Entries from January 2014 ↓

Screw it

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Well, we might as well pooch this entire week. It’s not enough that jobs are fleeing, the dollar is tanking, the polar vortex came back and Justin Beiber escaped custody. We also have to put up with housing hormones in Calgary, realtors giving ‘bidding war lessons’ in Toronto and people in Vancouver actually thinking prices will leap this Spring.

A giant disconnect seems to be taking place between the world as portrayed by the anchorettes on Global, and the reality in which most people live. While rampant consumerism surrounds us, we see thirtysomethings fighting for seven-figure houses, a $6 million pile of bad taste in Mississauga selling in four minutes and 32 offers pouring in for a Toronto shack which fetches $200,000 more than the owner wanted.

These images are set out as reflections of our society. But they’re not. They are pieces of news engineered to support our buy-now-screw-tomorrow culture. Which is cool. It’s capitalism. But tomorrow has arrived.

Lately this pathetic blog has attempted to underscore some of the evil economic news, while giving over some very practical advice on how to lower taxes, build wealth and get a handle on the coming decades of your life. It’s not like any of this is new, or magic. But it works. The sad thing is that as real estate ownership and debt go up, saving and investing goes down, and the prospects for the years ahead are definitely not improving.

You know it. I told you. Only a fraction of people will make an RRSP contribution this year, and the average will be little more than three grand. Only two in 10 people with a TFSA have an actual investment in there. The savings rate is negative in BC. Half of people retiring for the next decade will have an unpaid mortgage. The feds are shoving back the age to collect OAS. And we have nine million wrinklies now heading for a retirement that, at best, will bankrupt the healthcare system.

(This busted leg of mine has had me rolling the halls of one of the country’s biggest hospitals for two weeks, and my eyes have been popping. The Fracture Clinic yesterday morning looked like two-for-one day in Wal-Mart’s lingerie department, and down the hall the line-up for the blood test area extended out the door and a hundred feet down the hall. Don’t even ask about the ER.)

This is where we’re all pooched. There’s clearly a retirement crisis coming which has the potential to tank housing, raise taxes and suck life from the economy for the entire lifetime of people now leaving university with expensive degrees. Consider the latest from a new bank survey designed to scare the poop out of everyone (it’s not working):

First, almost 90% of people say they’re counting on the Canada Pension Plan to support them in retirement. Why? Because (a) they have saved and invested diddly and (b) 100% of them probably have no idea what the CPP actually gives you. The average monthly payment is a miserable $600 while OAS (if it survives), hands out another $537 at age 65. If you can live on this, you are a lichen.

Second, almost half (49%) of the adults polled said they plan on selling their house to make ends meet in retirement. Almost 60% said they would take a part-time job after age 65 to keep Whiskas on the table. Of course, when healthy, active, obedient, nubile 19-year-olds can’t find part-time work, what makes the wrinklies with bad attitudes and Mick Jagger T-shirts think they will? As for half of people contemplating selling the house to survive, that is a huge leap over the last big survey which concluded a third of Boomers would dump real estate in order to get cash flow. If you think this is inconsequential to the housing market, check your pulse. You may already have passed. Or you’re watching Global.

Third, just for comic relief, 34% plan to win a lottery and (even funnier) 28% think they’ll be supported in old age by their children.

Well, there ya go. My work is done here. Time for an Amazonian leg rub and tumbler full of scotch and hydromorphones.

The bottom line, of course, is crystal. You’re on your own. Man up.

The obvious

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Sears dropped another 700 of so jobs on Wednesday, bringing the body count close to 3,000. A few hours later Best Buy punted 950 more. Obviously when major retailers throw people off the roof, it says a lot about the strength of consumer spending. Meanwhile Canada Post was announcing plans for the phasing-out of mail delivery to six million addresses, which tells you something about eight thousand more workers with good jobs and decent pensions.

Meanwhile we just heard the feds got the counting wrong on the November jobs report. Instead of creating 21,000 new positions that month, the country actually shed 27,600. Whoops. I guess the margin of error is now 200%. And as you know, we lost another 46,000 jobs in December, punching the unemployment rate higher than that of the United States. There’s no pretty way to put this – the elimination of 73,000 jobs in the last sixty days of 2013 is an unmitigated disaster.

And did I mention 1,700 jobs at Bombardier a few days ago? Kellogg’s? Heinz? Encana? The media chains?

In the last year job growth equalled 0.8%, which is less than the increase in the population. That pace of growth was two-thirds less than in 2011. All this underscores why the dollar has collapsed in 2014, losing more than four cents against the American currency, and now solidly under the 90-cent mark. As I told you a day or two ago, many believe it’s on the way to 85. Some say less than 80.

The impact of that will be most keenly felt in rising consumer prices, since almost all imports from places like China are paid in US dollars. The Canadian economy is 67% comprised of consumer spending, which is why this is a big, hairy deal. When the price of socks and sweatshirts rise, not to mention most of what you eat, it’s hard to avoid feeling it. These days debt is at the highest level in history, and folks have never, ever carried such mortgage loads, so it makes ya wonder. Are the guys running Sears and BestBuy just getting ready to survive what they know is coming?

That was a rhetorical question. Of course they are. And thus you can see the nature of the negative feedback loop developing. A slowing economy with job losses begets a lower currency which brings higher input costs, rising prices, declining consumption and fewer jobs. This is not an easy sucker to reverse, especially when interest rates are already in the ditch, meaning the central bank has a limited set of tools to work with.

Isn’t this all depressing?

It gets worse. Canada has one of the highest home ownership ratios among developed countries, and a far greater debt-to-income ratio than the nation most like us, America. Owning a house is not like having an ETF. Once your income is stretched by rising prices, or your wife loses her job at the department store, you can’t just phone some guy and sell your home to raise cash and cut costs. Unless you’re in one of those very localized hot hipster zones in Toronto or Vancouver, where heavily-publicized bidding wars are taking place, selling can take a long time. Closing takes even longer. So the process can easily stretch out six months or more.

This means most of the net worth in Canada (real estate has at least 75% of it) is to some degree illiquid. So, when families feel an economic pinch, they first have to rein in spending, before they bail on the house. More negative feedback.

Okay, so where’s all this heading?

It’s reasonable to expect the Canadian economy will stagger for much of 2014. No real reason for the dollar to go up. More job cuts likely. Bad time to be in retail. Variable mortgage rates won’t move. Fixed rates may come off ten or twenty basis points. Realtors, bankers and brokers will make a huge deal of that, and you can already tell how much hype is being thrown at the Spring market. The high-profile bidding wars and large-dollar sales will mask underlying traits that should be worrisome. Like a steady decline in detached home sales in Toronto, or 74% of all homes in Vancouver sitting over the $1 million line. There are so many indicators that this market is fragile and fickle, held together with the gossamer threads of desire and the duct tape of blunt force marketing.

So, try to resist buying. Regardless of your spouse. If you’ve thought about selling, ask yourself if you really think it’ll be better in the fall when the jobs situation is more dire, or a year later when mortgage rates start to click higher.

And, as always, if the bulk of your net worth is in a house, you’d best change that. Seriously.