSP is another seriously flawed acronym. The ‘Registered’ part is accurate but its relevance to ‘Retirement’ is rather tenuous. People now use these plans for anything but retirement. And once again, the term ‘Savings’ grossly understates the true purpose. And ‘Plan’? Is it really a plan? A retirement plan? Can a true ‘retirement plan’ really be summed up in a single account of yet-to-be-taxed money? Correctly named, it would be a ‘Tax Deferred Investment Account’ (TDIA).

If only. We’d live in a world of TFIA’s and TDIA’s. Think of it. We would have terms that correctly describe functionality.

And it goes without saying that the ‘REIT’ should have been called the ‘CREIT’ (Commercial Real Estate Investment Trust… one word, big difference) but who knew that the only meaning Real Estate would ever have to most Canadians was a chipboard special in the burbs or a ventilated box in the sky?

#129 jeff on 08.09.13 at 1:09 pm

If the government wanted to be so transparent with job stats (here and the US) and relate them to recovery talk then why don’t they include all those who have run out of E.I. or those using up their savings because they have lost work (guys like my brother-in-law); or those who went back to school because they could not find work or those who have just given up?….what are they afraid of? how would this reflect on the so-called recovery? how would it change the tenor of this blog?

#130 wheresthe beef on 08.09.13 at 1:14 pm

The only evidence of a US recovery is cheerleading from the Obama administration trying to shore up sagging numbers for political reasons. Question the source and you’ll find the truth. The divide is huge..popular media outlets available in Canada are supporting the Obama administration….popular media in the US is worried over the facts. Canadians should go satelitte instead of cable. CBC and MSNBC are public relations based media…hardly factual. Housing in particular is a matter of where you source the numbers….the biggest positives are coming from organizations that will not take into account the institutional market…for political reasons. Actual evidence on employment and poverty are abysmal. Don’t use a rise in the stock market to forecast a political outcome….the two have zero corelation.

We have no shortage of tin foil today. — Garth

#131 Valerie Keefe on 08.09.13 at 1:25 pm

Getting really sick of seeing U3 trotted out as a metric. Why we aren’t using 15-64 employment as a measure of labour-market fit is beyond me. It paints a much clearer picture.

#132 economictsunami on 08.09.13 at 1:28 pm

Don’t get too unglued about today’s Canadian jobs numbers.

This from an August 04, 2013 G&M article:

“Mr. Shenfeld speculated that it could just be “statistical noise associated with taking a survey sample and grossing it up for the population as a whole.” The monthly numbers come with a large margin of error. For example, the May number – the one that boasted of 95,000 jobs created – could have been off by as many as 53,400, 19 times out of 20.

However, when the monthly numbers are averaged over a longer period of time, the underlying pace of job creation is fairly consistent, noted Francis Fong, an economist with Toronto-Dominion Bank.”

http://www.theglobeandmail.com/report-on-business/economists-expect-slight-rise-for-volatile-job-market/article13591294/

This is why Charles Biderman from Trim Tabs always advocates paying closer attention to Payroll Tax Withholding stats.

Remember, the trend is your friend…

#133 Uwinsome on 08.09.13 at 1:58 pm

About the “Living Small” theme:

http://www.cnbc.com/id/100952228

#134 Steven on 08.09.13 at 2:08 pm

Myth: America’s not in recovery. It’s all a scam.

Gee Garth I wasn’t aware that the American government cleaned up its monetary and fiscal act and that real estate prices shrank to 1960s levels where current pay rates are. Before a recovery is possible you need rising wages and employment and a significant reduction of debt relative to the real economy. Do we really have that? No we don’t!
Fancy optimistic propaganda does not make a make believe economic hypothesis a law. America and Canada are not going to recover until basic fundemental problems are dealt with correctly and persistently and not before and that means politics and politically correct crime must not be allowed to interfere with corrective action. Government by political parties and politically correct and oligarchial elites has got to go.

#135 Ed on 08.09.13 at 2:29 pm

#61 – Spot on!

I think it’s hilarious that 80% of the people come here every day just to argue with Garth. Why would you read a blog daily that you vehemently disagreed with? They feel special if he replies in little italics under their pro-Gold, anti-US, anti-REIT rants.

Here’s a fact: Started following G’s advice probably a little more than a year ago. Invested in his recommended allocations, rebalanced when it got out of whack (REBALACE, people! What is wrong with you?!), and I’ve made a damn fortune.

If I took the advice of the dogs here–bought gold, invested in real estate, ignored US assets, where would I be? …Broke. With no liquid assets and very little chance of a comeback.

#136 NoName on 08.09.13 at 2:31 pm

Interesting read

http://qz.com/108875

#137 brainsail on 08.09.13 at 2:56 pm

“‘Buffett of Canada’ says he’s a big bull on the US”

http://www.cnbc.com/id/100952444

#138 Marcus on 08.09.13 at 3:07 pm

Just to let you know for 2013 900,000 jobs created in USA but 700,000 of them are part time. In past month 96% of all jobs created were part time. Not a stellar recovery by any stretch. Beware of stall speed.

A job is a job, and many part-time positions lead to full-time. Still a recovery, and still moving ahead while we lose ground. — Garth

#139 Marcus on 08.09.13 at 3:16 pm

#142 – Unfortunately a job is not a job when the full time worker is being fired then immediately rehired on part time to avoid the Health care mandate. Funny thing is that the newly hired part time worker that just lost his full time gig is counted as newly employed on the job stats. Funny times.

#140 Second Hand Smoke on 08.09.13 at 3:16 pm

@ 141

“‘Buffett of Canada’ says he’s a big bull on the US”

LOL that guy couldn’t tie Warren Buffett’s shoes. Give me a break. And in any case I thought Prem Watsa was the “Buffett of Canada.”

To quote Lisa Simpson: Anything that’s the “something” of the “something” isn’t really the “anything” of “anything”

#141 SpoonFed on 08.09.13 at 3:19 pm

@#113 Doug in London – Thanks for the kind words. Unconventionals (shale gas, shale oil, oil sands, CBM etc.) haven’t changed anything about peak oil, except perhaps when the decline begins and how long the tail is. I don’t know exactly how this will all play out, but I have a hard time believing that unconventionals will buy us more than 10 or 20 years at most, before world oil production starts its permanent decline.

@#118 Shawn – To address the issue of stock market valuations, there are many good resources to turn to. Prem Watsa, CEO of FairFax Financials (~Berkshire’s Canadian Equivalent) is one person who’s opinion is worth considering when trying to understand market valuations. Here is a recent article which includes some of his (and others like him) opinions on what asset classes a prudent investor should be holding at the moment.

http://www.theglobeandmail.com/globe-investor/investment-ideas/strategy-lab/value-investing/prem-watsa-counsels-cash-as-markets-continue-their-climb/article11200046/

Robert Shiller, an economics professor at Yale is another bright guy who has developed a clever index called Shiller’s CAPE, which helps to understand market valuations compared with their long-term trends. Google Shiller’s CAPE to see what the Cyclically Adjusted Price to Earnings ratio is all about.

Sure, you can argue against both of these guys, saying ‘this time is different’ and to some extent, you might be right. But saying that, I wouldn’t go as far as to say that fundamentals no longer matter.

#142 Devore on 08.09.13 at 3:25 pm

#90 CrowdedElevatorfartz

I just dont think that part time jobs and or minimum wage jobs paying essintially poverty wages should be given the same hype by the media that jobs earning a livable wage would justify.

Media hype is media hype. You should know better.

#143 Ballingsford on 08.09.13 at 3:26 pm

My last day of vacation is today. Is it 4:00 o’clock anywhere yet? Time to have a few cool ones. Pretty hot here today in the Ottawa Valley.

Garth, hopefully I’ll be able to spew some scotch out my nose from your and the other blog doggers comedic quips.

I think we’ve resolved enough serious issues for today.

Let the weekend begin!!!

#144 not 1st on 08.09.13 at 3:40 pm

Garth, when you finally point out an industry or sector in the U.S that is recovering due to real demand and not printed money flooding the system, then your credibility will soar.

Until that time, printing money is not growth no matter where it ends up. Its just a temporary heroin fix and we all know what happens to drug addicts eventually.

#145 The Big M on 08.09.13 at 4:20 pm

US Hedge Funds have been buying up units at an unprecedented pace in the last 6-12 months. $Billions poured in as they bought and rented units out.

Prices have now moved up and the Hedgies are starting to pull out. What do you think that will happen next?

All those part timers, making $250 a week going to start lapping up $300K homes?

If you drilled down into every economic stat the US is pumping out, it’d look like Swiss cheese.

Carrington Stops Buying U.S. Rentals as Blackstone Adding

http://www.bloomberg.com/news/2013-05-29/carrington-stops-buying-u-s-rentals-as-blackstone-adding.html

#146 Shawn on 08.09.13 at 5:00 pm

AND NO MINDS WERE CHANGED…

Not 1st at 148 says:

Garth, when you finally point out an industry or sector in the U.S that is recovering due to real demand and not printed money flooding the system, then your credibility will soar.

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

That is an interesting way to set up your argument. By this logic not 1st will not accept any evidence of U.S. growth as he will simply ascribe all growth to money printing.

His mind is closed.

In fact it seems to me that almost everyone’s mind is closed.

Almost everyone who posts on this blog has a lot of energy and faith in their current position.

No minds will be changed by the debate here. Not among those who post and have strong opinions.

No Gold bugs will convert to pref share buyers

No dividend stock buyers will convert to Gold

No liberals will convert to Conservative.

No house horny virgin will be convinced to save her virginity for another year or three.

No IQ points will be gained.

Opinions are what they are and they are tough to change.

#147 Ballingsford on 08.09.13 at 5:15 pm

What would the angels say?

Blessed by a week in PEI and a week in Ottawa. No schedules and no accumulation of stuff.

I was thinking about getting a convertible for my next car but it looks like I’d be satisfied with a sunroof.

Chrysler 300 that I rented was awesome.

Got a bit of sunburn on the top of my head though!

#148 Vamanos Pest on 08.09.13 at 5:20 pm

A lot of haters in comment section today. It makes me wonder why, if one disagreed with Garth’s macro outlook and strategy, which has been consistent if nothing else, one would continue to read his blog? I tend to agree with his analysis, and find it unique and unbiased…..so, I continue to follow the blog. I can’t wrap my head around this seemingly devoted following of haters. BTW, since following Garth’s advice, my returns are up, volatility down, and the work I put into my investments has been reduced by at least 50%, probably more.

#149 Spiltbongwater on 08.09.13 at 5:33 pm

A job is a job, and many part-time positions lead to full-time. Still a recovery, and still moving ahead while we lose ground. — Garth

Depends on the job really, and if the company offers benefits for fulltime employees. I worked part time for Westfair foods years ago, and they will not make anyone fulltime until after they have been there 6 years so they don’t have to pay benefits.

How could I have a balanced diversified portfolio and 1 million $$ to comfortably retire on working 6 years of part time?

#150 espressobob on 08.09.13 at 5:37 pm

Have a confession to make! Uhmmm, well , uhmmm, OK so I loaded up on REIT’s & some Pref’s today. I’m so embarrased, and so doomed! Squirrel stew is starting to sound tasty? Well actually it is!

#151 Piccaso on 08.09.13 at 5:50 pm

Sales dive in Edmonton the last week

http://edmontonrealestateblog.com/2013/08/edmonton-real-estate-market-weekly-update-aug-913.html

#152 Dan from Richmond Hill on 08.09.13 at 5:58 pm

About full time/part time jobs: get used to it people, better sooner than later. You can’t have one working place for 40 years with good payment, benefits, long vacation, seek days, long week-ends, etc.

#153 Ogopogo on 08.09.13 at 6:16 pm

God, just read through all the comments, as I do every day (must earn those Blog Dawg mileage points, right?). Who unleashed this horde of fetid doomers today from their gold/silver-bar filled basements? Seriously, everyone whining about REITs and Prefs being down need to learn about diversification and rebalancing.

Do you not cheer when gas, bread, watermelon or inflatable dolls go on sale? That’s what’s happening right now, doomerheads! Don’t be an idiot, get buying and averaging down. That is, if you can tear yourself away from that depreciating pile of metal in the basement…

#154 K9 ghost on 08.09.13 at 6:17 pm

If you look above the German Shepard, in the window you see a reflection of another dog or wolf.

#155 Jim on 08.09.13 at 7:56 pm

#152

Educated adults do not use vague terms like ‘haters’. It is indicative of illiteracy, at least in the domain of critical thinking.

#156 Jim on 08.09.13 at 7:58 pm

Sentiment is definitely turning in California. Zillow and Trulia show increases in prices over the last month. Not that the comments about collusion between banks and governments are off. They are entirely correct, as the government only allowed financial institutions to bid on a raft of foreclosed homes, among other shenanigans.

However, prices are indeed going up. Is it a dead cat bounce, or a recovery? I think some areas are indeed undervalued, but who knows. I’d rather have a California home than a Toronto condo right now, though.

#157 maxx on 08.09.13 at 8:09 pm

#17 Bill Gable on 08.08.13 at 7:18 pm

Jives with what I’ve been hearing.

Absent any rebuttals whenever I mention the sorry state of economic affairs, one prominent realtor told us that sales are waaaay down this year and that it will be much worse next year.
Jobs evaporating, debt galore…..and where there’s debt, there’s not just no wealth, there’s negative wealth.

Pauvre Canada!!

#158 Vamanos Pest on 08.09.13 at 9:59 pm

#159 Jim
I used the term haters as a concise way of summarizing comments that would tend to disagree with Garth’s view in general, and in particular this post. I didn’t belittle them, I didn’t imply that dissenting opinion is not important to good discussion. All I said was that what Garth said in this post is really nothing new, and he’s been saying pretty much the same thing for few years, begging the question: why continue to read the blog if you disagree with these views?

There was no need for your attack and insult. It says a lot more about you than it does about me.

#159 RE Observer on 08.10.13 at 7:33 am

Garth – just bought a house last night. Thanks to all your advice, we used a very experienced realtor, bought in a perfect location (for us and anyone who wants the suburban life-style), shopped for many, many months actively (and for at least 3 years passively), and previously walked away from a house where the owners were not willing to negotiate downward and had overpriced their home (and eventually sold for $7K less than what we offered hahaha!). We are also going to use the same very experienced realtor to sell our current home, and know that his fee (which we have negotiated downward) will be well-spent.

I know you said don’t buy into the market right now, but we are already owners and need more space, so this is a calculated risk taken by a cautious family who has no plans to move for the next 15-20 years (now we just need circumstances to agree with our plans!).

I love reading your blog, and it definitely has saved me money (at least $30k) and has kept my house-lust in check.

Thank you, Thank you, Thank you!!

#160 Moms Worst Nightmare on 08.11.13 at 2:45 pm

Goldman Admits Payroll Data Is “Economically Meaningless”

http://www.zerohedge.com/news/2013-08-11/goldman-admits-payroll-data-economically-meaningless