The robust bust

STICK modified

“Why,” asks Dave, in a pointed email to me, “don’t you issue your own press releases? Seriously – then the Financial Post could recycle them.”

He was flamed by a late-Friday story about a triumphant Canadian real estate market. The immediate catalyst was the latest Teranet Composite House Price Index, a wobbly thing which tries to ape the authoritative S&P Case-Shiller index in the US. Said the news:

“Canadian home prices rose in August and the pace of 12-month home price appreciation accelerated, suggesting robust demand for housing is carrying through to the second half of the year. National home prices rose 0.8% last month, exceeding the historical average for August. Prices were up 5.0% from a year earlier, a pickup from July’s 4.9% price gain. August was the ninth month in a row in which the composite index did not fall. The price increases, on top of robust housing starts data in the spring and summer, have surprised economists who have been calling for a slowdown in Canada’s long housing boom.”

Wow. And that’s just the start. Dig this from the Globe:

“Toronto’s sizzling summer real estate market appears set to remain hot right through the fall. Low mortgage rates fuelled property sales in cities across Canada, with Toronto, Vancouver and Calgary seeing the most action, he says. Prof. John Andrew, who is the director of the executive seminars on corporate and investment real estate at Queen’s, predicts September and October will bring more of the same. “I don’t think we’re going to see a significant downturn in sales until we see an uptick in mortgage rates.”

Imagine that. A university professor in charge of real estate seminars. Now we know where all those horny college kids are getting turned on to granite slabs and bamboo floors, desperate to leap from the dorm into a mortgage.

But how could these stories about “robust demand,” “surprised economists” and “sizzling summer real estate” be so at odds with The Gospel as it appears on this pathetic blog? Who, exactly, is zooming you?

It’s a valid question since Canadians continue to get into real estate debt at one helluva clip. Mortgages swelled in the second quarter at the fastest pace in almost a year, while overall indebtedness is now growing again after several months of decline. Economists say they’re concerned but not freaked, since overall net worth is also on the rise. But wait. All that wealth increase has come from a single source – real estate values – as incomes and savings are in the swamp.

In other words, we owe more because we’ve gambled big on one asset. But it’s okay. The paper said so. And it’s, like, full of experts. Who give seminars.

The key is to know where a market’s going, not where it’s been. The average prices real estate boards report are notoriously unreliable leading indicators. In the United States, sales and demand started to fall apart in 2005, but prices kept rising into 2008 – when the wheels came off. In Canada, vast swaths of the country are currently real estate wastelands, with stagnant or declining sales and badly segmenting markets. Two days ago I gave you an indication of that growing weakness, from the second-largest urban area (Montreal) to one of the richest (Oakville).

More significantly, this dark, morose and devoid-of-all-hope blog has also been shoveling stats that should scare everybody. Tumbling job growth in Canada. One of three citizens screwed if their pay’s a week late. Subterranean Millennials. Mortgaged retirees. Half of us spending every nickel we make, saving ziltch. How can real estate “sizzle” and be “robust” when average personal finances are such a mess?

Debt, of course. People borrow what they don’t have, then count on house appreciation to wipe away the blot. It’s exactly the path that led to a real estate crash which ate the American middle class. This is why media reports (and professors) which use only one data point- average prices – are bunk. But it’s consistent with the carelessness of the modern press. No wonder it’s almost over.

Meanwhile, have you absorbed the latest interest rate news? Look at the 5-year Government of Canada bond yield:

BOND YIELD modified

Sentiment is certainly growing that American interest rates will start to rise in early 2015, as the economy there continues to expand – the latest positive news being a surge in retail sales. The Fed’s expected to pull the trigger during the winter, setting in motion a gradual rate rise that could be years long. Whether the Bank of Canada follows soon or not is irrelevant, because the bond market will. In fact, already is. The anticipation of higher rates (as you cans see above) begets higher rates. Remember it’s the bond guys that set fixed mortgage costs.

I’d tell you this is a great time to sell your house. If, in most places, it weren’t too late.

203 comments ↓

#1 Randy on 09.12.14 at 6:11 pm

Cheap money doesn’t make us all equal !

#2 jas on 09.12.14 at 6:12 pm

Great article!

#3 Alan Teasdale on 09.12.14 at 6:19 pm

Canadian homeowners are stupid.

#4 smartalox on 09.12.14 at 6:20 pm

Remind me again: if mortgage rates are set by the bond markets, what happens to Canada 5 year bond yields when the Loonie drops against the USD?

What were mortgage rates like the last time the loonie was at $0.90? At $0.85?

#5 LTL_FTC on 09.12.14 at 6:23 pm

Even Benjamin Tal isn’t so perky any more.

http://research.cibcwm.com/economic_public/download/if_2014-0908.pdf

#6 OttawaguyRenting Worried but not too worried still a worrier but look on the brightside on 09.12.14 at 6:24 pm

Prof. John Andrew, who is the director of the executive seminars on corporate and investment real estate at Queen’s
_________________________________________
more like..
Prof. John Andrew, who is the ASSISTANT TO THE director of the executive seminars on corporate and investment real estate at Queen’s

which if this is how we are going to roll now..

I am Prof._____ ______ Director of the Executive Pub Nights on Elgin Street and Drunk Provisional Poutine Eating Diner Milk Shake to Help Sobering thoughts of Walking Home

http://news.nationalpost.com/2012/09/22/rental-condos-a-trend-for-the-brave-of-heart/

Captain Host to the Agents and Lifestyles of the Condo People and their losing cash flow can be found here
http://www.queensu.ca/escire/the-director.htm

#7 Craig on 09.12.14 at 6:27 pm

Isn’t it funny how the stats that come out say one in every three can’t miss a pay check but yet everyone needs to drive a new car, renovate the whole house or go on a lavish vacation every year. We are in deep trouble in this country, the grass has been green but if last winter was any indicAtion on how bad this upcoming might be , heads up.. The worst is yet to come.

#8 chopper on 09.12.14 at 6:28 pm

A good time to sell your house here and rent, then buy a house in the USA

#9 sockeyemoon on 09.12.14 at 6:28 pm

These franken-numbers are getting on my nerves. When is the truth gonna be set free?

In the globe business section they had an article about a twenty something with 225K who wanted to know how to invest it. They advised consider buying a house or be priced out forever. Really?

Further down in the same day they print an article about how crappy Gen Y is doing and how this will be everyone’s problem soon. http://m.theglobeandmail.com/globe-investor/personal-finance/household-finances/gen-ys-financial-woes-are-now-everyones-problem/article20482243/

The right hand knows not what the left hand is doing…

#10 totalinvestor.com on 09.12.14 at 6:29 pm

The Canadian $ is at .9000 and the US TBonds just fell over a full point today. HA!

#11 Mark on 09.12.14 at 6:30 pm

A lot of delusion out there, that’s for sure. Saw the same in California 2006-2008. Prices were clearly melting away, but that didn’t stop the Realtor types from being awfully ‘selective’ about the “stats” that they published. And in some cases, outright lying about them.

I know the Realtor types are in denial over the changing sales mix in Canada publicly, but their behaviour makes it obvious that they are very worried. Lots of Realtors are also in denial over how the CMHC operates with the $900B of subprime mortgage insurance they’ve written underpinning the market. The louder the protests by the Realtors, the more that we, as the public, should understand that the pricing environment is deteriorating.

#12 CPG on 09.12.14 at 6:30 pm

Over the years it sure has taken, and is still currently taking, a lot of debt accumulation by Canadian Governments (Federal, Provincial, and Municipal), businesses, and households to keep our way of life in this country going.

The link at the end of my post is to a credit market summary data table which is updated 4 times every year by Statistics Canada, most recently this morning. The bottom line of this data table gives the total debt outstanding in Canada. The total debt outstanding in Canada as of the end of June, 2014 was $5.64 Trillion.

http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=3780122

#13 Catalyst on 09.12.14 at 6:32 pm

One thing I’ve heard alot of is, “I couldn’t afford to buy my own house” followed by a lecture of why I am wasting my money paying rent.

It’s tough to feel enlightened and listen to fools with a forced smile, but perhaps they view me the same way? Time will tell who the fool was.

#14 Mark on 09.12.14 at 6:32 pm

“Remind me again: if mortgage rates are set by the bond markets, what happens to Canada 5 year bond yields when the Loonie drops against the USD? “

A weakening currency typically demands a higher interest rate to compensate. So if the Federal Reserve is set to raise rates, the USD$ should weaken and continue to weaken.

Personally I wouldn’t take any ‘threats’ of rate hikes in the US seriously, and Canada probably has a good 5-7 years (or more) years of housing deflation before meaningful increases to policy rates will occur. Next BoC move, IMHO, will be a cut. Fed will be back at QE sooner or later as well, joined by the BoC.

#15 I'm All Right Jack ! on 09.12.14 at 6:40 pm

Will 74 K in CPP, OAS and DB annually be enough to keep a 65 year old away from dog food ? Am I All Right, Jack ?

#16 GeorgeKall on 09.12.14 at 6:40 pm

Garth, you always mention the US housing prices before the 2008 decline. I think you should also mention the Japanese real estate debacle in the 1990s. Prices in Japan have still not recovered.

#17 Retired Boomer - WI on 09.12.14 at 6:45 pm

Heard the 18 year old daughter of a friend decided to buy a “better car.”
This young whiz buys a used 2013 Mazda signs a 78 month note because “that was the payment she could afford.”
No discussion with her parents, no discussion over rates, the impact on insurance – as her old car had liability only on it, but the new “mortgaged vehicle” will need full coverage.
Impulse buy? Dealer abuse of the new buyer? Blonde syndrome? (the young lady is a blonde). Should we expect the parents to “bail out” the idiot purchase? NO way the parents claim. When asked WHY the young lady says, “I wanted a nice car.” Well, now you have one, enjoy it, and remember the COST.

#18 The Ugly bubble.... on 09.12.14 at 6:49 pm

https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=10&cad=rja&uact=8&ved=0CGgQFjAJ&url=http%3A%2F%2Fwww.safehaven.com%2Farticle%2F25643%2Fthe-pundits-like-garth-turner-say-canadian-real-estate-is-a-bubble-about-to-burst&ei=ZncTVMO9Ho26ogS8hoH4Bg&usg=AFQjCNHi0O2tadOdcaRzaCDrdzT8asYFqQ&sig2=1kZ2BKRoogvO7Chn5BWSJw

#19 AWiseFool on 09.12.14 at 6:52 pm

Been following this blog for a while. I’m unfortunate enough to live in TO so hearing this gives me a bit of a stiffy as I’m waiting for rates to rise to snag a cheaper place for myself. I was close to becoming one of fools to buy a pre-construction house but you’ve taught me the error of my ways.

#20 Cato the Elder on 09.12.14 at 6:52 pm

None of this matters. The BoC will continue to keep interest rates down because it benefits their banker friends. They don’t care about how badly inflation affects price increases for average people. They substitute all kinds of lesser quality goods (ground beef instead of steak, etc.) when they formulate the CPI. They do that in order to keep the CPI figures LOW. It’s a deliberate con. Don’t put any faith in politicians to do the right thing – they won’t.

Just look at the bailouts during the financial crisis. How many of us were gullible enough to believe our politicians would stick to free market principles and let those who were irresponsible suffer and fail while those who were smart, diligent savers would prosper.

Don’t let yourself become susceptible to wishful thinking. They aren’t going to raise interest rates because it means:
1. Banker buddies get punished
2. Phony businesses built on cheap credit will collapse
3. Higher interest payments on National Debt
All of these are politically IMPOSSIBLE to address. It isn’t going to happen. Plan accordingly.

#21 Son of Ponzi on 09.12.14 at 6:53 pm

Prof. John Andrew meet Prof. Tsur Summerville.

#22 Smoking Man on 09.12.14 at 6:53 pm

As I’ve told you before the West and Russia are in a game of chicken, two cars on a head on collision , as the cars get closer, oil will spike, CAD will grow a set, and Bonds will be sexy again….

On a positive note for basement dwellers, I see the start of a hockey stick on the Toronto market..

But the machine loves harpo, and the MSM it controls will keep the sunshine blowing..

Guaranteed…

#23 Happy Renting on 09.12.14 at 7:08 pm

#175 Mixed Bag on 09.12.14 at 1:15 pm
For Ayn Rand Army and others interested:

Ayn Rand’s life, summarized in a web comic:

http://activatecomix.com/162-1-1.comic

I don’t know enough to pick sides, posting for your enjoyment.

Thank you for sharing! Also don’t know enough to criticize or praise, but I enjoyed the read.

#24 X on 09.12.14 at 7:11 pm

Good news for the economy when rates start heading up…..hopefully it will bring RE to reality, and many people will realize that they need to save some $, not just buy bigger houses.

#25 Kaganovich on 09.12.14 at 7:14 pm

The banks are set to make more money if interest rates rise than if they stay low. Assuming, of course, the Canadian taxpayers pony up to make good on the lending insurance issued by the CMHC.

Higher rates narrow spreads, and banks make less. — Garth

#26 smartalox on 09.12.14 at 7:18 pm

Okay, no correlation with exchange rates and 5-yr bond yields. On the other hand, a quick Google search yielded a bonanza of historical data at the bank of Canada:

http://www.bankofcanada.ca/rates/interest-rates/selected-historical-interest-rates/

5-year bond yields are at historical lows, that’s for sure. The next-lowest yield was in early 2009, when 5-year bond yields were 2.03%, and 5-year mortgage rates were at 5.78%.

Looks like it will be a while yet before we see 5-year rates over 5%. No matter; looks like lots of properties will soon be selling cheap on Vancouver’s West side. I suspect that two to three unit trains of diluted bitumen (or American coal) should do it…

http://www.cbc.ca/news/canada/british-columbia/arbutus-corridor-cp-to-resume-work-on-rail-line-1.2765044

#27 HAM - TO DEATH DO US PART on 09.12.14 at 7:18 pm

Chinese Buyers Fuelling Seismic Spike In Vancouver

Another tired anti-Chinese story. Posted already. — Garth

#28 Ray Skunk on 09.12.14 at 7:19 pm

You know TS is about to HTF when your Realtor (C) (R) (TM) (All Rights Reserved) from three years ago who hasn’t uttered a word since he cashed the commission cheque from the sale of my old place suddenly emails out of the blue.

“Hello Skunky! Long time no speak. Would you like some free tix to the home show? Loadsa granite. PS home sales are great – it’s a great time to buy, you thinking of looking?”

Meanwhile, over at the home of the MIL this week, my landlord (also a Realtor) starts poking (not literally, don’t think he’s that way inclined)…

“You know, Ray and Mrs. Skunk’s lease is nearly up… they should perhaps consider buying. It’s a great time to start looking… I could cut them a deal on the commish…”

I smell desperation.

#29 Daisy Mae on 09.12.14 at 7:36 pm

#3 Alan Teasdale: “Canadian homeowners are stupid.”

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

Well, they ARE gullible. And, they believe what they want to believe.

#30 devore on 09.12.14 at 7:38 pm

#104 Vicpaul

I had 23 six year-olds …x $40 = $ 920/ day x 22 teaching days per month = $20,240/ month x 10 months
( remember, I need my two months off, right Slue) …….
$202,400 per annum…… F¥€£ ya! Free enterprise…..show me the money!

Sure! Free enterprise! Just go start your own private school, if it’s so easy. Out of that $200k you get to provide proper facilities, support staff, admin and logistics, materials, supplies, activities, liability insurance, certification, utilities, oh yeah, and your own pension and benefits.

So much for that free enterprise of yours, eh? Stick to teaching.

#31 Mark on 09.12.14 at 7:51 pm

“Higher rates narrow spreads, and banks make less.”

Not really. Spreads have been relentlessly compressed by the low rate environment. The higher rate environment is not only positive for spreads, but also improves the return on unleveraged funds as well.

Additionally, a significant amount of the banking system is funded by money that, even in a higher rate environment, banks would pay little to no interest on. The low rate environment minimizes this advantage.

As the other poster points out, as long as CMHC guarantees the nominal value of subprime mortgages under its insurance, there are almost no negative consequences to a rising rate environment as far as the banks are concerned.

Now, the US banking system is probably toast in a higher rate environment, but that’s because the US banking systems’ asset side of the balance sheet tends to be long-term in nature. Contrasted with the Canadian banking system which generally runs duration matched with no meaningful duration mismatch between liabilities and assets.

#32 Matt on 09.12.14 at 7:51 pm

Teranet data is lagged about two months compared to MLS house price index. Look for an MLS decline in house price index when it is reported next week.

#33 Suede on 09.12.14 at 7:55 pm

The attached market in Vancouver is a dead duck. It’s just not being reported.

I can tell you from my listing and two others that have no action

If prices are hot as these experts say, send the buyers my way and I’ll give you a finders fee

#34 Cato the elder on 09.12.14 at 7:56 pm

A house should not increase in price if nothing has been done to increase it’s value. One must then ask, why is it happening? The central bank is INCREASING the money supply, diluting it’s value, and destroying it’s purchasing power. Anything that is denominated in dollars will see it’s price increase. However, price any asset in gold or silver and you will see it’s value remains virtually fixed over time. Gold and silver ARE money, not investments.

When I can buy gas and scotch with it, gold’s money. Until then it’s a rock. — Garth

#35 Cato the elder on 09.12.14 at 8:00 pm

Garth, you should know that the government has LEGAL TENDER laws that will put you in jail if you pay with gold or silver for anything. If they have to jail you to stop you from using it, then it can’t be argued that people are making free choices.

Gold and silver coins from thousands of years ago can be dug up and they still have value, even if they are melted down. Thousands of years from today, will Canadian paper bills still have value?

Who cares? — Garth

#36 Mark on 09.12.14 at 8:01 pm

“Teranet data is lagged about two months compared to MLS house price index. Look for an MLS decline in house price index when it is reported next week.”

That may very well be true, but the Teranet methodology causes a lag far greater than actual changes in prices.

Why? Because Teranet goes back a number of years and extrapolates price changes evenly and linearly over two individual sample dates.

Let’s say you have a sale on 01/01/2010 for $400k. And the same house trades hands on 01/01/2014 for $500k.

Teranet’s calculation tells us that the house went up roughly $25k/year, or ~6.25%.

In actual fact, the house may have gone up 20% in 2010, 10% in 2011, 5% in 2012, and gone down 10% in 2014.

Its a decent attempt to correct for the problem of a non-homogenous asset class, but one has to keep in mind that Teranet is, at best, a lagging indicator of house prices. If Teranet is already showing prices going down, that means, as I’ve insisted based on my own analysis of the data, that the price declines have been occurring for far longer than just the past few months. But rather have actually been occurring over the past year or two or longer.

#37 Ben on 09.12.14 at 8:02 pm

Garth – I smell the fear. Still nutjobs listing insane prices in Montreal but inventory is building up. Now they are lined up like dominoes we just need a US rate rise to start the sequence…

ps UK also in dire straights if our haggis loving friends show the other cheek (easily done in a kilt).

#38 Blacksheep on 09.12.14 at 8:03 pm

Screwed # 212,

“If money out of thin air was to disappear back into thin air”
————————————————
I responded to your comment in relation to loans (mortgages or personal) shown below.
————————————————
Screwed # 171,

“That’s right. The banks produce the “money” behind the loans out of thin air.”
————————————————
See link: http://www.fractionalreserves.com/why.htm

They explain it a little differently, but I think the outcomes the same, regards.

#39 Retired Boomer - WI on 09.12.14 at 8:05 pm

My post tonight at #17.

The 18 year old high school graduate, employed full time in a local grocery store buys her 1st “newer” car.

If this is the face of the Millennial’s fiscal acumen, they deserve to get hosed by the rapacious marketplace.

Buying by terms because it is “what they can afford” rather than delaying the purchase til they were more ready indeed to make a smart buy.

Yes, Boomers too were stupid at that tender age, but stupidity CAN be cured. The question as always, is WHEN.

Is RE different? Only in the size of the transaction, the bad buy theme rings at all levels.

#40 Cato the elder on 09.12.14 at 8:08 pm

Anyways, the Austrian (economists) were right about everything, and the whole system is playing out exactly as they predicted decades ago. All that is needed now is the final collapse (which will come) of the USD reserve system. Sooner or later, all paper currencies return to their intrinsic value: nothing.

Already, China, Russia and India are building up massive reserves of gold to position themselves as the next economic heavyweights. Our idiot politicians decided to sell ALL of ours off at incredibly low prices. If and when China decides to announce to the world the true amount of gold reserves they have accumulated secretly, there will be a massive uptick in it’s price. Almost overnight, the largest transfer of wealth in human history will pass from West to East when their currency reevaluates, where it has resided for most of human history.

All because we let economic illiterates destroy our once great industrial nation. And to think, we had such a huge head start – but we gave it all away by abandoning true free market capitalism. Shame.

#41 Tiggertoo on 09.12.14 at 8:08 pm

If the bonds are starting to move –

Is it better to break the last 6 months of a mortgage to renew now at these rates – or wait till mid next year for renewal ?

#42 Spectacle on 09.12.14 at 8:10 pm

Thanks Garth. Methinks there be a scotch or single malt prior to this evenings posting. LOVE The Attitude!

Great post!
*****************
#21 Son of Ponzi on 09.12.14 at 6:53 pm
Prof. John Andrew meet Prof. Tsur Summerville.
************
Very funny, love the humour, could even envision the throw down! My money on Tsur!
**********
Gotta get dinner ready, back shortly folks.
Ps fouled by Proseco.
Regards, M

#43 Cato the elder on 09.12.14 at 8:13 pm

Re: Who cares? — Garth

Anyone who is a retiree and wants to preserve the purchasing power of their savings.

It amazes me that the baby boom generation, which grew up with silver quarters and dollars and 10 cent sodas, could be so ignorant about gold and silver and it’s intrinsic properties.

People deserve the government they get. I just wish I didn’t have to participate with them. The CPP is a legal ponzi scheme and there’s not going to be anything in it for me to collect (I’m young). Ignorance is bliss I suppose.

#44 Waterloo Resident on 09.12.14 at 8:24 pm

Personally I’m staying out of housing because I don’t live in the Toronto area, but from what I can see, the people who live in TORONTO are so far removed from reality that even if a meter struck the Earth and killed everyone on Earth, house prices in the T.O. would continue to rise year after year, even after everyone was dead. It’s just nuts but that’s how things seem to be going on in Toronto.

#45 Waterloo Resident on 09.12.14 at 8:26 pm

correction (“Meteor” hit the Earth).

This blog really does need a temporary ‘EDIT’ button so we can correct brain-farts after we have typed mistakes.

#46 Thomas on 09.12.14 at 8:27 pm

#27 HAM – TO DEATH DO US PART on 09.12.14 at 7:18 pm

Chinese Buyers Fuelling Seismic Spike In Vancouver

Another tired anti-Chinese story. Posted already. — Garth
_____________________________________________

I work with a ton of Chinese people here in Texas. When I tell them I’m from Vancouver, they all say the same thing:

“Beautiful place, but housing is WAY too expensive”.

#47 Retired Boomer - WI on 09.12.14 at 8:27 pm

Gold & Silver are merely a medium of exchange. They may hold some value because they’re ‘shinny shit.’

Come to me when you’re hungry, cold, and need things.

See how far that stuff might really go in a chaotic world. Not very far.

In the meantime, paper or plastic is much easier to carry and transport. Do they hold intrinsic value? no

#48 TexasTea on 09.12.14 at 8:34 pm

#41

No, let the trend at least begin.

#49 Shawn on 09.12.14 at 8:37 pm

Paper dollars depreciate (and so what)

Re: Who cares? — Garth

Anyone who is a retiree and wants to preserve the purchasing power of their savings.

******************************************
Most retiree savers are bright enough to earn enough return to more than offset inflation.

What do you think is worth more.

1. The gold melted down in a coin from 2000 B.C.

or 2. The amount that the value of the gold at that time would have grown to if placed with bankers at interest for 4000 years?

#50 crowdedelevatorfartz on 09.12.14 at 8:38 pm

@#34 Cato the Elder

Well Garth, I have a quandry.
My 15 year old Macallan is almost empty and I find myself unable to drive to the local “dispensery”.
Should I surrender to my “urges” and move on to the 25 year old Highland Park?
Or the 30 year old Bruichladdich?

And they were bought with a plastic debit card (not gold)that will probably confound archeologists 10,000 years from now……..

#51 Shawn on 09.12.14 at 8:38 pm

My last post is a response to Cato the Elder…

#52 Musty Basement Dweller on 09.12.14 at 8:45 pm

Yeah!!! Why DON’T you issue your own press releases for the media Garth? I love that idea!!

#53 CPG on 09.12.14 at 8:56 pm

Cato the Elder rocks. Keep your posts coming.

#54 crowdedelevatorfartz on 09.12.14 at 8:56 pm

Highland Park

Garth whats your take on the Scottish referendum next Thursday?
It looks like a nailbiter and it seems like the markets aint too please with the economics of a “yes” vote.
I noticed that Standard Life ( who’s headquarters is in Ediburgh ) has threatened to move lock, stock and barrel to London if the “yes” voters are successful. Ending almost 200 years of Standard Life in Scotland.
I also noticed that they recently sold their entire Canadian portfolio for $4 Billion to Manulife ( with 50% of the sales proceeds to go to the shareholders as dividends).
Do you think this was to stave off a “sell” panic with shareholders in the event of a successful “yes” vote?
ie Sell your shares now you dont get a juicy dividend cheque later?

#55 Casual Observer on 09.12.14 at 9:01 pm

#186 devore on 09.12.14 at 1:42 pm

Of course they could, and they did. The increase in monetary base during that time was absolutely unprecedented in US history. And what do you think caused the credit bubble of the 20s anyways? Newly found gold deposits?

Heavy borrowing and asset speculation by the private sector caused the credit bubble of the 1920’s. It was not the Gov’t that was doing the borrowing.

“The government ran a budget surplus every year from 1920 to 1930.”
http://www.forbes.com/2011/04/21/budget-cuts-taxes.html

My point was that the US Government could not have created unlimited dollars and used them to buy Treasury bonds and MBS (QE) like today. The gold standard would have put limits on their efforts.

If you have a link to some other source that says otherwise, please post it.

#56 TEMPORARY® Foreign Prime Minister on 09.12.14 at 9:01 pm

A coworker of mine finally succumbed to Canadian Lemming Syndrome.

Like all the other Lemmings leaping off their personal financial cliffs, he traded apartment living with a seven minute commute to work for a two hour commute from a brand new side-by-side made of pressed cornflakes.

He’s already bitching about the six lane gridlock north of the city, the fact that his automobile tires are already worn down to the thickness of rubber bands, his eight hour day has just become a 12 hour day, and his wife won’t talk to him anymore.

All this, after we both crunched the numbers which completely favoured staying put where he was.

Is there some kind of stroboscopic effect programmed into the REALTURD® website which is hypnotizing Canadians into utter stupidity?

#57 ben on 09.12.14 at 9:09 pm

The 18 year old high school graduate, employed full time in a local grocery store buys her 1st “newer” car.

If this is the face of the Millennial’s fiscal acumen, they deserve to get hosed by the rapacious marketplace.

No, it’s just an anecdote. The data says the young have it far worse thanks to those that went before them.

#58 Smoking Man on 09.12.14 at 9:38 pm

So this fat woman wants my seat, I’m next to my wife who’s in a zombie state hiting the max bet button on her slot machine.

She says in that distinguished fat person voice… Can I play.

I’m on a roll typing away, editing Chapter 8.

I pretend I don’t hear fats.. I shouldent talk, if you drew a stick man, side profile, that would be me. Just add a beach ball at the belly area. Had 20 lbs of crab legs tonight.

Fortunately for me, a sneeze was fermenting under the crap being attacked by my tummy acid…

Well when I unleashed this hurricane sneeze , stuff from the bottom of my belly, atomized with lung stuff. All over the push keys of the slot machine..

Her eyes popped, she ran….

I’m the smoking man, approach with caution.

#59 Sheane Wallace on 09.12.14 at 9:39 pm

When I can buy gas and scotch with it, gold’s money. Until then it’s a rock. — Garth
…………………………………………….
I am looking at a silver coin and it has 5 $ on it so it is legal tender ans yes, I can buy scotch and gas with it.

The government can have whatever laws they want, nothing prevents one from selling whatever they have as real asset or commodity, obtain cash and spend it on whatever they like.

There are even better investments than gold – for example energy and other commodities or companies in these sectors paying dividends.

However gold, silver, platinum will always be precious metals with significant value, unless of course government prohibits jewellery.

They might be successful, who knows. I for myself know that if I do see lost golden ring I will pick it up no matter what the law says.

That golden watch might be rock but it surely costs 20 Gs.

#60 nonplused on 09.12.14 at 9:40 pm

#17 Retired Boomer – WI

At least she bought a used Mazda, probably saved 30% off the sticker price new and it won’t use much gas.

My 18 year old nephew bought a used 4×4, spent $100/week on gas, and promptly blew the motor 4x4ing. Well insurance doesn’t cover that, so now he has a long auto loan and no wheels. The auto loan precludes fixing the motor due to lack of funds. I’m surprised my parents didn’t step in and get the motor replaced so he could tear the rear differential out next.

Auto dealers will lend money to anybody that can fog a mirror right now. It’s the only way they can move inventory.

When I was 18 I drove a beat up old Volkswagen Rabbit. Remember those? $10 bucks a week for gas and I drove it every day. Mind you gas wasn’t $1.16/litre back then but still. I spent a lot of time at Pick a Part to keep that old heap running. One time I had to use bubble gum to plug a hole in the carburetor to get my girlfriend home in minus -30. The plus side was that her parents wouldn’t let me drive home in the cold and dark so I had to sleep in the basement, and she snuck down once everyone was asleep ;-)

What a great old car.

#61 Sheane Wallace on 09.12.14 at 9:41 pm

#55 Casual Observer

so they would not dare to outsource out jobs in first place. Balance of trade settled in real values. It might not be gold but is is coming.

#62 AndrewAB on 09.12.14 at 9:42 pm

Who Zooming who?

The real estate industry is a giant marketing collective or cartel as you call it Garth, who have been very, very effective in crafting a myth that RE agents can easily sell to the media and the average buyer because the lie being told is just what we want to hear.

So who’s Zooming who? Well we’re zooming ourselves aren’t we?

#63 Happy Renting on 09.12.14 at 9:48 pm

#56 TEMPORARY® Foreign Prime Minister on 09.12.14 at 9:01 pm

So why did your coworker still pick the cornflakes shack? What part of his housing misery was unforeseen (wife cold shoulder, maybe, but the numbers, awful commute, wear and tear on the car were predictable or known ahead of time.)

Two hour commute = pure hell.

#64 Sheane Wallace on 09.12.14 at 9:50 pm

lets not forget that markets determine values, not governments. Governments might succeed in short term in bastardizing the markets but will imminently and miserably fail in long run.

#65 Casual Observer on 09.12.14 at 9:53 pm

To all those who keep “dissing” gold, consider these facts.

1. If gold is worthless, why do Central Banks around the world hold tonnes of the stuff in their vaults, and keep buying more?

2. Most major currencies were at one time convertible into some amount of hard assets (gold, silver), or pegged to the US dollar which was convertible into gold until 1971.

3. The average life expectancy for a fiat currency is 27 years, with the shortest life span being one month. Founded in 1694, the British pound Sterling is the oldest fiat currency in existence…

However, success is relative. The British pound was defined as 12 ounces of silver, so it’s worth less than 1/200 or 0.5% of its original value. In other words, the most successful long standing currency in existence has lost 99.5% of its value.
http://www.resourceinvestor.com/2011/01/24/is-this-time-different-for-the-dollar

I am not a “gold-bug” by any stretch. I just look at what Central Bankers are doing, rather than what they are saying.

I would never go overboard, but if it’s good enough to provide some protection and diversification for their holdings, then it’s probably not a bad idea for me to hold a small amount of gold in addition to the stocks, bonds, cash, etc. that make up my balanced portfolio.

#66 saskatoon on 09.12.14 at 9:56 pm

#49 Shawn

the gold coin, obviously.

#67 Blacksheep on 09.12.14 at 10:02 pm

Shawn # 49,

“What do you think is worth more.

1. The gold melted down in a coin from 2000 B.C.
or
2. The amount that the value of the gold at that time would have grown to if placed with bankers at interest for 4000 years?”
————————————————
One cannot deny Gold’s timeless value as it has out lived all dynasties and empires, yet continues to be aggressively acquired by those in the know (central banks).

No currency or bank has, or could (based on history) last 4000 years. Fiat $’s don’t tend to survive very long, when you start talking centuries.

So…unless your talking, unicorns and fairy dust,
I’d choose the gold for the win.

#68 45north on 09.12.14 at 10:05 pm

Happy Renting : from your link : She trumpeted the virtue of reason over emotion but was unable to rise above jealousy and was unforgiving towards anyone she believed had slighted her

Ayn Rand , Darryl Cunningham

now I know ( I think ) a lot more about Ayn Rand

does anyone dispute the author Darryl Cunningham?

#69 Retired Boomer - WI on 09.12.14 at 10:06 pm

#57 Ben

I beg to differ with you. When an 18 year old bus a used car on a 78 month contract ( that’s 7.5 YEARS Ben) because she “could afford” the payment, it merely means she can NOT afford to buy “that much” car. Period!!!

For the system to allow such idiocy… I can guarantee you
that for an 18 year old to contract out for almost HALF of the time she has not been peeing on herself is sheer madness!

It is not a matter of generational differential it is a matter of being fiscally able to make the right purchase.

This is from an old fart, who bought his first new car at 17 while a senior in high school. Only because he had a job that payed as much as some of my classmates fathers at that time. I worked more than 40 hours on the weekends then and made almost $8 an hour (it was a tipped position) on an average weekend. That was in 1968.
Minimum (tipped) wage then was $1.30 an hour, while non-tipped was $2.30 an hour.
The irony is that job was hard to fill in those days, too.

The bad news is there are young people today making little more, than $8 an hour.
The prices of new cars have more than quadrupled, and fuel by a factor of ten. So has most everything else.

Earnings have just not kept pace, whether you’re 18 or 68.
You can believe the statistics, or not. We have far more working people in or near poverty than ever before, maybe that explains the heavy reliance on social programs to make ends meet for so many. Not begrudging them the help, but one has to ask WHY??

That still does not mean an 18 year old should buy something, just because she CAN, rather than asses the need vs. want. There are plenty of good serviceable autos for sale for a more ‘affordable’ price, trust me on that.

#70 John in Mtl on 09.12.14 at 10:32 pm

“Subterranean Millennials.”

Hahaha love it!

#71 CPG on 09.12.14 at 10:34 pm

“It’s no surprise that I see the greatest financial Bubble in history. I believe asset market inflation and Bubbles have been fueled by speculative leverage exceeding pre-2008 crisis levels. I see global financial and economic imbalances that have been exacerbated by six years of the most extreme monetary policy measures. By now, this type of analysis has been completely discredited. Few will care that I discern acute vulnerabilities.”

http://www.prudentbear.com/2014/09/king-dollar-and-peripheries.html

#72 John in Mtl on 09.12.14 at 10:45 pm

I think that gold has the value and the place, we humans, assign it at any point in time.

Yes, it has been a valuable metal for millenia, and could well continue to be. But what if, say, the US pulls a rabbit out of a hat and one day declares that from now on, diamonds are the “new gold”, and it turns out they have 500,000 tons of it and the dollar is backed by this new standard? Couldn’t happen? Hell, who knows if in 30 years maybe their used nuclear fuel rods will be the most valuable thing around! Its all relative, really.

#73 Mister Obvious on 09.12.14 at 10:45 pm

For those who don’t know, the ‘Georgia Straight’ is a weekly Vancouver condo pumper rag masquerading as a news & entertainment paper.

Page 5 of the latest issue sports a full page ad for ‘The Raymur’ at Strathcona Village where 87 one-bedroom condos are now on the market starting at $229,900.

Included in the ad is a picture of the smiling, young and hip Jordan, a recent purchaser. Jordan is quoted as follows:

“I work in Chinatown and look forward to a 3 minute commute to the office – and it helps that mom and dad said this was a smart buy.”

Yep, it actually says that. Sheesh.

#74 Happy Renting on 09.12.14 at 10:57 pm

#69 Retired Boomer – WI on 09.12.14 at 10:06

For the system to allow such idiocy… I can guarantee you that for an 18 year old to contract out for almost HALF of the time she has not been peeing on herself is sheer madness!

That phrase, sir, was Garth-worthy. I agree with you on the unaffordability of the car purchase.

#75 ozy - WHAT DO YOU LET TO YOUR KIDS??? on 09.12.14 at 11:02 pm

WHAT DO YOU LET TO YOUR KIDS???

IF YOU rent, you let them nothing at the end of the 10-20y of renting

plus, you enjoy life in a nice place, nice location.

if you have the $$$$ – why on Earth will you wait and now long? what if prices drop 15% what if prices grow 15%….

don’t buy in far away locations – buy where there are bidding wars = constant high demand?????

Kids, don’t drink and blog. — Garth

#76 Setting the Record Straight on 09.12.14 at 11:21 pm

“Gold & Silver are merely a medium of exchange. They may hold some value because they’re ‘shinny shit.’”

You need to do some research on silver and it’s uses.

#77 AACI Home-Dog on 09.12.14 at 11:21 pm

Kids, don’t drink and blog. — Garth
Sounds fair enough.
But, please, do not suppress the Smoking Man…
we need the humour in these dark days of real estate propaganda.

#78 Dr. Wu on 09.12.14 at 11:25 pm

Garth whats your take on the Scottish referendum next Thursday?

The members (no pun intended) of Scottish Rite Freemasonry sold out their own homeland long long ago.
There is no sovereignty without sovereign currency.

Here is a lecture on Masons in Canada.
Its not ‘just a club’

http://www.youtube.com/watch?v=eX-CkdDk2Y0

#79 Vicpaul on 09.12.14 at 11:34 pm

#30 Devore

#104 Vicpaul

I had 23 six year-olds …x $40 = $ 920/ day x 22 teaching days per month = $20,240/ month x 10 months
( remember, I need my two months off, right Slue) …….
$202,400 per annum…… F¥€£ ya! Free enterprise…..show me the money!

Sure! Free enterprise! Just go start your own private school, if it’s so easy. Out of that $200k you get to provide proper facilities, support staff, admin and logistics, materials, supplies, activities, liability insurance, certification, utilities, oh yeah, and your own pension and benefits.

So much for that free enterprise of yours, eh? Stick to teaching.

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

Start a school of my own ( with partners)?
I did, 3 1/2 years ago in Yichang, China.
It was dicey in the first six months, our Chinese partner
( you must have a native partner to establish a business in China) began embezzling from us – my on site English partner ( former teacher here in Canada) shifted gears and 3 years later, it’s churning monthly profit.

You and Sue make assumptions based on dog-eared stereotypes about teachers that cloud your judgement. Every profession has the good, the bad and the ugly within it – it’s easy to criticize, but more beneficial to make a positive contribution to our world and the people striving for knowledge, peace, justice and equity. With the few years you have left devore, grow up.

#80 Adrian on 09.12.14 at 11:40 pm

@ #41 Tiggertoo

The time to renew your fixed mortgage rate is at the end of its term.

#81 Larry1 on 09.13.14 at 12:07 am

— Garth, for 1 of these $5 dollar face value Royal Canadian Mint Woolly Mammoth coins I will give you a glass of blended Grants. 2 for a single malt

http://www.mint.ca/store/coins/110-oz.-pure-gold-coin-woolly-mammoth-mintage-3000-2014-prod2060151

#82 Blacksheep on 09.13.14 at 12:13 am

Vicpaul # 79,

“it’s easy to criticize”
———————————-
There was little discussion about your professions, ‘situation’, until you started complaining about it on this blog.

If you don’t want feed back, don’t post on public forum.

#83 Bailing in BC on 09.13.14 at 12:42 am

Quick question blog dogs – Is gold priced in US dollars? In other words, if I am buying gold in $CAN would the price be fluctuating with the exchange rate even if the price of gold remained static?

#84 Freedom First on 09.13.14 at 2:06 am

Interesting Post, and comments today. Garth covered what can and does happen with RE markets. And the comment section covered many varieties of other assets.

Well, I am not the brightest dawg on this Blog, and it’s been proven I am nowhere near the high net worth/income of many people who read this Blog and answered Garth’s surveys. However, that being said, what I can gleam from this Post and the comments today is that I do believe in always having cash, income streams, cash flow, diversified fixed income, diversified equities, diversified assets, liquidity, balance/re-balancing, and being debt free. I have mentioned before that a line of credit is good too, as it gives instant $$$ to move quickly on bargains through direct investing, and then pay it off quickly. I have been surprised that even though I access the LOC at times, and pay it off quickly over the years, no one has ever complained.

My 2 cents worth would be this. When it comes to my finances, I learn all I can, and then make my own decisions on what I am going to do. However, in the land of the financially illiterate, having Garth’s advice to draw from regarding all financial matters, is the equivalent of having a high powered flashlight on a pitch black night. What is truly sad, is reading the opinions of the real financial morons who go all in on any one asset, leveraged or not, going against all of the tried and true financial principles Garth teaches. Now, whether a person buys a little gold or silver, or likes a little in diamonds or Art, is neither here nor there, simply a personal choice. None of those will hurt you if done with some financial acumen. Hell, a lot of people even like to spend a little on dogs, harleys, and amazons. Balance.

#85 Spiltbongwater on 09.13.14 at 3:28 am

#73 Mister Obvious on 09.12.14 at 10:45 pm

I like the back pages of the Georgia Straight with the info about where to get a massage, or an escort for the night. Also the “I saw you” section is pretty interesting as well. Have never really looked through the front part of that paper.

#86 juno on 09.13.14 at 5:10 am

Unbelievable, debt is rising faster than interest rates returns. Its a vicious circle how will anyone ever get themselves out

http://www.theglobeandmail.com/report-on-business/economy/household-debt-burden-for-canadians-edges-higher-in-second-quarter/article20573363/

#87 TS on 09.13.14 at 7:05 am

Great article, Garth! Which ETFs do you recommend and where do you buy them without paying high fees? I’m new to investing and have no idea where to find good, unbiased information. Thank you for all the work you do on this blog; it is much appreciated.

#88 Retired Boomer - WI on 09.13.14 at 7:09 am

#76 Setting the record straight

Silver has far more industrial uses than gold, agreed. So does copper, tin, platinum, palladium etc.

Gold & silver have traditionally been used as the primary
‘measure’ of a money’s ‘value.’ So, ay commodity in demand could be a currency, i.e. gasoline, even water.

I just don’t get excited when the price of gold moves up, or down dramatically. Where is the impact?

#89 TurnerNation on 09.13.14 at 7:46 am

Back from Least Coast vacation.

Seeing more & more of that kando Realtress I met month ago lately.
No thanks to this moribund weblog ;-) with its warnings of not untangling BRAs, of dire liquidity events, and mounting regrets.

But, why? Her 2nd career. Fierce negotiator as smart as me, and a thinker (I’d not have it any other way).

#90 jess on 09.13.14 at 8:24 am

there’s the bad and then the fugly

Debt From KPMG Tax Shelter Survives Bankruptcy
Peter J Reilly Contributor
http://www.forbes.com/sites/peterjreilly/2014/09/02/debt-from-kpmg-shelter-survives-bankruptcy/
————–
From : http://mitpress.mit.edu/congames
“Confidence Games – Lawyers, Accountants, and the Tax Shelter Industry”.
How The Most Prestigious Accounting Firms Raided The Treasury
These abusive domestic tax shelters bore such exotic names as BOSS, BLIPS, and COBRA and were developed by such prestigious firms as KPMG and Ernst & Young. They brought in hundreds of millions of dollars in fees from clients and bilked the U.S. Treasury of billions in revenues before the IRS and Justice Department stepped in with civil penalties and criminal prosecutions. In Confidence Games, Tanina Rostain and Milton Regan describe the rise and fall of the tax shelter industry during this period, offering a riveting account of the most serious episode of professional misconduct in the history of the American bar.

Jenkens and Gilchrist
“the architect of the greatest tax fraud in U.S. history.”
“Daugerdas is in a class by himself,” the judge said. “He was at the apex of tax shelter fraud racketeers.”
The case is U.S. v. Daugerdas et al., case number 1:09-cr-00581, in the U.S. District Court for the Southern District of New York.
http://www.law360.com/articles/555106/ex-jenkens-gilchrist-boss-agrees-to-ill-disbarment
“profits per partner”Opinions on tax shelters were a great way to boost profits per partner, since they were valued billed, based on the client’s tax savings. One firm estimated that its hourly rate worked out to $9,000 on tax shelter opinions.
http://www.forbes.com/sites/janetnovack/2013/03/01/ernst-young-pays-123-million-avoids-tax-shelter-prosecution/
=========================

Corporate Deadbeats: How Companies Get Rich Off Taxes
September 11, 2014
Newsweek from David Cay Johnston

inversions
A sample from the article:

“How can a tax burden become a boon? Simple. Congress lets multinationals earn profits today but pay their taxes by-and-by. In effect, Uncle Sam is loaning these companies all that money they do not immediately turn over as taxes. And all of these loans come with the same attractive interest rate: zero.”
http://www.newsweek.com/corporate-deadbeats-how-companies-get-rich-taxes-268303

#91 Cato the Elder on 09.13.14 at 8:52 am

Re: #49 Shawn

What do you think is worth more.

1. The gold melted down in a coin from 2000 B.C.

or 2. The amount that the value of the gold at that time would have grown to if placed with bankers at interest for 4000 years?

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

Well, if history is any guide, which bank from several thousand years ago would you have invested your money in?

There aren’t any in existence today. Banks don’t last very long without laws that protect their interests through threat of force by government (ex: legal tender laws, fractional reserve laws, etc.). The reason is because it’s incredibly difficult to be honest with depositors money – it’s always tempting to loan out more money than you have in reserves, which is ultimately fraudulent.

If you look at American history, when they didn’t have a central bank there were occasional ‘runs’ on the bank whenever depositors became suspicious that their bank wasn’t properly managing their savings. Contrary to popular belief, bank runs are HEALTHY. They serve as a ‘check and balance’ on banks that are reckless with their savings, and those that are mismanaged will be liquidated by these ‘bank runs’ quickly.

Unfortunately, in today’s managed economy, the illusion created by ‘deposit insurance’ by our government means that banks can be incredibly reckless. This recklessness is known as moral hazard and has no check and continues to grow in an uncontrolled fashion. Eventually, so many resources become misallocated due to this centrally planned intervention that there is a crisis/recession/depression.

And what do you suppose the parties responsible for this government manufactured crisis will propose when it happens? That’s right: MORE GOVERNMENT!

We are on a path towards a total authoritarian state. Both the left and right, which really are one foot in front of the other marching towards it. It is the inevitable conclusion of a centrally planned state. It REQUIRES coercive force to ultimately confiscate and allocate resources how the planners would like. Read: Road to Serfdom (try to figure out where in the book you think we are – it’s pretty scary how far along we are).

No, I don’t believe there is some conspiracy, only ignorance. Unfortunately, many well intentioned politicians don’t realize the ramifications of their meddling in the marketplace, and that little by little, they are eroding away our freedoms until there are none left.

So, to answer your question, I will take the gold (as will our soon to be worldwide rulers the Chinese). Don’t think China will be influential? Think about this: the USA has virtually run the world for the past 60 years with a population of 300 million people. China has 1.3 BILLION. Just going by the numbers, their influence should be four times as much. Are you ready for a China that is VERY resentful at the way the West has treated it for centuries that is finally powerful enough to retaliate (Opium wars, Japanese occupation, etc.)?

Start STACKING and don’t expect your ‘leaders’ to do the right thing. Be prepared to leave this country if and when it becomes necessary (they begin to discuss confiscation of wealth). The world is a big place and there are greener pastures.

#92 Paul on 09.13.14 at 9:06 am

#87 TS on 09.13.14 at 7:05 am

Great article, Garth! Which ETFs do you recommend and where do you buy them without paying high fees? I’m new to investing and have no idea where to find good, unbiased information. Thank you for all the work you do on this blog; it is much appreciated
———————————————————-
Hey Garth
Are there just some days you shout God take me now

#93 Cato the Elder on 09.13.14 at 9:12 am

Re: #12 CPG

The total debt outstanding in Canada as of the end of June, 2014 was $5.64 Trillion.

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

When you give a small group of individuals the ability to print money and loan it at interest, soon the entire world will be owned by them.

Doesn’t anyone find it strange that EVERY COUNTRY in the entire world is in debt?

And it CAN’T stop. The way the system is currently set up, money is CREATED when it is LOANED into existence! If loans and debt stop, then the money supply collapses and the economy implodes.

Contrast that with a free market system in currencies. The money supply would increase, but it would be slow because the basis of the currency would be it’s rarity (think gold). There would be a slow, but steady increase in supply. No need to rely on politicians and their foolish whims for the safety of our economic system.

But the truth is, the entire world has been enslaved by the monster. And no one cares. 1984 was wrong. Aldous Huxley in Brave New World had it right: plenty of books, but no one wants to read them. People are entertained to the point of loving their slavery.

The only thing that is going to wake them up is when they start to get hungry, which is what will happen when the Chinese Yuan reevaluates and everything in the West becomes incredibly expensive to buy.

But I fear the mob will clamor for an authoritarian, as they have so frequently throughout world history. They won’t demand more freedom. They will demand food, housing, welfare, anything but the truth: that they must accept individual responsibility and WORK for their wealth.

I could be wrong. I hope I am wrong. But I am not naive and won’t be blinded if I start to see it happening around me.

Of course you are wrong. — Garth

#94 T.O. Bubble Boy on 09.13.14 at 9:15 am

@ #87 TS on 09.13.14 at 7:05 am
Great article, Garth! Which ETFs do you recommend and where do you buy them without paying high fees? I’m new to investing and have no idea where to find good, unbiased information. Thank you for all the work you do on this blog; it is much appreciated.
———————————————

There are several places that now offer commission-free ETF trading (just google “no fee etf”)… however, the choices would be somewhat limited with any given broker:
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/zero-fee-etfs-sound-tempting-but-read-the-fine-print-first/article17270902/

http://canadiancouchpotato.com/2012/06/28/an-overview-of-commission-free-etfs/

If you just want low trading fees overall, most online brokerages would offer $9.99 or less per trade (depending on your total assets):
http://www.milliondollarjourney.com/review-canadian-discount-brokerages.htm

#95 John Prine on 09.13.14 at 9:26 am

The prices here on Vancouver Island are down from 11% to 21% (Port Alberni) from last August. Realtors here want people to realize that and to price their homes so they will actually sell. Lots of action on correctly priced homes between $375 and $475K. Over $500,000 there is not much selling.

#96 Cato the Elder on 09.13.14 at 9:28 am

Re: #72 John in Mtl

Yes, it has been a valuable metal for millenia, and could well continue to be. But what if, say, the US pulls a rabbit out of a hat and one day declares that from now on, diamonds are the “new gold”, and it turns out they have 500,000 tons of it and the dollar is backed by this new standard?

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

The reason we know Gold and Silver are ‘money’ is because they were used as a medium of exchange for THOUSANDS of years before governments had the coercive ability to ‘force’ it’s adoption. It was determined through voluntary exchange over those many years to be the best method (and yes, I’m sure diamonds existed then as well). This happened in many different cultures throughout the world.

One of the reasons diamonds wouldn’t work is because of it’s indivisibility. A diamond 1/10 the size of another could be worth a thousand times less because their values aren’t based on simple multiples. Whereas 1/10 oz of gold is worth 1/10 less than 1 oz.

Gold is not money, and this is not a gold blog. Thread is over. — Garth

#97 maxx on 09.13.14 at 9:29 am

#1 Randy on 09.12.14 at 6:11 pm

Cheap money doesn’t make us all equal !

Interesting point- however, in the eyes of a salesperson or realtard, they don’t give a rat’s behind where the money came from. Can it (the buyer) get the money?….is all they care about.

Once the cost of money ascends (now, there’s a nice, fat source of tax revenue!), those with no cash will be viewed in quite a different light.

#98 Funky on 09.13.14 at 10:09 am

CBC’s Doc Zone on Thurday night started pulling the curtain back on the Condo Industry. A real eye opener on the inner workings of the industry here in Hog Town.

“The Condo Game” examines the forces at play behind the fastest moving condo market in North America – Toronto – and discovers that the glittering glass hides a sea of troubles. The first startling revelation for many people will be how very much the condo market is focused on investor profit, not affordable housing. One expert even says that it’s really not a housing market but a commodities play. And that means that average Canadians, looking for a primary residence, are inadvertently joining a game for which they don’t have the rule book.

#99 Chickenlittle on 09.13.14 at 10:22 am

Garth, you are in rare form tonight! I am really enjoying some of your comments tonight. Particularly the one on gas and scotch.

SM: Hilarious!

As for the uni profs pumping RE, I am telling you, there is a special place in Hell for some proffessors. I can’t tell you how many idiot ideas I heard and continue to hear from 1st year philosophy students and their gender feminist ilk.
I guess we can add RE pimps to that list too.

#100 Ayn Rand Army on 09.13.14 at 10:25 am

#23 Happy Renting on 09.12.14 at 7:08 pm

#175 Mixed Bag on 09.12.14 at 1:15 pm
For Ayn Rand Army and others interested:

Ayn Rand’s life, summarized in a web comic:

http://activatecomix.com/162-1-1.comic

I don’t know enough to pick sides, posting for your enjoyment.

Thank you for sharing! Also don’t know enough to criticize or praise, but I enjoyed the read.
———
I only read the first ten pages and think there’s a lot of truth in regards to the big picture but find the author’s bent is toward demeaning and belittling Miss Rand is the main gold of Mr Cunningham’s intent and seems slanderous.

I forgot, she did always claim that her childhood did not influence her ideas which i find hard to believe also to some degree because i think that it must have at least in some way or reinforced them if already innate prior to the revolution… but i think her point is even as a child before 1917 rise of Bolshevism, she understood success of entrepreneurs came from handwork and individualism. So i believe her, what she says… and she has also always said she’s not a Libertarian either, even tho she shares many of their same ideas and she also was adamantly not a feminist and there is no evidence or actions in her life to suggest otherwise.

If you are interested in Ayn Rand as shown by bubble points, i suggest this site which is most reflective of her prime ideas and application of objectivism to real life. http://www.importanceofphilosophy.com/Chart.html

Also, there are of videos on You Tube with her. Many very intellectual discussions where she covers many issues of the time with hosts like Donahue, Mike Wallace and lectures given such as her last one at the National Committee for Monetary Reform conference in New Orleans http://www.youtube.com/watch?v=7XiBU8geK08

search Ayn on You tube
http://www.youtube.com/results?search_query=ayn+rand

I would not pass judgement on her based on some apparent slander piece by some unheard of person Cunningham….

Ayn had and still has a lot of enemies in the world today as she took on both the ideas of church and state. so has a lot of haters out there in government and banking and relation…. this is what happens when to brilliant intellectuals who stand by their convictions of truth. Right Garth? lol

Just like Mises is unrelenting on the importance of the gold standard in monetary theory, when he knows its essential and a basic truth for honest money. It’s not just his opinion, its a fact like any law of science, true economic laws are not opinions they’re facts.

Reality is real and existence exists. A is A. There are no contradictions in reality. If you ever find a contradiction in your knowledge or understanding of the world one must check their premises to see which one is wrong. – Ayn Rand

#101 Daisy Mae on 09.13.14 at 10:29 am

Mark Twain quotes:

“If you don’t read the newspaper you are uninformed, if you do read the newspaper you are misinformed.”

“Suppose you were an idiot. And suppose you were a member of Congress. But then I repeat myself….”

#102 Nemesis on 09.13.14 at 10:32 am

#IsTurnerNation… #Bedazzled!?!… #”WhyDon’tWeTakeALookAtTheContract?”…

http://youtu.be/Li9nqaqgQVI

#BonusRobust…

http://tinyurl.com/nzgn84u

[NoteToGT: You’ve really got to hand it to Liz, AuldPol – Fame&Fortune… without once insisting on a ‘BRA’.]

#103 chapter 9 on 09.13.14 at 10:40 am

#8 Chopper
“A good time to sell you house here and rent then buy a house in USA”.
Before you plunk down a wad of cash to buy the new digs south of the border better do your home work with a good tax lawyer. Things like if you vapor lock by the pool your heirs could be hit with US estate taxes and possibly Revenue Canada and how many years will that take them to clear up??
Fully understand the “183-day rule” with the good old IRS you risk being deported or banned as an illegal alien if you screw this one up. Know what you getting your self into to avoid a potential nightmare.

#104 Strathcona on 09.13.14 at 11:03 am

I notice here in Edmonton, prices are nearly at an all time high. This spring was very busy, with many properties changing hands. Now, in the fall, its stagnant as usual. Prices are still stuck high. I notice signs unmoved on front lawns, for over 100 days. There’s two other things I notice. Quite a few weekend open houses, and a new trend among realtors here to photoshop their houses on MLS.

Now, if houses are easily selling like hotcakes for more and more money, why would you need to embellish photos or have open houses at all? In a hot market, wouldn’t a dirty house sell for double tomorrow? Without effort? Or has this run out of steam? Driven only by cheap money.

#105 Grantmi on 09.13.14 at 11:08 am

Another 300 jobs lose on BC.

Tarsands next. Oil dropping like a stone.
*********************************

Anglo American Coal will idle operations at its Tumbler Ridge mine by the end of the year, the company announced today.

The Trend Mine, which produces hard coking coal for use in steel production, is the last operating mine in the community of around 2,700. The mine employs around 300 people.

– See more at: http://www.alaskahighwaynews.ca/news/local/anglo-american-to-shutter-last-tumbler-ridge-coal-mine-1.1352923#sthash.C5tmVzkm.dpuf

#106 Mister Obvious on 09.13.14 at 11:09 am

#95 John Prine

” Lots of action on correctly priced homes between $375 and $475K. Over $500,000 there is not much selling.”
————————-

I worked in a sawmill in Port Alberni in ancient times during the summer of 1967. I would not disparage that town or the fine people who live there, but…. even in these modern times, $375K to $450K is still far too expensive for a typical SFH in the centre of Vancouver Island.

#107 Ayn Rand Army on 09.13.14 at 11:43 am

From my above post, the video link to her talk on Monetary Reform in New Orleans a question is asked of Ayn at the 48:15 minute mark,

Q “What is the moral justification for a gold standard”

A “So those who earn their money keep it, and so there is no way for the parasites to get their hands on it”

And that’s a fact that is precisely why it was finally completely broken under Nixon in 1971 so the US government could essential default on it’s global debts for trade imbalances and can now steal more from the entire productive class of society globally and hence the constant debauchery of the real economy the world over. We are all connected by the monetary system that is infected with disease of unsoundness via inflation and theft.

#108 Nemesis on 09.13.14 at 11:45 am

#HowTheWorldReallyWorks… #SaturdayMorningPotPourri…

[LAT] – Tesla is taking Nevada for a ride

…”We call that chicken scratch,” says Fulkerson.”…

http://t.co/7c4v46ihIu

#IsOurNewTreatyJustAnother… #FridayAfternoonDelight?…

[SCMP] – Canada ratifies China investment deal, may help smooth relations

http://www.scmp.com/news/china/article/1591650/canada-ratifies-china-investment-deal-may-help-smooth-relations

#Surprise! #NotEveryoneIsImpressed…

[TheTyee] – Harper Gov’t ‘Conceded to China’ under Pressure: Treaty Expert: FIPA ‘is the price China demanded to open its purse strings for investing in the resource sector in Canada.’

http://www.thetyee.ca/News/2014/09/13/Harper-Conceded-to-China/

#OnTheBrighterSide,Though… #JealousFruits… #WouldYouLikeSomeCherriesWithYourTreaty?

[G&M] – Okanagan cherry growers find success selling to choosy Chinese consumers

http://www.theglobeandmail.com/news/british-columbia/okanagan-cherry-growers-find-success-selling-to-choosy-chinese-consumers/article20591180/

#MeanWhile…. #BackInTheActic #NoCherriesForYou!

[CBC] – Stephen Harper bans Chinese media from Arctic trip: Decision follows 2013 incident when Chinese journalist pushed Harper spokeswoman

http://www.cbc.ca/news/canada/north/stephen-harper-bans-chinese-media-from-arctic-trip-1.2744310

#ToHisEnormousChagrin… #VladimirWasn’tInvitedEither… #ButHeWentAnyway…

[RT] – Ice voyage challenge: RT joins Russian Navy fleet in Arctic base build-up mission

http://rt.com/news/187488-russia-arctic-drills-submarine/

#109 Panhead on 09.13.14 at 11:57 am

#73 Mister Obvious on 09.12.14 at 10:45 pm

Page 5 of the latest issue sports a full page ad for ‘The Raymur’ at Strathcona Village where 87 one-bedroom condos are now on the market starting at $229,900.

Jeesh … For only “starting at $229,900” you get to live next to the “Raymur housing project” … what a deal. Can’t believe anyone would “want” to live there. But then it is only a few blocks away from Hastings and Main …

#110 Catalyst on 09.13.14 at 12:12 pm

We know the lower end is languishing, and average prices rising due to luxury sales >$1.1M (according to Tal)….

Said realtor Malcolm Hasman, a partner at Angell Hasman and Associates, “Asian buyers accounted for roughly 90% of sales of properties costing $5 million and more.”

http://business.financialpost.com/2014/09/11/china-buyers-vancouver-housing/

#111 rosie "moving forward" in the knowledge that, "this won't end well" on 09.13.14 at 12:19 pm

That’s right, gold bugs, keep buying. While your at it buy a condo as well. As for all the Ayn Randians out there, here’s the world she envisioned. Kinda looks familiar.

http://www.salon.com/2014/04/29/10_insane_things_i_learned_about_the_world_reading_ayn_rands_atlas_shrugged_partner/

#112 Shawn on 09.13.14 at 12:26 pm

Which is worth more? Round Two

Okay, so predictably people said banks have not lasted 4000 years. True, though one could have spread the deposits across different banks as the amount grew. But yeah, 4000 years of money on deposit is unrealistic.

Now for round two:

Casual Observer at 65 said:

Founded in 1694, the British pound Sterling is the oldest fiat currency in existence…

However, success is relative. The British pound was defined as 12 ounces of silver, so it’s worth less than 1/200 or 0.5% of its original value. In other words, the most successful long standing currency in existence has lost 99.5% of its value.

*****************************************
Excellent, I like this kind of history.

So the pound has lost 99.5% of value in 320 years.

Wow, it takes 200 pounds today to buys what just 1 pound did in 1694.

Let’s say someone took 1 pound and invested it for 320 years. What kind of interest or return would it take to offset that inflation?

The formula is 200 divided by 1 raised to the power of 1 over 320 minus 1. Answer 1.67%.

So, if you could grow that pound at an average of 1.67% per year (and that should be after any tax) for 320 years you now have 200 pounds.

Let’s say you got 3% per year which should not have been all that difficult. In that case the 1 pound is now worth 12,821.

The above actually contains the very simple secret to building HUGE family fortunes over generations.

Despite inflation money invested over decades and centuries can grow to staggering sums.

Rather than spend time worrying about the fate of fiat currencies, one is better off focusing on growing their wealth at decent rates.

The key to growing long term wealth lies in savers and investors slowly accumulating wealth from the masses of spenders and borrowers.

Some of you have recognized this. Bank share owners should thank all those people borrowing hundreds of thousands for their house.

Can anyone name any great rich family that made its money by buying gold hundreds of years ago and then just sitting on that shiny metal and not investing it?

#113 VICTORIA TEA PARTY on 09.13.14 at 1:13 pm

HERE COMES TROUBLE…

For those Canucks who’ve recently become “involved” in real estate here, kindly read this long piece from the London Telegraph’s Evans Ambrose-Pritchard.

This amazingly perceptive journalist, who’s been much more right than wrong in his prognostications since the onset of the STILL CONTINUING GFC, says the US and China are in lock-step about starting to raise interest rates very shortly (note the US 10-year T-bill is trading at 2.6 %, a stunning recent increase and may go to 3 % shortly):

Why higher rates? Because there is no choice: The US growth rate (including new jobs) is nearing a critical growth point where tighter monetary policy will be crucial to keep a lid on bubbles and debt; China: because the leaders there are following up on their pledges to clean out the black market banking system and popping real estate bubbles as they get ready to form the next empire, replacing the good ol’ USA.

These two monumental traders’ new no-nonsense policies will turn Toronto’s recent real estate “buyers”, as one example, into marmalade, beginning shortly.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11093618/Global-banks-retreat-as-the-US-and-China-tighten-in-lockstep.html

ON ANOTHER MATTER, SCOTLAND:

I think the vote will be close either way but a “YES” vote, for so-called independence from England, will have some ramifications that will be attracting our attention for years.

From this weekend’s Zero Hedge this warning from CitiBank:

“…More broadly, “Referendum Risk” is one of the more powerful manifestations of what we have termed Vox Populi risk, the Crimea being a particularly powerful, if extreme, example. In particular, what happens in Scotland will be particularly closely watched in Spain, which is facing a referendum on Catalan independence. Latent independence movements elsewhere, such as Belgium, could also be influenced by the outcome in Scotland. We regard the revival of local/national concerns, from Scotland to Spain and beyond, as part of continuing anti-establishment sentiment and a backlash against globalisation. And the UK experience (with growing support for UKIP alongside faster economic growth) raises the issue that economic recovery alone may not be enough to reverse the rise in anti-elite, anti-establishment sentiment.”

An interesting next period of time shaping up. Start paying off your debts!

#114 Ayn Rand Army on 09.13.14 at 1:17 pm

DELETED. This is not a gold blog.

#115 Ayn Rand Army on 09.13.14 at 1:28 pm

DELETED. This is not a gold blog.

#116 Kenchie on 09.13.14 at 1:50 pm

From “Party Mode”

#158 Inglorious Investor on 09.12.14 at 11:41 am

“Without private sector wealth funding public sector costs the public sector could produce NOTHING. Therefore, as I said, ‘all wealth is generated by the private sector, either directly or INDIRECTLY.’”

While I agree that the gov’t syphons off dollars from the economic activity created by the private sector to pay for things for the full economy (i.e. public sector + private sector). I do disagree with the intent of your message that “all wealth is generated by private sector, either directly or INDIRECTLY”.

Correct me if I am wrong about your intent that you are interpreting this as a one-way distribution of wealth (private to public). I don’t see it as a one-way move. It goes both ways, and that’s a good thing. Gov’t collects from the population to produce things that private sector wouldn’t touch with their own private capital. (And this public sector spending is just the reverse flow of collecting of taxes – i.e. public to private).

For example, you don’t see many instances around the world where the private sector fully funds and builds a transit system. The only example I can think of is Tokyo (35.6m population), which has 3-4 different companies managing various lines. In London, back in the mid-19th century (The Tube started before BNA Act!), the private sector did build the first few lines of the Underground. Of course, they eventually went bankrupt and the gov’t had to take it over. You don’t see Toronto, Montreal or Vancouver home-grown capitalists putting up billions of dollars in their own capital to build the subway/metro/skytrain in their respective home city.

Private-public Partnerships are the closest things in which the private sector takes on risks involved with public sector responsibilities.

http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership

#117 Gainsaywhodare on 09.13.14 at 1:51 pm

Saw this comment on Calgary local news website today:

“The interest rate will actually go down.It has nowhere to go but DOWN. This is the default normal for at least 10 years which is actually the time when I finish paying off my mortgage. Then what? Rent will rise even higher than it is today. Today the rental vacancy rate is hovering just over 2% – so in about 10 years when the interest rates begin to increase even by a quarter percent the vacancy rate will become ZERO. People will have a bidding war for rental accommodations. I will rent out my condo for $2,000 per month and with my pension I will live a very comfortable life sucking back beer in Cancun. And that’s what all of this surge in buying homes is about. Your home will be used to supplement your retirement income. And people who own houses will renovate their basements and have 2 rental units to supplement their retirement.”

You find entertainment where least expected, let me tell you!

#118 SOS on 09.13.14 at 1:59 pm

The boomer generation had more financial security and now they’re reaping the benefits. Lots of boomers worked hard and did well but it was easier back then to get a job and make enough money. Things are more expensive now and if you’re not in the government employee club you’re likely competing against large numbers of (seemingly) equally qualified candidates for jobs. Decades ago you applied for jobs in person and got hired. Now we’re faceless resumes and it’s rare to even land an interview. Today if you’re not raised by parents who drill it into your head that you must get a degree or diploma in a growing field that pays well, you might take longer to find your career and in that way, longer to grow up. There are boomers everywhere with their property tax caps and exponential property values who are also the largest population, the voting population who are driving young people away, or at least watching as young people can hardly afford to have children in their child-bearing years.

You have a typically distorted view of history. The 1970s were no picnic for young adults. — Garth

#119 Flawed on 09.13.14 at 2:00 pm

DELETED

#120 Casual Observer on 09.13.14 at 2:04 pm

Let’s say someone took 1 pound and invested it for 320 years. What kind of interest or return would it take to offset that inflation?

Let’s remember that the British Pound only became a freely floating fiat currency in 1971 when Bretton Woods collapsed. Prior to that it was convertible into precious metals, or pegged to the US Dollar which itself was convertible, for most of the time (exception being during times of war).

According to official UK inflation data, from 1971 to today, there has been total inflation of 1250.44% (what cost £100 in 1971, now costs £1350.44).

This averages out to over 6% per year inflation.

From 1901 to 1971, the total accumulated inflation in the UK was 694.7%. A 70 year period where Britain was mostly on the gold standard, this works out to about 2.8% per annum.

Keep in mind, this 70 year period also included many highly inflationary periods like WWI and WWII, where Britain went off the gold standard, but still the inflation rate was less than half what it is under a purely fiat system.

http://www.thisismoney.co.uk/money/bills/article-1633409/Historic-inflation-calculator-value-money-changed-1900.html

So when you ask what rate of interest you have to earn in order to overcome inflation, it helps to know which period you are talking about.

Earning 3% per year would not have allowed you to overcome inflation during the period since the pound became a pure fiat currency – not even by half.

You say, “Rather than spend time worrying about the fate of fiat currencies, one is better off focusing on growing their wealth at decent rates.”

I agree. Time spent worrying about the fate of fiat currencies is wasted time, however we don’t have to be completely ignorant about history, and what’s happening in the world.

I’ve always advocated a small “insurance policy” of gold to go along with a balanced portfolio of stocks, bonds, etc.

Apparently Garth does too (or at least he did in 2010). From the “Why every investor should have some gold” section of Garth’s “Money Road” book (Pg. 101-102), he says…

But even if American fundamentals were to rebound, the Yankee dollar soar and gold be knocked back as a result, the metal remains an effective hedge against inflation…

As for how much of a portfolio to expose to the metal, it’s hard to argue with 5% as a conservative position and 15% as aggressive.”

#121 Kenchie on 09.13.14 at 2:22 pm

From “Party Mode”

#164 Setting the Record Straight on 09.12.14 at 12:20 pm

“On Friedman criticizing Mises, in the
Reason article, I could only find personal criticisms of Mises’ intolerance.”

You are correct, it’s a criticism of personal intolerance. Which is, in my opinion, the most important criticism one can have of another “academic”. The reason, IMO, is that no one person has a monopoly on the correct answer for every situation. For LVM to stick to his guns about his theories when new economic developments (how about the invention of credit cards!) happen to confront his theories as, perceivably, incorrect shows that he isn’t adjusting his theories for new information.

And if you watch “Free to Choose”, all of its parts, MF talks about the central bank. He is not naive enough to say that there is no role for the Central Bank in an economy. His criticism is not to “abolish the Fed”, but that the Fed allowed the supply of money to fall too much in the 1930s and that is what created the Great Depression.

http://www.theguardian.com/commentisfree/2013/aug/13/rand-paul-milton-friedman-federal-reserve-chairman

If you want, read his book “Free to Choose” here:
http://www.il-rs.org.br/site/biblioteca/docs/Friedman__Milton___Rose_-_Free_To_Choose_–_A_Personal_Statement.pdf

And

“Friedman also noted that Hayek self identified as an. ‘Old Whig’ not a libertarian. This should be kept in mind when we discuss Hayek and Mises.”

I do not care much for labels, such as “Libertarian” or “Old Whig”, because it leads to “Tribalism”. We can see that ARArmy has already chosen a side and is a loyal pawn, regardless of the facts on the ground and in reality.

Although I generalized all ASOE beliebers as being fixated on the idea of “sound money”, I am aware that not all ASOE profs are like that. But the most vocal modern-day supporters of ASOE are all the same: Rand Paul, Peter Schiff, Marc Faber, etc. are just “hopeless”, in the words of MF.

#122 Nemesis on 09.13.14 at 2:46 pm

#That’sAllVeryWell&Good,Shawn… #ButWhileWe’reHavingFun… #It’sOnlyFairToMention:

#ElizabethanSumptuaryStatutes

http://elizabethan.org/sumptuary/

&

#TheDreadedWindowTax:

http://en.m.wikipedia.org/wiki/Window_tax

#123 TurnerNation on 09.13.14 at 2:57 pm

Dollarama’s stock set for a 2:1 price split. They are raising some prices. Gel I buy went from $2 to 2.50. 25% hike.
Dollar store nation Kanada. Keep buying.

#124 Victor V on 09.13.14 at 3:16 pm

How to make ends meet? Look in the mirror

http://www.theglobeandmail.com/globe-debate/how-to-make-ends-meet-look-in-the-mirror/article20566396/

Canadians are strapped. Many people have barely enough money to make ends meet. Our savings rates are down to a measly 3.9 per cent. A survey released this week by the Canadian Payroll Association found that more than half the people they surveyed – 51 per cent – would be in real trouble if they had to skip even one paycheque. So what’s the problem? Stagnant wages, creeping inflation, galloping house prices. The usual.

But those aren’t the real problem. The real problem is in the mirror. A lot of us are clueless about managing our money. We have no financial discipline. We’ve erased the difference between what we want and what we need. This is an enormous cultural challenge. If you think I’m being mean, visit a savings society like China. Chinese people make a fraction of what we do and save 30 or 40 per cent of it. They do it because they don’t have a social safety net. They don’t have credit cards, either.

#125 omg on 09.13.14 at 3:33 pm

NOBODY WILL EVER NOTICE THE HOUSING CORRECTION

I pontificate that there can be a 10 to 15% correction in prices and nobody will ever notice. This is because the real estate boards have become so good at spinning stats and the MSM have become so good at being lapdogs.

The real estate boards will always be able to find some statistic that shows a “strong” market, be it y/y sales or m/m sales, or price increases in 2nd floor south facing 1 bedroom condos in SE Burnaby built pre 2000.

There are always positive stats somewhere to report.

The MSM will print it without question and the average guy will think everything is hunky-dory – “let’s go buy a house!”

This is essentially the situation in Victoria. We have had a declining market for about 6 years now, but the average shmuck thinks things are pretty good.

All the shmuck has to go by is the rosy reports of the local real estate board he sees every month in the local paper. Rosy, that is, until he goes to sell the investment condo he bought in 2007 for $459K that may not sell today for $389K.

#126 Kenchie on 09.13.14 at 3:35 pm

From “Party Mode”

#176 CalgaryRocks on 09.12.14 at 1:16 pm

“Now, there is another side of the coin. Sometimes kids are just lazy and entitled. I worked for a startup. Was employee #3, yey! The CEO’s son was a college flunkie and a pot head…

Oh please. Not once, did he show up in the office the whole time I was there.

He still lives with mommy and daddy. They just got the daughter (23) to move out. She’s a waitress in San Jose.”

This is great. This is how (concentrated) wealth gets dispersed to other, harder working people. It just takes a long time as the kids slowly spend their inheritances at an unsustainable rate, so the future generation isn’t provided with the same inheritance they received. Family wealth splinters.

Wouldn’t it be worse if that stoner son takes over the company you work at, and enriches himself for the rest of his life?

#127 Mister Obvious on 09.13.14 at 3:44 pm

#117 SOS

“Decades ago you applied for jobs in person and got hired.”
—————————

Nope. I was there. Here’s how it really was…

You tried to get the first edition of the evening paper as soon as it hit the street. If there was anything in the want ads that looked promising you wrote out a resume by hand (for the hundredth time) and mailed to a box office number that very night.

It would take at least three days for your application to arrive via snail mail (the only kind we knew). The chances of getting an interview were slim. No reply within a week meant you were probably out of luck. That happened a lot.

I lived in Vancouver. There were a lot of us young boomers in the early seventies facing fierce competition for manual labour jobs, especially any that were unionized.

Nothing was fast. No internet, no cell phones, no data, poor transit system, and closed union shops galore. Looking for work involved a lot of hit and miss with a strong emphasis on ‘miss’ part.

Then, if you did land a job you found yourself at the very bottom of the seniority list. A one percent slowdown meant you were back out the door.

The guys who did the best had fathers with secure government jobs at BC Hydro or BC Telephone. They could often get their kids in for summer employment at a decent wage. My buddies and I were envious of them. Most of us wore down a lot of shoe leather and generally came up empty handed.

You really should have been there.

#128 Ayn Rand Army on 09.13.14 at 3:52 pm

Garth, can you please allow this last comment and i was not planning on any more anyway as i do not want to argue about it.

And it’s not about gold per se, as about fiat versus any durable commodity, could be copper, silver, platinum just the same.

#112 Shawn on 09.13.14 at 12:26 pm

An example…. say today, you are Japanese and told you have one year to liquidate all your estate and must chose between holding all your wealth in Yen or gold for the next 100 years before the wealth is later transferred on to your favorite charity.

Which would you choose?

Assuming you wanted your donation to the charity as your legacy.

#129 Ayn Rand Army on 09.13.14 at 3:55 pm

DELETED

#130 Cato the Elder on 09.13.14 at 3:58 pm

Re: #112 Shawn

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

I can’t discuss gold in depth any longer out of respect for Garth’s wishes. I just want to emphasize though that when I was talking about gold, I didn’t mean for it as a replacement for legitimate investing. Legitimate investing requires some degree of risk, therefore it would be expected that you would generate a return relative to that risk.

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

Re: Garth

Of course you are wrong. — Garth

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

I certainly hope so. I have a lot of respect for your opinions which is why I frequent the blog so often. I feel true independent voices from those in parliament who genuinely care about their constituents are a rare breed of which you are a part.

However, I do think my concerns are valid given world history though. Democracy and limited government is young, and hasn’t been around for long. Authoritarian regimes have existed (and still exist) for most of world history.

Benjamin Franklin comes to mind when leaving the US constitutional convention (they were starting from scratch, and could have established any regime they wanted). When asked what type of government they had created, he said “A republic, if you can keep it”. Truer words were never spoken of how a nations fate really does reside with it’s people and their pursuit of civic duty.

I just hope that blogs like this can educate people enough to the point that they will come to their senses during any potential future crises.

#131 Panhead on 09.13.14 at 4:14 pm

#126 Mister Obvious on 09.13.14 at 3:44 pm
#117 SOS

“Decades ago you applied for jobs in person and got hired.”
Nope. I was there. Here’s how it really was…

Not how I remeber it, as I was there too …
Remember walking into a sawmill in Vancouver and being told to come back in the afternoon as they were having a “hiring bee.” Went back and signed up and was hired on the spot with many others that were there. Good union money, I was making more than my father, and I was the tender age of 17. Never gonna see that again … still sawing old growth trees too.

#132 Ayn Rand Army on 09.13.14 at 4:16 pm

Thanks, and sorry.

It’s your blog. If you want to constrain conversation, difference of opinion, like Chairman Mao. Then that’s your choice.

But its infuriating when one takes the time to write a comment and then finds it deleted without warning.

The blog exists to provide a forum on subjects related to the economy, personal finance and real estate. Attempts by Tea Party wannabees, Austrian zealots and gold-pumpers to bully others into narrow ideological beliefs are boring and unwelcome. I tolerate it for a while, but there are limits. You say the same thing repeatedly, and you’ve said it enough. It’s not censorship. Just combating tedium.– Garth

#133 Shawn on 09.13.14 at 4:45 pm

Which to Choose?

Ayn Rand Army asks me:

An example…. say today, you are Japanese and told you have one year to liquidate all your estate and must chose between holding all your wealth in Yen or gold for the next 100 years before the wealth is later transferred on to your favorite charity.

Which would you choose?

*******************************************
Gold would beat yen in a mattress or safe.

But Yen in government bonds or in GICs rolled over at the bank is likely to beat gold over the next 100 years. Japanese interest rates will eventually rise.

Wealthy people don’t hold much paper currency or Gold. They hold wealth be it real estate, stocks and bonds, measured in currency.

There is a HUGE difference between an investment in dollars and an investment that is measured in dollars.

#134 Shawn on 09.13.14 at 4:48 pm

How to Get Rich today or in ancient times

Friends, Romans, countrymen, let me lend you my dinaro (at interest).

Better still, let me invest my dinaro in your shop that you may expand your profitable trade and I may share in the profits.

#135 Setting the Record Straight on 09.13.14 at 5:03 pm

@Kenchie

Regarding
Hayek’s criticism of Mises: I appreciate the source you provided but it is a book and I have not found anything pertinent to the issues discussed here. There were personal comments on Mises intolerance and I found a brief discussion of of methodological differences. So if you could direct me to a specific page that might help.

Regarding my comment on your argument that for an Austrian to oppose floating exchange rates is inconsistent, I was unnecessarily unpleasant.

However on the substantive issue, if gold is used as money in a society, then all prices are expressed relative to gold and they all fluctuate relative to each other and relative to gold. . There is no additional thing that needs to float. If more than one society uses gold as money prices fluctuate in each market and if there is an opportunity for trade because of different factor scarcities, productivity etc. it will become apparent.
But every economy’s gold coins are just as much money outside the national boundaries as the domestic gold goins. For example Gold coins minted by Spain were used in the colonies as money.

If paper currency is used in an economy, rather than coins, where an individual has the right to demand gold for his paper, nothing has changed. The paper just reduces the costs of carrying around with you.

#136 Mark on 09.13.14 at 5:04 pm

Quick question blog dogs – Is gold priced in US dollars? In other words, if I am buying gold in $CAN would the price be fluctuating with the exchange rate even if the price of gold remained static?”

Gold, just like stocks, is a currency unto itself, but either directly, or indirectly (through arbitrage), can be quoted in every other stock or currency. For instance, we can say that gold is currently priced at 16.8 shares of RY per ounce. Or $1240 USD$. Or $1364 CAD$. Etc.

You don’t buy gold in $CAD, $USD, or any other currency. You can use $CAD, $USD, etc., to buy gold or to quote gold in, but to say that gold is intrinsically linked to a specific currency really is profoundly incorrect.

Same deal with stocks. Doesn’t matter what you use to buy ’em in, or what you use to quote them in. Just as long as you’re consistent, and the datum makes some sense to you. Of course, when it comes to paying taxes, everything has to be converted back to CAD$ for the CRA’s purposes.

#137 Cato the Elder on 09.13.14 at 5:08 pm

Re: #131 Ayn Rand Army

It’s your blog. If you want to constrain conversation, difference of opinion, like Chairman Mao. Then that’s your choice.

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

This is something that a lot of freedom lovers get wrong. Freedom of speech is a guarantee that the GOVERNMENT won’t violate that right. This blog is PRIVATE PROPERTY. You may set ANY rules you wish on it, including censorship. It is NOT public domain (Garth is not the government restricting your right to free speech).

I strongly recommend you read more about Ayn Rand, as she was someone who strongly understood property rights, given that she grew up in the USSR which had NONE.

I also strongly recommend that you don’t combat fellow independently minded individuals like Garth. Even though you may disagree with him, he’s one of the good guys. Have your minor philosophic disagreement, but then agree on the whole and don’t let the bad guys ‘divide and conquer’ us freedom lovers.

#138 Cato the Elder on 09.13.14 at 5:11 pm

The beauty of freedom of speech from government interference is you can set up your own blog to talk about every single thing you want. Garth can’t stop you. But treat this website like his house. He may be lenient, but ultimately it is his decision what gets posted.

#139 Cato the Elder on 09.13.14 at 5:19 pm

On a side note, thoughts on Scottish independence Garth?

#140 45north on 09.13.14 at 5:24 pm

rosie : from your link : 4. The government has never invented anything or done any good for anyone.

I dislike Ayn Rand – she is too simplistic.

Here are two good things the Canadian Government has done:

the Dominion Land Survey that basically mapped out and divided western Canada.
http://en.wikipedia.org/wiki/Dominion_Land_Survey

Marquis Wheat developed by Charles Saunders
http://en.wikipedia.org/wiki/Charles_E._Saunders

on the other hand the Treasury Board Web Standard is a bad thing:
http://www.tbs-sct.gc.ca/ws-nw/index-eng.asp

it’s bad because it doubles the cost of web development. At least doubles it. It has led to a dumbing-down of government information sites – it’s simply too costly to maintain millions of pages according to the web standards.

I used to work for the Canadian Soil Information Service
http://sis.agr.gc.ca/cansis/index.html

it is under constant threat from the standards police. They (the standards police) don’t care if the information is outdated or even wrong. The easiest thing to do is simply shut the site down – then it’s 100% compliant.

#141 Happy Renting on 09.13.14 at 5:29 pm

#216 Herf on 09.13.14 at 12:45 am

I’m not an engineer or in tech, but my other half and I are both mid-30s and I see the factors you discuss, squeezing workers out of the job market (inflexible hiring standards, off-shoring, ageism, rapid obsolescence of skills.) It’s not just in engineering.

The old model of your 50s being your best earning years is no longer a sure thing. For new grads today (almost any non-gov field), I would advise them to blow their brains out career-building, earning, and investing until about 35, and in those years 1) not totally ruin their health, 2) have a little fun (YOLO), and 3) if they want a family, find a good mate. By their mid-30s, if they can no longer pull in good money (have a family or are tired and don’t want to or can’t put in the hours needed to keep up their skills or career, or are considered simply too old to employ), they have some assets to fall back on, retirements are at least semi-funded, and they can get by all right making mediocre money in middle age, through to retirement. Granted, this takes a lot of sacrifice, but it’s easier to only minorly inflate the starving-student lifestyle early on than to majorly deflate the affluent-yuppie lifestyle later.

I fear many of my generation will be tomorrow’s impoverished seniors, not just because of consumer debt and poor investing, but because of years where the well-paid job market didn’t want them anymore. Bring on the cat food/giant pot of beans and lentils.

#142 devore on 09.13.14 at 6:16 pm

#127 Ayn Rand Army

An example…. say today, you are Japanese and told you have one year to liquidate all your estate and must chose between holding all your wealth in Yen or gold for the next 100 years before the wealth is later transferred on to your favorite charity.

The beauty of money is that it is the most liquid and marketable commodity. You take the money, then buy whatever you like with it. Gold. Stocks. Bonds. A farm. A hotel.

Money is not wealth. It’s just a unit of account, a way to keep score. You have some on hand, because that’s what you trade for stuff. Money by itself is dead capital. It doesn’t do anything. It’s not invested, it’s not growing, it’s not doing work. Why would you keep your wealth in money? You might buy gold with it, but if you’re counting on getting it back at some point, it’s far from your best option, certainly not 100% for the whole time.

#143 pitfield on 09.13.14 at 6:24 pm

As per my previous post, I apologize if any feelings were hurt but being an immigrant myself I am not against immigration just stating some observations on uncontrolled immigration.
I would LOVE more immigration to cottage country to boost my property value there.
What do you guys think of the boomers selling in the city and taking the loot to cottage country to live 9 months of the year and Cuba the winter three months?

#144 Setting the Record Straight on 09.13.14 at 6:29 pm

Shawn
Your point — that people should worry about building wealth not fiat currency and central banking is only partially correct.

Yes, we should definitely worry about building wealth.
But part of building wealth may involve protecting yourself in a meltdown of your domestic currency either through high inflation or deterioration in the exchange rate. That may or may not produce an interest in investing in gold, silver, oil, companies that produce these, companies that export, or in foreign stocks and bonds.

Moreover if you are interested in or perhaps want to affect the polity then understanding fiat currencies, central banking etc. would certainly seem to be pertinent.

However

#145 TS on 09.13.14 at 6:43 pm

#94 T.O. Bubble Boy

Wow! Thanks so much for your help. I’ll definitely look into these.

#146 Mark on 09.13.14 at 6:49 pm

“By their mid-30s, if they can no longer pull in good money “

The situation in engineering is such that there has been minimal hiring of people who are younger than mid 30s. Especially outside of the oil and gas industry, and civil engineering. Manufacturing, electrical/computer, nuclear, and aerospace have spent a long time in decline and most firms who need to hire are overwhelmed with good resumes from Canadians.

I know, its feast or famine, and the civils, mining, and petroleum engineers spent the 80s and 90s having a pretty lean time of it. But it just seems to me that the cycle has run a lot deeper, and governments have gone out of their way, through TFW’s, H-1B’s, and other measures, to reinforce underemployment and unemployment of young engineers. Also bizarre are the claims of engineering firms that engineers need 5 years on-the-job to become productive — this speaks to either arrogance and dishonesty on their part, or a large, yet unspecified disconnect between the education system and the demands of the labour market. I personally believe its the former.

#147 Flawed on 09.13.14 at 6:51 pm

It’s unfortunate that the word “DELETED” is code for “Don’t want certain proven facts” on my blog. C’est la vie in the world of today I guess.

No, actually. It’s code for ‘don’t want you.’ — Garth

#148 Mister Obvious on 09.13.14 at 7:14 pm

Garth is right. Its a financial/real estate blog.

Nobody gives a rat’s arse how life played out for me or anyone else forty years ago. I will henceforth leave that stuff for when I write my memoirs and confine any and all future comments to financial or real estate related matters.

My favourite comments are about first hand real estate market observations in the field. What people are personally witnessing today. There is precious little of that in the MSM that is not heavily filtered or somehow altered for the masses.

I’d love to see more genuine reports here.

#149 Daisy Mae on 09.13.14 at 7:26 pm

#119 Casual Observer: “…As for how much of a portfolio to expose to the metal, it’s hard to argue with 5% as a conservative position and 15% as aggressive.”

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

I don’t believe Garths’ opinion has changed with regard to 5% metals in a balanced portfolio.

#150 Nemesis on 09.13.14 at 7:33 pm

#F***It… #It’sMillersTime…

#ScottishIndependence… #Or,”SetTheJuiceLoose,Bruce”:

http://youtu.be/B-xG3D8OMQk

#AfterNoonDelight. #Or,WhySome… #ConservativeCentralPressReleases… #AreMidNightSpecials?:

http://youtu.be/2NUkhMq_iRo

#151 HatchetJob on 09.13.14 at 7:34 pm

It’s not censorship. Just combating tedium.– Garth
——————————————————————

This blog is the epitome of tedium. Just saying…. of course you will not post this…

Why not? That was exciting. — Garth

#152 weedeater on 09.13.14 at 8:10 pm

#44 Waterloo person
Don’t worry about correcting meter to meteor. Same result whether hit by meter or meteor.

House horny should stop reading newspaper and Garth. Seriously look at their own circumstances: job and savings and how comfortable they are being slaves to debt. That should determine whether they buy a house and for how much. When I went back to renting (after 20 yrs of owning/repairing/replacing/improving) and replaced credit with cash for daily purchases, I actually had more money left over at month end. Try it.

Think you’re buying a $900,000 house? Look at your amortization table: by the time you’ve paid it off, you’ve forked over more than double. The first 15 years of mortgage payments go mostly to interest.

#153 };-) aka Devil's Advocate on 09.13.14 at 8:25 pm

#150 HatchetJob on 09.13.14 at 7:34 pm
It’s not censorship. Just combating tedium.– Garth
——————————————————————
This blog is the epitome of tedium. Just saying…. of course you will not post this…

Why not? That was exciting. — Garth

Bored and perusing this blog for some excitement before company arrives I must agree; this was, by far, the most exciting exchange I could find. };-)

#154 Matt on 09.13.14 at 8:41 pm

“The Teranet methodology causes a lag far greater than actual changes in prices.”
No, because price drops are relative to the previous month’s price point (not the date of purchase for houses). The lag is because it is based on completed sales only, the methodology is fine. Plot the Teranet data vs MLS house price index and the two month lag is obvious. I would trust the former more because it is based on matched data, but there isn’t a huge difference. Both do the job and help strip out some of the statistical noise associated with price averages.

#155 Kenchie on 09.13.14 at 9:21 pm

#119 Casual Observer on 09.13.14 at 2:04 pm

“Let’s remember that the British Pound only became a freely floating fiat currency in 1971 when Bretton Woods collapsed. Prior to that it was convertible into precious metals, or pegged to the US Dollar which itself was convertible, for most of the time (exception being during times of war).

According to official UK inflation data, from 1971 to today, there has been total inflation of 1250.44% (what cost £100 in 1971, now costs £1350.44).

This averages out to over 6% per year inflation.”

This is true, as per the CPI metric. However, looking at these numbers in isolation doesn’t explain anything about the period of the time. Why did Nixon take US off of the Bretton Woods arrangement? Why did inflation (in the West) skyrocket in the 70s?

Well, the main reason is the lack of energy supply to power the economy (aka oil spiked!). As I am sure you know, this is called cost-push inflation. How does the gold standard help in this situation?

It took more dollars/sterling/marks/francs to purchase one barrel of oil in 1971 than it did in 1970. And it cost more in 1972 than 1971, etc.

Moral of the story, central bank had nothing to do with the problem of the increase in the price of oil. And the technology at the time was not adequate to deal with the spike in the price of oil, which led to the crazy inflation. Not to mention the strangehold control the unions had over the economy in the UK, which led to the eventual election win of Maggie Thatcher and her resolute promise to dismantle the unions. (She saved the UK from much, much worse)

#156 };-) aka Devil's Advocate on 09.13.14 at 9:31 pm

#153 Matt on 09.13.14 at 8:41 pm

You don’t see the statistic as much you feel them.

Everybody has their own numbers and can conjure whatever they need to support their hypothesis. What is most important is whatIS happening. Most can feel what is actually happening. Not what they hope is or will happen but what is really happening.

Fear and greed, real estate is emotional and emotion is a feeling not a statistic. Of course how you manage that emotion might make you fall prey to becoming a statistic };-)

#157 Kenchie on 09.13.14 at 9:43 pm

#59 Sheane Wallace on 09.12.14 at 9:39 pm

“I am looking at a silver coin and it has 5 $ on it so it is legal tender ans yes, I can buy scotch and gas with it…

The government can have whatever laws they want, nothing prevents one from selling whatever they have as real asset or commodity, obtain cash and spend it on whatever they like.

However gold, silver, platinum will always be precious metals with significant value, unless of course government prohibits jewellery.”
———————————————
You’re right about one can buy goods and services for anything the counterpart is willing to accept for the exchange – such as gold, or a silver coin. But, of course, it takes two to make an exchange, and if the vast majority of people don’t share your desire do exchanges for goods and services in gold, especially if they have to pay foreign suppliers, then the value isn’t as high as you may expect.

BTW: Precious metals don’t have “intrinsic value” since they don’t have cash flow, unless they are actually turned into jewellery or catalytic converters.

#158 blobby on 09.13.14 at 9:51 pm

Hi Garth, I know this has NOTHING to do with your usual topics. But you’re an ex politician that i respect opinion of – as you dont sugar coat things – and you seem to want to tell the truth.

So my question is, as an ex-politician.. Do you have any thoughts why the press has pretty much ignored the “Canada-China Foreign Investment Promotion and Protection Agreement” Mr H approved on Friday?

I know they all love a good Ford story.. But surely the media in this country hasnt got THAT bad?

#159 Kenchie on 09.13.14 at 10:02 pm

#69 Retired Boomer – WI on 09.12.14 at 10:06 pm

“For the system to allow such idiocy… I can guarantee you
that for an 18 year old to contract out for almost HALF of the time she has not been peeing on herself is sheer madness!”

I don’t disagree that it’s ridiculous for this 18 yo to do this. But it’s their choice what to do it. That’s an option in the “market” in this situation.

And

“This is from an old fart, who bought his first new car at 17 while a senior in high school. Only because he had a job that payed as much as some of my classmates fathers at that time. I worked more than 40 hours on the weekends then…”

Retired Boomer, with all due respect, how could you work 40 hours a weekend when there are 48 hours that span Saturday and Sunday? Sure, include Friday night to Sunday night and you get a couple more hours… Guess you didn’t need to sleep when you were younger?

#160 Kenchie on 09.13.14 at 10:11 pm

#83 Bailing in BC on 09.13.14 at 12:42 am
“Quick question blog dogs – Is gold priced in US dollars? In other words, if I am buying gold in $CAN would the price be fluctuating with the exchange rate even if the price of gold remained static?”

Maybe… but I don’t think there is a commodity exchange that prices it in CAD. It’s usually USD, GBP, EUR, JPY and RMB. Probably CHF too.

#161 Nemesis on 09.13.14 at 10:14 pm

#SilverMischief… #DINÉstyle (NAVAJO PEOPLE)…

http://youtu.be/PNFyIjFVGbA

#162 Kenchie on 09.13.14 at 10:20 pm

#93 Cato the Elder on 09.13.14 at 9:12 am

“The only thing that is going to wake them up is when they start to get hungry, which is what will happen when the Chinese Yuan reevaluates and everything in the West becomes incredibly expensive to buy.”

Hey Cato, quick question regarding this portion of your post: What happens when production of goods becomes uncompetitive in a country, such as China?

#163 Smoking Man on 09.13.14 at 10:53 pm

Suffering from an intervention, my cigarettes crushed, drowned and in the garbage. My booze down the drain.. My walet and car keys missing.

Fortunately, I have little bottles of JD all around the property, a full pack of smokes on my boat…

OK they love me, and want to reward me with a long life so I can have the same morbid fate as my parents..

Amazing how one step ahead I am..

Under my Gazebo, smoking and guzzling…

#164 Mark on 09.13.14 at 11:50 pm

“No, because price drops are relative to the previous month’s price point (not the date of purchase for houses). The lag is because it is based on completed sales only, the methodology is fine. Plot the Teranet data vs MLS house price index and the two month lag is obvious. I would trust the former more because it is based on matched data, but there isn’t a huge difference. Both do the job and help strip out some of the statistical noise associated with price averages.”

That may very well look like the case, but that’s more of a matter of coincidence, rather than the methodology.

As pointed out earlier, Teranet extrapolates price changes on samples taken of identical properties literally over the span of years. MLS data is just whatever the Realtors happen to be selling that month, which is subject to significant variations in the sales mix (over the past year and a half, a profound relative shift to the high end).

In other words, if we see Teranet prices falling or flatlining after a prolonged run-up, the real world situation must be prices falling (likewise, Teranet’s numbers will be unduly bearish after a prolonged bear market). Teranet will typically lag the real world by a couple of years, much like an integrating (ie: low-pass) filter. MLS data shouldn’t be taken as ‘real world’ data on the broader market because there is no adjustment for the sales mix.

#165 Kenchie on 09.14.14 at 12:49 am

#135 Setting the Record Straight on 09.13.14 at 5:03 pm

“@Kenchie

Regarding
Hayek’s criticism of Mises: I appreciate the source you provided but it is a book and I have not found anything pertinent to the issues discussed here. There were personal comments on Mises intolerance and I found a brief discussion of of methodological differences. So if you could direct me to a specific page that might help.”

Pages: 13, 58, 137, 241, 242. Like I said, he had great respect for him. How else can economists make names for themselves?

Also, what this guy said:
http://socialdemocracy21stcentury.blogspot.ca/2011/05/hayek-on-mises-apriorism.html
And

“Regarding my comment on your argument that for an Austrian to oppose floating exchange rates is inconsistent, I was unnecessarily unpleasant.”

Thank you.

#166 East Van on 09.14.14 at 1:07 am

http://www.bloomberg.com/news/2014-09-12/canadian-household-debt-ratio-nears-record-as-mortgages-grow.html

#167 Kenchie on 09.14.14 at 1:38 am

#135 Setting the Record Straight on 09.13.14 at 5:03 pm

“if gold is used as money in a society, then all prices are expressed relative to gold and they all fluctuate relative to each other and relative to gold.”

Technically, they still do.

“There is no additional thing that needs to float. If more than one society uses gold as money prices fluctuate in each market and if there is an opportunity for trade because of different factor scarcities, productivity etc. it will become apparent.”

Who is going to enforce every country to stay on the gold standard? Nobody can. In fact, it’s because of war that it was dropped, first in Germany. When countries tried to re-establish it after WWI, it caused problems. So, clearly, the theory didn’t work in reality.

http://en.wikipedia.org/wiki/Gold_standard#mediaviewer/File:Graph_charting_income_per_capita_throughout_the_Great_Depression.svg

On another point, would the gold standard push one country (British Empire) invade another (Transvaal & Oranje Free State) in order to increase their production of gold? Or desire for gold push the Spanish to conquer and enslave everyone between Texas and Cape Horn? Just sayin’, not everyone follows the rules politely…

#168 Cato the Elder on 09.14.14 at 1:39 am

Re: # 162 Kenchie

Hey Cato, quick question regarding this portion of your post: What happens when production of goods becomes uncompetitive in a country, such as China?

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

The profits from current business will continue to be reinvested in capital equipment (machinery, robots, etc.) that will increase the productivity of the plants there. In so doing, the costs of production will continue to decline, and they will be able to pay their workers more.

That is precisely what happened in the West. Early on, the productivity of the workforce was not high enough for children to avoid having to work in factories. Yes, contrary to popular belief, it was not legislation that saved the children (basically, they HAD to work, or they didn’t eat). Pretty soon, with investments in machinery and training that increased the productivity of the workforce, children didn’t have to work. One of the wonderful benefits of this was the emergence of a theretofore never seen ‘middle class’ and that only one man had to work to support an entire family.

So, what has been happening to that wealth? Why do BOTH parents have to work now, and STILL struggle make ends meet? What happened was our businesses were given a perverse incentive: it became cheaper and less risky to outsource labor to get a temporary reduction in costs, rather than increase their capital equipment – which cost more upfront, but provided for longer term benefits.

We can see that my above assessment has been correct with all our manufacturing being destroyed. We can also see that at first Chinese products were of poor quality, and didn’t last long. Now, their products are becoming increasingly better made, cheaper, and their brands are even becoming commonly known (the result of capital investments).

That is not to say that some outsourcing from China won’t occur, it will. But not on the scale that happened in the West. The Chinese will not be that foolish. Many of those in charge grew up poor, and under an authoritarian society. They are moving away from it because they know what it is like, and they want a better life for their families. They are also united in ensuring their mistreatment of the past by Western powers doesn’t happen again.

Unfortunately, we are headed in the wrong direction because we are being lead by people with silly imaginations. They’ve never lived under authoritarian rule, and have a rosy picture of how harmonious it will be when we are all ‘equal’. Equally poor, unfortunately.

#169 Kenchie on 09.14.14 at 1:51 am

#135 Setting the Record Straight on 09.13.14 at 5:03 pm

“If paper currency is used in an economy, rather than coins, where an individual has the right to demand gold for his paper, nothing has changed. The paper just reduces the costs of carrying around with you.”

And what about debit and credit cards? They aren’t paper, per se. The advent of credit cards, debit cards and atms have increased the velocity of money significantly over the past half-century. E-commerce, new apps and phone-based payments systems, and now Apple’s iWatch, will increase it further. All these technological changes have rendered the “gold standard” fundamentally archaic.

I’m sure you know the formula (assuming it holds): MV = PQ

Well, let’s say money supply (M) grows at the rate of mining production of gold, say 1%, (a topic often forgotten in the discussion about the gold standard – as is discussing the increasing marginal cost of producing $1 of gold in bigger and deeper mines), and velocity (V) grows at a rate of 3.53% (doubles in 20 years). So in yr1, $1 goes around the economy 5x, in yr 21, it’s 10x, etc.
The quantity of goods and services produced (Q) should roughly grow inline with the population growth, say 1% in North America. That leaves prices of goods and services (P) to grow inline with the velocity of money (V), which is linked to confidence and technological change. Thus, the gold standard does nothing to stem increases in prices (P).

And that’s not even talking about cost-push inflation factors, such as desertification of arid land in Africa, or polluting of water tables in fertile regions of China, or rapid urbanization of China, drought in California and Australia, etc. Or the demand-pull inflation factors, such as +3% population growth in Nigeria per year since independence and increase in middle-class spending in China and other emerging markets…

#170 young people are desperate on 09.14.14 at 2:20 am

young people are desperate in Calgary:

https://ca.news.yahoo.com/blogs/dailybrew/young-homebuyer-plans-redemption-for-calgary-house-of-134708751.html

so sad.

#171 drydock on 09.14.14 at 2:42 am

#157 Kenchie on 09.13.14 at 9:43 pm

I wouldn’t mind being paid in $1 denominated 1oz silver .9999 coins in the least.

#172 betamax on 09.14.14 at 5:37 am

#79 Vicpaul: “people striving for knowledge, peace, justice and equity. With the few years you have left devore, grow up.”

High-minded generalities quickly followed by a specifically nasty ad hominem. Typical.

#173 betamax on 09.14.14 at 5:45 am

#106 Mister Obvious: “$375K to $450K is still far too expensive for a typical SFH in the centre of Vancouver Island.”

$375k+ in Port Alberni should buy a small castle. Anything less isn’t worth that kind of money.

#174 rosie "moving forward" in the knowledge that, "this won't end well" on 09.14.14 at 9:04 am

When I was a kid we walked 5 miles to school, up hill each way.

http://www.theglobeandmail.com/globe-debate/how-to-make-ends-meet-look-in-the-mirror/article20566396/

#175 Vicpaul on 09.14.14 at 9:18 am

#172 betamax

Do you know what ad hominem means?
I specifically refuted devore’s assertion that I wouldn’t
/don’t have the ca hones to start a school as a private business – pointedly addressed his argument.
For those who whine about the few professions/occupations that provide a DB pension at the end of a thirty year career – could you not have done a BSc/ BEd (or other degree mix) and competed for the few jobs available at the back end of the boom?

#176 Matt on 09.14.14 at 9:57 am

#156 “Most can feel what is actually happening … real estate is emotional and emotion is a feeling not a statistic.”
Are you saying that no one needs statistics, because your gut instinct alone is enough to figure out what is happening in the national housing market? So most people could feel the US market was about to crash?

#177 Matt on 09.14.14 at 10:03 am

#164 “Teranet will typically lag the real world by a couple of years”
There is no two-year lag. That would make the index useless, which it is not. The Teranet data will show a dip two months from now, just as the MLS house price index data will show a dip when it comes out next next week.

#178 Kenchie on 09.14.14 at 12:17 pm

#168 Cato the Elder on 09.14.14 at 1:39 am

“The profits from current business will continue to be reinvested in capital equipment (machinery, robots, etc.) that will increase the productivity of the plants there. In so doing, the costs of production will continue to decline, and they will be able to pay their workers more.”

Wrong, there is no evidence to support this. As the cost of transportation dropped (steamships to oil-powered ships, etc), the ability to scale up production to sell into other markets.

“That is precisely what happened in the West. Early on, the productivity of the workforce was not high enough for children to avoid having to work in factories.”

Without legislation, there is no incentive to reinvest the profits to improve productivity.

“One of the wonderful benefits of this was the emergence of a theretofore never seen ‘middle class’ and that only one man had to work to support an entire family.”

Mmhmm… and the emergence of trade unions had no impact on the decisions to invest and improve productivity? You clearly don’t understand the idea of “class-warfare”.

“it became cheaper and less risky to outsource labor to get a temporary reduction in costs, rather than increase their capital equipment – which cost more upfront, but provided for longer term benefits.”

Are you saying private owners of capital are not allowed to act in their best interest (to improve their wealth)? Well, that doesn’t exactly fit in with your free-market mantra.

#179 Kenchie on 09.14.14 at 12:27 pm

#168 Cato the Elder on 09.14.14 at 1:39 am

“We can see that my above assessment has been correct with all our manufacturing being destroyed.”

LOL. US is still the largest manufacturing country in the world, followed by China, then Japan, Germany, France and UK. “All” our manufacturing is super hyperbole.

“That is not to say that some outsourcing from China won’t occur, it will. But not on the scale that happened in the West. The Chinese will not be that foolish. Many of those in charge grew up poor, and under an authoritarian society.”

Finally, something reasonable said. However, Taiwan’s Foxconn wants to replace over 1 million workers in China with robots because of workplace interruptions. There are over 150,000 protests (defined as +100 ppl or more) in China a year. And that in 2013, China’s workforce shrank by 3 million people due to old age, and as the population ages, on average, manufacturing will be less attractive to older employees. Not to mention the number of uni graduates they produce, who are unwilling to work in menial manufacturing jobs.

Furthermore, considering so many products are controlled by US and European companies, it’s not exactly China’s masters’ decision on where production is…

And China’s advantage has been shrinking for the last few years, and will continue to shrink for numerous reasons.

http://www.industryweek.com/competitiveness/us-mexico-are-rising-stars-manufacturing-cost-competitiveness

#180 Kenchie on 09.14.14 at 12:30 pm

#171 drydock on 09.14.14 at 2:42 am
“#157 Kenchie on 09.13.14 at 9:43 pm

I wouldn’t mind being paid in $1 denominated 1oz silver .9999 coins in the least.”

Would your employer like to pay you in 1oz silver coins? Considering most employers don’t even like to issue cheques nowadays, you would likely have to find a very silly employer to do that.

#181 Kenchie on 09.14.14 at 12:42 pm

#178 Kenchie on 09.14.14 at 12:17 pm
#168 Cato the Elder on 09.14.14 at 1:39 am

**As the cost of transportation dropped (steamships to oil-powered ships, etc), the ability to scale up production to sell into other markets [increased. This form of globalization also increased competitiveness and put out of business higher-cost producers around the world, regardless of where the production is located.]

PS: what I was saying “wrong”, specifically, to is the idea of continuous decline in cost of productivity (i.e. continuously decline towards zero).

I wasn’t disagreeing with the idea that they can pay their workers more or that investment in PPE would increase the productivity of the plant. These are true, in my opinion, but they are never considered in isolation from other factors.

#182 };-) aka Devil's Advocate on 09.14.14 at 12:52 pm

#176 Matt on 09.14.14 at 9:57 am

Yup pretty much. Anyone who is “tuned in”. But that does not mean the ability to predict with enough accuracy to be able to speculate.

My comment was that you can feel what IS happening not what you hope is happening or hope might happen – WHAT IS happening. Stats can be and are too often manipulated if only by omission.

#183 devore on 09.14.14 at 1:45 pm

#175 Vicpaul

It’s not about “refuting” anything (which you did not in any case), that’s a childish sentiment. Free enterprise means those who can, do, those who can’t, take what’s given. By your own admission, if you could, you’d be charging $200k. But instead you’re sitting on a picket line, while the teacher’s union is holding kids hostage and using their education as a bargaining chip. I can see who has growing up to do.

#184 rip it a new one on 09.14.14 at 1:59 pm

You know very well that the US market didn’t fall due to waning demand. The US case was a credit crisis. When the banking scandal was exposed, credit dried up and no one got a mortgage due to lack of credit supply…not falling buyer demand…..apples and oranges.

#185 SRV on 09.14.14 at 2:06 pm

“the latest positive news being a surge in retail sales”

Retail sales are some of the least reliable and most “rose coloured glasses” figures in a host of questionable government reporting. As noted in the following link, retail result are often simply “guesstimates” by low level administrative staff.

High end (the rich are still getting richer) retail is still doing well, but the vast majority of retail is fighting bankruptcy and the financial prestitutes dutifully whitewash the truth to keep the party going…

http://www.theburningplatform.com/2014/09/13/kohls-the-rest-of-the-retailers-are-in-deep-doo-doo/

#186 Mark on 09.14.14 at 2:46 pm

“There is no two-year lag. That would make the index useless, which it is not. The Teranet data will show a dip two months from now, just as the MLS house price index data will show a dip when it comes out next next week.”

Yes there is a multi-year lag between the Teranet data going bad, and the real world seeing a decline. MLS doesn’t have any adjustment for the sales mix — it is simply an indication of whatever the Realtors happen to be selling at the time.

Teranet data is perhaps useful for long-term trends, such as determining the long-term total return on RE for a given area. But most certainly isn’t useful for very short time periods such as the 2 months that you’re claiming.

Case-Schiller in the United States, same deal, its a long-term moving average, low-pass filter. Which is why it also tends to be disconnected from the day-to-day reality of the RE market.

#187 Happy Renting on 09.14.14 at 3:27 pm

#163 Smoking Man on 09.13.14 at 10:53 pm

At least your addictions counsellor son isn’t trying to kill you off for his inheritance. He’d just spend it at Whole Foods, anyway. Think of how mad your wife would be.

#188 Cato the Elder on 09.14.14 at 3:40 pm

Re: #178 Kenchie

Wrong, there is no evidence to support this. As the cost of transportation dropped (steamships to oil-powered ships, etc), the ability to scale up production to sell into other markets.

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

A lot of the stuff you’ve said is constantly repeated in the press – I will try to address them from my understanding of basic economics. If you want to learn how a society is built in a capitalist system, try reading: How an economy grows and why it doesn’t. Unlike many mainstream economists that can’t explain anything simply, this book illustrates an economy being built from the ground up and gives logical, rational explanations for it.

Regarding your posts, the example you just gave is a perfect piece of evidence of capital investment. Oil powered ships are a CAPITAL investment. It requires capital to construct a ship, and the hope is that it will generate a return in the future (profits). If the investment FAILS to generate a profit and instead generates a loss, this is a FANTASTIC signal to the MARKETPLACE that it should not be pursued, and resources aren’t wasted anymore. There wasn’t any legislation compelling them to upgrade from steamships to oil powered ships – it was ECONOMICAL to do so (reduced costs, efficiency in time saved, increased productivity, etc.). An added benefit is that the Captain (employee) of the steam ship could now be the Captain (employee) of the oil powered ship. Because his position was now more productive (transport more goods, less down time, faster, etc.), the owner of the boat could afford to pay him more.

We have been taught for decades in our schools about how benevolent our government has been in ‘protecting’ us. The truth is that if the workforce is not productive enough, no amount of legislation will prevent a child from being required to work in order to live. Third world countries have children working because they MUST work. If you legislate their cessation, how will they eat? It could be argued that forcing the end of child labour in those countries is tantamount to a death sentence. If we want to save the children, we should instead be advocating for adoption of free market principles: property rights, sound contract law, and an impartial judiciary.

NOTE: I am not advocating child labour. I obviously think it’s deplorable and wish children allover the world could enjoy our standard of living. But we must think rationally and not emotionally when assessing economic situations, and recognize that PRODUCTIVITY gains must come BEFORE increases in standard of living.

For most of world history a middle class hasn’t existed. Think about that for a second. 500 years ago white westerners would have been laboring all the time in farms because farms were not productive enough to supply foodstuffs for enough people. Today, very few people are needed in farming because CAPITAL equipment has increased productivity (machinery, etc.).

With regards to your comment about unions, that’s again a commonly held fallacy. The ‘weekend’ was a phenomena that occurred as a result of the increased productivity of the workforce. They didn’t HAVE to work everyday to get an adequate amount of output from their labour.

Look at the damage the unions have done to what used to be the largest companies in the world like GM. Toyota doesn’t have any unions, pays their workers extremely well, and it’s a PROFITABLE company that doesn’t require taxpayer funded bailouts.

I don’t have anything against unions. Anything goes in a free market economy. What I do have a problem with though is this: if a union ultimately bankrupts a company, taxpayers should NOT be forced to subsidize it. It should fail, and those companies that were better users of capital (labour and resources) should buy up their assets and succeed.

We shouldn’t be subsidizing failure. A central tenet of economics is: if you subsidize something, you get MORE of it. That means we are going to have MORE failures in the future from these culprits that have mismanaged their companies and been saved by the taxpayers dime.

#189 DM in C on 09.14.14 at 3:51 pm

Seniors should pay up

MacLeans has a cover story on OLD, RICH, SPOILED

http://macleans.newspaperdirect.com/epaper/viewer.aspx

#190 Shawn on 09.14.14 at 4:28 pm

CATO the ELDER on Economics at 188

Your explanation sounds correct to me.

I was recently re-reading Adam Smith 1776. His common sense approach is timeless.

#191 Retired Boomer - WI on 09.14.14 at 4:58 pm

#188 Cato The Elder

Agree with your post.

Let us hear your comments relative to AIG, Tarp and the “saving” of Banking. (no unions there)

#192 Mark on 09.14.14 at 5:09 pm

“You know very well that the US market didn’t fall due to waning demand. “

Actually that was the reason for the US market’s destruction. Exploding supply against waning demand. A decades worth of supply was effectively stimulated into construction in just a couple of years. Supply chains were expanded enormously to meet the demand. Over-investment occurred throughout the industry. Demand, which collapsed (simply an exhaustion of credit-worthy buyers), simply could not keep up with exploding supply.

Mortgages (prime and subprime) stopped performing as well, the interest rate cycle went against the lenders (inverted yield curve), and the rest is history.

A similar thing is happening in Canada. Large amount of supply has been stimulated due to the elevated prices. Subprime mortgage credit is receding because the CMHC has held firm on the $900B limit of their subprime guarantee authority. Hence, prices have been going down across Canada for a year and a half.

#193 Retired Boomer - WI on 09.14.14 at 5:14 pm

#159 Kenchie

…sorry didn’t see your post until now…

Actually, I worked one, or two nights sometime as many as 5 week nights as well. 5-12 during the week then Fri 5-12-1-2 Sat 5-12-1-2 am and Sun 5-12 so somewhere between 37 and 42 hrs a week.

Did I ‘violate’ my work permit? Dam right I did. No one checked back then. Did I always get enough sleep, probably not. Dud I ‘like’ the work. Dam right! Was I an A student, hardly, never was, never shall be either. Try solid “C” average… mediocre… no grade inflation either

cheers!

#194 Mark on 09.14.14 at 5:16 pm

““it became cheaper and less risky to outsource labor to get a temporary reduction in costs, rather than increase their capital equipment – which cost more upfront, but provided for longer term benefits.”

Are you saying private owners of capital are not allowed to act in their best interest (to improve their wealth)? Well, that doesn’t exactly fit in with your free-market mantra.”

The evidence appears to be that, by substituting (cheap) labour for (expensive) capital, business owners are perhaps acting in their best short-term interests. But over the long term, they are gradually losing competitiveness. And the cheap labour advantage, whether it be through outsourcing to China, or by hiring low cost domestic employees (or TFW’s) will eventually disappear. Leaving the business owner with a hollowed out and inefficient shell of a company.

This is a particularly acute problem in Canada, where there is chronic under-investment in productivity and severe unemployment and underemployment of the professionals in engineering, in IT, in the sciences. R&D has collapsed in the post-Nortel era. Even when certain Canadian companies come up with great products, like the Bombardier C-Series, our domestic investors value the firms that create them below liquidation value.

#195 Vancity D-Man on 09.14.14 at 5:55 pm

just read this on Bloomberg News. It’s no different in Australia. It will end badly there as well.

http://www.bloomberg.com/news/2014-09-14/australians-face-repayment-shock-on-high-risk-mortgages.html

#196 Kenchie on 09.14.14 at 6:07 pm

#188 Cato the Elder on 09.14.14 at 3:40 pm
“Re: #178 Kenchie

Regarding your posts, the example you just gave is a perfect piece of evidence of capital investment. Oil powered ships are a CAPITAL investment. It requires capital to construct a ship, and the hope is that it will generate a return in the future (profits). If the investment FAILS to generate a profit and instead generates a loss, this is a FANTASTIC signal to the MARKETPLACE that it should not be pursued, and resources aren’t wasted anymore.”
———
It’s astonishing how little you understand the point I was making and anything beyond basic microeconomics. You think the capital investments that improved steamships to oil-powered ships are what’s relevant in my post? It’s not. That’s one aspect of the point that can be interchanged with larger semi-trailers, or longer trains. Your response sounds like you learned basic economics in high-school. It’s not “dynamic” in thinking at all.

Your original point was about continuous reinvestment of profits into PPE to continuously get lower cost of production (for manufacturing in Europe or US). It’s clear that you just don’t get how Maersk and other shipping companies are commissioning larger and larger ships (Panamax and post-Panamax, etc) and making it easier for efficient trade between continents is what matters. Meaning the price of imported goods is cheaper and cheaper due to economies of scale of production in China vs production in Europe or North America. Thus, undercutting profits of local manufacturers, regardless of HOW MUCH CAPITAL THEY PUT INTO THEIR PLANTS to lower average cost per unit. This means, local producers aren’t just competing against foreign competitors, they are competing against the supply chain of the entire industry!

I don’t know what school you went to, but I have never been told that the government is benevolent.

#197 Kenchie on 09.14.14 at 6:18 pm

#188 Cato the Elder on 09.14.14 at 3:40 pm
Re: #178 Kenchie
Continued:

And you talk about child labour, etc, in order for families to pay for food on the table, and that it was the benevolent capitalists that magically invested their retained earnings in the factories to become more productive. The only fallacy is that the capitalists/owners class is benevolent. They didn’t give two flying bucks about child labour then, and they surely don’t care about the single-working mothers today. (I don’t profess that this is immoral or moral, because it is my opinion that economics is amoral).

Do you actually think that there wasn’t “property rights, sound contract law, and an impartial judiciary” during the industrial revolution in the UK? Property rights were invented in England, as was the common law system. Why would it change magically during the industrial revolution? The UK was by far the most free-market jurisdiction in the world in the 1800s. You’re incredibly naive if you think otherwise.

“Third world countries have children working because they MUST work.”

No shiza, Sherlock. It’s because of numerous factors, not just legislation, that are intertwined (including efficient shipping that allows goods to move from Cambodia to Kamloops via intermodal containerization AND the ridiculously overpopulation of these 3rd world countries that they have no choice). And it’s certainly not the benevolence of capitalists to invest (but rather the opposite: the exploitation of cheap labour whenever necessary to be competitive in the market).

“The ‘weekend’ was a phenomena that occurred as a result of the increased productivity of the workforce. They didn’t HAVE to work everyday to get an adequate amount of output from their labour.”

At best, your defence here would be the chicken or the egg situation. Did investment come first and increased productivity, or was it strikes and petitioning governments to lower the number of hours worked per week? Me thinks, due to the long history of how unions and strikes have worked in the past and today, that it’s the latter.

And also that when costs increase, to maintain profitability, costs eventually get cut by new capital investment or reorganization of production practices (aka downsizing). Look at the long-term history of any stock indices’ ROE, it will always hover between 10% and 12%. This indicates the stability of ROE over the long-term, regardless of what the government and employees through at companies. Why? Because complacency. If the proletariat doesn’t agitate for higher wages, managers don’t need to invest to maintain the same ROE. Simple to understand, no?

“Look at the damage the unions have done to what used to be the largest companies in the world like GM. Toyota doesn’t have any unions, pays their workers extremely well, and it’s a PROFITABLE company that doesn’t require taxpayer funded bailouts.”

True, I agree 100%. But, once again, it’s naive to think that the gov’t wouldn’t step in to prop up two or the largest employers in the US because: democracy! Hate it or love democracy, but you can’t have it both ways.

#198 Cato the Elder on 09.14.14 at 6:23 pm

Re: #194 Mark

The evidence appears to be that, by substituting (cheap) labour for (expensive) capital, business owners are perhaps acting in their best short-term interests. But over the long term, they are gradually losing competitiveness.

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

You are absolutely correct. The other detrimental effect is that the trade deficit increases, which means that MORE goods/labour are flowing out of the country than into it (this is not sustainable in perpetuity).

Also, it should be noted that this lack of investment into capital equipment ISN’T occurring in a vacuum. It’s the GOVERNMENT (which is quite often central to problems) that is creating these incentives. When interest rates are artificially low for too long, it incentivizes consumption and DEBT. Also, government regulations surrounding industries that are capital intensive (like power plants) become so stifling that no one can invest profitably in them.

Try this the next time the government proposes to ‘fix’ something:

Whatever it is they are proposing to fix will DIMINISH in quality and INCREASE in price. Watch this happen in real time with this in mind – you will be shocked at how predictable it is.

Just a couple come to mind in recent memory:

-‘affordable’ education (student loans) = price increases, diminished value of degrees in job market
-‘affordable’ houses (insurance provided to banks) = huge price increases making houses too expensive, massive risk taking by banks jeopardizing the economy

The list goes on and on. Politicians should be more focused on creating a business friendly, property law respecting, contract law enforcing society if they want the maximum amount of wealth for the maximum number of people.

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

Re: #191 Retired Boomer – WI

Regarding the saving of the financial system, no, it shouldn’t of happened. Responsible savers should never be held to bail out those that were reckless. Of course, he result would have been catastrophic. However, it wouldn’t of lasted very long. The bad debts would have been liquidated, prices would have decreased until they reached a price point where people wanted to buy them, and demand would have started up again. The recovery would have lasted a couple of years, instead of the decades long sustained malaise we are continuing to go through for the foreseeable future.

It should be noted that this was once again a government induced mess, followed up by a government induced solution (which didn’t solve anything, but created more problems). Governments shouldn’t be involved in the mortgage market, it should be the prerogative of lenders and their shareholders to what degree of risk they are willing to take on. However, when governments tell banks that they will support them in the event of failure, of course they will take enormous, dangerous, risks.

#199 Kenchie on 09.14.14 at 6:24 pm

#188 Cato the Elder on 09.14.14 at 3:40 pm
Re: #178 Kenchie
Continued:

“We shouldn’t be subsidizing failure. A central tenet of economics is: if you subsidize something, you get MORE of it. That means we are going to have MORE failures in the future from these culprits that have mismanaged their companies and been saved by the taxpayers dime.”

I don’t disagree with this point. But you can’t really call the bail out of GM and Chrysler as “subsidizing” since it was actually a debt-conversion-to-equity takeover. The equity holders got wiped out. Governments and unions (which were owed legally-binding obligations) became the new equity owners. The US eventually sold all of its stake in GM and Chrysler. So it’s not a real subsidy.

A real subsidy is directly providing cash to a company on an ongoing basis, which is unfair to its competitors. Or, a subsidy is indirectly limiting foreign competitors access to the local market in the form of tariffs or quotas.

You really need to broaden your understanding of economics.

#200 Cato the Elder on 09.14.14 at 10:23 pm

Re: Kenchie

I’m not going refute everything point by point. All I’m going to say is that I am a defender of TRUE free markets. What the west has today is not free markets – it is crony capitalism. Big business using big government to regulate their competition out of existence. This makes us all worse off.

True free markets (capitalism) is wonderful. Here’s why: even if you an evil person with terrible intent, you can’t get rich without SERVING your fellow man. You can only earn money in a true free market system by providing a service or good that other people value. Theft is not allowed. Fraud is not allowed. So regarding capitalists ‘benevolence’, you’re right: that isn’t their goal. But their goals of earning profits invariably create benevolent outcomes because they are providing goods and services that people can get value from. Those that are not providing goods and services that people want will soon find their businesses bankrupt. Profitable businesses do far more good for society than charities. That is assuming the company isn’t receiving special treatment from big government, and that free market forces are allowed to operate.

#201 Retired Boomer - WI on 09.14.14 at 11:21 pm

#198 & #200 Cato the Elder

First I’ll say the invisible hand only exists in Econ 101 textbooks.

Such “invisibility” depends upon a pure, untrammeled economic environment, where there was no interference or any unscrupulous practices to distort its workings.

Unfortunately, we have 300 years on interference since Mr. Smith’s description of the utopian “political economy.”

Whether unions, government, unfair trade practices, monetary manipulation, or people acting in what they ‘think’ is their best interests, they all tend to disrupt and distort the ‘perfect’ market.

They wax poetically about marvelous benefits that flow from a truly unaffected market. Herein lies the problem.

The only place a free market like this can be found is in
Econ 101. A “free market” has no example anywhere in the annals of American history.

Since the founding of the Republic, our markets have been distorted and manipulated by two forces inherent in the human condition. these are called greed and avarice.

There NEVER has been a free market, there is not now a free market and if the frailty of our erstwhile entrepreneurial members of society can be taken as a guide, there never will be a free market.

It turns out that in reality, the only part of Adam Smith’s theory that has survived is not the “hand” but the fact that generation after generation the operation of this wonderful idea has remained largely “invisible.”

May it continue unabated

#202 Cato the Elder on 09.14.14 at 11:53 pm

Re: Retired Boomer – WI

You’re right, there is no perfect free market system. Humans aren’t perfect thus any system run by them will be flawed.

That being said, it is no coincidence that the countries that adopted the most free market principles (contract law, private property rights, impartial judiciary) also became the richest.

Even though it can never be a 100% free market system for the reasons you described, I think every effort made by voters and politicians should be to work towards it. Special privileges should not be conferred to certain groups or companies. Only those that provide value to their fellow man, either though goods, services, or their labor as employees, should be rewarded.

It’s unfortunate that people often associate these truths with a lack of kindness. That couldn’t be further from the realities of the world. Capitalism is the largest wealth provider for the maximum number of people. Socialism doesn’t work at a national level because people do not have strong social bonds there. Socialism can only partially work in tight-nit, closely bonded groups (such as within families or small communities). It only works then because there are social pressures to fulfill obligations – these pressures are substituted with the payment of money in a capitalist system.

Anyways, it’s been nice chatting with everyone about these ideas. I think I’m going to give Garth a break from moderating on this blog post now.

#203 liquidincalgary on 09.15.14 at 4:27 pm

#179 Kenchie says:

US is still the largest manufacturing country in the world, followed by China

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

actually, China now has the productive capacity to produce EVERYTHING the WORLD consumes !

as a matter of fact, China has aluminum smelters they will not fire up, as even they understand it could crater the price of the metal