Stress

DOG POUNCE modified

Next post: Pathetic GreaterFool readers make how much??

Rick knows what it is to pilloried and pooh-poohed. And get over it.

These days he manages a US investment firm. “A colleague of mine turned me on to your blog,” he says, “which I have found very interesting.  Before managing money at another firm and on my own, I was a research analyst at Raymond James and gained some notoriety for a prescient call on the housing market in the US.”

‘Prescient’ is one of those weasel words, of course, which usually means you look good to people a short time after you’re dead.

“I was wrong for about a year and know all too well about the doubting consensus and spent a fair amount of time in meetings with clients telling me I was an idiot until things started unfolding,” says Rick.  “I am of the view that the Canadian housing market is now entering the early phases of a decline that could end up looking something like we had here.”

To refresh your memory, average resale prices in the States declined 32% between 2005 and 2010. Some places, like a couple of Zip codes in Phoenix and suburban Florida, lost 70%. Other markets, like San Francisco and NY, faded only by single digits. In the last two years prices have been restored, on average, by roughly 10%. Until just recently valuations were recovering by 1% a month nationally, but have since stalled. Overall, the American middle class lost $6 trillion in equity at low tide. The home ownership rate has dropped from almost 70% to the 64% range, the lowest in 19 years. There are millions of Americans who were counting on home equity as their retirement nestegg, and are now in a fine pickle.

Of course, this is all about risk. When people count too much on one thing, whether a house, gold bars or Apple stock, they accept more risk in return for simplicity. Sometimes it works for a while. Usually it doesn’t. Hence my continuous yapping about balance and diversity.

While I share Rick’s belief Canadian housing is seriously overvalued and will seriously correct, this isn’t the only risk we need to understand. It ain’t just real estate in Toronto, Calgary or Vancouver which has been bloated by cheap money and an insatiable appetite for debt, but a host of other things as well, from stocks to European bond prices.

The reason is simple. The global economy’s weak. Central banks have made money cheap to rekindle growth and stave off deflation. The returns on savings accounts, bonds and low-risk investments have collapsed. Investors have piled into anything promising a better yield or a capital gain. Too much money chasing assets usually leads to inflated prices and a bubble mentality. Meanwhile bottom-feeding rates encourage excessive borrowing – whether it’s margin debt to buy equities or mortgage debt to finance slanty semis in Leslieville.

Writing in Forbes the other day, economic analyst Jesse Colombo made an interesting observation. Currently financial stress, or the fear index, sits at an all-time low in the US, while stock markets etch new highs. The Fed’s Financial Stress Index measures interest rates, yield spreads and sentiment indicators (like stock indices) which give a reading of economic health. Zero is normal. During the GFC it spiked to six. Today it is deeply negative.

FEAR INDEX modified

Says Colombo: “I view it as a reason for alarm because it is further confirmation that the U.S. economy is experiencing another bubble. The last time the Financial Stress Index remained in negative territory for so long was during the U.S. housing and credit bubble of 2004 to 2007, which led to the Global Financial Crisis. When the Index reaches extreme levels, whether to the upside or downside, it acts as a contrarian indicator. A very high reading tends to give effective “buy” signals for stocks and other risk assets, while very low readings are typically a sign of excessive risk taking and investor complacency.”

This makes sense. People take excessive risk when they no longer think of it as risky. That usually happens when everybody’s doing it, when prices are rising, and more players are piling on. Hence, stock markets can keep rising even as corporate profits diminish. House prices swell even when incomes don’t, because buyers see risk little in more borrowing. Market volatility can go down even as Russia nibbles on Ukraine or rebels shred Iraq. Fueling this human behaviour are years of low interest rates – and the longer this goes on, the more normal it seems, and the greater the appetite for risk.

After all, how many times do house-floggers come to this pathetic site to tell you mortgage rates will never rise, that this is the new normal, and I’m an idiot?

Unfortunately, says Colombo, “very low interest rates are notorious for inflating new economic bubbles that create the illusion of a recovery and growth, but end in crises when the bubbles pop.” Another example: the European Central Bank pushing deposit rates into negative numbers and creating a bond-buying orgy that has pushed yields to the lowest point since the 1800s. Yeah, two hundred years ago.

So, risk. Lots of it swirling around us. Interest rate diddling, stimulus spending, debt binging and speculation. The only thing for sure is that it’ll end, to be replaced by new conditions. And most people will realize this when it’s too late to react.

I’ll take prescient. I have a Plan B.

128 comments ↓

#1 Setting the Record Straight on 06.22.14 at 5:27 pm

http://davidstockmanscontracorner.com/the-keynesian-apotheosis-is-here-blame-the-final-desttruction-of-sound-money-on-the-bushes/

#2 Alex on 06.22.14 at 5:29 pm

First

#3 T.O. Bubble Boy on 06.22.14 at 5:32 pm

So, if not for the built-in decay of the various ETFs tracking it, we should all buy the VIX.

Anyone with a recommendation that doesn’t involve holding a declining ETF?

#4 Shane on 06.22.14 at 5:33 pm

Garth, whats plan B?

#5 Psydney on 06.22.14 at 5:41 pm

First!

#6 ILoveCharts on 06.22.14 at 5:45 pm

If the crash occurs while interest rates are low, what will the government do to help a recovery? Stimulus spending? Open up the immigration doors? Is there a chance that they will use these other tools so aggressively for political reasons that they effectively stop a crash from happening?

#7 Randy on 06.22.14 at 5:53 pm

Explains why Cdn Voters keep voting for the Status Quo.

#8 Setting the Record Straight on 06.22.14 at 5:54 pm

Yesterday Mark wrote

“Hence my comments about the probable necessity of the BoC lowering policy rates to 0%, and engaging in some form of QE eventually.”

Hair of the Dog

#9 308 on 06.22.14 at 5:55 pm

Visited many condo sales offices lately in GTA. Serious trouble looming. Crash is guaranteed.

#10 Bill Gable on 06.22.14 at 6:01 pm

The folders were on a really lovely antique table, as we entered the “mousehole” on sale.

I asked the Agent how business was.
“Pas Mal,” and a Gallic shrug.

Paris. Expensive. Ridiculous, in fact. The Apartment was the size of Harper’s brain pan, in Arr. 2.
Great location. Only 1.2 Million Euro! Sweat Not. Let me get my cheque book.

My point is: many jurisdictions are about to feel much pain. The high tide is receding, and liquidity is draining away.

My advice – keep your head up, or lose, big time.

SELL the damn house.

#11 raider on 06.22.14 at 6:03 pm

> I’ll take prescient. I have a Plan B.

Garth, what does your plan B be look like? Are you still promoting liquidity, and a diversified porfolio of stocks, bonds, and REITS? What asset class am I missing from your plan B?

Stocks at all-time highs, and bonds close to all-time highs, interest-rate sensitive REITs at the same time doesn’t look too pretty…

#12 Joe on 06.22.14 at 6:04 pm

Government can not crash economy………

rates low for a long time…higher wages…

and house prices will stay…………

No problem at all……….

#13 Basil Fawlty on 06.22.14 at 6:09 pm

“Hence my continuous yapping about balance and diversity.”

I agree with your yapping on balance and diversity. Does that still make me a Metal-Geek, or just a geek?

Thank you for sharing,

Yer Pal Basil

#14 Sideline Sitter on 06.22.14 at 6:10 pm

my “fear index” just jumped… with low rates, barely any growth, and we think a bubble is forming (which may pop) then what are we supposed to invest in?

sounds like there’s not much to do here…?

#15 cash hater on 06.22.14 at 6:15 pm

#7 Randy on 06.22.14 at 5:53 pm
Explains why Cdn Voters keep voting for the Status Quo.

BECAUSE 70% OF THEM ARE PROPERTY OWNERS.

#16 Van Isle Renter on 06.22.14 at 6:15 pm

#4 Shane on 06.22.14 at 5:33 pm

Garth, whats plan B?
++++++++++++++++++++++++++++++++

Bail.

I’ve been re-balancing my holdings recently and can’t stomach the sky-high valuations on stocks. I’ve upped my cash holdings and moved to a more defensive footing. Made some good gains over the past few years and time to lock them in.

Not sure why the market ignores BOTH Iraq and Ukraine, but I don’t care. I’ve never met a modest profit that I didn’t like more than large loss. I’d rather pay the tax on a capital gain and take a few breaths while I figure out what to do next.

#17 Mark on 06.22.14 at 6:17 pm

“If the crash occurs while interest rates are low, what will the government do to help a recovery?”

Full steam ahead with the printing presses if its a deflationary crash. Which is already codified into the ‘system’ in Canada with the GoC’s legal requirement to bail out CMHC when its subprime mortgage guarantees go sour.

Historians will shake their head as to why a government was insane enough to think that it could get away with 45X leverage into subprime mortgage guarantees at the CMHC. The public credibility of the CMHC’s accountants and actuaries will be seriously called into question considering the unqualified audit opinions offered up thus far.

#18 LH on 06.22.14 at 6:20 pm

To me at least the answer is clear:

If past is prologue, then I want to be owning the Canadian equivalents of “San Francisco and NY”. I guess that would mean parts of Vancouver and downtown Toronto, local hotspots that should continue to see an excess of demand over supply for that most emotional and desirable of assets, a single family house!

After seeing all of those 90-99.5% percentile wage slave in search of a housing crash, I feel ever more smug (maybe even insufferable) in front-running these blog dogs. Welcome to the free market!

So this will come to pass: Eventually, housing in Canada will wobble, starting with the nether regions of 905, poorly positioned condos, and the hinterland. To save the middle class homedebtowners, Poloz and his successors will drop rates to zero and initiate new stimulus, possibly quantitative easing, which will goose equity portfolios, drop the loonie, and make downtown Toronto and west Vancouver real estate all that more accessible and desirable for the global 1%. And don’t hold your breath yet, years may come to pass until this transpires! As they say, prediction is easy, timing is hard. Even for someone as intelligent and well meaning as Garth.

LH

#19 LH on 06.22.14 at 6:24 pm

Re: #3 T.O. Bubble Boy:

So, if not for the built-in decay of the various ETFs tracking it, we should all buy the VIX.

Anyone with a recommendation that doesn’t involve holding a declining ETF?

Reply: Easy, do what Smoking Man would do, and SHORT THE VIX, thereby making the built in carry/theta. I’ve been having a record run trading my market this year by largely doing the same thing (doing the hard trade and selling vol by the truckload for my bank).

LH

#20 nothing new under the sun on 06.22.14 at 6:29 pm

Some people will HATE this article, others will be wiser.

Scientific American, 2014 June, pp 70

#21 Mark on 06.22.14 at 6:32 pm

“Stocks at all-time highs, and bonds close to all-time highs, interest-rate sensitive REITs at the same time doesn’t look too pretty…”

There’s still likely plenty of room for the TSX, and the emerging markets stocks (ie: the VWO ETF) to run. But the star performer going forward should be one of the most inversely correlated sectors in the entire market, the precious metal sector.

If you look at the stocks, most of them are trading at levels typical of when precious metals prices were 1/2 to 1/3rd of current levels. Despite many adding significant capacity, retaining earnings, and cleaning up their balance sheets considerably.

Over the long term, the prototypical “balanced portfolio” as recommended by Garth isn’t likely to fail a person, but overweighting long-term out of favour sectors and underweighting the star performers that are probably nosebleed-priced at this point may be a prudent move. In fact, you may be doing this through an orderly rebalancing process anyways.

#22 TurnerNation on 06.22.14 at 6:32 pm

Forest Hill’s cheapest house is still for sale. Old man hinted at survey or structural issues; my guess is it’s totally uninsurable for some reason.

http://beta.realtor.ca/PropertyDetails.aspx?PropertyId=14450382&CultureId=1

#23 Unknown Marketer on 06.22.14 at 6:46 pm

The Ultimate Rent vs Buy Calculator ( or the best I have found so far ). Plug in your variables. Looks like rent wins hands down in Vancouver. Pretty ugly actually.

From the New York Times

http://nyti.ms/1svZrPg

#24 not 1st on 06.22.14 at 6:56 pm

Garth, hasn’t it been clearly proven that any hiccup at all in the world economies will be met head on with massive stimulus?

#25 www.totalinvestor.com on 06.22.14 at 7:02 pm

Garth your pics are not as funny as they use to be.

http://epicpix.com/wp-content/uploads/2014/06/ff_1330.jpg

#26 Andrew Woburn on 06.22.14 at 7:12 pm

#195 Mark on 06.22.14 at 12:51 am
I’ve lost count of how many Realtors have sworn up and down that the stock market would crash if RE crashes. This chart shows that there is no truth to such, and that the TSX is significantly inversely correlated with Canadian RE:

http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Long-Term-SP-TSX.png

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

Sorry to be obtuse but isn’t this chart mainly showing the inverse of stock price movements? Wouldn’t you get a similar chart even if RE prices were flat across time? I’m not getting the RE correlation aspect. What am I missing?

#27 shane on 06.22.14 at 7:18 pm

Garth, what about buying a house in oshawa is that good place to buy?

#28 Mark on 06.22.14 at 7:23 pm

“To save the middle class homedebtowners, Poloz and his successors will drop rates to zero and initiate new stimulus, possibly quantitative easing, which will goose equity portfolios, drop the loonie, and make downtown Toronto and west Vancouver real estate all that more accessible and desirable for the global 1%”

My thesis as well. Might actually see some real “HAM” coming to Canada in such an environment, rather than the ‘faux HAM’ that we see today. After all, most of Asia’s rich didn’t get rich by buying investments at their peak, that’s for sure.

Still though, I get called a nutcase for suggesting that Canada has a profoundly deflationary, high CAD$, and QE future ahead of it. So at least I know I’m in some company now :).

#29 not 1st on 06.22.14 at 7:31 pm

Garth claims 2008 cannot happen again. Well maybe not but 2000 looks like a strong possibility especially with the stupidity going on in the tech sector.

#30 Pope Nosty666krVlad the Snugglebombed on 06.22.14 at 7:31 pm

“The global economy’s weak. Currently financial stress, or the fear index, sits at an all-time low in the US, while stock markets etch new highs.”

Speaking of stress, let’s add a little volatility into this mix — Bringing the gold standard back to the world’s oil industry.

Combined with these two, it would sure make for an interesting world!

#31 Sheane Wallace on 06.22.14 at 7:33 pm

#17 Mark
Credibility? Of the current government?

#21 Mark
I surely hope so as I am parking some serious money into GDXJ.

#32 Mark on 06.22.14 at 7:36 pm

“Sorry to be obtuse but isn’t this chart mainly showing the inverse of stock price movements? Wouldn’t you get a similar chart even if RE prices were flat across time? I’m not getting the RE correlation aspect. What am I missing?

http://pacificapartners.ca/blog/wp-content/uploads/2013/05/Stock-vs-Real-Estate-Long-Term-SP-TSX.png

The chart plots RE versus the TSE/TSX stock market. If RE and stocks were perfectly correlated, you would expect to see a straight line. The fact that stocks and the housing market display sinusoidal relative pricing indicates negative (ie: inverse) correlation.

When RE goes up a lot, stocks tend to go down, or remain relatively flat (ie: the past 14 years where the TSX went from 11k to roughly 14k, while housing nearly tripled!). When stocks go up a lot, RE tends to go down or be quite stagnant (ie: the 1990-2000 interval).

Hence, it is perfectly possible, in Canada, to rent one’s RE during one of these long-term periods of stock market stagnation, invest heavily, and eventually unload one’s investments for top dollar to buy RE when the stock market comes back into favour.

For instance, if one took their 25% housing downpayment fund at the 1990 housing bubble peak, put it into a low-MER TSE index fund, and returned a decade later, the investment account would have been worth almost enough to buy an average house outright without a mortgage. While the person who bought at the peak probably spent the decade paying into the mortgage without much to show for it.

#33 Retired WI Boomer on 06.22.14 at 7:46 pm

“I’ll take prescient.” Ok…but is that like Pepto-bismal, or phillips, or another type of antacid?

It is better to BE prescient, than to ‘take it’ I do believe.

English is a language not translated well between English abusing countries like Great Britain, Canada, and the US.

Yet the warning on complacency is noted. Ah, yes what we need is a dam good crisis!!

Then we can do the job of cleaning up after the last crisis, where we never liquidated the losers, just shored them up with public money. Now we need to liquidate those, as well as labor, and a fair amount of capital. Government intervention, indeed!

#34 Andrew Woburn on 06.22.14 at 7:48 pm

#17 Mark on 06.22.14 at 6:17 pm
The public credibility of the CMHC’s accountants and actuaries will be seriously called into question considering the unqualified audit opinions offered up thus far.
===========================

I wish, but I think we are in a post-accountability world.
I have been a public accountant and recently a director of a public company. There was an aspect of our balance sheet that I knew was OK but I noted the auditors had done little or no verification of the particular accounts. Out of curiosity, I asked the partner in charge of our audit why they had not reviewed these files. He said, with no hint of irony, that they were entitled to rely on management’s representations. He is a very conservative, punctilious guy so I assume he believes he was following current best practices. Oh good, I thought, we can just sign our own report and save twenty grand.

After this and other direct experiences with auditors, and of course the Enron situation, I have to conclude that an audit report ain’t what it used to be. IMHO the rot started when companies started tendering audit contracts to presumably the lowest bidder. Previously the audit profession had a gentleman’s agreement that they didn’t poach each other’s accounts. This meant it was really difficult to fire your auditors and so they had enormous leverage to demand meaningful disclosure. Now it’s looking more like a race to the bottom.

#35 Retired WI Boomer on 06.22.14 at 7:57 pm

OK, I was merely being glib there. Time to rebalance anyway, time also to assess some profit taking.

I too, would rather bank a reasonable profit than handle dining on a marginal loss! Things have grown in ,y portfolio thus far in 2014 time to book some profit!

#36 Ralph Cramdown on 06.22.14 at 7:58 pm

#18 LH — If past is prologue, then I want to be owning the Canadian equivalents of “San Francisco and NY”.

You’re buying San Francesco’s in North York?

…but seriously, if you think SF and NY are the places to own, why not own there rather than rationalizing that where YOU live makes a good third choice?

From other posts you’ve made, I know you figure you’ve got income properties in an area that will do well. But far more real estate investors seem to embrace the logical fallacy that “real estate in some places is a good investment, I live here, therefore real estate here is a good investment.” They’re aided in this irrationality with agents who peddle “I sell real estate here, therefore real estate here is a good investment.”

Anyway, gotta go. I think I’ll celebrate Sunday night with the Canadian equivalent of caviar and the Canadian equivalent of Champagne.

#37 takla on 06.22.14 at 8:05 pm

Said it all along,prices of realestate too high,cost of living to high,consumers of debt becoming to stretched and a falling pool of potencial debtors due to wage stagnation and layoffs comeing into the system.
To keep a Ponzi going you need continuous new money injection on the bottom end for those at the top to cash out.well the bottom end is being strangled….Now we find ourselves @ the edge of another correction/recession with major geopolitical turmoil on the world front leading into record Fuel prices/shortages/inflation {see euro region this winter} and declineing world oil reserves…..that’s the real reason behind these resource wars ,countrys jockeying for position..Yellen continues with reduced stimulas when in reality the stimulas was whats been propping up the stock market ,if she doesn’t reform look out below.
I feel what ever happens 5-10 yrs from now we will all be experiencing a drastically reduced standard of living…I hope im wrong

#38 Ralph Cramdown on 06.22.14 at 8:08 pm

#34 Andrew Woburn — “After this and other direct experiences with auditors, and of course the Enron situation, I have to conclude that an audit report ain’t what it used to be.”

I don’t closely follow the internal machinations of the audit community, but I found this very interesting:

http://www.thecorporatecounsel.net/blog/2013/08/pranks-warming-up-for-the.html

#39 Moneytoo on 06.22.14 at 8:12 pm

Does your Plan B include shorting the market? :) I guess not, just curious – this thread on CMF made me wonder if maybe the poster is right: 

I think playing the long side is the risky side for the rest of the year. Buying a crash ticket with put options I think offers a better opportunity to make it rich then holding long for the remainder of 2014. Of course do not bet the farm only a small percentage. Most holding long will have over 2% of their portfolio long a 20% drop or more will cause them to lose more money then if a player is playing the downside with 1% or 2% of their portfolio. If the market does crash I think playing puts would make as much money as a strong rally into year end. My view of the market says the time is now to play the downside till the end of Oct 2014

http://canadianmoneyforum.com/showthread.php/19769-Anyone-planning-to-short-market-for-2014-secound-half-decline

#40 Greg S on 06.22.14 at 8:15 pm

Hey Garth

If it’s all bad – bonds negative interest stocks – what’s the option? A bomb shelter and canned goods?

Greg S
Ottawa (not govt)

How many times do I have to recommend the same balanced, diversified portfolio? It is designed to reduce volatility and still provide yield. — Garth

#41 kILlaBoY50 on 06.22.14 at 8:20 pm

So how many years has it been that the crash of the Canadian real estate market will crash? I’ve lost count, but it’s at least more than 5. Same goes for a significant interest rate increase. Without accurate timing included in the prediction, it’s practically useless. Back in April 2002, I was living and working in SoCal on a NAFTA work permit and I bought a house in Anaheim with zero down payment and a sub-prime loan. I thought that was a good idea at the time. I paid $329K and at the time SoCal house prices were as high as they’d ever been. Wow – what a fool I was….or was I? A little less than 2 and a half years later, house values had just about doubled from when I bought. Mortgage companies were handing out massive loans to anyone who could fog a mirror. I got the sense that the fun was about to end, so I put my house on the market and found a job in Calgary. My house sold IN ONE DAY! This was October 2005. Well, it was quite a nice house, but still, that was pretty nice for me. But, he real kicker was that it sold for $605K. Tax free. So up in Calgary, I bought a nice place for $300K, with a 50% down payment (I was also getting divorced, so I had to split the proceeds from the sale with her). I’ll have it paid off in two years from now and the value has almost doubled since I bought it. There’d have to be a near 50% correction for me to lose money. The moral of the story? Timing is everything. If I were without a house today I really doubt I’d buy one, but house prices may still not correct for years. House prices will crash if the supply goes way up or demand goes way down. I don’t see that happening any time soon in Canada.

#42 Sheane Wallace on 06.22.14 at 8:23 pm

#1

David Stockman is trustworthy, look at his remarks on inflation…

#43 Casual Observer on 06.22.14 at 8:23 pm

My plan B is that I’ve got part of my savings structured along the lines of the so-called “Permanent Portfolio”.

The strategy is based on economic cycles, and the idea that there are four basic economic phases or categories:

1.Prosperity
2.Inflation
3.Deflation
4.Recession

I would also add a fifth:
5.Political upheaval/military conflict

At any one time the economy will be in one of these phases or transitioning from one phase to another. The strategy does not attempt to predict when these things happen or guess how long they may last.

Instead, it holds specifically chosen asset classes that respond well to these cycles no matter when they happen or for how long, recognizing that you will most likely have at least one asset that is performing poorly, but that overall the portfolio should gain in value over time.

http://www.crawlingroad.com/blog/2008/12/18/the-permanent-portfolio-allocation/

Looking at the assets individually you would think that the portfolio would fail miserably, however, when put together and rebalanced annually, the portfolio has averaged 9.6% CAGR over the last 40 years.

This is almost as good as a 100% stock portfolio which averaged 9.7% over the same time frame, but with extremely low volatility.

Between 1972 and 2012, the portfolio would have had only three annual losses, with the largest being around 5% in 1981. Even during 2008, the portfolio was only down about 0.7%.

http://www.crawlingroad.com/blog/2008/12/22/permanent-portfolio-historical-returns/

I know many will disagree with the simplicity of the portfolio, or with the assets that were chosen, but the concept makes sense and has performed well in the past.

More importantly is that the portfolio has performed for the reasons it was designed for. In other words, the asset classes that were chosen performed as expected under each economic condition.

Because of this, I expect that it will perform similarly going forward, as the assets were chosen not for their correlation to each other (correlations can change over time), but for how they react to different economic conditions.

#44 Nemesis on 06.22.14 at 8:28 pm

#PlanB. #Didn’tWorkOutSoWell. #ForTheDuchyOfGrandFenwick. #TheyWon. #”TheMouseThatRoared”

http://youtu.be/unlpRJh6eEA

#InOtherNews. #PracticeMakesPerfect. #ItHelpsWhenTheTargetIsMuchLarger. #ThanHarper’sBrainPan.

http://mobile.reuters.com/article/idUSKBN0EX11Y20140623?feedType=RSS&irpc=932

#45 Freedom First on 06.22.14 at 8:31 pm

The smart money moves in and buys when there is blood on the streets. I remember a bust when I bought a beautiful property, while the rich individual investors were buying 5 or 10 properties at a time, and the companies that buy distressed assets were buying 100+properties in the most distressed cities at the same time. The herd always gets nailed. No exception. Leverage can be deadly to the financially illiterate. Proven in countries world wide recently.

#46 LJ on 06.22.14 at 8:36 pm

“This makes sense. People take excessive risk when they no longer think of it as risky. That usually happens when everybody’s doing it, when prices are rising, and more players are piling on.”

classic ‘Monkey See Monkey Do’ but no one actually stopping to think and analyse.

I think one of your best articles to date Garth.

#47 takla on 06.22.14 at 8:38 pm

Another big box Canadian retailer Staples shutting over 200 stores on the evening news,hope there are no home owners in that bunch!

#48 Andrew Woburn on 06.22.14 at 9:08 pm

#32 Mark on 06.22.14 at 7:36 pm
Hence, it is perfectly possible, in Canada, to rent one’s RE during one of these long-term periods of stock market stagnation, invest heavily, and eventually unload one’s investments for top dollar to buy RE when the stock market comes back into favour.
============================

Thanks, Mark for your cogent explanation. This is fascinating. I assume part of the explanation would be spec money moving between RE and the stock market but there must be more to it than that.

#49 AK on 06.22.14 at 9:09 pm

“Too much money chasing assets usually leads to inflated prices and a bubble mentality. ”
===================================
The S&P 500 is trading @ a forward PE of 16.60. I would hardly call that a bubble.

#50 Nemesis on 06.22.14 at 9:23 pm

“Anyway, gotta go. I think I’ll celebrate Sunday night with the Canadian equivalent of caviar and the Canadian equivalent of Champagne.” – Ralph

Well. At least we know what Ralph’s doing tonight.

Hopefully, the Coleman won’t run dry. I can practically hear that BackBacon sizzling now…

http://youtu.be/04u58ifxmRA

#51 Capt. Obvious on 06.22.14 at 9:36 pm

Folks, Plan B is diversification. Accept you can’t predict the future, diversify, invest with keeping costs as low as possible in mind, and rebalance when necessary. Make sure you have insurance. The solution is simple: keep it simple.
The problem in this country is too many people have “buy house and pay off mortgage” as plan A and no idea plan B exists.

#52 My Life is a Pile of Shit on 06.22.14 at 9:37 pm

#33 Retired WI Boomer — “It is better to BE prescient, than to ‘take it’ I do believe.”

Are you seriously correcting somebody’s English? If you say I’m of average intelligence, I would say, “I’ll take average (over sub par) any day.”

“Ah, yes what we need is a dam [sic] good crisis!!”

The phrase should be “damn good crisis,” damn it!

“English is a language not translated well between English abusing countries like Great Britain, Canada, and the US.”

If those countries are guilty of abusing English, then you are far from innocent of that charge.

#53 Financial Freedom at 40 on 06.22.14 at 9:40 pm

Bubbles bubbles everywhere.

Greed on the way up. Fear on the way down. How to not be swept along by the emtional herd?

The last hedge fad I recall was “absolute return mutual funds”…

#54 wayne on 06.22.14 at 9:41 pm

Overweight gold, base metals and uranium. Show me the money!

#55 Mr Zipper on 06.22.14 at 9:52 pm

If you call an apple a pear and have people believe you then guys like Rick might be forgiven for forgetting which side of the border they’re on.

The US housing crash had nothing to do with prices ..it was a collapse in the mortgage/credit markets. None of these factors are at play in the Canadian
market. people lost their homes and prices fell when banks would no longer extend credit or lend money…even among themselves. Prices weren’t to blame…the market ran out of buyers when credit was frozen….and naturally prices collapsed into the vacuum of forced sales…..that is not what will happen here. Even Garth isn’t bold enough to forecast a credit collapse in Canada as we saw in the US. If Flaherty did one thing right….he saddled the banks with responsibility. Call Rick……tell him we are not the 51st state….and hold the pickles.

Rick’s prescient call may be on hold for a while he adjusts to the new geography of Lyndon Johnson openly mused about….. a continent under one flag.

US housing was in the dumpster long before credit seized up. Try some research. — Garth

#56 Mr Zipper on 06.22.14 at 9:59 pm

And sorry for the addendum…but more nonsense

“Says Colombo: “I view it as a reason for alarm because it is further confirmation that the U.S. economy is experiencing another bubble. The last time the Financial Stress Index remained in negative territory for so long was during the U.S. housing and credit bubble of 2004 to 2007, which led to the Global Financial Crisis. When the Index reaches extreme levels, whether to the upside or downside, it acts as a contrarian indicator. A very high reading tends to give effective “buy” signals for stocks and other risk assets, while very low readings are typically a sign of excessive risk taking and investor complacency.”

It was criminal behavior on the part of several large financial institutions that sold bad loans to global banks that caused the distress of 09-11 ….nothing to do with the market or the economy. Once the derivatives were unwound the market went back to normal. Again….none of the factors that caused the great reccession are at play today and as such there is nothing similar to draw on and say ‘it’s just like that…..and we’re going to crash…just like before’.

I’m convinced that so many professional managers are getting fired because they missed the rise entirely that many are spreading crazy predictions to any direction that will listen trying to engineer a crash so that they can finally buy in….at a lower price…so that they can ride up the obvious improvement in the macro economy.

#57 Babblemaster on 06.22.14 at 10:16 pm

“The only thing for sure is that it’ll end, to be replaced by new conditions. And most people will realize this when it’s too late to react.” – Garth

——————————————————–

New conditions! Damn right, but is it possible that the “new condition” may be complete devaluation of the current fiat money?

No. — Garth

#58 Sammie in Sask on 06.22.14 at 10:23 pm

Garth, I have been following this blog for a couple of years. However, I recently took a break. Upon returning I see one thing hasn’t changed…. the idiots who claim to be “First!” I love it when they actually show up as second, fifth, or any other number than first. Morons.

#59 Nemesis on 06.22.14 at 10:29 pm

#BonusZen. #ForColemanCookedBackBacon. #GreatWhiteNorthChampagneSwillin’. #DevoteesOfFourWheeledTeutonicIron.

http://youtu.be/GXYD_UAHhl0

#60 young & foolish on 06.22.14 at 10:31 pm

Do you buy for capital appreciation, or income? Both would be preferable but not always possible.

eg. LH suggests he has income producing properties in dense urban areas where demand for rentals is high. Should he worry about a price reduction on his properties if they continue to spin off cash?

#61 Son of Ponzi on 06.22.14 at 10:43 pm

According to my Real Estate Agent plan B is buy more Real Estate.

#62 Hulot on 06.22.14 at 10:56 pm

Plan B for Garth. (not in any particular order)

1) Buy a house
2) Buy Gold
3) Buy a Kia

#63 Son of Ponzi on 06.22.14 at 10:59 pm

#34 Andrew Woburn on 06.22.14 at 7:48 pm
#17 Mark on 06.22.14 at 6:17 pm
The public credibility of the CMHC’s accountants and actuaries will be seriously called into question considering the unqualified audit opinions offered up thus far.
===========================

I wish, but I think we are in a post-accountability world.
I have been a public accountant and recently a director of a public company. There was an aspect of our balance sheet that I knew was OK but I noted the auditors had done little or no verification of the particular accounts. Out of curiosity, I asked the partner in charge of our audit why they had not reviewed these files. He said, with no hint of irony, that they were entitled to rely on management’s representations. He is a very conservative, punctilious guy so I assume he believes he was following current best practices. Oh good, I thought, we can just sign our own report and save twenty grand.

After this and other direct experiences with auditors, and of course the Enron situation, I have to conclude that an audit report ain’t what it used to be. IMHO the rot started when companies started tendering audit contracts to presumably the lowest bidder. Previously the audit profession had a gentleman’s agreement that they didn’t poach each other’s accounts. This meant it was really difficult to fire your auditors and so they had enormous leverage to demand meaningful disclosure. Now it’s looking more like a race to the bottom.
———–
Exactly my sentiment:
I worked in Finance for a major Credit Union, and I had to explain to the Auditors what an Interest Rate Swap was.
Judging by they blank stares, not sure if they got it.
But they signed off, anyway.

#64 Shawn on 06.22.14 at 11:04 pm

U.S. housing crash

Response to 55 Mr. Zipper

US housing was in the dumpster long before credit seized up. Try some research. — Garth

******************************************
Maybe… but my recollections is more in line with Mr. Zipper’s claims.

Credit dried up when various mortgage backed securities started to experience defaults when credit was given to too many people who could never hope to pay.

Perhaps a bit of a chicken and egg situation as defaults caused credit to dry up which caused more defaults and lower prices which caused more defaults which caused credit to further dry up.

The really weird thing in Canada is that defaults for the big banks are running at 0.33% whereas in the U.S. they were more than ten times higher than that.

So why are the defaults so low? Is it because credit is so easy and there is no need to default if the bank will lend you money to make the payments?

And no sense to default if you can sell and pay off the loan.

Or is there truly a whole lot less subprime and otherwise shakey loans on the books as compared the U.S.?

Canada may be in a finely balanced situation whereby a slight drop in prices will begat more drops and even defaults. We could possibly get into an ugly vicious circle. If this were to coincide with a job loss recession, things could get ugly.

But it certainly does not appear that a U.S. style implosion is in the works.

But the future will unfold as it will. Predictions are dangerous. Pass the popcorn.

#65 Son of Ponzi on 06.22.14 at 11:06 pm

Mark,
Like the Bible,GAAP is subject to different interpretations.
In my 30 year career in accounting, I’ve never encountered a qualified audit opinion.

#66 Jacky on 06.22.14 at 11:13 pm

“Other markets, like San Francisco and NY, faded only by single digits” – Garth.’

Good to know. Toronto and Vancouver would be fine as most people stated.

Not if you bought with 5% down. And you’re seriously comparing the GTA with NY? — Garth

#67 LP on 06.22.14 at 11:18 pm

#52 My Life is a Pile of Shit on 06.22.14 at 9:37 pm

As long as you’re being pedantic anyway, let’s change the phrase to “among” English abusing countries like Great Britain, Canada, and the US.”

#68 Casual Observer on 06.22.14 at 11:21 pm

Breaking News
The biggest housing bubble in the world is in Canada!

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/13/the-biggest-housing-bubble-in-the-world-is-in-canada/

Who knew?

#69 Nemesis on 06.22.14 at 11:28 pm

#Seriously. #ItReallyIsEnglish.

http://youtu.be/Cun-LZvOTdw

#70 Jacky on 06.22.14 at 11:33 pm

Not if you bought with 5% down. And you’re seriously comparing the GTA with NY? — Garth

Nobody buys a semi or detach with 5% down. Where do you apply for your mortgages? At a loan shark?

#71 Keith in Calgary on 06.22.14 at 11:37 pm

Garth said………….”Interest rate diddling, stimulus spending, debt binging and speculation”………….

What about deliberate lying on the part of governments, financial institutions, the media, accounting firms, regulators, and at the very bottom, the business people with vested interests.

#72 Dan7 on 06.22.14 at 11:44 pm

Hi Garth when interest rates rise will rents rise as well? because the carrying cost to service the mortgage would be higher for the landlord.

#73 Happy Renting on 06.22.14 at 11:47 pm

It’s maddening to see so many take on so much irresponsible risk that the herd gets so large we have to save all of them from the consequences, lest they take everyone down with them. I’ve stopped wanting to vulch a house and am just hoping for a soft landing. I’m willing to keep renting if it means we can avoid serious economic ugliness.

#74 lurker on 06.22.14 at 11:48 pm

Great post Garth. This insane amount of free money is creating an environment where nobody knows how to invest, how much cash to hold for a potential downturn buying opportunity etc. Obviously diversifying makes sense, but would you be buying into these highs, or sitting on cash for some kind of correction.

More posts like this one! Great to hear an expert like you, struggling with the same questions as the rest of us.

#75 Ralph Cramdown on 06.22.14 at 11:56 pm

#64 Shawn — “The really weird thing in Canada is that defaults for the big banks are running at 0.33% whereas in the U.S. they were more than ten times higher than that.”

If the US is any guide, default rates at the ‘A’ lenders are the last thing to crack. People only default on bank mortgages if they can’t sell for enough to pay off the loan OR refinance elsewhere. Many prime borrowers ran into trouble and refinanced with subprime lenders. Many subprime buyers bought anyway because subprime lenders gave them credit.

So the way the cycle played out, subprime lenders started seeing more defaults and writing fewer loans, which spilled over to more defaults at prime lenders when their troubled borrowers suddenly had nowhere else to go. And spilled into fewer homes being bought with a subprime purchase loan, supressing prices.

So watch lending and default rates at Canadian subprime lenders.

#76 Cici on 06.23.14 at 12:22 am

A cliffhanger Garth, how could you do that to me? I thought plan B was an exit strategy from fertility.

Well, at least we do know that plan B does not include gold. Or does it?

#77 bill on 06.23.14 at 12:24 am

#59 Nemesis on 06.22.14 at 10:29 pm
perhaps a minutes noise would be appropriate here….
http://www.youtube.com/watch?v=9ZHMjdzw0w0

#78 Mark on 06.23.14 at 12:41 am

“The S&P 500 is trading @ a forward PE of 16.60. I would hardly call that a bubble.”

That’s awfully rich for a ‘forward’ P/E, which is the product of a bunch of wildly bullish analysts. Trailing P/E, actual earnings, is a far more useful metric as its at least nominally based on actual reported earnings, rather than mere ‘predictions’.

#79 Nemesis on 06.23.14 at 12:50 am

#BreakfastMotoWerkenZenForSaltierDogz. #TheOneRalphForgot. #ProudlyIntroducedBy… #Volkswagon,Porsche,Audi,Bentley,Ducati. #BackInTheDay. #TheRabbit.

http://youtu.be/UDpzJX453XM

[NoteToGT: As it happens, shortly afterwards… The same EngineeringGeniuses came up with an identically branded even more popular motorized appliance for the same demographic. I’d link to it… But… well, you know why I won’t. In a word? Propriety. I can tell you this, though… More than a few NotoriousGrannies have enjoyed owning both a Rabbit… and a Golf: http://youtu.be/VoUAzgNHzeE Well, there ya go, Ralph… Now you know why they have those ridiculous, “NoHandHeldDevices” signs on the paved approaches to CYVR.]

#80 What's up with that on 06.23.14 at 12:55 am

The following has nothing to do with real estate…
I think I am going to have to start a blog for this stuff I am recently coming across…

Professor Janice Fiamengo
( https://www.youtube.com/watch?v=bAlNui5vSq8 )
around 19:30 into the video for 5 or 10 minutes
While most people have already come to these realizations independently a former radical feminist Professor which has now become an active critic of Feminism pulls back the veil and describes true unguarded feelings of feminist academics expressed to her when she was a fellow sister. She also talked about hiring practices that have been discriminating against white males for decades. I always suspected that women would eventually take up the cause of boys and by proxy men as it is entirely ungentlemanly to be openly confronting women and not deferring to women. Janice Fiamengo.

#81 What's up with that on 06.23.14 at 12:58 am

actually Janice Fiamengo did not say…
“I always suspected that women would eventually take up the cause of boys and by proxy men as it is entirely ungentlemanly to be openly confronting women and not deferring to women.”
I said that, it was a copy/paste error

#82 Pattullo bridge dweller on 06.23.14 at 1:00 am

What plan B are you talking about ? Real winners never had plan B at all.

#83 Debtfree on 06.23.14 at 1:05 am

@ Greg #40 . Answer . One more time !

#84 Andrew Woburn on 06.23.14 at 1:11 am

#203 Waterloo Resident on 06.22.14 at 3:43 am
Watch these 2 videos:
‘Jeffrey Rubin On Why High Oil Prices Stop Growth’
( https://www.youtube.com/watch?v=DyGJzftXafU )
=======================

I enjoyed the clip but I’m not sure why he is so pessimistic. Yes the rising cost of oil extraction will continue to drive prices but economies run on energy, not just oil. There are substitute energy sources available at the right price.

He said that 2/3 of all oil is burned for transportation. Already heavy truck fleets are converting to natural gas. Any local delivery service could probably convert to electricity. Resistance to private electric cars would evaporate at $200 per barrel oil.

The notion that international trade is going to contract because of the price of oil is way over the top. Shipping lines can counter costs by building larger, more automated ships or, by running the ships at a lower speed as they have for the past few years to lower fuel cost per mile. The Nazi’s ran their war machine on oil synthesized from coal. China has lots of coal. There is no technical reason large cargo ships could not run on nuclear power as do existing naval vessels. Non priority cargoes might one day be carried in slow, solar powered vessels.

Yes China is going to boost the yuan and reduce its cheap exports but the Chinese are already moving their plants to Indonesia, Thailand and Bangladesh.

Mr. Rubin seems to have little faith in human ingenuity. Perhaps he is a member of the Club of Rome.

#85 Squatter on 06.23.14 at 1:28 am

How many times do I have to recommend the same balanced, diversified portfolio? It is designed to reduce volatility and still provide yield. — Garth
————————————————–
I would call it your plan A and not your plan B Garth,
since it’s the same plan you always recommend. No?

#86 Tony on 06.23.14 at 1:50 am

Re: #21 Mark on 06.22.14 at 6:32 pm

With the stock market so overvalued only the small junior and penny gold stocks will give a stellar return.

#87 BREAKING NEWS... on 06.23.14 at 2:19 am

CHINA HAS JUST CONFIRMED THAT HONG KONG WILL LOSE ITS AUTONOMY. MASS EXODUS OF CANADIAN MAY HAPPEN!

There are an estimated 300,000 Canadians living in Hong Kong in 2011 and most are from Vancouver. Today, it is estimated there are 350,000.

Source: http://www.asiapacific.ca/media/press-releases/28323

What will happen to the prices of SFD homes in places like Vancouver, Richmond etc.? They are well over $1 Million and approaching $2 Million.

$5 Million Dtached homes in Vancouver? Never say never. If China goes through with this (and as soon as I find out), Buy Buy, Buy!

Eventually sell…retire, move to the USA.

#88 Jacky on 06.23.14 at 2:25 am

“Not if you bought with 5% down. And you’re seriously comparing the GTA with NY? — Garth”

I shouldn’t. You can’t immigrate to NY with your whole extended family. Simply impossible.

Ignorant. — Garth

#89 213 fool on 06.23.14 at 2:40 am

I recently saw a chart of the S&P 500…since 1950 up until now. Seems to me that there is some pattern happening from year 2000 and forwards… looks like a saw tooth. And all we need is another line straight down to make another teeth. heh…that’s bad right?

When they say that the S&P yield is like 7% on average historically… do they calculate that from the very beginning?

#90 Waterloo Resident on 06.23.14 at 3:19 am

Here’s the FACTS, the PURE FACTS:

– Housing is overpriced, but will stay overpriced for as long as rates stay low.

– Rates will stay low as long as inflation stays fairly low.

– If oil prices skyrocket, then inflation soon rises, and interest rates chase inflation, so rates soon start to skyrocket also.

– Iraq: A bit of unrest right now, but that’s not the big worry, the big worry is Mexico and Saudi Arabia.

Here, take a look at these 2 pics:

https://tinyurl.com/myrqbsv
https://tinyurl.com/m4w86qg

– So as you can see Mexico’s oil is running out and production is falling fast.

– Saudi Arabia’s production has started falling last year, and almost no one is mentioning it except Wiki Leaks.

– If global oil production was falling then this chart ( https://tinyurl.com/kdkacng ) would be rising quickly, but it is not, so supply must be increasing in other parts of the world to make up for it, and that’s good news for low rates and housing.

– Watch oil prices and if they start to rise to $120 and above then prepare for interest rates to being to rise and rise dramatically no matter what the politicians promise.

Until then, no worries, housing will not be falling because rates will not be rising.

#91 OffshoreObserver on 06.23.14 at 5:01 am

Too bad Carney didn’t fix Canada’s housing market before he jumped to England!

http://www.economist.com/news/britain/21604572-increases-interest-rates-will-best-slow-britains-housing-boom-taking-heat-out

#92 Dominoes Lining Up on 06.23.14 at 8:18 am

#75 Ralph Cramdown

“So watch lending and default rates at Canadian subprime lenders”

Those lenders won’t have any problems, so don’t worry.

Oh, wait…….

http://www.thestar.com/business/personal_finance/2014/04/25/cash_store_runs_out_of_money.html

(Interesting dynamic in this case, an Alberta company in trouble over its loans to Ontarians. How Canadian!)

#93 Susan from the London area on 06.23.14 at 8:25 am

Oh I LOVE “Plan B ” strategies. Now this is engaging.
Please tell us “The B Plan” !!!

Soon. — Garth

#94 TurnerNation on 06.23.14 at 8:28 am

Would be really nice if Sheane/Shawn/shane went away. So annoying and dry. Where do these people come from?? ‘Deadmonton’?

#95 takla on 06.23.14 at 8:35 am

remember the late 70’s energy crisis,early 80’s…the price of oil started its huge rise,with interest rates eventually hiting 22% in 84′.I remember,my first house interest rate was 17%….you say it cant happen again??
History repeats and at that time it was cause by supply constriction from the middle eastern countrys of Iraq/Iran….this starting to sound familiar??

#96 Bargains everywhere on 06.23.14 at 8:43 am

#87 BREAKING NEWS… on 06.23.14 at 2:19 am

CHINA HAS JUST CONFIRMED THAT HONG KONG WILL LOSE ITS AUTONOMY. MASS EXODUS OF CANADIAN MAY HAPPEN!

$5 Million Dtached homes in Vancouver? Never say never. If China goes through with this (and as soon as I find out), Buy Buy, Buy!

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

What a bunch of malarkey. When I see claims like that, I just have to check for myself. Here’s what I found:

On June 10th, the Chinese government confirmed continued support for Hong Kong’s autonomy. They released a report called, ‘The Practice of the ‘One Country, Two Systems’ and concluded that it has been a great success and remains in the long-term interests of Hong Kong and of foreign investors.

Here’s the link: http://www.lowtax.net/news/China-Supports-Hong-Kongs-Future-Autonomy_64948.html

Houses won’t hit an average of $5 million in Vancouver. Sheesh!

#97 Life's a supermartingale on 06.23.14 at 8:56 am

Garth,

Asset markets don’t work this way. The “fear” index is constructed from index derivative prices. Your claim amounts to telling everyone they should buy derivatives because the volatility is low (which I am sure is Mr. Colombo’s meal ticket). This will not work – it has never worked. This is nothing more than suggesting an old and tired technical strategy that is guaranteed to lower expected returns. The way to catch the equity premium is to remain fully invested at all times.

Garth, the broad advice about housing on your blog is correct: high house prices relative to rents mean low expected returns. But it does not mean a forecast of negative returns – no one has ever been able to reliably forecast negative returns. As for the stock market, we are still in a period of high-ish expected returns. The global economy is one false step from a new recession, the market knows this, and this is why returns have been so good for the last five years. Asset markets pay for holding risk, Garth, not for holding assets during clear sailing.

#98 Nobleton Bill on 06.23.14 at 8:58 am

Wanted to point this out about Upper Thornhill Estates

The builders were asking a minimum of $1 million for a 41 foot detached. $1.3 million for a 50 foot detached. That does not include the lot premium. Lot premium range from $15k to $220k.

As an example, Aspen Ridge 41 ft Kool Haus model home with a 3rd floor loft is asking for $1.25 million without the elevator.

Aspen ridge sold out in 30 minutes on Saturday the 14th of July. They are opening new lots on Saturday the 21st of July and increasing their prices by at least 60K!!!!

#99 Dominoes Lining Up on 06.23.14 at 9:01 am

Speaking of stress:

I know a few amateur landlords like these gals. If it’s not bad tenants or declining property values, it can be managerial incompetence that can cost you thousands at the landlord tenant board.

Note that this story is from Alberta, and they are now stuck delaying retirement because their property’s under water.

http://business.financialpost.com/2014/06/17/alberta-women-532640-in-hole-after-they-failed-to-do-the-math-on-real-estate-investments/

The last adviser in the story basically tells them to hold on to the property since the lost equity will come back. (!!)

#100 Ralph Cramdown on 06.23.14 at 9:02 am

Oh, Nemesis. You found me out, as my first car was a handed down 1978 Rabbit. Although the friskier ones cornered on three wheels when pushed, mine had a set of Continentals mounted that wouldn’t stick to flypaper. At 1,700 lbs and with a boxy profile, passing a transport in a crosswind was like driving a weathervane. Better clutch and shifter action than many a car I’ve driven since, though. Driving it on the 401 was like piloting one of the stock 911s that served as obstacles for the McQueen et al GT cars.

I ran out of time at the end of the last thread, and not to turn this into another car thread, but I feel there were some memorably forgettable POScars that I forgot about:

Renault 5 “Le Car”
Ford Festiva.
Mazda GLC.
VW Fox (for when a Jetta is just TOO fancy)
Skoda.
The Lada Signet (a Russian made Fiat 124, sold in Canada from 1978).

#101 André on 06.23.14 at 9:10 am

Very interesting post about a different way of looking at future investments choices. Thanks.

#102 Ralph Cramdown on 06.23.14 at 9:14 am

“Mortgage broker volumes inched 1.9% higher in the first quarter […] The ones racking up market share gains weren’t deposit takers, however. Non-prime and credit union lenders took that distinction, posting 17.4% and 12.6% broker volume growth respectively, year-over-year.”

I assume the distinction is between federally regulated deposit takers and the rest…

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2014/06/broker-lender-share-q1-2014.html

#103 Casual Observer on 06.23.14 at 9:40 am

#84 “There is no technical reason large cargo ships could not run on nuclear power as do existing naval vessels.”

How about the risk of pirates/terrorists being able to highjack an unarmed cargo ship and gain access to a nuclear reactor and fuel?

Nuclear powered naval vessels have the means to defend themselves, but cargo ships do not.

#104 Ralph Cramdown on 06.23.14 at 9:42 am

#98 Nobleton Bill — “Aspen ridge sold out in 30 minutes on Saturday the 14th of July. They are opening new lots on Saturday the 21st of July and increasing their prices by at least 60K!!!!”

OK, aside from the incredible claim that they “sold out” in 30 minutes and have “new lots” one week later, what do people think about this strategy?

The old fashioned method was to build a sales centre and park an agent there for months until everything sold. They must have thought this would make them the most money. In a rising market, it would. Of course, unless they were self-financing, they’d need to sell a percentage (70%?) before a lender would advance a construction loan.

Now they’ve switched to the cattle call model of trying to sell everything in a series of one day events. You’d think you could do that in a hotel conference room, but no, they build the sales centre anyway.

So are they:
– nervous about the market and just want to get all their inventory under contract quickly?
– confident that they can get more money with the artificial boiler-room strategy than they could at a slower sales pace, even in the face of generally rising sales prices?
– just plain lying about inventory, and slowly selling held back inventory and “friends, family and subcontractors” units after they’ve announced that they’ve “sold out,” either before or after completion?

Curious as to people’s thoughts, especially anyone with particular insight.

#105 Casual Observer on 06.23.14 at 10:02 am

#98 Nobleton Bill – “Aspen ridge sold out in 30 minutes on Saturday the 14th of July. They are opening new lots on Saturday the 21st of July and increasing their prices by at least 60K!!!!”

14th of July ??? – Are they able to predict the future now?

#106 Son of Ponzi on 06.23.14 at 11:21 am

# 104
– just plain lying about inventory, and slowly selling held back inventory and “friends, family and subcontractors” units after they’ve announced that they’ve “sold out,” either before or after completion?
—————-
That’s been the Vancouver experience.

#107 };-) aka Devil's Advocate on 06.23.14 at 11:51 am

SHIFT happens. Real estate, like any investment, is a long term hold. If you have short term speculative expectations, be they bull or bear, chances are you’ll get screwed.

It’s just as simple as that.

};-)

#108 TurnerNation on 06.23.14 at 12:06 pm

Ageing Boomers know to never trust a chart.

#109 Daisy Mae on 06.23.14 at 12:13 pm

#52 My Life is a Pile of Shit on 06.22.14 at 9:37 pm

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

Whenever I read this, I laugh out loud. LOL
Come on — it can’t be THAT bad?

#110 Shawn on 06.23.14 at 12:14 pm

Assured Paymen for Risk?

Life’s a Supermartingale at 97 concludes:

Asset markets pay for holding risk, Garth, not for holding assets during clear sailing.

******************************************
If that were always true it would not be a risk given the market would pay for it.

In fact the theory is that the market price reflects an EXPECTED return for bearing (ONLY) the non-diversifiable portion of risk.

Actual returns could include losses despite the risk (which is why we call it risk).

There is no expected payment for holding stupid risks, like failing to diversify.

That’s the theory.

In actual fact the market often gets things wrong.

#111 Aggregator on 06.23.14 at 12:48 pm

#98 Nobleton Bill

As I noted many times, new homes and condos are being sold on the international market, and when developers say they're sold out, that's only because units were already presold to speculators abroad before domestic sales take place. As the development progresses, the developer assists speculators to either flip the unit or rent it to end users.

In2ition Realty Opening Presentation Centre in Hong Kong

“The idea came from a series of sales tours we performed through various Asian cities to sell Toronto condominium developments. We had some success, but we realized to maximize success, we needed to open a full time presentation centre,” said Debbie Cosic, President of In2ition Realty.

How many fools can you find in China? Lots.

#112 Shawn on 06.23.14 at 1:07 pm

Never Trust a What?

Turner Nations says:

Ageing Boomers know to never trust a chart.

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

A play on the rule for retirees to “never trust a fart”?

#113 liquidincalgary on 06.23.14 at 1:29 pm

@ #94 TurnerNation

thank you for crystallising my thoughts on that matter

#114 Happy Renting on 06.23.14 at 1:53 pm

#93 Susan from the London area on 06.23.14 at 8:25 am

From the teaser about tonight’s post, I’m guessing Plan B is to hook up with one of the loaded blog dogs. Maybe Old Man will guest post his personal “how to”? ;)

#115 -=jwk=- on 06.23.14 at 3:10 pm

@ #90
1 Housing is overpriced, but will stay overpriced for as long as rates stay low.

Fail. House prices in the bubble countries continued to drop even as interest rates dropped…rates went down, prices went down even faster.

Skipped the rest of your post as you cant even get the first fact right, the rest must be really bad!

#116 bill on 06.23.14 at 3:42 pm

pos car????
http://www.youtube.com/watch?v=K-34Fdtg1dI&feature=kp
I nominate the v-12 jags that self immolated…

#117 Uh Oh Canada on 06.23.14 at 3:56 pm

I guess that Plan B is to not die.

#118 Yogi Bear on 06.23.14 at 3:57 pm

#97 Life’s a supermartingale

The way to catch the equity premium is to remain fully invested at all times.

I have completely trimmed my US equity exposure. Stay invested all the time if you want. I’ll direct my raft to shore to avoid the waterfall. I’ll see you at the bottom.

#119 Holy Crap Wheres The Tylenol on 06.23.14 at 4:02 pm

#52 My Life is a Pile of Shit on 06.22.14 at 9:37 pm
#33 Retired WI Boomer — “It is better to BE prescient, than to ‘take it’ I do believe.”
Are you seriously correcting somebody’s English? If you say I’m of average intelligence, I would say, “I’ll take average (over sub par) any day.”
“Ah, yes what we need is a dam [sic] good crisis!!”
The phrase should be “damn good crisis,” damn it!
“English is a language not translated well between English abusing countries like Great Britain, Canada, and the US.”
If those countries are guilty of abusing English, then you are far from innocent of that charge.
_____________________________________________

Holy Crap if you want to see the English language sodomized then tune in for Smoking Man’s blog-in. Straight from Smokmanistan with punctuation, spelling, grammatical errors all in one sentence. However it is entertaining!

#120 Mr Zipper on 06.23.14 at 4:26 pm

Bought more this am….KEG.UN and AAR.UN…..both excellent fundamentals…..both pay monthly……6% plus plus p/a. My wife says she feels like like of those old broads in Miami with dozens of varied value divvie cheques coming in the mail every month to take to the bank. She’s 40.

I own about 35 different companies shares spread out over 5 sectors of the market. I only own one stock that doesn’t pay a dividend…and yet has gone up from $15 to $36 in the past year and a half ( so all’s forgiven) GIB.A

There’s no stress around the pool today and the next whack of cheques will arrive …..maybe tomorrow…..every day is like an Easter Egg hunt at the mailbox. Buy good companies that pay you to own them …….buy right…and sit tight. That’s why I don’t buy ETF’s.

#121 Mr Zipper on 06.23.14 at 4:54 pm

“$5 Million Dtached homes in Vancouver? Never say never. If China goes through with this (and as soon as I find out), Buy Buy, Buy!

Eventually sell…retire, move to the USA.”

Thats naive……have you looked into what ‘retiring in the US’ actually entails. When you lose your Canadian tax status you are subject to deemed disposition and departure tax ….and they claw back all your deferred RRSP’s…disallow TFSA’s in the US…..and that is only the beginning. You will also lose your Canadian health benefits. Have you checked out what a health policy for an over 50 couple will pay in the US? You only get Medicaid if you have an income below $21,000 USD. It’s going to be over $2000 a month by the time you’re both 65. Don’t forget the high deductibles ( probably in the $12 to $20 range and the co pays are on top of the premiums…..along with lifetime caps of around 2 million per policy.

Have you checked out property taxes in the US…..much higher than in Canada and they’re progressive as values go up which stinks if you’re on a fixed income. Get used to paying a percentage of the value instead of a mill rate. In a nice Texas suburb a 500,000 house is about 2%….or $10,000 p/a.

The US is no utopia.

#122 Mr Zipper on 06.23.14 at 4:57 pm

Thats’ $12 to 20 THOUSAND dollars deductible before the insurance kicks in. The co pays are 60/40…..meaning you pay 60% of all doctor and hospital visits/stays.

#123 stop lying on 06.23.14 at 5:19 pm

#111 is that a guess? cuz i bought at that site and managed to get onto the vip list so got to pick a lot before they were released generally… they were all available at that point for my particular builder.

btw #98, aspen ridge raised their prices on the first saturday 40k minimum while people were in line. so that’s 100k from those first in. regal crest is up 120k from their first friday. uws has a lot of demand but i have a feeling a lot of them was from people in the area already so it will be interesting how many houses go on sale next year, mine included.

#124 brainsail on 06.23.14 at 6:35 pm

#121 Mr Zipper on 06.23.14 at 4:54 pm

Your fly is open!

#125 jess on 06.23.14 at 7:07 pm

Andrew said, “There is no technical reason large cargo ships could not run on nuclear power as do existing naval vessels.”

what about hydrogen ?

#126 jess on 06.23.14 at 7:21 pm

oil is for the big people

“U.S. Navy’s Arleigh Burke-class destroyer typically burns 1,000 gallons of petroleum fuel/hr …

===========
B.C. ‘s natural resource officers getting outfitted with bullet proof vests 150x 1000

http://thetyee.ca/News/2014/06/21/Natural-Resource-Officers-Bulletproof

#127 Nobleton Bill on 06.24.14 at 6:32 am

#104 Ralph Cramdown on 06.23.14 at 9:42 am
I posted that so people can see whats happening in New Homes Subdivisions. The builders have control as there is a lack of supply in the GTA. Consider that the number of homes being built in 1989 was well over 30000/year. We are less then 9000/year now. I just cant reason how people look at a million dollars in the face and say…YES

#111 Aggregator on 06.23.14 at 12:48 pm
So your saying the reason why people turned Bathrust and Mjr Mac into a packing lot all weekend long was because of Foreign Investors? I dont buy that….Nobleton has a brand new Million Dollar Subdivision, I cant find any rentals…maybe a couple of flips however…..so can you prove the foreign content to us? To me it looks like locals taking a stab at a new home because GTA supplies are kept low

#128 kommykim on 06.24.14 at 6:00 pm

RE:#125 jess on 06.23.14 at 7:07 pm
Andrew said, “There is no technical reason large cargo ships could not run on nuclear power as do existing naval vessels.”
what about hydrogen ?

How do you propose that we make the hydrogen?