Truth

LABS modified

It didn’t take long after some whackjobs shot down the Malaysian Airlines jet, obliterating three hundred people, for the Internet to light up. Then the Israelis rolled into Gaza. Gold and bond prices jumped. Stocks slumped. Armageddon was on.

The doomers compare July of 2014 with the summer of 1914, when a nationalist nutjob shot Austrian heir and archduke Franz Ferdinan and his wife, Sophie. That cascaded into World War I, and 37 million casualties. Then, as now, radicals were scrapping over territory in a tribal frenzy, with imperial powers entwined in the conflict.

It could all repeat, they say. Sell paper. Buy gold. Expect the worst.

Well, nobody knows what comes next. A 1% drop in equity markets and a jump in the VIX (it measures volatility) are enough to prove investors hate uncertainty and took money off the table. But it’s hardly a surprise with markets bouncing around record highs for a few months now. The worry is the 777 tragedy will inflame things more. Markets have been looking for a reason to correct. This could eventually  be it.

But the apocalypse? Highly doubtful. It’s not 1914, and I wouldn’t be stampeded into selling good assets that pay you income to buy pieces of rock. And the last place you should get investment advice is some pathetic blog. (Hey…)

On that note, let’s talk about your bank account.

A few months ago our little nest here was swarmed with people claiming the federal government was hatching a ‘bail-in’ plan like the one that scooped up private savings in Cyprus. Untold numbers of suckers bought it, after reading crap like this on buy-gold web sites:

“I can’t even begin to describe how serious all of this is. From now on, when major banks fail they are going to bail them out by grabbing the money that is in your bank accounts. This is going to absolutely shatter faith in the banking system and it is actually going to make it far more likely that we will see major bank failures all over the western world.

“What you are about to see absolutely amazed me when I first saw it. The Canadian government is actually proposing that what just happened in Cyprus should be used as a blueprint for future bank failures up in Canada. In other words, the banks will just be allowed to grab money directly out of your bank accounts to recapitalize themselves. That may sound completely and utterly insane to us, but this is how things will now be done all over the western world.”

Of course not. As I explained at the time, the feds were proposing new investment vehicles be created which could be used to reflate any Canadian bank that failed, so taxpayers wouldn’t have to bail it out. It never had anything to do with private bank accounts, even ones with more than the $100,000 deposit insurance limit placed in them.

Just to make it painfully clear, this was what the Department of Finance said: “The ‘bail-in’ scenario described in the budget has nothing to do with consumer deposits and they are not part of the ‘bail-in’ regime.”

I told you at the time some special bail-in bonds or bond-type securities would soon be hatched, and investors would lunge to get them and their higher yield. And why not? One of the fat Canadian banks will never fail, which would make a bail-in bond as safe as your momma’s arms. But I also said you wouldn’t be able to buy such a bond, as they’d be reserved for the big players – at least until a derivative product’s created.

Well, it just happened.

Days ago the Royal issued $1 billion in bail-in subordinated notes. The volume of these kind of securities is expected to swell to about $25 billion in the next few years, and they will be hot items for institutional investors. In fact, an association representing about a third of all the big bond-buyers in Canada is protesting to Ottawa that its members didn’t get enough advance notice of the RBC issue, which was snorfled up immediately.

“It was improper to have a deal of this magnitude and importance rushed through the system, and a number of our members believe it was an abuse of the new-issue process,” the Canadian Bond Investors Association said. “We ask that the Canadian securities regulators look at the new-issue process for this security and whether it was appropriate in the circumstances.”

So there ya go. A little lesson in truth. The web sites with rocks and scary newsletters to sell, who claim your bank accounts will be stolen? They made that up. Meanwhile the first bail-in bond was massively oversubscribed by people who understand they’re taking virtually no risk.

Remember this in the days ahead. Some people will seek to turn tragedy and conflict into personal gain, even on this blog. I will be tempted to delete their sorry butts into oblivion.

142 comments ↓

#1 Happy Renting on 07.17.14 at 6:10 pm

The colour is off, but they sort of look like Weimaraners…

The topic is truth, remember? — Garth

#2 Mark on 07.17.14 at 6:16 pm

I wouldn’t suggest gold either. But good quality gold mining stocks are still on at an extreme sale, at less than book. With ‘book’ being, itself, highly deflated relative to the replacement cost of the assets (as Barrick and many other miners have discovered, its far more costly to bring a mine into production than in the past).

Does a diversified portfolio have at least a small amount of gold and gold miners in it? Absolutely. Just like I suppose it should have some RE in it as well.

#3 Mark on 07.17.14 at 6:18 pm

“In fact, an association representing about a third of all the big bond-buyers in Canada is protesting to Ottawa that its members didn’t get enough advance notice of the RBC issue, which was snorfled up immediately.”

Interesting you mention that Garth. What it means is that perhaps RBC has issued this debt at low of a price relative to market demand, to the detriment of its common shareholders.

Of course, the idea of a bail-in for RBC is absurd, but if there are buyers of subordinated bonds, this can only be good for future dividend and common equity share buybacks. The bank shareholders get richer, and homeowners get poorer.

#4 kommykim on 07.17.14 at 6:22 pm

RE:investors hate uncertainty and took money off the table.

Every time I hear this line in the media I chuckle to myself. It should really read, ” one investor took money off the table while another put money on it.”

Less money. — Garth

#5 TheManwhoStaresatSheeple on 07.17.14 at 6:24 pm

Remember this in the days ahead:

Exactly 70 years ago (July 1-July 22, 1944) – Bretton Woods system is born, together with the U$ hegemony, the IMF and the World Bank.

And timeline for the last two weeks:
1. July 1,2014 – USA imposes a record fine of 7.9 Billion $ on French bank BNP:
http://www.reuters.com/article/2014/07/01/us-bnp-paribas-settlement-idUSKBN0F52HA20140701

2. July 4, 2014 – Governor of the French National Bank Christian Noyer (also member of the ECB’s governing board) claims that “BNP CASE WILL ENCOURAGE ‘DIVERSIFICATION’ FROM DOLLAR” – “Le dollar, une devise à éviter”
http://lexpansion.lexpress.fr/entreprises/amende-bnp-paribas-christian-noyer-trouve-les-transactions-en-dollar-trop-risquees_1557009.html

3. July 5, 2014 – Christophe de Margerie – CEO of TOTAL (Europe’s 2nd largest oil producer) claims “There is no reason to pay for oil in dollars,”
http://www.reuters.com/article/2014/07/05/idUSL6N0PG0E720140705

4. July 6, 2014 – French Finance Minister Michel Sapin claims “euro area governments need to look at ways of bolstering the use of the euro in international transactions as a matter of “global balance.””
http://www.bloomberg.com/news/2014-07-06/france-says-boosting-use-of-euro-is-issue-of-global-balance-.html

5. July 8, 2014 – U.S. in sanctions talks with Commerzbank (17% owned by the German government) and Deutsche Bank:
http://www.reuters.com/article/2014/07/08/us-commerzbank-investigation-usa-idUSKBN0FD0XQ20140708
http://dealbook.nytimes.com/2014/07/07/u-s-scrutiny-for-banks-shifts-to-commerzbank-and-germany/?_php=true&_type=blogs&_php=true
&_type=blogs&_php=true&_type=blogs&partner=bloomberg&_r=2

6. July 14-16,2014 – 6th BRICS Summit in Fortaleza, Brazil
http://www.brics6.itamaraty.gov.br/
resulting in the creation on the New Development Bank
http://brics6.itamaraty.gov.br/media2/press-releases/219-agreement-on-the-new-development-bank-fortaleza-july-15
and the Establishment of a BRICS Contingent Reserve Arrangement:
http://brics6.itamaraty.gov.br/media2/press-releases/220-treaty-for-the-establishment-of-a-brics-contingent-reserve-arrangement-fortaleza-july-15

It looks like the world is set up as BRICS versus PRICKS (USA and the US$, IMF and the World bank)

7. July 16,2014 – Obama Announces Expanded Sanctions Against Russia
http://abcnews.go.com/Politics/obama-announce-expanded-sanctions-russia/story?id=24589966

Strangely – the Europeans are not present…YET

So how to make Europe support the USA sanctions – how about a tragic loss of many European lives — caused by the “russkies”!!!

#6 Londoner on 07.17.14 at 6:33 pm

Tragic loss of life in the Malaysian Airlines incident.

Canadian assets (bonds, equities and real estate) are extremely attractive to international investors looking for safety.

#7 PretentiousHipsterBicycles on 07.17.14 at 6:34 pm

Those ain’t labs Garf! Good picture though :)

#8 Chickenlittle on 07.17.14 at 6:37 pm

When it comes to money it is hard to know what the truth really is. No one (except Garth) will tell you the straight facts. That’s why I come here!

Thanks Garth!

#9 Catalyst on 07.17.14 at 6:39 pm

Prime + 0 helocs being pushed by CIBC. Scary stuff.

What are your opinions on the proposed ontario pension plan and its effects on business? It seems the costs of doing business in Ontario are rising constantly and I am definitely feeling it at the register.

Thanks

#10 totalinvestor.com on 07.17.14 at 6:46 pm

I thought you were going to boycott your own blog.

#11 ILoveCharts on 07.17.14 at 6:48 pm

A sad day. RIP to those on the flight. A good reminder for all of us about what really matters and how a random event can take everything away.

Is there any way the CMHC can sell some of those bail-in bonds to protect the taxpayer?

#12 R on 07.17.14 at 6:55 pm

Doomer porn industry sops this stuff up like gravy on a biscuit.

#13 Basement Dweller on 07.17.14 at 6:57 pm

Three years ago if these events occurred
Gold and silver would be up 10% and oil would
Be 110$

Instead it still can’t break 1350$ or 22$ for silver

#14 Smoking Man on 07.17.14 at 7:05 pm

Some people will seek to turn tragedy and conflict into personal gain, even on this blog. I will be tempted to delete their sorry butts into oblivion.
………

I have to assume gold bugs…

I have an app on my phone called flight radar 24. I use it when I’m flying, shows my plane in real time, position, speed, altitude.

It also has a feature where by you set an alert when the pilot hits the emergency swuake. You get an email. Then track that plane, 99.99% it lands everyone OK.

Now is this morraly wrong, for the one that crashes, and you know it before anyone else… And say you
short airline stock…

Is that bad?

#15 Italians love real estate on 07.17.14 at 7:06 pm

A plane is shot down and financial markets react with billions lost . Geez not sure if it’s an over reaction or not, I’ll leave that one for Garth and the rest of you to figure out.

I say why bother trying to figure it out ??After all ,you could simultaneously explode nuclear weapons all over the world , including Woodbridge and little Italy and real estate prices would continue to rise in the good ol’ GTA .

Way to much demand from key cultural groups

#16 Crossbordershopper on 07.17.14 at 7:13 pm

I am happy when Garth doesn’t talk about Real Estate. I am going to Erie PA on another shopping trip. Sorry to here people die in a plan crash. I dont know them so it isnt like I care about them, or anything i say or do will change anything. But I enjoy shopping, no not for a house(drywall, bricks and cement) but for stuff that makes me happy. Dont tell me that hardwood flooring and marble countertops gets you hot and bothered. Go shopping, Be happy.

#17 Unemployed Sobriety Coach on 07.17.14 at 7:23 pm

Hello Garth,

May I be of assistance?

Surely the doomers, Asian-haters and realtors on this site must drive you to drink, no?

I am the guy for you!

Recently unemployed, I can get you through the most difficult days ahead on your path to recovery.

I even have a pretty mean drop kick, should you need a little extra self defence. (Argentina coulda used me, for sure!)

If the alcohol you imbibe after reading the comments here has become a problem, I can be part of the solution.

#18 Mark on 07.17.14 at 7:25 pm

“Is there any way the CMHC can sell some of those bail-in bonds to protect the taxpayer?”

Doubtful. Any flotation of CMHC on the market would likely expose a rather uncomfortable truth, and that is, the CMHC is beyond insolvent due to the $900B of subprime mortgage guarantees sitting in their books. CMHC would be subject to bondholder lawsuits for the sort of quackery in their actuarial analysis used to support their balance sheet valuation. It would be a three ring circus (even worse than it is), and the government knows it.

If you want an example that might be analogous, go look at the situation with the so-called GSE’s in the United States, Fannie Mae and Freddie Mac.

#19 Mark on 07.17.14 at 7:27 pm

“What are your opinions on the proposed ontario pension plan and its effects on business? It seems the costs of doing business in Ontario are rising constantly and I am definitely feeling it at the register.”

Very bad idea. The private sector, not the public sector, should be allocating invest capital in Canada as they have the expertise and the track record to do so most efficiently. The best thing the Ontario government could do is get their own expenses under control as things are quite out of control. Ontarians would perhaps have a chance, under a reduced tax burden, to accumulate savings for themselves.

#20 Josh Renning on 07.17.14 at 7:29 pm

The CDIC was established in 1967 with a $20,000 limit for insured deposits.

In Today’s dollars, the CDIC limit should be $139,777.78 with C.P.I. adjusted dollars.

Straight from Bank of Canada’s inflation calculator on their website showing 18 versus 125.80 inputting $20,000 in 1967, http://www.bankofcanada.ca.

Until they adjust up their $100,000 CDIC deposit insurance limit, they are short almost 40% and call it what you want but that is what it is.

The last CDIC deposit insurance adjustment was in 2005.

#21 Guy on 07.17.14 at 7:32 pm

In a balanced portfolio, 10% in gold is recommended. Stocks, bonds & REITS make up the rest.

Banks issue bail in bonds. Interesting. So if the banks are in danger of financial collapse due to a housing bubble bursting, what happens to those bonds?

The banks are not at risk, but bail-in bonds would be converted into equity. Could be a helluva deal. As for 10% gold, you are about 9.9% heavy. — Garth

#22 Nemesis on 07.17.14 at 7:32 pm

#LabsOnStakeout… #AreNotoriouslyUnimaginative… #ShouldHaveSentABorderCollie&Mutt,Instead.

Just between the two of us, GT… I’m pretty sure I’ve seen those guys before. Maybe it was at HQ?

http://youtu.be/uvPjPzmUC7w

#23 Josh Renning on 07.17.14 at 7:40 pm

The CDIC raised their deposit insurance limit from $20,000 to $60,000 in 1983 but took another 22 years to raise their CDIC deposit insurance limit from $60,000 to $100,000, 1983 to 2005.

#24 Mark on 07.17.14 at 7:42 pm

“Until they adjust up their $100,000 CDIC deposit insurance limit, they are short almost 40% and call it what you want but that is what it is.”

Easily bypassed by using multiple banks, and even holding trusteed products (ie: TFSA, RRSP, RESP) at an individual bank. Besides, it is the antithesis of free markets and capital that the government provide a ‘guarantee’ of any sort of credit.

Personally I’d support a phase-down of CDIC guarantees to protect the taxpayers and to encourage individuals to only lend to the most creditworthy institutions.

#25 Victoria Real Estate Update on 07.17.14 at 7:49 pm

. . . .House Prices – Canadian Markets. . . .
Percent Increase/Decrease Since June 2008
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+40%. . . . . . . . . . . . . . . . . . . . . . . *. . . (Winnipeg)
+35%. . . . . . . . . . . . . . . . . . . . . . . *. . . (Hamilton)
+30%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+25%. . . . . . . . . . . . . . . . . . . . . . . * . . . (Regina)
+20%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+15%. . . . . . . . . . . . . . . . . . . . . . . *. . . (Vancouver)
+10%. . . . . . . . . . . . . . . . . . . . . . . . . . .
+5%. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .0% . . . .*. . . . . . . . . . . . . . . . . . . . . . .
-5%. . . . . . . . . . . . . . . . . . . . . . . . .* . . . (Victoria)
—————————————————————–
. . . . . June 2008. . . . . . . . . . . . June 2014

(source: Brookfield RPS)

Since June 2008, house prices in Victoria have fallen 5.4% in a heavily stimulated environment that should have resulted in soaring house prices like in many other Canadian markets.

Some Victorians claim that it is different in Victoria. I agree with them. Victoria’s housing market is Canada‘s weakest major housing market and has been for years. Victoria’s winter weather is milder than other Canadian cities and some claim that this will result in Victoria experiencing a smaller overall price decline than other Canadian markets. There is no data from other countries to support this theory. In fact, the US experience suggests the opposite – the warmest US cities experienced the most severe price corrections from peak.

Total price decline from peak:

Warm US cities:

Los Angeles (-42%), San Diego (-42%), Las Vegas (-62%), Phoenix (-56%), San Francisco (-46%), Atlanta (-40%), Tampa (-48%), Miami (-51%)

Other US cities:

Boston (-20%), Washington (-34%), New York (-27%), Seattle (-33%), Portland (-31%), Chicago (-39%), Denver (-14%), Detroit (-49%), Cleveland (-24%), Minneapolis (-38%), Charlotte (-20%).

House prices in Victoria have declined approximately 12% from peak while prices in Edmonton, Calgary, Saskatoon, Winnipeg, Hamilton, Toronto, Ottawa and Montreal have soared to new all-time highs. At this point it looks as though Victoria will experience the biggest overall price decline from peak of any major Canadian market.

Victoria’s housing bubble is comparable in size to the bubbliest US markets in 2006 (Los Angeles, Las Vegas, Phoenix, Miami, etc.). Victoria’s price decline will be deep.

Incomes in Canada and the US are comparable so house prices should be comparable as well. Obviously this is not the case as Canada’s housing bubble continues to inflate as a result of excess housing market stimulus (historically low rates, etc.).

Let’s take a look at house prices in North Port, Florida.

House criteria:
* min. 3 bed, 2 bath
* min. 1800 sq. ft. of above ground primary (main) living space
* 2004 or newer
* attached double garage

In Victoria, a house like this would probably cost $700 K or more.

In North Port , the combined value of these 5 houses (that fit the above criteria) is about $654 K.

$117 K ( 3 beds, 2 baths, 1,932 sq. ft.)
$127 K ( 3 beds, 2 baths, 1,876 sq. ft.)
$133 K ( 3 beds, 2 baths, 1,820 sq. ft.)
$140 K ( 3 beds, 2 baths, 2,046 sq. ft.)
$137 K ( 3 beds, 2 baths, 1,950 sq. ft.)

Girls and guys, Victoria’s housing bubble is deflating and prices are falling. If you buy now, you will soon be forced to deal with the problems associated with an underwater mortgage like many other (near-peak) Victoria first-time buyers.

Renting for now is a no-brainer.

Until next time – Cheers!

#26 Flint on 07.17.14 at 7:52 pm

Hey Garth,

I was wondering if you could speak to the BoC’s statement today on low interest rates being their policy for the foreseeable future.

I understand that they do not set mortgage interest rates, that it’s the bond market, but I’m a little hazy on that interaction. Some googling shows me that it’s based, at least in the states, on treasury notes.

I’m getting some bear fatigue after half a decade of holding out, snide comments from friends and family. The rational part of my brain is wearing down.

I received two “I told you so” emails today, and the cost of this friction is becoming tangible.

Thanks…

#27 Nemesis on 07.17.14 at 7:55 pm

#Addendum.

“In war, truth is the first casualty.” – Aeschylus, Greek tragic dramatist (525 BC – 456 BC)

#28 Mr. Reality on 07.17.14 at 7:56 pm

In reality

In order for me to form an opinion on the incident and the issues surrounding the Ukraine i would like to see some factual reporting. The facts surrounding the recent events in Ukraine are so twisted and biased its impossible to seek out factual reporting and hence form an opinion.

With regards to today’s plane crash – Who pulled the trigger and why?

This could very well be a false flag event.

Mr. R.

I’m sure that’s what the families are wondering. Jerk. — Garth

#29 experienced.optimist on 07.17.14 at 8:05 pm

Interesting article on Bank of Canada interest rate policy today at the Huffington Post from an interview on the CBC’s “The Current”.

http://www.huffingtonpost.ca/2014/07/17/stephen-poloz-neutral-interest-rate-policy_n_5596788.html

One quote is “Bank of Canada governor Stephen Poloz says low interest rates may become the “new normal” as Canadians have taken on so much debt that any rate spike could send shockwaves through the economy. ” and that ““The new normal, as we see it, is probably one in which the interest rate … is probably going to be lower than what we thought in the past,” he said on Thursday’s show.”

Sounds like a recipe to just go out and keep on borrowing and the more we borrow, the more Bank of Canada will not raise rates. But, correct me if am am mistaken here, but I believe Garth has said on this blog that mortgage rates are set by the bond market and not by the Bank Of Canada interest rates. So what does the jump in bond prices today do for mortgage rates? Also, if my memory serves me correctly , that once upon a time , decades ago, that every time the U.S. raised interest rates, the B of C pretty well had to follow suit even though they said it was a made in Canada policy. I think it had something to do with where all the smart money moved to get the best rates.

#30 steph on 07.17.14 at 8:06 pm

In a time of universal deceit – telling the truth is a revolutionary act.

George Orwell

#31 Shawn on 07.17.14 at 8:10 pm

Did Investors take money off the table today?

KommyKim at number 4:

RE:investors hate uncertainty and took money off the table.

Every time I hear this line in the media I chuckle to myself. It should really read, ” one investor took money off the table while another put money on it.”

Less money. — Garth

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

Well yes, the market was worth less money at the end of today versu the beginning of today. But, as KommyKim said, in the net not a single dollar was taken out by investors as a population.

So if there was less money, where did it go? It evaporated into thin air.

I understand the shorthand of investors pulling money out. But it’s not technically true of the populations of investors but it does signify that trading was dominated more by sellers than buyers. Prices were bid down to make buys equal sells. Stocks bought or sold on the market (setting aside IPOs and other trades that the companies are involved with on one side of the deal, which are a minor part of the volume) are always equal, buys equal sells every day, every minute, every second, every trade.

And yes I treat market makers as part of the investment community. These days I am not sure traditional markets makers much exist, instead we get the flash traders doing that function on the big stocks. Anyhow market makers are investors.

And investors as a population are powerless to pull a single dime off the table.

The money did not evaporate. Did you check out bond prices? — Garth

#32 TFC on 07.17.14 at 8:10 pm

“One of the fat Canadian banks will never fail, which would make a bail-in bond as safe as your momma’s arms”

Canadian banks will fail when Canada fails, which might be sooner than you think. Someone should hold you accountable for using a garbage word like “never”, Garth. The sheep who flock to this site could lose everything they have because of that kind of arrogance.

People don’t need to be rich, but they certainly need to avoid the ravages of poverty. Whether you delete this post or not, I hope you think about that long and hard.

Never. — Garth

#33 Shawn on 07.17.14 at 8:12 pm

And if there is any argument about my last post I shall quote from the investment god himself (Warren Buffett)

#34 Sheane Wallace on 07.17.14 at 8:13 pm

There would be absolutely no failures in Canadian banks, I strongly agree.

The Malaysian plane is big thing, so sad for the people on it and their families. The interesting part was the plane seemed to have route very similar over Poland to the Putin’s plane (with 30 min. difference!) with Putin coming back from Brazil where they announced the creation of a BRICS bank with capital 100 billion dollars.

Immediately after that US slammed Russia with new sanctions, now the plane..

I understand the Israelis and them entering Gaza, that could be coincidence, they have the right to protect themselves. But all four events at the same time?
Too intense.

It is interesting that the creation of the BRICS bank was completely skipped in western MSM, this to be is the event of the year if not the decade.
For more information: US did not want to approve the resolution of UN for redistribution of the quotes in the IMF (BRICS are rich now and want bigger piece of the world financial pie) so they decided to create their own bank, there goes Jim Richard’s SDR dream.

Why did gold go up today? I thought is is a barbarous relic, a tradition and mostly inflation hedge?
It seems somebody wants it. GDXJ up 7 % today.

#35 Teacher's Ass-istant on 07.17.14 at 8:17 pm

Stop with the 900 Billion hysteria. Over half of what is insured is low risk, at least 20% down, that the banks have insured with CMHC.

CMHC’s mortgage loan insurance in-force is limited by legislation to a maximum of $600 billion. At the end of the first quarter of 2014, CMHC’s total insurance-in-force was $555 billion, $2 billion lower than the insurance-in-force at year-end 2013 as mortgage repayments have more than offset new insurance written. Insurance-in-force is expected to continue to decline in 2014 when further government limitations on portfolio insurance are introduced.

If legislation says they can’t issue more than 600B how can there be 900B and all of it subprime. Rediculous.

Look it up for yourself http://cmhc.ca/en/corp/about/core/upload/Q12014-CMHC-QFR_EN.pdf

There probably should be further tightening at CHMC beyond what has been done but it’s not nearly as bleak as so many of you keep insisting.

#36 Joe2.0 on 07.17.14 at 8:23 pm

Although it’s been written off as ridiculous could the Canadian Banks take investors money if they chose to as in Syria?

Cyprus, not Syria. And no. — Garth

#37 takla on 07.17.14 at 8:28 pm

gold went up today because of safe haven status,but lets look at those who buy Au,Its your stock pushers that run to golds perceived saftey on tragic info as we saw today with the plane crash
/Isrealy ground force invasion into gaza.
So we have those who purchase AU/Ag as their investment On a continueing basis regardless of world events being refered to as “gold bugs” and when there is a tragic event stock traders buy Au spikeing the price in real time…..just who are the gold bugs?????

People who say ‘fiat’ and ‘Au’ are not normal.– Garth

#38 Porsche on 07.17.14 at 8:29 pm

That’s two Malaysian flights now, the first just disappeared.

#39 Waterloo Resident on 07.17.14 at 8:30 pm

Frankly I think the stock markets will sort of drift sideways for the next few weeks as most traders will soon be going on holidays. But no big crash is going to happen on the stock markets.

For anyone thinking of America sending in military, read this article that explains how America’s military is next to useless these days:

“Pentagon’s big budget F-35 fighter ‘can’t turn, can’t climb, can’t run’”

http://blogs.reuters.com/great-debate/2014/07/14/pentagons-big-budget-f-35-fighter-cant-turn-cant-climb-cant-run/

America cannot fight off anyone, so all they can do is load up more sanctions against Russia, that’s about it. America is a PAPER TIGER.

#40 Mark on 07.17.14 at 8:32 pm

“Stop with the 900 Billion hysteria. Over half of what is insured is low risk, at least 20% down, that the banks have insured with CMHC.”

20% down isn’t low-risk in a potential 50% nation-wide decline (see: ratio between Canadian and US house prices). And keep in mind that it is the worst quality loans that have been CMHC subprime insured. The top quality stuff, the 20% LTV loans to doctors and dentists, are almost certainly not CMHC subprime insured.

Also, your number gloss over the $300B of 90% re-insurance of certain private sector subprime mortgage guarantors.

#41 espressobob on 07.17.14 at 8:33 pm

#33 Shawn

Why bother to quote Warren Buffett? You don’t have his portfolio.

#42 JO on 07.17.14 at 8:36 pm

RIP all 298 passengers. Completely senseless murder of innocent lives. Many of them Dutch on the way to vacation. I hope the authorities put politics aside and arrest all those involved.
The markets look like they might have started a modest correction. 1570-1630 is my line in the sand for the SP500. Most likely we experience a move down to the 1600s in the next 6 months, but as long as we hold above the lower end of that range, it remains most likely we see another explosive rise in US blue chips. I am expecting SP500 to hit 3000 and Dow over 25K between 2016 and 2024.
But volatility is too high and risk is very high.
Remaining balanced is good advice. The bail in has in some ways already started in most of the developed world. Spain will be charging a .03 % tax on all deposits from Jan 2014 onward. Service charges are exploding, deposit rates remain very low, and it is clear this trend will continue. European banks now have to pay the ECB to hold deposits there. They will make up the money from the depositors.

The main long term trend to watch over the next 10-15 years is the growing loss of confidence in government bonds and currency values. Trillions of dollars currently parked in bank deposits and government bonds will find a new home in top quality RE, US blue chips and eventually later, in PMs. US and Canada/Australia/Norway will be the last to fall. Europe/Japan/ China are the show for now and the next 3-4 years.

JO

#43 Guy on 07.17.14 at 8:38 pm

Before you go to your broker to buy a Bail in Bond, check out this link.
http://business.financialpost.com/2014/02/07/bail-in-bonds-riskier-than-previously-thought-sp-warns/

You can’t buy one. Problem solved. — Garth

#44 Condo Minion on 07.17.14 at 8:42 pm

My favourite quote this week:

Stephen Poloz on CBC radio today, talking about how Alberta will prop up the whole country and real estate there will continue to boom, plus the question of whether we have a real estate bubble.

“It’s not a bubble…(pregnant pause)…that’s ready to burst…”

Talk about your qualifiers!

#45 Shawn on 07.17.14 at 8:45 pm

The money did not evaporate. Did you check out bond prices? — Garth

How would you explain the days when both stocks and bonds rise or both fall.

For Buffett check out his 2006 letter and the Gotrocks family.

No money flows from stocks to bonds, ever. It’s just a lazy and incorrect shorthand to explain stock prices being bid down when bond prices are bid up.

It’s elementary that stock investors can only sell to other stock investors and cannot as a population extract money to put into bonds.

To the extent money goes into or out of a market that happens only with transactions with the issuers not with trades with other investors.

Dis the stock market issue any extra dividends today due to the tragic air plane incident?

Maybe Kommykim can explain the math.

#46 Sheane Wallace on 07.17.14 at 9:03 pm

#35 Teacher’s Ass-istant

Are you in first grade? Of course 900 billions is a big in the hundreds of billions.

CMHC does not have a risk model, if they do I would like to audit it.

If this was not a big deal the banks would have taken the risk themselves. The did not. WHY?
Capishe?

#47 Sheane Wallace on 07.17.14 at 9:04 pm

900 billions could cause a loss in the hundreds of billions

#48 eddy on 07.17.14 at 9:07 pm

These guys say there is no maximum dollar limit to their Deposit Guarantee

https://www.implicity.ca/

Sure. Give all your money to an online bank in Manitoba named ‘implicity’. See how that turns out when the zombie apocalypse comes. — Garth

#49 Smoking Man on 07.17.14 at 9:21 pm

This is interesting,

Check out for your self. Flightradarr24

For last month, flight 17 took a route 100 miles south 10 planes before, flight 17 took the regular route.

Hum, why was it deserted…

2 they have clips posted on you tube. Two rebels bragging about taken it down.

But a post from last month that Ukraine put out, is identical in pic, style and frame size… It’s like it was shot with the same equipment..

#50 Ole Doberman on 07.17.14 at 9:23 pm

Garth what are your thoughts on crude oil? It seemed to haven some safe haven bids as well and has been trending up for a couple years.

Is the peak oil thing in the category of doomers like oil?

#51 Nomad on 07.17.14 at 9:27 pm

Timbercreek cut its dividend.

From their site: “specialized Canadian asset manager focused on real estate” – http://www.timbercreek.com/

A first real hint of trouble?
Maybe not, but curious.

#52 Shawn on 07.17.14 at 9:31 pm

Why Quote Warren Buffett?

#33 Shawn

Why bother to quote Warren Buffett? You don’t have his portfolio.

*****************************************
Those who follow Buffett’s thinking have a better chance of achieving real wealth.

My gain last year was over 30% and a bit over $400k. Yours?

#53 Cocoabean on 07.17.14 at 9:32 pm

Nope. The yield-seekers, leveraged “investors” and stock-buyers have to get religion first before any meaningful action will occur. This plane crash-driven gold-and-oil price rally will be faded by them.

We need to see a “CREDIT EVENT”: doubt about collateral, insolvencies being exposed, counterparty risk, deteriorating bottom lines, liquidity shortages. Or purchasing power doubts as a result of price inflation in consumer goods…stuff like that.

It will come.

#54 Cici on 07.17.14 at 9:33 pm

#38 Porsche

Coincidence or related? Somehow, I fear the latter.

#55 Mark on 07.17.14 at 9:35 pm

“It’s elementary that stock investors can only sell to other stock investors and cannot as a population extract money to put into bonds.”

Dividends and share buybacks (as well as financings and equity issuance), can and are the source of net funds that can flow in and out of the stock markets.

900 billions could cause a loss in the hundreds of billions

Its true that the CMHC will not suffer 100% losses on its guarantees (after all, there is still collateral), but it doesn’t take much in terms of losses to overwhelm their $20B equity.

Back-of-the-envelope calculation is that the CMHC should be, at best, 5X leveraged for the sort of portfolio they’re sitting on. Hence, rendering them $160B deficient in capital relative to the subprime mortgage contingent liabilities they have on their books.

“Trillions of dollars currently parked in bank deposits and government bonds will find a new home in top quality RE, US blue chips and eventually later, in PMs.”

Perhaps, but remember that the bank deposits are actually propping up the RE market by providing all of the financing. As bondholders trade in their bonds for RE, prices should fall, eventually to all-cash levels as financing is minimally available.

As for US blue-chips, epically over-valued as a group.

#56 sean on 07.17.14 at 9:35 pm

RE: #19 “The private sector, not the public sector, should be allocating invest(ment?) capital in Canada as they have the expertise and the track record to do so most efficiently.”

Really? Comparing returns vs. MERs for the CPP, Ontario Teacher’s Pension Plan, OMERS, OPG’s Pension Plan, etc. etc. against the so-called “expert” private sector alternatives makes the private options look pretty shabby. Well, unless you consider higher expenses to be “more efficient” which, of course, a large portion of the private financial industry does.

#57 Italians love real estate on 07.17.14 at 9:37 pm

Stocks , bonds , gold , ETF’s who the f;:@ cares .. LoL

Bricks and mortar baby ! Getting me some more of them!! That’s where it’s at !!!

#58 Yuus bin Haad on 07.17.14 at 9:38 pm

So, the boycott is off?

#59 Smoking Man on 07.17.14 at 9:42 pm

My dyslexia kicking in

An 777

On 7/17

Flight 17

2014 or 2+0+1+4 = 7

#60 Smoking Man on 07.17.14 at 9:43 pm

One more 2014

14/2

#61 Italians love real estate on 07.17.14 at 9:47 pm

You people thinking about your portfolio allocations and financial market directions timing , all trying to make money. Silly people.

Focus your efforts on what type of kitchen to put in your investment property or whether a piece of copper on your window sill will get you more on a resale.

That’s the way you make money !!

#62 DV01 on 07.17.14 at 9:52 pm

Nothing matters to anyone until it matters to everyone. By then it’s too late.

This blog is an echo chamber of complacency.

…and as such, these comments won’t likely be posted.

#63 John in Mtl on 07.17.14 at 10:11 pm

Department of Finance said: “The ‘bail-in’ scenario described in the budget has nothing to do with consumer deposits and they are not part of the ‘bail-in’ regime.”

Sure… trust the government, they ALWAYS tell the truth and thewy always work for YOUR common good.

One of the fat Canadian banks will never fail, which would make a bail-in bond as safe as your momma’s arms.

I’m sure they said that about Lehman brothers too…

The very fact theat they even mention or consider “bail-in” is enough to raise a red flag. No, I didn’t rush out to buy gold.

#64 omg on 07.17.14 at 10:16 pm

#46 Sheane Wallace comment on

#35 Teacher’s Ass-istant post

“Are you in first grade? Of course 900 billions is a big in the hundreds of billions.”
————————
Shawn work on your reading comprehension, TA did not say $900 was not a big number.

Teachers Ass-istant is making the point that the risk for CMHC is no were near $900B.

Only a small subset of CMHC mortgages are high risk. Most guaranteed mortgages have been on the books for years and are for properties with built up equity. So chance of default is low, and chance of default with a big loss on these properties is almost zero. (What??? like some guy that bought in Toronto in 2000 will built up equity of 60% is going to default)

Further, if the the mortgage defaults CMHC is out the difference between the amount left on the mortgage and the foreclosed sale price of the house. The entire value of the house does not disappear.

Further, further, most of the mortgages are recourse which also lessen CMHC’s ultimate potential loss.

Claiming that CMHC’s potential loss is in the $100s billions, or claiming that CMHC is illiquid is just….

………….. SCARE MONGERING.

#65 Sheane Wallace on 07.17.14 at 10:19 pm

#64 omg

Like the 125 billions the government gave to the banks in 2008? as they were deep into the mortgage mess in US?

You have seen nothing my friend

#66 espressobob on 07.17.14 at 10:29 pm

#52 Shawn

The question was put to you in the past. Disclose your stock picks right here right now in advance! We both know that’ aint gonna’ happen! Lets see if you can outperform index investing?

#67 S on 07.17.14 at 10:46 pm

On the other hand, despite of your best intentions, you have been wrong on the activity in the real estate markets so far. Your arguments were very logical yet the unthinkable happened, housing prices held and even escalated over the last several years. Perhaps then depositors money is not as safe as you, and indeed we all, would like to believe. Logic and reason seems to have gone to the toilet a long time ago. Debt is perceived as wealth, saving appears to be stupid at least for the moment, interest rates seem set to remain in the gutter until we all wear diapers… Banks don’t need to proclaim depositors money would be used as some kind on bail-in scheme… they just need to suspend withdrawals for whatever reason. To an account holder the result is the same.

Have a nice conspiracy. — Garth

#68 Ilona on 07.17.14 at 10:46 pm

“Mr. Harper called the death an “unimaginable tragedy” in a written statement Thursday. “The Prime Minister, Mrs. Harper and the entire Conservative family are deeply saddened by this unimaginable tragedy, and our thoughts and prayers are with the Walsh family,” the statement, from Mr. Harper’s spokesman, said.”

(c) Vigil held for daughter of Conservative Party president

In unrelated news, 

– Bicyclist Killed, 2 Hurt in Canoga Park Crash
– Boys killed, father critical after high-speed crash on Detroit’s east side
– Two people killed as car veers into log truck on Midland Highway
– Two killed in crash involving vehicle, tractor-trailers near Napanee, Ont.
– Family lose son in ATV crash only two weeks after daughter was killed in horrific car accident

etc. etc. etc.

“Tom, don’t let anybody kid you. It’s all personal, every bit of business. Every piece of shit every man has to eat every day of his life is personal. They call it business. OK. But it’s personal as hell. You know where I learned that from? The Don. My old man. The Godfather. If a bolt of lightning hit a friend of his the old man would take it personal. He took my going into the Marines personal. That’s what makes him great. The Great Don. He takes everything personal Like God. He knows every feather that falls from the tail of a sparrow or however the hell it goes? Right? And you know something? Accidents don’t happen to people who take accidents as a personal insult.” 
― Mario Puzo, The Godfather

___________________________

Crombie REIT Q2 Fiscal 2014 Conference Call | Thursday July 17, 2014 12:37PM
At midday: TSX retreats from record high on air crash reports | Thursday July 17, 2014 12:35PM
Bond investors rankled by RBC’s $1-billion debt offering | Thursday July 17, 2014 12:27PM
Wall Street drops on news of downed Malaysian plane | Thursday July 17, 2014 12:19PM
Calloway REIT Declares July 2014 Distribution | Thursday July 17, 2014 11:17AM

“Buy on bad news – sell on good news” aka “Nothing personal, Sonny. It’s just business.”

#69 Wise Guy on 07.17.14 at 10:53 pm

Looks like Poloz is moving towards a ‘neutral interest rate policy’. Does this mean that interest won’t be raising like many people thought?

Is this rewarding people that have taken out gigantic mortgages?

With Household Debt Near Record Highs, BoC Mulls Major Interest Rate Policy Change
http://www.huffingtonpost.ca/2014/07/17/stephen-poloz-neutral-interest-rate-policy_n_5596788.html

#70 raider on 07.17.14 at 11:04 pm

Garth, how can we buy these notes?

#71 WhiteKat on 07.17.14 at 11:06 pm

Truth?

A bank made of BRICS vs. a buck made of straw

http://isaacbrocksociety.ca/2014/07/16/a-bank-made-of-brics-vs-a-buck-made-of-straw/#more-30463

#72 Andrew Woburn on 07.17.14 at 11:07 pm

#35 Teacher’s Ass-istant on 07.17.14 at 8:17 pm
Stop with the 900 Billion hysteria. Over half of what is insured is low risk, at least 20% down, that the banks have insured with CMHC.

If legislation says they can’t issue more than 600B how can there be 900B and all of it subprime. Rediculous.
========================

The government is fully on the hook for CMHC’s obligation plus it is 90% on the hook for the private mortgage insurers, Genworth and Canada Guaranty which probably adds up to over $400 billion at this point. So you are correct about CMHC but not about the total government risk.

This article explains the issues in winding down CMHC, at least from the Establishment point of view.

http://opinion.financialpost.com/2013/12/16/how-to-privatize-the-canadian-mortgage-and-housing-corporation/

#73 KommyKim on 07.17.14 at 11:11 pm

RE: #45 Shawn on 07.17.14 at 8:45 pm
Dis the stock market issue any extra dividends today due to the tragic air plane incident?

Maybe Boeing, General Dynamics, Raytheon, Lockheed Martin, et al will have some extra cash flow for dividends soon.

RE Maybe Kommykim can explain the math.

What math?

#74 Shawn on 07.17.14 at 11:12 pm

Clobbering the Index

#52 Shawn

The question was put to you in the past. Disclose your stock picks right here right now in advance! We both know that’ aint gonna’ happen! Lets see if you can outperform index investing?

*****************************************
Actually I have clobbered the index. If you don’t recognize my honesty from my posts then nothing I write here would convince you.

Investors ALWAYS equal the index on average and trail it after costs. Over ANY time period. This is always true because the index, properly defined IS the average of market returns. But clearly some people will beat the index even over a long period of years. Since I began investing in 1989 I am way ahead of the index. Perhaps I will get clobbered this year or next, we shall see.

#75 Marco Polo on 07.17.14 at 11:20 pm

I disagree with you Garth, while it isn’t 1914, history doesn’t repeat, but it often rhymes. There’s some view that the first world war started with a shot in Sarajevo in 1914, and ended with the breakup of the USSR in 1991. The in-between was just filler. Russia is one of the world’s last empires. I suppose the same could be said of the US.

I’ve been expecting bond market panic for years, and am convinced this market is so artificial, the bonds themselves might as well be counterfeit.

#76 Ford Prefect on 07.17.14 at 11:28 pm

Garth: you discuss bail in bonds – a new thing as I understand.

Any discussion on “Green Bonds”? – they are tax exempt. And new I understand. They are currently funding a hospital in the Comox Valley with a tax exempt rate of 4.39% and 20 – 30 year term (not sure of exact details).

#77 Obvious Truth on 07.17.14 at 11:35 pm

This is a horrible tragedy. My thoughts go out to all those families torn apart. We get to sleep safe with our loved ones tonight.

#78 Mister Obvious on 07.17.14 at 11:46 pm

For those of you who don’t have time to read the latest interest rate prognostications by the Bank of Canada Governor, I have condensed it down to the following:

For the foreseeable future, savers are schmucks.

#79 Andrew on 07.17.14 at 11:50 pm

“Bail in”? That’s a hilariously bad choice of words. So they’re using the buckets to fill the boat up with water?

#80 UVZ on 07.17.14 at 11:53 pm

#72 Andrew Woburn on 07.17.14 at 11:07 pm

Good link. Thank you.

The question boils down to whether or not there would be a government guarantee on mortgages. CMHC versus no CMHC is not the real issue.

Privatization of CMHC and continuing to shelter the private mortgage insurers with “federal sovereign guarantees” simply enables a new class of profiteers on the backs of financially innocent property virgins and naive masses.

#81 Nemesis on 07.18.14 at 12:01 am

#OnlyAngels&BillyBobsHaveWings.

http://youtu.be/-8a6qbF9ECg

Very much in our thoughts tonight.

We salute you.

http://youtu.be/rZ-1uo8M_5Y

#82 JimH on 07.18.14 at 12:22 am

#6 Londoner
re: “…Canadian assets (bonds, equities and real estate) are extremely attractive to international investors looking for safety…”
——————————————————-
Does your mother know that you come here and spout this rubbish?… Or (hopefully) is she still happy happy in the illusion that you play piano in a Nevada whorehouse? (no offense)

Are you really so naive as to believe that “international investors looking for safety” are likely to look to the Canadian gasbag RE market, the Canadian over-priced (and once-in-awhile fraudulent) equities markets, and the shaky Canadian bond market as “attractive” because some blockheads in eastern Ukraine/western Russia shoot down a jetliner? (this is at least the 4th time this has happened over this broad territory to civilian airliners in recent memory)

And, yes, the Israeli decision to venture into Gaza doesn’t help, but then they’ve done this sort of thing before. And yes, this time they might not get away with it with impunity.

But the Markets (sooner or later ) correct through fundamental and technical factors. Markets tank and crash and burn through systemic contradictions and fundamental imbalances.

Garth is correct: the tin-foil hatters and bunker-dwellers will see this as another instance of a falling sky, circa 1914 and archduke Ferdinand or whoever, and will thank their lucky stars for their vast hoards of beef jerky, pinto beans and bottled water. (the real preparers (aka “preppers”) eschew gold and get right down to the basics: after all, with a sufficient store of beef jerky, you can get all the yellow stuff you want!)

Gold bounced today, as one would expect, but will soon settle before continuing its slide lower into the $700-$800 range. Oil stocks reflect middle-east tensions, and took a more understandable and maybe trade-able bounce.

Canada? Looks from here like the homely girl standing all alone against the gym wall at the sock hop. A really nice person, but not all that attractive.

#83 Mark on 07.18.14 at 12:32 am

“Only a small subset of CMHC mortgages are high risk. Most guaranteed mortgages have been on the books for years and are for properties with built up equity. So chance of default is low, and chance of default with a big loss on these properties is almost zero. (What??? like some guy that bought in Toronto in 2000 will built up equity of 60% is going to default)”

At the moment, it may be a smaller subset. But as equity recedes with a continuation of the price drops, a LTV’s will naturally end up increasing as value drops.

Canadian houses are approximately double their counterparts across the border in price, adjusted for quality, amount of land, etc. This implies that, to reach parity, a 50% drop is possible across the board.

The banks are obviously so worried about this possibility (if not probability) that they have, on their own account, taken out CMHC subprime mortgage insurance against even loans with very low LTV’s (ie: high amounts of equity).

Why? Not because they’re feeling extra charitable and want to pay the CMHC a bunch of money for worthless insurance that will never be claimed upon. Its because they see that these are, rightly highly risky loans when RE goes out of favour. Which it has been doing for the past year in Canada, and will likely continue to do so for the considerable future until prices come back to, and even drop below fundamentals. The process of mean reversion at play.

#84 3s on 07.18.14 at 12:34 am

Who needs real estate leverage when derivatives are the bomb hey Garth;)

#85 Mark on 07.18.14 at 12:37 am

“Further, if the the mortgage defaults CMHC is out the difference between the amount left on the mortgage and the foreclosed sale price of the house. The entire value of the house does not disappear.”

True, but houses tend to lose a lot of value when they’re neglected and in foreclosure. There are very considerable transaction costs associated with the foreclosure process, and any associated inventorying, rehabilitating, and re-marketing properties. Property taxes have to be paid. The experience in the USA was these expenses amounted to over $60k per foreclosed house, which is in addition to whatever negative equity already existed before the foreclosure action began, and any arrears. The CMHC timely payment guarantee ensures that the CMHC is on the hook for *all* of this if it occurs to a Canadian borrower.


Further, further, most of the mortgages are recourse which also lessen CMHC’s ultimate potential loss.

Squeezing money out of a bankrupt, or, heaven forbid, an immigrant who decides to ex-patriate from Canada back to their homeland, isn’t likely to be all that fruitful. Defaulting on a CMHC-insured subprime loan usually is associated with filing for personal bankruptcy in Canada. So pretty much a non-factor.

#86 Dr.NickRiviera on 07.18.14 at 12:39 am

Why don’t all the billionaires and central banks clear their vaults of the thousands of tonnes of worthless yellow rocks they keep in storage. Seems so silly to stash a barbarous relic behind several feet of reinforced concrete and steel.

They could use all those pretty shiny rocks to pave roads, build bridges, cars, anything, really. Fill those vaults up with stacks of precious paper money already!

;)

#87 Mark on 07.18.14 at 12:41 am

“Really? Comparing returns vs. MERs for the CPP, Ontario Teacher’s Pension Plan, OMERS, OPG’s Pension Plan, etc. etc. against the so-called “expert” private sector alternatives makes the private options look pretty shabby. Well, unless you consider higher expenses to be “more efficient” which, of course, a large portion of the private financial industry does.”

The argument was more of a macroeconomic one, in that, central planners typically do not do a very good job of distributing capital in an economy. A commenter on here once lamented that his business in Waterloo was paying CPP contributions for employees which were being shovelled into shares of RIM, while his company was starving for venture capital.

Yes, there can be some inefficient private sector investment schemes. High MER mutual funds, or merely trusting it all to the [email protected], or heaven forbid, into epically overvalued RE are often examples of such. But we shouldn’t adopt communism merely because of a few isolated examples of such.

#88 Yitzhak Rabin on 07.18.14 at 12:45 am

The “rules” are more like guidelines and will change as conditions/political winds change. Bail-ins may or may not happen some day if conditions get bad enough.

That isn’t what the focus should be on however. It is the trend of our finances that should be important. On an individual level households have never been more in debt. Provinces like Ontario, Quebec and Manitoba are growing their liabilities at an eye-popping pace.

The Federal government is reducing deficits slightly for now, but have piled on enourmous debt in the last 5 years. There is also a financial house of cards waiting if we have a massive housing correction and the Feds bail out the CMHC.

Public finances are worse in Europe, even worse in the United States and worse still in Japan. The debts incurred over the last 40 years will not be re-payable in dollars of equal value. There will be either outright defaults and a massive recession, or default through severe inflation.

If major economies were running large fiscal surpluses, paying off debt, and we had real interest rates higher than inflation it would make no sense to own gold.

Instead we have the opposite. Gold is insurance against the idiocy of politicians and central bankers.

#89 Son of Ponzi on 07.18.14 at 1:12 am

Shawn,
Your constant posts about Buffets is making me hungry.

#90 TurnerNation on 07.18.14 at 1:22 am

Since this blog mentioned it…let’s see, 100% of earth/space/sea has been weaponized for decades. In fact GPS is entirely provided by the US military.

Nothing goes ‘missing’ (777). And of the let’s say ~1000 flights active over Europe at any given time that same airline’s other flight gets ‘shot down’ apparently by people in sandals with small arms in the very country (Seinfeld ‘Urkraine is weak’ predictive programming quote) they are formenting WW3 on the very week anniversary of WW1?

Mmmkay. Better chance of lightening strike than dying in commercial airliner.
I’m calling total psyops. They’ve tricked us for weeks for dozens of countries saying they’ve found oil slick or whatever. Total World Cup. This time for real.
Well done, Pyramid.
Those who work with Unix know chmod 777 is more powerful than 666 command.

The clincher, CNN showing close up of wreakage with full colour Bali pamphlet. Right, that event which let to a moon-sized crater explosion in Bali a few years ago…again we are told it was local sandals with IED. All the king’s men…predictive programming.

On lighter note,
And here’s a clip of Smoking man in his boat with his new friends…wait till its end:

https://www.facebook.com/photo.php?v=739731189380472&fref=nf

#91 Vangrrl on 07.18.14 at 1:49 am

On the topic of dogs and cars- Porter the SPCA dog learns to drive:
http://m.youtube.com/watch?v=BWAK0J8Uhzk

#92 cynically on 07.18.14 at 2:18 am

# 39 Waterloo R. – If you really believe the crap you write you better start worrying because America is the only defence in N. America you have. Wake up to that fact and think nicely of your cousins.

#93 MEANWHILE IN FRANCE on 07.18.14 at 3:49 am

Well written post.

Keep calm and carry on.

#94 Tony on 07.18.14 at 4:35 am

Re: #2 Mark on 07.17.14 at 6:16 pm

Gold stocks fell over 30 percent when the stock market crashed October 19th 1987. This time it will much worst because gold will plunge with margin calls. Back on October the 19th 1987 gold was up sharply on the day.

#95 Londoner on 07.18.14 at 4:42 am

http://www.huffingtonpost.ca/2014/07/17/stephen-poloz-neutral-interest-rate-policy_n_5596788.html

“The new normal, as we see it, is probably one in which the interest rate … is probably going to be lower than what we thought in the past,” – Poloz

I said as much last month when Carney stated that the “new normal” for UK interest rates was 2.5%. Of course the response at the time was:

News flash: Canada is not Britain. I’m watching the Fed, not the BoE. — Garth

Watch as the Fed adopts a similar policy. The US may be calling the shots but the results will be the same all around.

Fixed rate mortgages are established in the bond market but bonds are still rate sensitive instruments.

There’s still a chance the BoC may drop the overnight rate. Keep watching the GDP and employment numbers. CPI can take a hike.

#96 saskatoon on 07.18.14 at 7:00 am

#86 Dr.NickRiviera

Many central banks have: including Canada`s.

#97 Nomad on 07.18.14 at 8:06 am

RateSpy.com tweeted this morning:

“In October the Bank of Canada will comment on the “new normal” for the overnight rate. Shouldn’t be more than ~150-200 bps higher than today”

1.5% to 2% is a big jump no? Don’t understand what this guess is based on. Anyone?

People who think rates will stay at current levels are naive. — Garth

#98 gmc on 07.18.14 at 8:40 am

What I don’t get about Garth is his hatred for the mining industry, Canada is the world leader for the mineral resource industry.
Seems like there are a lot of good Canadian mining seniors and juniors that would fit well in a TFSA.
China just announced the want to have 70 TERRAWATTS of solars panels in place by 2017, they currently have 8 terrawatts , that is huge, not enough silver out there right now. so forget for a moment, your wrng headed Keynesian economics, and think supply and demand, why not invest in silver for the industrial angle and not for the GOLD BUG angle, why are you so biast about precious metal, simply becuase it doesn’t fit YOUR BILL of the perfect economy.
The BRIC nations and other countries see a need to have the metals, # billion can’t be all wrong? why not, when are you going to finally admit you are wrong.
You were wrong about housing, cost me a ton of money i could have made if I would have just held on to my house for an extra 5 years, but no I believed you because you sounded so cock sure about yourself and the markets and I lost a great deal of coin, so when you bash the gold bugs, your arrogance is being laught at and many are left woundering how smart you really are.
Nobody knows the future , not even you, you are simply guessing and your predictions have been wrong, but I believe soon you will be right. Your timing sucks, and it cost me my house and my wife, still to this day she calls down to the lowest for ruining her life by not staying in the housing market.
I am not a gold bug, but I work in the industry and mining is in my blood and I am proud to be part of that industry.
so shut up about THE GOLD BUGS, yes they are wrong but what is wrong with buying underrvalued Good Canadian mining companies.
What is your point about bashing, you belittle yourself.
gmc

Actually I’ve hardly ever mentioned mining companies. Buying equity in them (or better, through an ETF) beats the heck out of rocks. BTW, my call on gold was 100% accurate. As for blaming me for losing your wife, she tells me this was definitely not the case. You have anger issues. She wants the dog. — Garth

#99 Londoner on 07.18.14 at 9:02 am

People who think rates will stay at current levels are naive. — Garth

You’re right, they may go lower. People of who think the overnight rate will jump significantly without corresponding economic activity are just as naive. At the moment there’s no definitive indication as to which way it will go. The central banks are using forward guidance to suggest that rate increases, when they come, will be gradual and lower then “normal” for an extended period.

Highly unlikely rates will drop. If they do, we are all in trouble. As for a return to ‘normal’, even a 2% increase will cause a lot of grief to over-leveraged fools. — Garth

#100 gmc needs a tissue on 07.18.14 at 9:51 am

#98 gmc

Really? You read a free blog, act on it and then say “it wasn’t my fault honey” When real estate does drop, will you call her to say “look honey, I was brilliant”. Coward.

#101 Adam on 07.18.14 at 9:58 am

#20 Josh Renning

If you’ve got more than $100,000 in cash sitting in a single personal savings account, you deserve to lose it. 1) Don’t be a moron and invest some of it or 2) How hard is it to open up another free account at your same institution and drop $50k in there?

#102 TorontoBull on 07.18.14 at 10:02 am

#98
I am not a Garth defender (he does a fine job at that), but you are gettting free advise on the internet…what were you expecting?! one needs to consult more than one source of info before making any decisions. Garth was wrong on housing, and is wrong on the interest rate thingy, but it is his opinion…

#103 villager iltalians are ignorant on 07.18.14 at 10:15 am

They do math counting on two hands. They still jar tomato sauce and make stinky cheese like 100 years ago in their garages. They are loud and annoying. They take advantage of you and your property. You would not want them in your neighbourhood never mind next door. They fight with their wife all the time, and therefore one spends all the time outdoors and the other indoors.
Good neighbours keep their noises to themselves.
That spells it: “Ignorantes”. Now put that to the real estate prospective.

#104 Dewflicker on 07.18.14 at 10:18 am

#99 Londoner. Poloz was on CBC radio last night musing about rates. Though he clearly is no Mark Carney and refused to be drawn, his view is that inflation is OVERSTATED and that the need to hike rates now is not a given. Indeed, he seemed entirely prepared to CUT (as the Riksbank has done in Sweden). You are right to watch Carney.

Much of the discussion revolved around the strength of the Loonie and its impact on central Canada’s manufacturing industries. As ever the fact that the west is creaming it in Alberta has the industrial types in Ontario and Quebec wondering how they can launch NEP Mk. 2 (Answer: elect Trudeau Mk 2) and ship it east.

#105 gladiator on 07.18.14 at 10:32 am

“People who think rates will stay at current levels are naive. — Garth”

That’s human nature, Garth. Short memory span and extrapolation of current conditions into the future.
That’s where booms and busts come from: if things are good, they are assumed to be good in the future; if things are bad, well, they are assumed to continue – hence opportunities for us dogs to snap up good value at discount prices (like REITs several months ago). If rates are low, they are expected to stay low and vice versa.
There is a nice song called “Blue Skies” written in 1926. It was closely associated with the stock market, whose main index (Dow Jones) rose from 150 in 1926 to 350 in 1929 to then crash to 50 in 1932. In 1926 people were singing “nothing but blue skies do I see” – that’s exactly what RE speculators/flippers/investors see now. The only difference is that the upside for RE is much smaller than it was for the Dow in 1926. Very unlikely that houses will go up by another 133%. Trees don’t grow to the moon…

#106 bdy sktrn on 07.18.14 at 10:32 am

#98 gmc on 07.18.14 at 8:40 am
————————————–
as much as i love reading all the ideas on this excellent blog , as per G’s advice i thought about cashing in on our paid off e.van house, but it always seemed risky.

my neighbour sold out 3 yrs back and was delighted to get just over 1m, he traded for a wfront mansion on van isl. the house is now worth 1.5m. lucky for him he had another one which he just sold for 1.53 (1.4m ask)

2 houses 3yrs, one million dollars gain. tax free.

and heres the kicker, china is just sticking it’s toe into the water. prices will double again in central vcr as china starts to make a real move for the prettiest gal at the dance.

#107 Kilby on 07.18.14 at 10:56 am

#24 Mark on 07.17.14 at 7:42 pm
“Until they adjust up their $100,000 CDIC deposit insurance limit, they are short almost 40% and call it what you want but that is what it is.”

Both of our credit unions in BC insure ALL deposits, no limit. Along with profit sharing I can’t see why anybody would use the big banks. We get 10% of interest earned as profit sharing every year, same applies for mortgages I am told

#108 Italians love real estate on 07.18.14 at 11:02 am

GMC at # 98

An Italian wife would have NEVER and I repeat NEVER would have allowed you to sell your house short !!

#109 Italians love real estate on 07.18.14 at 11:04 am

GMC at # 98

An Italian wife would have NEVER and I repeat NEVER would have allowed you to sell your house short !!

She would have allowed you to buy a second one however , to rent out .

#110 Nomad on 07.18.14 at 11:10 am

#99 Londoner and “People who think rates will stay at current levels are naive”

What I found surprising about the RatesSpy tweet wasn’t really that the overnight rate would be going up by that much, but more that it would happen in October. Poloz has been saying growth is weak, so what makes RatesSpy think the Bank of Canada would increase the overnight rate by a whole 1.5% in 2.5 months?

I suppose I shouldn’t care much about what RatesSpy says. It’s not like it’s a recognized source of information and opinions :]

#111 yann on 07.18.14 at 11:13 am

A new and excellent article by Ambrose Evans-Pritchard at the UK’s Daily Telegraph :

Fed kicks off global dollar squeeze as Janet Yellen turns hawkish

A vast wash of dollars flooded the global financial system when the Fed cut rates near zero and then bought $3.5 trillion of bonds. This may now go into reverse.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10972348/Fed-kicks-off-global-dollar-squeeze-as-Janet-Yellen-turns-hawkish.html

#112 Italians love real estate's wife on 07.18.14 at 11:34 am

#98 GMC

You stupido !

Why you sell a the house ???

#113 fred on 07.18.14 at 11:39 am

There will always be people who seem to almost wish for armegaddon so they can justify the bunker they have buried in their back yard fully stocked with cheetos and sat tv and enough ammo to kill and army of gophers.

I would keep an eye on negative news about the Portugese and Spanish banks though. Two countries that a lot of people think could be the next greece. Those are the sorts of things that will cause a corretion in the markets and they are overdue for one. Nothing that will be the end of the world though.

#114 Italians love real estate on 07.18.14 at 11:46 am

CICI , CICI where are you and your calls to censor # 103 villager Italians ???

Anyhow, I am going to find out who his Italian landlord is and have him evicted from his place

#115 gmc on 07.18.14 at 12:08 pm

Just ranting a bit , I am happily working overseas as a n expat and have gained some valuable life lessons, the wife got rid of the dog then i left looking.
By the way things are looking up,married a young Thai lady , used “best age for man”rule, awesome foods, cheap,and every nationality.
Condos cheap, not by the ocean but 35 grand for a modern unit.
Plastic surgery world class, 1/10 of the cost, Medical and health care are barr none, best, cheap, root canal and cap $239 cdn.
and best of all, summer all the time, festivals every month, land of the smiles.
beat that Vancouver.

#116 Brutus on 07.18.14 at 12:16 pm

Obama talking now, delivering his ultimatum to Putin, stop supporting the separatists or face economic warfare.

I think this will spiral out of his control quickly. Russians are too willing to take chances, extend the conflict to other border countries. The economic sanctions will seriously hurt Europe, and put a major monkey wrench into the global economy.

Get liquid everyone. A bit of most investment classes would be wise, some more pm and get out of re quickly.

Yesterday was a great one to own bonds. — Garth

#117 Son of Ponzi on 07.18.14 at 12:21 pm

Thanks Garth for this public message:
Never leave your dogs in your car on a hot summer day!

#118 High Plains Drifter on 07.18.14 at 12:35 pm

Julius Caesar is my favorite play as it explains best, the life of the freethinker in the land of the power seeking corporation. Brutus states our lives will be spent manoeuvring the footfalls of the mighty not ever knowing safety. check. It all comes right when in the soliloquy, “There is a tide in the affairs of men, when taken at the full, results in good fortune, if left, life is played out in the shallows…..”. The worlds wealthy may be looking to take the last stagecoach out of Dodge. Is a condo in beautiful Toronto a good hideout? I believe Dutch Royalty spent some quality time in Toronto in the 1940’s. Garth Turner’s writing is not directly comparable to Shakespeare but is a fractal, a bit like our present system is to democracy. Then again, we are not sure if Shakespeare was not ghost written. I fail English, each night,again and again.

#119 Mark on 07.18.14 at 1:52 pm

“An Italian wife would have NEVER and I repeat NEVER would have allowed you to sell your house short !!”

Wow, are you ever obnoxious. I know plenty of very well educated and intelligent Italian “wives” who are smart enough to see that there’s no money to be made in an asset class that is extremely over-owned in Canadians and requires you to be almost perpetually in the hock to a bank.

So please, stop your ethnic slurs against Italians and their business sense (or rather, alleged lack thereof). Makes you look incredibly ignorant.

#120 Italians love real estate on 07.18.14 at 2:11 pm

#119 mark

I think you targeted wrong poster (me). I am pretty sure that was meant for #103 villager…

Anyhow I think Italians are very savvy FOR buying RE and for NOT selling.

I think you need to read my posts again!

#121 Victor on 07.18.14 at 2:29 pm

The whole financial market nowadays is a huge ponzi scheme without producing any real products that is meningful for human race. But life is short, most of us don’t care, all we care is short term.

You don’t know what ‘ponzi’ means, do you? — Garth

#122 miketheengineer on 07.18.14 at 2:42 pm

My old man once told me….

You gotta da house, you gotta someding! If you no gotta da house you gotta noding! At da end…you gotta noding!

He always felt owning was better than renting, if you can, and the general feeling among all Italians…you gotta own da someding! Eh stupido! Casa bella, no casa brutta! Capechie!

It was beat into you from when you were small, till the day you got married.

All the other comments about Italians are completely valid…and made me laugh all afternoon….thanks for the comments. Sorry about the spelling…it would loose something in the translation.

#123 Sheane Wallace on 07.18.14 at 3:21 pm

#82JimH

Agree with almost everything except gold. If it goes to 700-800 I would go all in (OK, 50 %,…) on mining stocks (currently at 5 %).

There are 4 things that matter and you likely will pass to the next generation:
1. Real estate that is paid for, bought at reasonable price (not the credit driven derivative we have today).
2. Stocks in productive companies, diversified internationally.
3. Farmland
4. Gold and art

Nothing else matters in long run.

Gold might surprise you as it is way under-owned currently, Gold used to be 10 % of all capital and investments, now is 1 %.
How can something be in a bubble if nobody owns it (except central banks)?
Some food for thought.

#124 young & foolish on 07.18.14 at 3:25 pm

“For the foreseeable future, savers are schmucks.”

You’ll be sorry when rates move up. Savers are people with money to deploy.

#125 Mark on 07.18.14 at 3:29 pm

“Anyhow I think Italians are very savvy FOR buying RE and for NOT selling.

I think you need to read my posts again!

Buying assets that are going down in price and are priced within earshot of historic highs is savvy, especially over the past year?

#126 Mark on 07.18.14 at 3:36 pm

“Both of our credit unions in BC insure ALL deposits, no limit. ”

So does literally every bank on the planet. But what value is the guarantee of a bank itself, rather than an external guarantor. Preferably one with access to the resources of the issuer of the currency?

In other words, is the credit union “guarantee” really worth the paper its printed on?

Based on what I’ve personally seen of the credit unions I’m familiar with, it is fairly clear that they are somewhat less diversified, and somewhat more concentrated into the sort of lending that is vulnerable in a RE downturn. Long after the CMHC tightened its rules for no-money-down loans, the local credit union was still advertising no-money-down deals. Small business, especially in the business of RE supply, is disproportionately financed by the credit union. The higher interest rates they are forced to pay is an artifact of reduced access to the capital markets.

#127 Son of Ponzi on 07.18.14 at 3:57 pm

Want to get around the limit of $50,000 in international transfers from China:
Use your AMEX credit card.
http://www.bloomberg.com/news/2014-07-18/chinese-gets-422-million-amex-points-with-36-million-cup.html
——————-
I think realtors in Vancouver will soon accepting credit cards.
Don’t buy your Point Grey mansion without it.

#128 Calgarian on 07.18.14 at 3:59 pm

Interesting post today Garth. I thought it was usually you who scares this crowd with doomsday scenarios. I remember few months back “Quebec may elect separatists and leave” prediction you had. Anyway, today’s post should show to this crowd – which is waiting for the hell to break lose for 6 years, that things more often than not, are not that bad.

I did not predict Quebec would separate, but pointed out a financial risk. — Garth

#129 Italians love real estate on 07.18.14 at 4:07 pm

#122 mike the engineer

Yup you capechie !

Ima glad you Like a da light hearted humour.

Some people to up tight Ina da culo !

#130 Josh Renning on 07.18.14 at 4:37 pm

To Mark #24

They already have such a investment product called bank shares, preferred shares etc.

They can use that money to lend for mortgages, credit lines, car loans, credit card debt etc.

If deposits are not be be CDIC insured than get rid of them completely.

You can’t have a deposit called a GIC and then not guarantee it!

#131 Josh Renning on 07.18.14 at 4:56 pm

To Mark #24

Oh, wait, they already did this with clients deposits in bank accounts in Cyprus.

They transferred deposits above 100,000 euros of which 40% or more were turned into bank equity or bank shares.

See how confidence in their banks worked out for them. It is not great at all.

Good thing this isn’t Cyprus. — Garth

#132 pinstripe on 07.18.14 at 5:21 pm

When I step out for a coffee with the seniors at the local coffee shop, the discussion shifts to farm and house prices in the area. The activity in the Alberta Heartland Industrial is in full swing. Workers from out of province are camped in their RVs anywhere they can park. Everything is booked solid. People are buying houses and farm land like there is no tomarrow. Many times I mentioned to these seniors about this blog and the predictions. Everytime I am told that what I read is Full of Sh.t.

#133 van guy on 07.18.14 at 5:40 pm

Garth/Smoking man:

update on shorting US markets. Euphoric market guys, got out with some small gains on Index shorts and some VIX popping. Its not ready to roll, euphoric as Vancouver real estate which doesnt want to roll yet either. Crazy markets I tell ya

#134 Mark on 07.18.14 at 5:57 pm

“Oh, wait, they already did this with clients deposits in bank accounts in Cyprus.
They transferred deposits above 100,000 euros of which 40% or more were turned into bank equity or bank shares.
See how confidence in their banks worked out for them. It is not great at all.

So the senior creditors to the bank, whom earned far more than they really should have for many years prior in interest, got valuable equity in a recapitalized bank. Big deal. Shareholders were wiped out. This is how its supposed to work.

Many Canadian companies, including Air Canada, Viterra/Saskatchewan Wheat Pool, amongst others, have been the subject of “bail-ins”. Emerging to relative success after restructuring, creating significant value for the holders of the new equity. Don’t see why there’s any fear of such with Canada’s banks, even if a bail-in did happen.

#135 Mark on 07.18.14 at 5:59 pm

“You can’t have a deposit called a GIC and then not guarantee it!”

The ‘guarantee’ is that of the bank. But the only truthful guarantee in a GIC is that you will lose money after taxes and inflation over the long term.

#136 Mark on 07.18.14 at 6:11 pm

““For the foreseeable future, savers are schmucks.”

Savers have done just fine, especially if they invested in bonds. There has been no equity risk premium over the past 30 years. Bonds have actually outperformed stocks. Low interest rates have enriched seniors and the saving class beyond their wildest dreams.

I believe the next 30 years is going to belong to risk takers, investors, rather than the mere ‘savers’ though. 30 years of a non-existent equity risk premium will give way to the next 30 years of an abnormally large equity risk premium. Position yourself accordingly!

#137 Mark on 07.18.14 at 6:15 pm

“He always felt owning was better than renting, if you can, and the general feeling among all Italians…you gotta own da someding! Eh stupido! Casa bella, no casa brutta! Capechie!

It was beat into you from when you were small, till the day you got married.

You do realize that its actually very, very common for Italians to wait till they’re well into their 30s to get married and even move out, right?

This bears no resemblance to what we see today, where the ink is barely even dry on a job offer and new grad diploma before the youngsters buy a house with a minimal down payment loaned from the family.

#138 SHELTER THE MONEY NOT THE PEOPLE on 07.19.14 at 2:05 am

#71 WhiteKat on 07.17.14 at 11:06 pm

I have the deepest sympathy for Americans under this tyrannical pressure.
As a Canadian with no ties to the USA I have stood in awe at the great things that come from the US and all its accomplishments, but now I fear the Government there.

Not that I have anything to really fear, at this time I am feeling the encroachment on our sovereignty and the sense of helplessness that comes when a strong neighbor flexes their muscles and commands an extraordinary hegemony over the world.

If we allow our weak government to capitulate to every demand financial and otherwise we will find ourselves ever so incrementally becoming a part of the USA. Perhaps even the 51st state.

We enjoy lots of co-operation over the border with two parties engaging in unfettered commerce. But it seems now the co-operation part is ending and the arm twisting and back room dealing is taking over.

I would be for Canada actively seeking strong ties with other blocs like the BRICS. Perhaps as a sort of bargaining position with our Southern neighbor. It seems they are acutely sensitive to other financial blocs.

Many pundits have noted that Saddam brought on the Iraq war mostly by attempting to sell oil in Euros and not the US Dollar. It was thought that that was the “Line in the Sand” for the US. They may have thought that a war would let other nations think twice before losing the dollar. Conspiracy theory or not, it would make some real sense for the US to do anything it can to keep the Dollar as the world currency.

It looks like it is only a matter of time before it wont be anyway.

#139 Slvrizgold on 07.20.14 at 3:21 pm

You sure do hate gold Garth. It’s ironic I found this site/article at 321gold.com! That’s ok, the fact the vast majority of people prefer unbacked plantation scrip from Massa’ means I will have a better REAL gain when the TRUTH is revealed for all to see. BTW, I have it on the highest authority your Loonie will decline vs the “dollah.” And the “dollah” will continue declining against REAL MONEY!

Who says I hate gold? It’s just a lousy investment. — Garth

#140 Josh Renning on 07.20.14 at 7:17 pm

To Mark #135

Tell your banks that you probably work for to issue only preferred shares and common shares and no more GIC’s.

This way they can do whatever they want with peoples money.

Like in the U.S. Bank of America, Citi etc. 50% and more dropped in value after 7 years.

#141 Josh Renning on 07.20.14 at 7:22 pm

Good thing we are not Zimbabwe, Argentina, Bolivia, Venezuela where banks shares, stocks etc. would all be worthless as well due to massive inflation.

Getting off topic is a skill that anyone can have in answering posts.

Hyperinflation is a brain condition acquired from licking gold. — Garth

#142 Josh Renning on 07.20.14 at 9:32 pm

I just made my point.