The correction

SWIM TOP modified

When a study came out the other day saying Canadians are among the ten richest peoples in the world, it wrecked the romantic moment by adding this:

“Although financial assets made a relatively speedy recovery in the aftermath of the crisis, achieving annual growth averaging 8.1 per cent per annum over the past five years, the financial situation of Canadian households is anything but sustainable. Macroeconomic shocks like rising interest rates, a labour market slump or falling house prices could pose a serious threat to the solvency of highly-indebted households.”

But what if they all happened at the same time?

It was a question worth asking on Thursday as stock markets took a dump, along with commodity values, the dollar and business confidence. Even the banks were whacked, with CIBC shares falling enough, for example, to wipe out most of a full year’s dividend payments.

Why did markets plop?

Lots of immediate reasons. Apple was punished after people found their new iPhones bend when they sit on them (imagine!) and the system upgrade has bugs. Cheesy Russian politicians are working on a bill to seize foreign assets, like McD stores in Moscow. The ISIS numbnuts may be planning to blow up the NY subway system. Ebola is out of control. Syria’s burning. China’s growth is slowing.

But mostly investors are worried the US economy is growing too robustly, which means the Fed will start raising interest rates sooner than anticipated in 2015. After all, the GDP is romping ahead by 4%, stimulus spending ends next month, the federal deficit is falling and corporate profits have been consistently strong. Yeah, lots of people are on food stamps, unemployed and pissed, but the fact is the investor class has been doing great. The S&P gained almost 19% in the past year, even after the Thursday give-back.

So when enough little shocks hit, with financial asset values sitting at record levels, smart people rebalance. They take money off the table, harvest their gains and invest in under-performing assets. Really smart investors wait for days like this, hope there are more, and buy stuff when it’s cheap. It’s the opposite of what happens with real estate, as buyers disappear when prices decline.

Speaking of which, this might be of interest. Below are the 12-month gains for the TSX, the Dow, and the S&P 500, as well as house prices in Calgary, Toronto and Vancouver, in percentage terms. You can see that only the Cowtown market comes close to approximating returns on equities, but remember that in order to realize this ‘profit’ on a house you have to sell and pay tens of thousands in commission. That would suggest the average digs in Vancouver, for example, returned nothing on all that money invested in it. Bummer.

CHART modified

Well, here’s the point the Euro report was making about net worth gains in Canada. They’re very fragile, since we’ve all put so much into a single asset. Increases in personal wealth have been supported by giant dollops of new debt, not higher incomes. In fact, the job market in Canada sucks, as evidenced by a 14% youth unemployment rate and the loss of 110,000 private sector paycheques last month. In contrast, the US has churned out 1.2 million jobs this year and – believe investors – is ready to fluff rates.

The contrast between the US and Canada is growing stark. Look at the dollar – struggling to stay above 90 cents. Thus, it seems quite possible that 2015 (a hundred days off) will bring higher mortgages, scant new jobs and fewer reasons to spend $700,000 on house you can’t quite live in.

Could be a perfect storm for your brother-in-law and his three ‘investment’ condos. Or your house.

Happily, though, stocks are on sale.

147 comments ↓

#1 SUave on 09.25.14 at 5:57 pm

Your kids are bused to far school – Blame Developer

So you bought condo for pile of money!
You did not consult Garth the Enabler
Now you moved in and you find out that your
kids cannot go to school across the street,
but will have to be bused to school far away…
who do you blame?

DEVELOPER

I learned that school which are near capacity and when new condo tower is
being built school board asked that Developer to contribute to school expansion
or kids from his building will not get to go to that school
Developer (in this case Da***) being greedy that way it is said: NO

School board says: kids from that building will not go to our school

Developer says: Who cares I keep $$$ and then he adds fine print on contract that
“kids may go to different school due to capacity”…LOL

Read fine print and blame developer!
Do not come to our school and create scene with principal!

lol

#2 SUave on 09.25.14 at 6:03 pm

Italy Stared First with confiscations…
US started first with Turkie missile installation

-Russian courts could get the green light to seize foreign assets on Russian territory under a draft law intended as a response to
Western sanctions over the Ukraine crisis.

Whether this is retaliation at

Italian tax police seizing €30m in assets,

including a luxury hotel in Rome and two villas in Sardinia, owned by Arkady Rotenberg,
is unclear, but the timing is highly coincidental and Rotenberg has been a longtime ally of Russian president Vladimir Putin.

ZH knew first…

#3 Son of Ponzi on 09.25.14 at 6:03 pm

I just love the sound of margin calls in the morning………

Sorry, to bother you Mr.Shawn, but we had to sell some of your Berkshire Hathaway stocks to cover your losses.

#4 Fred on 09.25.14 at 6:09 pm

From your experience ,when do you think the stock markets will level out?

#5 mid20millenial on 09.25.14 at 6:09 pm

Waiting for the market to keep slipping, and hopefully, houses soon after.

Buy buy buy.

#6 Reginald D'autreille on 09.25.14 at 6:19 pm

I am an American who was just offered a job in Vancouver. It’s a good job, but the salary offered was 90% of what I am currently making (and in $Cdn terms, whereas I’m currently earning greenbacks). While, yes, every $US I have in the bank can now be converted into $Cdn 1.10, I had to laugh at the company offering me the job (I didn’t really; I was actually quite polite about it).

Why on God’s green earth would I, as an American living in a nice city take a job in Vancouver when:

1) I would get paid less, because people just don’t make a lot of money in Vancouver,
2) I would get paid in Canadian dollars, which appear to be rapidly depreciating in value,
3) I would have to pay a much higher income tax,
4) I would have to pay higher taxes on other items, like gas and liquor (both of which I consume a moderate amount),
5) I do not get to write off my mortgage interest,
6) The crime rate in my US city is lower than in Vancouver,
7) Where I live the weather is much nicer, and
8) My city has an NFL team and a hockey team that has a brighter future than the Canooks.

#7 Happy Renting on 09.25.14 at 6:30 pm

I love sales. :) Have done some buying, with more cash to deploy if the sales get even better.

Not that people are totally rational, but it’s funny how an almost-8% house price gain prompts mad investment in RE, whereas an 18% TSX gain fails to attract similar interest.

#8 Soused on 09.25.14 at 6:31 pm

Why on God’s green earth would I, as an American living in a nice city take a job in Vancouver:

——————————————————————–
Well if you’re not-white you’d move to Canada to avoid being shot by the police. That’s about the only reason.

#9 Shawn on 09.25.14 at 6:31 pm

Dear Son of Ponzi: You Wish

Son of Ponzi said to me:

I just love the sound of margin calls in the morning………

Sorry, to bother you Mr.Shawn, but we had to sell some of your Berkshire Hathaway stocks to cover your losses.

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

Every time I sell Berkshire it later seems a mistake.

However I had sold some at $125 at a gain and sold the rest at $141 just last week and held none today.

Most of my investing is in RRSP and RESP accounts where selling does not trigger a capital gains tax.

There is a difference between following Buffett and buying Berkshire.

Also I am not using any margin and have about 25% cash.

But I did lose money today. My account value declined. I Did lose some of my gains. Does not bother me. I look to pick up some of the on-sale stuff. I did not sell any stocks today.

#10 Mike S on 09.25.14 at 6:36 pm

“Happily, though, stocks are on sale.”

not yet, but hopefully soon will be

#11 james on 09.25.14 at 6:36 pm

Oddly enough, my sister does have three investment properties. A luxury condo in Williams Lake (yes, you read that right), and two condos in the lower mainland. None are cash flow positive, and she is hyper exposed to a downturn.

Why? Because another lawyer at her office said it was a no-risk way to get rich.

I will keep my inexpensive home in Seattle, balanced portfolio and zero state income tax, thanks.

#12 james on 09.25.14 at 6:38 pm

#6

Those are all good reasons. Where do you live?

California taxes don’t appear to be any better than most Canadian provinces, and might be worse for high income earners. I haven’t seen a study, but I didn’t enjoy paying taxes there.

You are right about the cost of goods. It’s just insane.

#13 Randol on 09.25.14 at 6:40 pm

Son of Ponzi

Are you serious, you think Shawn is getting a margin call or losing sleep over a bad market day, week, or month? Fool.

I hope for a greater pullback so I can put my end of year profit sharing dollars to good use. The Dow could drop a thousand and the only panicking it will do is scrambling for cash to buy.

#14 Son of Ponzi on 09.25.14 at 6:41 pm

#6.
obviously, you’re not keeping up with the news.
Vancouver is the Best Place on Earth, and taking a pay cut is only a small price to pay for the opportunity to look at the mountains and walk along the beach.
Also, you can golf, ski and surf all on the same day.
You’d be a fool not to take the job offer.

#15 Karl hungus on 09.25.14 at 6:52 pm

It always weakens your argument when you conviently leave out the part about leveraged gains

Leverage is debt. I mentioned it. — Garth

#16 Roman on 09.25.14 at 7:04 pm

Hehehe, rebalance.

Your friendly financial advisor is waiting for you with an amazing portfolio with all sorts of bonds from Kazakhstan to US corp debt.
It’s going to perform amazingly after rate hake, believe him.

Everything is going to be whacked, there will be nowhere to hide. The boyz are buying here and there – wheat, corn and other commodities that are in the toilet.
But average “investor”? No way they survive coming correction.

PS
Reginald, dude – you forgot to mention about most terrible thing about Canada. You’ll have to drink timhortonz every day, probably more than one time day.

Let me guess. You own nothing. — Garth

#17 Retired Boomer - WI on 09.25.14 at 7:07 pm

So the markets had a down day. Plop not a big deal.

My diversified portfolio certainly lost “value” today, but I am not selling anything just now to replenish my chequebook.

Did your house lose value today? Might be, but it isn’t priced daily is it?

Ask me in a week what’s new. I did manage to sign up yesterday for my social security beginning in January.
That remind me to ask Garth a question.

When a retiree is getting their government stipend, and a modest pension should that income stream be considered as a portion of one’s BOND portfolio?

Say the value of this income steam was $3900 a month should one classify it as a BOND income stream, allowing pine to adjust their portfolio holdings to a higher equity position say 70/30 S/B or 80/20 S/B rather than the more typical 60/40?

Never heard a decent analysis of this idea??

#18 Retired Boomer - WI on 09.25.14 at 7:09 pm

PINE should be ‘one’ auto-correct strikes again!!

#19 Richard Parker on 09.25.14 at 7:11 pm

Another guy that resonates with you Gartho

http://youtu.be/ae4RxmCRbV8

#20 frank le skank on 09.25.14 at 7:13 pm

#8 Soused on 09.25.14 at 6:31 pm
Why on God’s green earth would I, as an American living in a nice city take a job in Vancouver:

——————————————————————–
Well if you’re not-white you’d move to Canada to avoid being shot by the police. That’s about the only reason.

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

Excluding Toronto of course….

#21 Nemesis on 09.25.14 at 7:14 pm

#Ouch,Reginald! #ThinkOfItThisWay… #InYVR… #YouGetTwoSports… #ForThePriceOfOne:

http://youtu.be/Vlel1VPZ4zA

#22 Helen on 09.25.14 at 7:25 pm

Some fool paid $2M for this plain old house crammed into Vancouver’s East side.

http://www.vancitybuzz.com/2014/09/2-million-real-estate-price-point-reaches-east-vancouvers-fraser-street/

#23 baddog on 09.25.14 at 7:27 pm

Bought 2 ETF’s a couple weeks back and they dropped like a stone shortly after. Oh well not going to sell and make it a realized loss but still hurts. Have cash in an RESP and I’m thinking of buying more shares now that they have dropped. Tough to call a bottom. Might drop some more but they always go back up over time if you buy funds to follow the market. I have about a 3 year timeline and they will pay dividends in the meantime. Still beats letting them die in a savings account.

#24 Mic on 09.25.14 at 7:31 pm

Garth …

If you don’t mind telling me …where did you get that picture? The guy looks like my brother and one of the women looks like me.

I don’t remember losing my top though … LOL

We do. — Garth

#25 van guy on 09.25.14 at 7:35 pm

Did we see the top in S&P? Maybe, 2000 SPX couldn’t find buyers and valuations are stretched. A 5 year bull Party is over for stocks. Risk is higher when u pay higher!!!! Just like u said Garth, but with RE.

#26 Ripped on 09.25.14 at 7:35 pm

Why on God’s green earth would I, as an American living in a nice city take a job in Vancouver:

………………………………………………………………………..

You Wouldn’t !!!

#27 Captain Canada on 09.25.14 at 7:36 pm

Canada is still the best place on earth to live period!!!
High Real Estate prices or not!!!!! Love live our great country and whiners be damned!!!!!

#28 Ripped on 09.25.14 at 7:39 pm

Canada is still the best place on earth to live period!!!
High Real Estate prices or not!!!!! Love live our great country and whiners be damned!!!!!

……………………………………………………………………….

Ha Ha… Nice try

#29 Realties.ca » The correction on 09.25.14 at 7:46 pm

[…] Source: http://www.greaterfool.ca/2014/09/25/the-correction-3/ […]

#30 sideline sitter on 09.25.14 at 7:46 pm

I want a real ‘correction’… not this 1% stuff.

Give me 15-20% and I’ll set my money free!

#31 Liquid on 09.25.14 at 7:53 pm

I can see how rising interest rates, a labour market slump or falling house prices could hurt the economy. I’m not sure how all 3 events could possibly happen at the same time though. Wouldn’t it be hard for Mr. Poloz to push up interest rates if the velocity of money in the economy slows down due to higher unemployment and lower prices for homes and other assets? Maybe inflationary pressure can come from external forces but it’s hard to imagine.

@ #6 Reginald D’autreille
Where do you live? Sounds like a really nice city :)

#32 notagreaterfool on 09.25.14 at 7:55 pm

Here’s a nice summary of the cartel’s fight to retain exclusive use and control of the (shoddy) house data.

http://m.huffpost.com/ca/entry/5877886

#33 W on 09.25.14 at 7:56 pm

The TSX is taking a bath but the s&p 500 is less than 3% of its high. Seems early to buy.

#34 Ripped on 09.25.14 at 7:56 pm

Don’t get tricked by the late-September swoon

http://finance.yahoo.com/news/this-september-sag-in-stocks-looks-a-lot-like-the-midsummer-swoon-180126263.html

#35 Bill Gable on 09.25.14 at 7:58 pm

I saw a guy from a large Eastern Oriental power buying 2 dozen Iphones.
Cash, in US hundreds. Hmmmm.

Turns out there is a black market in the hot new piece of junk from Apple, in said Country. How he gets through Customs, is another matter.

Meanwhile – the bendy Iphone and the crummy 8.01 upgrade debacle, wiped out $34 billion of Apples Market Cap today.

Holy fickle market, batman.

#36 Stumpy on 09.25.14 at 8:07 pm

It’s an interesting chart but it over simplifies. let’s use an example of someone who had $50k to invest a year ago. $50k into a stock market index vs $50k on a $1m home in Toronto. Which would have made out better this past year?

#37 Roman on 09.25.14 at 8:12 pm

>> Let me guess. You own nothing

Does this look like something that needs ownership?

http://finviz.com/quote.ashx?t=RY&ty=c&ta=0&p=m
(dividends, anybody)

Or these puppies maybe?
http://finviz.com/quote.ashx?t=HYG&ty=c&ta=0&p=m
(mmm, high yield corp bonds)
http://finviz.com/quote.ashx?t=tlt&ty=c&ta=0&p=m
(mmm, US treasury bonds – at multi-year highs)

http://finviz.com/quote.ashx?t=MORT&ty=c&ta=0&p=m
(REITs?)

http://finviz.com/quote.ashx?t=gld&ty=c&ta=0&p=m
(gold?)

Sure there are things to watch – corn, wheat etc. But not yet, not quite yet.

#38 Ripped on 09.25.14 at 8:18 pm

#36 Stumpy

Depends where you bought or which stock you bought.

#39 takla on 09.25.14 at 8:20 pm

“stocks are on sale”….and going lower!Less QE to juice the markets and a stagnateing ecomony will not bod well for stocks and we will likely see further drops,just when to get back in is the question,stacking cash for now and looking for a bottom .

#40 Chaddywack on 09.25.14 at 8:22 pm

@ 6 Reginald D’autreille

Reggie, buddy, we have the mountains, ocean, olympics and rich Asians! You can ski, surf, golf, suntan, toboggan, and harvest pineapples all on the same day!

Plus 1-800 got junk ;)

#41 Kenchie on 09.25.14 at 8:24 pm

#69 Smoking Man on 09.24.14 at 9:36 pm

“#64 Kenchie on 09.24.14 at 8:56 pm“Real estate became a cult, then a mania and finally a religion. As a result, risk has elevated exponentially”

And it doesn’t help the common cause when REALTOR.CA actually advertised the “need” to use a realtor when buying a house. What a waste of their dwindling association money.
……….

From the get go, check the archives, I’ve called real estate appreciation for the last five years accurately and consistently.. The bond market, the stock market and Forex….”

Dude, I was agreeing with you. It just so happens that I read your post while that stupid REALTOR.CA commercial came on. Hence, it was fitting that the mania you speak about is being continued by advertisement to keep house buying at the forefront of people’s minds.

#42 Mark on 09.25.14 at 8:29 pm

“Wouldn’t it be hard for Mr. Poloz to push up interest rates if the velocity of money in the economy slows down due to higher unemployment and lower prices for homes and other assets? ”

Absolutely. This doesn’t stop rates specific to retail mortgages from rising relative to rates for high-quality “risk-free” credit and, of course, corporate debt though.

Currently BCE pays around 3.5% to borrow for 5 years. Mortgage borrowers pay effectively 2.5% for the same term. Even a simple inversion of those numbers results in mortgage borrowers paying 40% higher rates!

#43 Ray Skunk on 09.25.14 at 8:31 pm

#36 Stumpy

I’ll play!

$50k invested = 50,000 * 1.16 (let’s call it 16% balanced between TSX, S&P, Dow)

Invested = $58k = $8k return, minus perhaps $580 if you’re paying someone 1% to manage it for you.

$1m home. $1,000,000 *1.075 (looks like 7.5% to me)

Value of property = $1,075,000.

$50k invested is 1/20th of the $1m home, so 1075000/20 = $53,750 = $3,750 return.

This obviously does not include legal fees and land transfer taxes on the purchase, and commissions (5%) and legal fees on the sale.

#44 Mark on 09.25.14 at 8:31 pm

“It’s an interesting chart but it over simplifies. let’s use an example of someone who had $50k to invest a year ago. $50k into a stock market index vs $50k on a $1m home in Toronto. Which would have made out better this past year?”

The stock owner, by far, as the average piece of Toronto property, adjusted for a consistent sales mix, has lost a few percent in value. Plus the debt service costs and long-term maintenance, of course, but presumably rent (actual or imputed) would cover those.

#45 Freedom First on 09.25.14 at 8:38 pm

I outlined twice on Garth’s Blog how I re-balanced at the start of this year going overweight cash. Just started nibbling, today, and recently. Christmas is coming, but not yet. September is okay, but this October will be way more fun. If not, I don’t care, as Christmas is coming.

#46 Victoria Real Estate Update on 09.25.14 at 8:45 pm

It’s no secret that house prices across all areas of Greater Victoria are down significantly from peak 2010 levels.

Single family home median price decline from peak to the end of 2013 (by area):

Oak Bay: – 15%
Victoria: – 13%
Langford: – 21%

Since the end of 2013, prices across Greater Victoria have fallen 1.7%, based on Brookfield’s house price index. There has been no improvement in prices since the beginning of 2014. Victoria’s price decline is well underway and it will last for years.

Victoria’s bubbly housing market is really no different than the bubbliest markets of the 2006 US housing bubble.

Percent price gain in year leading to peak:

Las Vegas: 4.6%
Miami: 6.1%
Tampa: 18.0%
Phoenix: 20.4%
LA: 7.1%

Victoria: 11.1%

Canada’s housing bubble is much larger than the 2006 US housing bubble. Canada’s bubble has taken 14 years to inflate while the US bubble took only 5 to 6 years to inflate.

The bigger the housing bubble (think Canada over the US), the bigger the potential price correction.

Of course most Canadian “industry experts” deny that a housing bubble exists in Canada or that a major price correction will happen. The same attitude prevailed in the US as house prices peaked there in 2006. The following quote is a gem.

Alan Reynolds, Senior Fellow, Cato Institute (US):

“In short, we are asked to worry about something that has never happened for reasons still to be coherently explained. ‘Housing bubble’ worrywarts have long been hopelessly confused. It would have been financially foolhardy to listen to them in 2002. It still is.” (January 2005)

A look at house values in the US makes it clear that Victoria’s housing bubble is massive and that the degree of overvaluation of Victoria’s housing market is extreme.

Texas:
$223 K, Fort Worth, TX (5 beds, 3.5 baths, 3,471 sq. ft., built in 2006, attached double garage, pool)
$244 K, Houston, TX (5 beds, 3 baths, 3,015 sq. ft., built in 2006, attached double garage, pool)

Arizona:
$179 K, Maricopa, AZ (5 beds, 2.5 baths, 3,216 sq. ft., built in 2005, attached double garage, pool)
$241 K, Buckeye, AZ (5 beds, 4 baths, 4,071 sq. ft., built in 2008, attached 3 car garage, pool)

Florida:
$257 K, Spring Hill, FL (5 beds, 3 baths, 4,006 sq. ft., built in 2005, attached 3 car garage, pool)

Girls and guys, housing markets that are extremely overvalued always go through major, multi-year price corrections. It isn’t different in Victoria. Thousands of near-peak buyers in Victoria are stuck with underwater mortgages. You have a choice: buy now and soon join the ranks of the underwater mortgage crowd or rent for now and happily watch houses become cheaper, knowing that you will buy some day at much lower prices.

Until next time – Cheers!

#47 OttawaMike on 09.25.14 at 8:47 pm

Met up for breakfast with my pal who is an insider at the City of Ottawa’s municipal landfill site.

He described how his landfill(never call it a dump!) is a proxy for the state of our city’s economy. The past year has shown a marked decrease in consumer packaging and thrown away household items as residents seem tapped out and hunkered down. Contractor loads are also way down.

This all seems to coincide with our slow real estate market as well.

#48 Stumpy on 09.25.14 at 8:52 pm

Ray Skunk.

Return on the investment on the house would be $75k on your $50K. You only own 1/20th of the house but %100 of the appreciation is yours, not the banks, when you sell.

Of course there are re fees, legal fees, etc to consider. There is interest payment, maintenance, property tax but not having to pay rent. There are also tax considerations. My point really being that the chart over simplifies.

Mark
Not going to debate increase in Toronto market. Just making a point based on the figures in the chart, which show a certain % year over year gain.

Speaking of simplifying, you cannot ignore the elevated risk that leverage brings. Even a small market decline wipes you out. — Garth

#49 Prairieboy43 on 09.25.14 at 8:54 pm

Garth reading your Book ” After The Crash “, this book is a good read, summarizes what is on this blog.
Picked up my generator, Now to get a Big Dog. I am thinking shepherd.
Not used to playing defense in financial matters, however defense wins championships.

#50 Mark on 09.25.14 at 8:57 pm

“The TSX is taking a bath but the s&p 500 is less than 3% of its high. Seems early to buy.”

TSX never went anywhere near as high as the S&P500/Dow. If you look at dividend yields, the S&P500 is roughly 85% higher valued than the TSX. Large swaths of the TSX are basically scraping at 52-week lows. Obviously I’m not calling a bottom, but I’d look for a quite a bit of relative strength in the TSX over the next few years relative to the US markets.

#51 Ole Doberman on 09.25.14 at 8:57 pm

Garth what about gold is it time to buy since it’s on sale?

Also what about all the Chinese buying houses in Canada, no denying that.

#52 Harbour on 09.25.14 at 9:00 pm

#46 Victoria Real Estate Update

Been seeing those great prices for years… yet numbnuts up here keep paying half a mil for half a house that’s 20 years old.

#53 Cici on 09.25.14 at 9:01 pm

#8 Soused

Well if you’re not-white you’d move to Canada to avoid being shot by the police. That’s about the only reason.
______________________________________________

LMAO: Escape the US police only have an angry herd-mob of ignorant sheeple with pitchforks blaming you for their absurdly high RE prices?

I’d say it’s safer to stay at home.

#54 Smoking Man on 09.25.14 at 9:01 pm

#41 Kenchie on 09.25.14 at 8:24 pm“#64 Kenchie on 09.24.14 at 8:56 pm“Real estate became a cult, then a mania and finally a religion. As a result, risk has elevated exponentially”

And it doesn’t help the common cause when REALTOR.CA actually advertised the “need” to use a realtor when buying a house. What a waste of their dwindling MO association money.
……….

From the get go, check the archives, I’ve called real estate appreciation for the last five years accurately and consistently.. The bond market, the stock market and Forex….”

Dude, I was agreeing with you. It just so happens that I read your post while that stupid REALTOR.CA commercial came on. Hence, it was fitting that the mania you speak about is being continued by advertisement to keep house buying at the forefront of people’s minds.

…….

Oh, damn….. You do know I suffer from a reading and writing disability..

Man, sometimes Dyslexia is a bitch..

OK grasshoppers, look at 5 year chart, tse, s&p
What do you see..

Oh and the 5 year benchmark bond…

#55 D.D. Corkum on 09.25.14 at 9:05 pm

#17 Retired Boomer – WI on 09.25.14 at 7:07 pm

In your example, the pensioner is already receiving the income stream. Assuming the pensioner’s investments are necessary to top up this income, 60/40 probably still makes sense. 80/20 would introduce a lot of volatility that could harm the ability to top up the income.

In a slightly different scenario, current government workers with access to a defined benefit pension could probably execute your idea. The volatility from 80/20 can be shrugged off because the employee is still making a full salary (while contributing ever further to the pension fund). Within 10 years to retirement though, I think it would be wise to begin shifting incrementally back to 60/40 for the reasons in the previous paragraph.

#56 Robert Henry on 09.25.14 at 9:06 pm

Once again, please make charts available as pdf files. Today’s bar chart was barely legible.

Squint. — Garth

#57 economictsunami on 09.25.14 at 9:09 pm

Free EBook through Vox:

Secular Stagnation: Facts Causes Cures:

http://www.voxeu.org/sites/default/files/Vox_secular_stagnation.pdf

Summer, Eichengreen, Krugman etc but pay particular attention to pgs 131 to 142. (Richard Koo- Chief Economist at The Nomura Institute Tokyo.)

He had a front seat and has seen this Japanese ‘B’ movie before…

#58 Shawn on 09.25.14 at 9:18 pm

Retired Boomer and stock / fixed ratio

Responding to 16 / 17… You are correct, if “pine” has a good fixed pension, pine can up their equity exposure in their investment portfolio.

Most Financial Advisors may not tell you this because they don’t manage your pension. They will suggest you go quite balanced. If you go heavy on equities and it declines you are more likely to pull the money from the Advisor.

Most advisors (with rare exceptions like Garth) like most people are interested in their own well being first and their prime directive is to keep your investments under their management. Nothing wrong with that. Your grocery store wants to retain your business as well.

If you want to go heavy on equities it will make the advisor nervous and it may be best to be self directed in this case.

Don’t go heavy on equities unless you are really sure you can ride out the dips. For example you are in a position to take no net withdrawals from the market in a down year or three down years in a row (Say move any required RRIF withdrawal to tax free)

#59 Ripped on 09.25.14 at 9:21 pm

#50
Large swaths of the TSX are basically scraping at 52-week lows.
………………………………………………………………………

Because large swaths of the Canadian market are mining stocks. lol

#60 Stumpy on 09.25.14 at 9:24 pm

“Speaking of simplifying, you cannot ignore the elevated risk that leverage brings. Even a small market decline wipes you out. — Garth”

Absolutely agree. In my hypothetical scenario, that amount of leverage would carry enormous risk.

#61 Shawn on 09.25.14 at 9:27 pm

BCE vs mortgage borrower

Mark has mentioned a half dozen times:

Currently BCE pays around 3.5% to borrow for 5 years. Mortgage borrowers pay effectively 2.5% for the same term.

************************************
Yes, but BCE does not have the Canadian government co-signing / guaranteeing their loan.

Also, under bank regulations, a bank that has lent money secured by a residential mortgage (and certainly a government guaranteed residential mortgage) can leverage that investment perhaps as much as they want. Little or no bank equity (capital) needs to be allocated to that loan.

The same bank investing in a BCE loan is not allowed to leverage that as highly and must allocate capital to support that loan.

The government CMHC guarantee matters.

Banks only make 1 to 2% net on loans (on assets) but they rely on leveraging that 10 to 20 times to get ROEs in the teens or higher. If a mortgage can be leveraged 25 times and a BCE loan can be leveraged only 10 times then it takes a higher interest rate on the BCE loan to give the same ROE.

The math moves in mysterious ways…

#62 Mark on 09.25.14 at 9:34 pm

“Also, under bank regulations, a bank that has lent money secured by a residential mortgage (and certainly a government guaranteed residential mortgage) can leverage that investment perhaps as much as they want. Little or no bank equity (capital) needs to be allocated to that loan.

The same bank investing in a BCE loan is not allowed to leverage that as highly and must allocate capital to support that loan.

If BCE defaults, the lender takes control over much of the telephone network of a major industrialized nation with several trillion worth of GDP.

I understand, and have in fact argued for the rest of what you’re saying, ie: that the CMHC has facilitated loans and interest rates that otherwise wouldn’t exist. But gave such as an example of how interest rates against specific collateral, such as BCE, could shift against interest rates as applicable to another type of collateral, residential RE. Without policy rates (ie: BoC) changing one iota. Investment preferences do shift over time.

#63 David W on 09.25.14 at 9:42 pm

Garth,

I’m considering getting some preferred share dividend paying ETFs. Would you recommend holding off since interest rates are going to rise. How much would an interest rate hike affect the price? Lastly, is an ETF holding u.s. companies or Canadian companies better?

Thanks

#64 devore on 09.25.14 at 9:45 pm

#35 Bill Gable

Turns out there is a black market in the hot new piece of junk from Apple, in said Country. How he gets through Customs, is another matter.

You can say Hong Kong. It’s ok. It’s well known there are many buyers eager to get their hands on the new iphone in markets where Apple has not launched yet. The reverse would be true as well.

How does he get through customs? Same way everything else does. He puts them into a box, and sends them in the mail. A buyer is already lined up, paying upwards of $2000.

#65 Condo Sucker on 09.25.14 at 9:45 pm

#51 Garth what about gold is it time to buy since it’s on sale?

Also what about all the Chinese buying houses in Canada, no denying that.

—————————————————————-

It might be looking cheap now, but just keep in mind that Gold is better suited for traders rather than investors. I suppose it depends on which of the 2 categories you fall under.

#66 Tarano Millenial on 09.25.14 at 9:52 pm

Finished school, paid of several thousands of debt, newbie wannabe investor. Staying away from RE for now despite what most of my fellow ‘Millenials’ are telling me.

Would it be unwise to start investing in index funds specifically considering the market may be peaking?

Thinking putting aside a percentage of my income a month for the long haul, few decades (hopefully less) to fund my financial independence.

#67 Trojan House on 09.25.14 at 9:54 pm

“Yeah, lots of people are on food stamps, unemployed and pissed, but the fact is the investor class has been doing great.”

‘Investor Class’ = top 10% (or the ones with all the money). So the top 10% are getting richer while the rest of us couldn’t come up with enough money to pay an unexpected expense. I ain’t no socialist but there is definitely something wrong with that.

#68 not 1st on 09.25.14 at 9:58 pm

I rebalanced my portfolio just in time to take a kicking square in the teeth. Some sale….

#69 Shawn on 09.25.14 at 10:00 pm

Mark…

Another factor diversification. One BCE, 15 million mortgages. a few hundred A rated corporations in Canada (at most, actually its probably a few dozen) 15 million mortgages.

Who said BCE even gives collateral on that 5 year bond, do they or is it unsecured?

#70 Shawn on 09.25.14 at 10:06 pm

Mining Sucks

#50
Large swaths of the TSX are basically scraping at 52-week lows.
………………………………………………………………………

Because large swaths of the Canadian market are mining stocks. lol

*******************************************
I am re-reading the Wealth of Nations and believe it or not in one of the early chapters Adam Smith said that everyone knows that a man who goes into the mining business is likely to end up broke. Only the low-cost most productive mines were likely to afford a decent profit.

He thought Gold had value mostly because it was a scarce and shiny bauble for the rich although using it for coins had pushed up the value a bit more.

It is interesting reading indeed.

#71 Harbour on 09.25.14 at 10:07 pm

$2.92 a gallon in the U.S.

http://finance.yahoo.com/news/gas-prices-falling-headed-below-165215187.html

There’s 3.80 liters to a U.S. gallon and we pay $1.30 a liter in Alberta.

So we pay $5.00 a gallon !!!

Don’t we sell the shit to them?

#72 Mark on 09.25.14 at 10:09 pm

“Who said BCE even gives collateral on that 5 year bond, do they or is it unsecured?”

The 3.5% I was referring to was an unsecured general obligation. You’d have to get into the nitty grity of the trust indenture to see how much subordination is possible by way of secure credit. However, if BCE were to become insolvent, the firm would be subject to a ‘bail in’ where the unsecured debt is converted to equity.

Presumably equity in a firm with little debt should be fairly valuable. In the case of BCE, its total capitalization (debt + equity) is significantly less than the replacement cost of its assets. While in the realm of residential RE lending, in most cases, lending is significantly above the true replacement cost.

#73 Retired Boomer - WI on 09.25.14 at 10:10 pm

#55 DD Corkum
#58 Shawn

Thanks for the input. I didn’t think about any required minimum withdrawals which will affect a portion of the portfolio in a few years. The other portion is already tax free (ROTH). That is a consideration… have to account for that reality (dam).

Oh well. Time to contemplate…

#74 Kenchie on 09.25.14 at 10:13 pm

#153 NostyVlad the Snugglebombed on 09.25.14 at 3:49 pm

“#91 Cato the Elder on 09.24.14 at 11:46 pm — “All our wealth has been transferred to the East, where they are engaged in real, productive work through manufacturing. The West is devolving into a totalitarian society, . . . people want sociopaths as their leaders. Say farewell to the West.”
– and –
#97 Kenchie on 09.25.14 at 12:41 am — “. . . rather than continuing the doomer talk.”

What I call “doomer” talk might be “realistic” to you if all what you posted is news to you. Leaders have always been sociopaths (for the most part). So if you are worried about leaders being sociopaths, then it’s “doomer” talk.

With “warmongers” as leaders, you actually think in today’s world there are more wars being waged than previous decades? Of course not.
http://cdn2.vox-cdn.com/uploads/chorus_asset/file/1005760/lesswargraph.0.png

You actually think the rich never held significant sway over the politicians? Of course they have… for millennia and across all cultures.

You think CIA/FBI et al are only starting to lie to the public? Of course not. (And you actually believe anything Alex Jones says?)

You think this is the first time French farmers have gone on strike? Of course not.

The only serious issue out of your post is the acceleration of the changing demand for certain types of labour. Non-specialized labour in the West is in high supply, thus they have no bargaining power. It sucks, but just like everything else you’re being “realistic” about it, it’s not exactly news…

#75 espressobob on 09.25.14 at 10:18 pm

#68 not 1st

Short term thinking?

#76 rosie "moving forward" in the knowledge that, "this won't end well" on 09.25.14 at 10:18 pm

#67 Trojan horse.

It’s all Ronny RayGuns fault. Remember trickle down. Well they’ve been pissing on the 90% ever since.

http://www.slate.com/blogs/moneybox/2014/09/25/how_the_rich_conquered_the_economy_in_one_chart.html

#77 Kenchie on 09.25.14 at 10:21 pm

still a worrier but look on the brightside on 09.25.14 at 5:32 pm

“I thought you were smart as well as obviously unemployed (judging by 82 posts a day). — Garth
___________________________________________

LMAO I thought the same thing.. “does this guy have a job?”

Ottawa is dismal..”

Gov’t takes up +55% of office space in DT Ottawa.. super pathetic.

“Home Depot is not renewing leases…”

Was at a presentation by Deloitte yesterday. Supposedly, Home Depot in the US has halted all new store openings and have put 100% of their CapEx spending on their website and e-commerce supply chain.

And supposedly, this website: http://www.builddirect.com/ can undercut Home Depot prices by 40%…

#78 Doug in London on 09.25.14 at 10:24 pm

@Trojan Horse, post #67:
We have to ask why this disparity exists. One reason, as you say, is because some people who are struggling are unemployed or under employed and that’s why they have trouble paying the bills, so it’s not necessarily their fault. The other, as mentioned by Garth on this blog, is because some people dig themselves deeply into debt buying a house (or other stuff) they can’t really afford, while others don’t get caught in the debt trap and put their money into investments instead. Some even have the sense to buy these investments low and sell them high.

#79 Ray Skunk on 09.25.14 at 10:39 pm

#48 Stumpy

Ah, I overlooked that you were talking in terms of putting the $50k down as 5%.

Still, you’re on the hook for the commissions, CMHC premiums, legals, transfer taxes – which will eradicate all gains. The commission alone is over $50k…

As for rent costs… If we’re looking purely from an investment perspective I’d imagine the investor already has a primary residence…

#80 T.O. Bubble Boy on 09.25.14 at 10:40 pm

Seriously people… things are not even close to “on sale” yet!

S&P 500 only 5 days (and about 2%-3%) from ALL-TIME highs!

Correction = -10% or more.

Wait for a least a bit of blood in the water!

I sold out of Berkshire at $129… probably for the same reasons as Shawn.

#81 Bob Rice on 09.25.14 at 10:46 pm

“Why on God’s green earth would I, as an American living in a nice city take a job in Vancouver:

——————————————————————–
Well if you’re not-white you’d move to Canada to avoid being shot by the police. That’s about the only reason.”

Toronto cops and now Brampton cops (last night) shot and killed… Canadians have a very skewed sense that their country is so much better.. Most Middle class american burbs are as safe or safer than Cdn burbs… Jane and Finch is in a suburb.. its a Shithole and doesn’t compare to the many gorgeous suburbs found in many US cities.. with much better weather

#82 KommyKim on 09.25.14 at 10:53 pm

RE: #17 Retired Boomer – WI on 09.25.14 at 7:07 pm
When a retiree is getting their government stipend, and a modest pension should that income stream be considered as a portion of one’s BOND portfolio?

Hardly. Can you sell some of the actuarial value of your pension fund to buy equities when the market tanks? No? Then it is nowhere near a bond equivalent.
It does provide stability to your income steam if you are cashing in equities to fund your retirement and want to hold back on that when the market is down.

#83 Nemesis on 09.25.14 at 10:55 pm

#FactualBlastsFromThePast… #JustForRayGunRosie…

http://youtu.be/oyJjngsudW4

http://youtu.be/uLDK0G4Wktc

#FictionalPastBlasts… #TheResearchWasTortuous…

http://youtu.be/raWZraPHLqM

#&TheManagement… #WasNotWellPleased… #WithTheInitialTrials…

http://youtu.be/raWZraPHLqM

#84 Chaos on 09.25.14 at 10:57 pm

Chaos predicts that the house of cards will not be lit on fire until after the next federal succession when the kingdom will be under attack once again…a death by a million cuts. Buckle up canuckleheads!

#85 Nemesis on 09.25.14 at 11:08 pm

#Erratum! #TortuousResearchLink… #BudweiserFatFingerFailure.

http://youtu.be/jUmQQrg3xSM

#86 Smoking Man on 09.25.14 at 11:09 pm

DELETED

#87 Inglorious Investor on 09.25.14 at 11:10 pm

#164 Mark on 09.25.14 at 6:21 pm

“You really think the Fed controls the universe of investors, foreign and domestic, who are disproportionately weighted to USD$ obligations?”

The Fed has the power and the authority to create virtually as much money as needed to influence the markets and affect interest rates. One way it does this is by creating artificial demand for US Treasurys, Agency debt and MBSs.

(The ‘games’ they were playing during the financial crisis in order to keep the system from an all-out collapse––which included swaps with Canadian banks by the way, and showed how inextricably linked the world’s major financial institutions are––would have made your head spin.)

The supply of US gov debt has been so high that there has not been enough natural demand to soak it up without driving interest rates to levels that would be unsustainable for the gov. But currently, any normal rate of interest would seem to be too high for the gov to sustain, so the Fed had to give the market ‘a hand’ by creating enough demand via QE to achieve very low, perhaps even negative, real interest rates.

They refer to this as “monetizing the debt” but that’s just a fancy term for ‘printing’ money. Sure, they use the primary dealers as intermediaries, but that’s just what they have to do to funnel the cash to the gov. Banks always make money when they move money for others, so the primary dealers, being part of the club, are entitled to a piece of the action.

The reason that this action is effectively printing money is because any new money that is created by the Fed to purchase gov debt is immediately (if not sooner) spent into the economy by the gov or paid out as interest to service extent debts. In other words, it’s a scam. And part of the scam is to funnel money to the banks.

Now, when the Fed makes a profit they remit that to the Treasury. Some say, “See, the Fed does not make a profit, they give it to the government.” True, but what they don’t see is that the commercial banks, namely the primary dealers, already got a piece of the action, so if their cartel needs to kick back some cash to the government in order to be part of the club, so be it. They already made their money. It’s just part of the deal, the agreement between government and the private banks, that goes back to well before the Fed itself was created.

US Treasurys are the benchmark debt instrument for the world. Now, I suppose if you are a bond investor, you don’t really care where the demand for bonds comes from, as long as there is enough of it to drive bond prices higher so that you can sell at a profit. So the bond market has a backstop buyer in the Fed. Now, given that the real market for Treasurys looks like it’s shrinking, it would be nice to know when your backstop buyer might change his mind and stop buying.

This is where the Fed’s PR committee (with OldYellen in the Chair) also known as the Board of Governors, comes in. Their job is to signal to the markets when they will change their mind and give them enough advanced warning to prepare. Also, their other purpose is to sustain their own credibility in the public’s mind. That’s not to say that they want the public to actually understand what they are saying, otherwise they wouldn’t speak in tongues, also known as ‘Fedspeak’ but they do want to assure the public that everything is under control. So, it’s not only a scam. It’s also a con job.

But perhaps ours is not to question why, as the Lords work in mysterious ways. After all, wasn’t it Goldman’s Blankfein who said he was doing God’s work? God who? Well, when Howard Beale gazed into the eyes of CCA chairman, Arthur Jensen after being schooled on how the global economy really works, Beale proclaimed that he had seen the face of God. Jensen replied, “You might just be right, Mr. Beale.”

#88 Kenchie on 09.25.14 at 11:16 pm

#122 rosie “moving forward” in the knowledge that,

“I wonder if this kind of device could be installed on other things, like T.V.’s or houses. Debt slaves take heed.”

http://dealbook.nytimes.com/2014/09/24/miss-a-payment-good-luck-moving-that-car/?_php=true&_type=blogs&_r=0
———-
Thanks for sharing this article. Technology is amazing at times…

#89 NostyVlad the Snugglebombed on 09.25.14 at 11:24 pm

#165 Herb on 09.25.14 at 6:30 pm — “. . . or Smoking Man not only carrying on with his fiction but replicating himself into the bargain.”

Holy guacamoly! Hey SMan, where did you learn to clone yourself?! Tell us, o wise one!

#35 Bill Gable on 09.25.14 at 7:58 pm — “Holy fickle market, batman.” No kidding — China or Japan. Pick ’em!; NYU Prof. — Tech is destroying middle class; m$m manipulation; Sound familiar? China, not Canada.

#74 Kenchie on 09.25.14 at 10:13 pm — “You think CIA/FBI et al are only starting to lie to the public? Of course not. (And you actually believe anything Alex Jones says?)”

Alex Jones, like Joe Biden, John McCain, Harper and several others are self-declared zionists and no, I don’t afford them any credence at all, ‘tho the other reporters aren’t bad. The CIA / Mossad / FBI are lying on a continual basis. No relevance there.

As for wars, seven in five years (as said by some US general a few years ago) seems to be working out quite well, mostly for regime change.

#90 Smoking Man on 09.25.14 at 11:26 pm

People look at me funny when they catch me talking to myself. I’m writing a book, I need to see how sentences flow.

Warmers are nuts, jahadist are nuts, religious Jews are nuts..

But me, the arch of logic, the center of logic.
If I have the blue tooth on, I’m normal, talk to yourself with out it..

The nuts think your nuts…

Dyslexic bastards, I need to think with lips moving.. Get over it.

#91 Retired Boomer - WI on 09.25.14 at 11:27 pm

#88 Kommy Kim

Let me try to explain this with more clarity.
Retirement income from my pension (stable), my and wife’s social security (stable). monthly amount -before taxes- roughly $3900. Fed taxes 15% State 4.4%.

Investment portfolio (65% tax deferred/ 35% Tax FREE)
currently invested 60% Stock Funds / 40% Fixed income.

My question with that income stream (guaranteed…as good as any ‘guarantee’ is these days)… would it be ‘wise’
to increase the 60% higher… to say 70% or even a tad higher…(think utility ETF, & healthcare ETF, & REIT ETF)

Does this make economic sense? It may not.

Taking distributions is strictly on a discretionary basis for now, in a few years a portion 65% will be subject to mandatory withdrawals unless I move them to tax free side earlier and pay tax.

#92 Helen on 09.25.14 at 11:39 pm

#71 Harbour

So we pay $5.00 a gallon !!! Don’t we sell the shit to them?
——
Gas in Canada costs more because of TAXES. Teachers make 80k, free trips to ER for a cough, urban campers want nicer shelters and we pay for it all.

#93 Helen on 09.25.14 at 11:45 pm

#89 NostyVlad the Snugglebombed

Alex Jones, like Joe Biden, John McCain, Harper and several others are self-declared zionists…
——-
Lumping John McCain & Joe Biden into the same camp shows incredible ignorance.

#94 Nomad on 09.25.14 at 11:49 pm

Today was a gift.

– Doubled my Magna position
– Increased my AutoCanada position by 20%
– Bought some more $XEG, $ZEB, $HXS, $VFH
– Started a position in $FDN and $GEX
– Valeant kept going up. Company is doing good.

#95 Bye bye CA on 09.25.14 at 11:53 pm

Smart move not taking the job in Vancouver. I really love BC and gave it a go for almost 3 years but I’m headed back to Oregon. I can golf, fish, hike, bike and ski to my hearts content down there. I don’t understand all the hype Van gets; East Van reminds me more of a Tacoma and Burnaby isn’t even that nice. I’m going from a 2000 sq house on and acre with rent of $2200 to a 2500 sq ft house on 43 acres for $1700. And I can but a nice house for cash for what a down payment would be here. No sales tax, lower overall income tax, eventually a mortgage write off and higher pay. But most of all I can take advantage of tax sheltered investment vehicles that I could not invest in here without getting trampled by the IRS. Every US citizen should know that moving to Canada can cost them thousands and thousands over the long term until TFSAs are no longer treated as foreign trusts by the IRS. I loved it here, I’ll be sad to go, but my future sure looks brighter down there.

The thing that really pisses me off the most are all the great Canadians I have met, such kind open hearted people, that are getting taken for a ride by this housing debacle. They can’t just click the ruby slippers like I can and go to Kansas for a $200k 4 bedroom detached in a nice hood. No, they are going to grind it out. Watching their net worth take a digger, only to someday realize they have been taken for a ride.

#96 KommyKim on 09.26.14 at 12:20 am

RE: #91 Retired Boomer – WI on 09.25.14 at 11:27 pm
My question with that income stream (guaranteed…as good as any ‘guarantee’ is these days)… would it be ‘wise’
to increase the 60% higher… to say 70% or even a tad higher…

That depends on your risk profile. Traditionally, it is recommended that you reduce your portfolio risk in retirement by going heavier on bonds to reduce volatility. But, as we all know, bonds are due for more volatility with the the Fed messing with interest rates in the near future.
I guess there is always the option of selling stock X in your retirement acct and buying it again in your taxable account if the mandatory sell order coincides with a market downturn.

#97 Son of Ponzi on 09.26.14 at 12:25 am

I sold out of Berkshire at $129… probably for the same reasons as Shawn.
—————-
You’re turning your back on the Sage of Omaha!
May you burn in Wall Street hell.

#98 devore on 09.26.14 at 12:28 am

#67 Trojan House

‘Investor Class’ = top 10% (or the ones with all the money). So the top 10% are getting richer while the rest of us couldn’t come up with enough money to pay an unexpected expense. I ain’t no socialist but there is definitely something wrong with that.

Here, have another investment condo.

#99 omg on 09.26.14 at 12:41 am

92 Helen – right on Helen

Teachers make $80k plus another 20 to 25% in BENEFITS.

We have a POLICE CHIEF in Victoria that makes $250k/yr plus benefits – Victoria city has 70,000 people! This was a $135k/yr job in the early 2000s.

FIREMEN in Toronto make over $100k/yr plus benefits at the top tier – and there is a huge LINE-UP for people wanting into the profession.

The FRONT DESK person at my local recreation centre starts at $21/hr! This is for CASHIER position were in the private sector you are lucky to get anything over minimum wage.

Government WAGES AND BENEFITS are killing our ability to fund programs and its just going to get worse as government employees retire and start drawing their FAT CAT pensions.

#100 angela on 09.26.14 at 12:54 am

“Ebola is out of control.syria’s bjrnomg. China’s growth is slowing.”

Am I the only one that started hearinf We Didn’t Start the Fire in my heard?

Foreign debts, homeless vets, AIDS, crack, Bernie Goetz. Hypodermics on the shore, China’s under marshall law, rock n roller cola wars, I can’t take it anymore.

Not much has changed in 30 years.

#101 AACI Home-Dog on 09.26.14 at 3:11 am

Hmm…what stocks are people bailing on…time to vulture some stuff on sale with past few months dividends…

#102 liquidincalgary on 09.26.14 at 6:25 am

@ 71 Harbour says:

So we pay $5.00 a gallon !!!

Don’t we sell the shit to them?

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

we do indeed; however, ours is taxed more heavily (gst added after all taxes; ergo, a tax on taxes!)

now, if you don’t want to pay a world price for gasoline/oil, maybe it is time for Trudeaumania 2.0

tax consumption, not income

#103 T on 09.26.14 at 8:52 am

Garth,

Is there any truth behind this bull run being caused by CEOs borrowing (at low interest rates) to buy back shares, causing share prices to rise, and subsequently receiving personal bonuses due to share performance?

I heard that CEOs make more from their bonuses than their actual salary.

It sure sounds like a plausible scenario, and the makings of the next bubble.

Buybacks did not cause markets to hit record highs. — Garth

#104 T.O. Bubble Boy on 09.26.14 at 8:53 am

@ #97 Son of Ponzi on 09.26.14 at 12:25 am
I sold out of Berkshire at $129… probably for the same reasons as Shawn.
—————-
You’re turning your back on the Sage of Omaha!
May you burn in Wall Street hell.
——————————————–

Nope – I’ll be back… just like the rest of the market, everything needs a breather.

BRK.B doubled in 2-3 years AND had +10%-15% from USD/CAD rate on top of that.

#105 Londoner on 09.26.14 at 9:32 am

The end of QE does not signal a rise in interest rates. The Feds will continue to purchase assets without additional stimulus. It’s only when they start unwinding their balance sheet that you will see any significant move. Yellen is not giving any indication of when that will be.

You have been consistently been wrong on this call.

– Londoner out

Virtually every economist believes the Fed will begin to tighten in 2015. Did they not call you? — Garth

#106 David Hawke on 09.26.14 at 9:36 am

#8 don’t you read the news, the Canuck cops do their fair share of shooting dead, unarmed citizens!

#107 Renter's Revenge! on 09.26.14 at 9:52 am

@66 Tarano Millennial:

If you’re young and just starting out, then my advice would be to put 100% of your monthly contributions in equity index funds and then pray that the market crashes. Seriously. The other dogs here can tell me if I’m wrong.

#108 maxx on 09.26.14 at 10:01 am

#1 SUave on 09.25.14 at 5:57 pm

It’s what happens when the morally lowest common denominator (FIRE) has access to a pathologically disproportionate amount of lucre.

Thank your friendly neighbourhood central bankers and finance ministers.

Money velocity is so far past its ideal and best before date that it is categorically decimating far more than just the economy- just look at how joyous the world is.

This economic fubar is far more than just a glancing blow which could have been corrected well within a generation.

…and this is why ever-creative ways are being aggressively sought and implemented to pull cash out of people’s pockets.

#109 Holy Crap Wheres The Tylenol on 09.26.14 at 10:09 am

As far as jihadist assholes coming to blow up subways let em come. For every 1 of us they kill we will take out 100 of theirs. By the way don’t fool yourselves as smug Canadians by saying they will only hit America as they hate them. They hate all of us and I have it on good word from someone in an agency here that we are targeted and we are on the hit list!
As far as investments I told you before everything into adult diapers. With all of us boomers retiring half of us will lose functioning abilities of our brains or bowels. The other main investment venture would be Smoking Man Industries, a prognostication company!

#110 Rational Optimist on 09.26.14 at 10:24 am

#6 Reginald D’autreille started a game of “Guess which City?” Several commenters (#12, #31) asked him what the answer was, instead of guessing.

The clues were: An (nice) American city where crime rate is lower and weather is much nicer than Vancouver, and has an NFL and NHL team with better prospects than the Canucks.

Could be Phoenix, Miami, Tampa Bay, San Francisco/San Jose, Dallas, Denver, D.C…the last two are pretty debatable about weather (D.C. as a former swamp is terrible in summer).

Of those cities, only Miami’s NHL team finished last season with fewer points than Vancouver’s. Which of Phoenix, Tampa, San Francisco and Dallas could it be? All of those cities have overall crime rates slightly higher (a fair bit higher in S.F.’s case) than Vancouver, besides Tampa. So the answer is that Reginald D’Autreille lives in Tampa Bay, or else has outdated information about crime rates or uncommon ideas about what qualifies as good weather.

In any case, the reasoning not to move to Vancouver is sound.

#111 DM in C on 09.26.14 at 10:29 am

“I thought you were smart as well as obviously unemployed (judging by 82 posts a day). — Garth
___________________________________________

LMAO I thought the same thing.. “does this guy have a job?”

82 posts a DAY!?! Good lord. That’s hitting DA’s levels during the crazy times. Perhaps he should start his own blog instead of hogging this one.

#112 Honey Dripper on 09.26.14 at 10:38 am

I hope we go lower, need more high growth stable companies in my PF, hoping they stay on sale. Also a cold shower then maybe research split shares.

#113 Rational Optimist on 09.26.14 at 10:41 am

Inglorious Investor has very good taste in films.

#114 Blacksheep on 09.26.14 at 10:50 am

Helen #93,

McCain and Biden are just theatrical examples of the whole, right vs. left trickery. Critical thinkers know, they are part of the two heads, one snake, system.

#115 Laura on 09.26.14 at 11:07 am

Can’t believe this realtor bragging about the sale of a 2 bedroom hut in Toronto…

http://www.saleiisold.com/2014/09/22/26aldwychsold/

#116 Setting the Record Straight on 09.26.14 at 11:10 am

“#8 don’t you read the news, the Canuck cops do their fair share of shooting dead, unarmed citizens!”

Shooting unarmed citizens is one thing, but shooting citizens that are already dead is another example of government waste.

#117 Smoking Man on 09.26.14 at 11:10 am

#109 Holy Crap Wheres The Tylenol on 09.26.14 at 10:09 amAs far as jihadist assholes coming to blow up subways let em come. For every 1 of us they kill we will take out 100 of theirs. By the way don’t fool yourselves as smug Canadians by saying they will only hit America as they hate them. They hate all of us and I have it on good word from someone in an agency here that we are targeted and we are on the hit list!
As far as investments I told you before everything into adult diapers. With all of us boomers retiring half of us will lose functioning abilities of our brains or bowels. The other main investment venture would be Smoking Man Industries, a prognostication company!
………..

You had to through in another word I had to Google… Prognostication…

As far as jahadist. What ever happened to the neutron bomb..

Someone needs to invent a bomb that takes out all extreme religious people.. It’s one thing to follow a tradition, Xmas dinner.. Mandatory church for funerals and weddings.. Is ok

But the extreme believers…that believe in violence, and they exist in every religion…

I won’t sit beside a woman on a plane = Lunacy..

I say Boom . them all …. But then what does that make
me?

Philosophy is confusing..

#118 jess on 09.26.14 at 11:47 am

jumping ship?

eric holder – resigns…warns wall streeters that co-operatives (moles) are amongst them

bill gross resigns

————————-
-informants are entitled to a percentage of the dollars recovered by the US government when fraud is exposed.

Whistleblower in largest-ever award by US government
BBC News ‎- 3 days ago
The US Securities and Exchange Commission reveals it has awarded a record $30m payout to an anonymous whistleblower who lives outside usa …

The new law provides whistleblowers with financial rewards if the information they provide to the SEC leads to an enforcement action with sanctions that are above $1m – regardless of the nature of the crime.

The SEC can then award the tipster anywhere between 10% and 30% of the total award.

#119 Nick on 09.26.14 at 12:34 pm

Proposed caption for the 12-month chart:

“You bought real estate last year? I feel bad for you son.
Got more than 99 assets but a house ain’t one!”

#120 45north on 09.26.14 at 1:11 pm

Bob Rice : in reply to soused : Most Middle class american burbs are as safe or safer than Cdn burbs… Jane and Finch is in a suburb.. its a Shithole and doesn’t compare to the many gorgeous suburbs found in many US cities.. with much better weather

I’m pretty sure the guy posting as soused also posts as Gibson’s Landing. He goes to Tim Hortons and comes back with new insights into the US of A that he likes to share.

I grew up around Jane and Finch in fact I was a caddy at the Oakdale Golf and Country Club.

Richard Parker : yeah I subscribe to Bruce Joseph who says : “we’ve never been here before” He also makes a point about “industry leaders who have stepped down”

Bill Gable : I do wonder where you’ll go. Pretty sure it won’t be Prince George. You talked about the trucking industry a while back. Truckers are on a tight leash now. It used to be that the employer would have only a general idea of what you were doing but now with GPS they know exactly where you are. My daughter tells me that you can set them so head office gets a notice when they stop.

Victoria Real Estate Update: good post, especially good is the fact that you didn’t put in the charts

one more thing:
http://ottawacitizen.com/news/local-news/should-the-o-train-map-use-red-and-green

the ottawa citizen wants to outlaw the colour red. Must be a slow news day.

#121 jess on 09.26.14 at 1:14 pm

536: The Secret Recordings of Carmen Segarra
Sep 26, 2014
An unprecedented look inside one of the most powerful, secretive institutions in the country. The NY Federal Reserve is supposed to monitor big banks. But when Carmen Segarra was hired, what she witnessed inside the Fed was so alarming that she got a tiny recorder, and started secretly taping. ProPublica’s print version.

http://www.thisamericanlife.org/radio-archives/episode/536/the-secret-recordings-of-carmen-segarra

#122 Casual Observer on 09.26.14 at 1:23 pm

“FIREMEN in Toronto make over $100k/yr plus benefits at the top tier…”

(Begin Rant)

If you think the pay is so lucrative, there’s nothing stopping you from putting in an application.

I have no problems with people who risk their lives on a daily basis to serve the public earning top wages (Police, Fire, Military, etc.).

When you consider that professional athletes and entertainers make many multiples of that, the argument that they are overpaid seems pretty weak.

While society could certainly get along fine with half of our celebrities, I think people would feel differently if we lost half of our police, fire, or military service people.

And just in case you are wondering, I am not one of them. I just have a great deal of respect for people who risk their lives for people they do not know.

If anybody deserves to be well paid, it’s them.

(End of Rant)

#123 Andy on 09.26.14 at 1:52 pm

Hey Garth,
US economic growth revised upwards again
http://www.bbc.com/news/business-29381029

Business spending, exports spur big bounce in U.S. economy
http://www.reuters.com/article/2014/09/26/us-usa-economy-gdp-idUSKCN0HL1B820140926

Can you pls comment somewhere ( either by reply or in the blog) on – if the economy does well, why an interest rate increase becomes inevitable ? Thx in Advance

#124 strangerthanfiction on 09.26.14 at 2:06 pm

Could the rush to buy Vancouver have anything to do with this?

http://fullcomment.nationalpost.com/2014/09/25/vancouver-sex-club-gets-green-light-from-city-while-cross-dressers-stopped-by-red-tape/

#125 Daisy Mae on 09.26.14 at 2:10 pm

#68 not 1st: “I rebalanced my portfolio just in time to take a kicking square in the teeth. Some sale….”

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

Bad timing?

#126 strangerthanfiction on 09.26.14 at 2:20 pm

BTW…I’m not selling into the September swoon. In fact Sept is statistically losing it’s reputation as a bad month for stocks….this one not withstanding. This is another good opportunity to buy more of our favorite dividend stocks on sale. Thank you Mr Market and the Panic Squad.

What I do is use all my dividend income to buy stocks dollar cost averaging. I always keep my big winners running and don’t re-balance. Instead I increase the number of stocks I own that may be good div players but seasonal laggards and bring them up to the level of the winners. This is the formula I have used to build a multimillion dollar portfolio from zero in 25 years. 99% of the stocks I own pay dividends. Regardless of the market being down sideways or up…or what flavour of the month…I always get my dividends…monthly, quarterly and annually.

Plus I always keep 15% in cash for all reasons…..I own no gold. 15% means I can live comfortably for around 16 years while the market goes through any tizzy it may do…….and in the meantime I buy more stocks, that pay more dividends…that buy more stocks….that pays more dividends.

This portfolio didn’t require anything except patience , a God given ability not to panic when the noise gets loud. and time. Just remember….the commentators on TV are not analysts….and the world is never coming to an end unless the sun blows up. If you are concerned about the latter…you have a bigger problem than learning how to invest wisely.

#127 Son of Ponzi on 09.26.14 at 2:22 pm

No postings from Mark?
After posting 85 times, he’s probably reverting to his mean.

I am told you dissed me on the Vancouver Condo blog. Why? — Garth

#128 Sunny123 on 09.26.14 at 2:36 pm

Hi Garth

Here’s more evidence that Son of Ponzi should be banned as he slams you on the Vancouver Condo Blog
Where’s the ‘Over-Inflated Homes Full of Overreached Lenders Subsidized by Cheap Money’ website?
—————-
Why don’t you start one?
You could be the next Garth Turner.

#129 Mike S on 09.26.14 at 2:44 pm

Seems like a good day for some fixed income questions

Is there a long term difference between allocating the entire 40% in bonds (couch potato style) vs. diversifying the 40% between bonds/preferred/real return/… (Garth style)

Also given that the US bonds yield more today, is it good to allocate some funds to US bonds (with or without CAD hedging)?

#130 chapter 9 on 09.26.14 at 3:07 pm

Ebola is out of control.Let’s hope not!!

Remember back in 2003 there was an out break of H5N1 Avian(bird)Flu. Well the Bank of Montreal was kind enough to forward a 60 page document to me outlining in great detail the economic fallout of a H5N1 pandemic. Readers Digest version- economy would implode. Real estate,tourism,trucking,food production everything- right down to using transit buses to transport the dead to hockey arenas because of the ice surfaces. Grim reading to say the least.
Ebola is the mother of all viruses and everthing possible has to be done to contain it before it spreads.
The genie is out of the bottle!!

#131 Cato the Elder on 09.26.14 at 3:21 pm

Re: #74 Kenchie

Much of what you say is true regarding the historical normalcy of politicians. That is not the point I was making. The point I am making is that this time IS different. It’s different because we are entering an age where there is NOWHERE to hide. They can watch us on cameras, listen to our calls, and are developing drones small enough to be imperceptible from insects.

In the past, there were always refuges wherein free ideas could be exchanged. New ways of governance could be discussed unimpeded in your home or elsewhere, relatively secluded from government reach. That is (has?) rapidly disappearing.

Anyone that is not alarmed by recent developments is incredibly naive and a danger to their fellow citizens. Why do you think they are collecting our phone calls? It’s a massive blackmail depository! When someone with integrity tries to change things, all that has to be done is publish something embarrassing that they’ve saved.

Democracies have been completely subverted. If politicians alter their behaviour out of fear of their private communications being released, we are no longer free. What you are witnessing is it’s final breathes.

And for the record, I don’t pay much attention to Alex Jones. While sometimes he has a point, he doesn’t do himself any favours by how worked up he gets in his diatribes. I’ve come to my own conclusions based on an understanding of history (governments invariably become authoritarian) and human nature (people don’t care until it directly impacts them).

#132 Reginald D'autreille on 09.26.14 at 3:41 pm

#110 Rational Optimist (a/k/a Sherlock Holmes):

Wow – I’m actually very impressed. You got it right. Clearwater to be precise.

The obvious point that I meant to add in my post, but forgot, as to why on God’s green earth I won’t move to Vancouver was:

9) Real estate prices are f*%&$#@ ridiculous.

You do realize that Americans (well, at least those of us Americans that understand that there is not an ocean on the other side of the 49th parallel) laugh at you Canadians and your justifications regarding your real estate prices. You Canadians are a very funny bunch – much funnier than we ever were 7 or 8 years ago as it pertains to paying ludicrous prices for real estate.

Oh yeah, and while I have your attention, I just thought I’d remind you:

We won the Stanley Cup 10 years ago. Tampa Bay. Good luck with Ryan Miller…

#133 LTL_FTC on 09.26.14 at 3:51 pm

#43 Ray Skunk on 09.25.14 at 8:31 pm
#36 Stumpy
I’ll play!
$50k invested = 50,000 * 1.16 (let’s call it 16% balanced between TSX, S&P, Dow)
Invested = $58k = $8k return, minus perhaps $580 if you’re paying someone 1% to manage it for you.
$1m home. $1,000,000 *1.075 (looks like 7.5% to me)
Value of property = $1,075,000.
$50k invested is 1/20th of the $1m home, so 1075000/20 = $53,750 = $3,750 return.
This obviously does not include legal fees and land transfer taxes on the purchase, and commissions (5%) and legal fees on the sale.
____________________________________

As long as the calculation uses 95% leverage for the real estate, why not assume the balanced investor uses a 50% margin account. Not the same level of risk (95% vs. 50%) but the theoretical upside doubles. A little more apples-to-apples, no? Then $50k to invest becomes $100k with margin=$16k return – 1% management fee (15.84k). Just beware of the margin call.

#134 miketheengineer on 09.26.14 at 4:01 pm

Garth et al:

More on How “US Steel” (formely Stelco) is going to screw 80 and 90 year old widowers (ie grandmas and grandpa’s) out of their pension money.

http://www.thespec.com/opinion-story/4881918-shame-on-u-s-steel-one-of-hamilton-s-worst-employers/

Shame on the MP’s and the MPP’s for allowing this…Shame on you.

#135 joblo on 09.26.14 at 4:10 pm

Virtually every economist believes the Fed will begin to tighten in 2015. Did they not call you? — Garth

when Goldman lets them

#136 Holy Crap Wheres The Tylenol on 09.26.14 at 4:13 pm

#117 Smoking Man on 09.26.14 at 11:10 am

If it war they want then come and get me! I’ve already been in one.
These guys are not religious as they don’t even follow thier Koran correctly, they are Hippocrates, scumbags and chickenshits. We should send all of our woman to fight them. If they are killed in battle by a woman it’s bye, bye 72 virgins in heaven!

#137 Liquid on 09.26.14 at 4:17 pm

@ #110 Rational Optimist
Great solve detective :) Thanks for your helpful insight!

#138 Transplant on 09.26.14 at 5:34 pm

#132 Reginald D.

Don’t forget the Bucs, horrible as they are this year, have won the Super Bowl.

Went to the Rays-White Sox game at Tropicana Field this past Sunday and perfectly good seats cost me $20 each, and since we had a party of 4 in the car parking was free.

Filled my tank a couple of hours ago at $3.10/gallon. Everything is so much cheaper here no wonder Canadians love wintering here, even if the Canadian $ keeps declining it’s still a bargain venue, notwithstanding the mild Winter weather and as is the case most everywhere, for the most part, nice folks.

The biggest saving by far though is with housing. From doing a lot of reading in the Toronto media and real estate sites I estimate my house costs 1/4 to 1/3 of what it would cost in the GTA, either in 416 or 905. Just imagine what a retired guy like me can do with the money saved, and I mean ‘saved”, like not spent for obligatory needs but available for discretionary spending if so desired. In addition, no need to fight traffic much except on occasion and having virtually all of my needs including the beaches and TPA within an easy 45-60 minute drive.

#139 Mark on 09.26.14 at 5:52 pm

“No postings from Mark?
After posting 85 times, he’s probably reverting to his mean.”

There’s only so many hours in the day, and what’s happening in the housing market speaks for itself.

#140 Mark on 09.26.14 at 5:54 pm

“Hardly. Can you sell some of the actuarial value of your pension fund to buy equities when the market tanks? “

You can commute the pension, and manage it yourself in many situations in a locked-in vehicle. Or you can simply take on credit to be repaid with future pension cash flows, if you want to increase your exposure to, for instance, equities.

Personally I believe pensions already expose most retirees to more equities than most would buy if they had self-directed accounts.

#141 Smoking Man on 09.26.14 at 6:34 pm

#136 Holy Crap Wheres The Tylenol on 09.26.14 at 4:13 pmIf it war they want then come and get me! I’ve already been in one.
These guys are not religious as they don’t even follow thier Koran correctly, they are Hippocrates, scumbags and chickenshits. We should send all of our woman to fight them. If they are killed in battle by a woman it’s bye, bye 72 virgins in heaven!
…….

One of the fighter pilots from the coalition is female, they should paint her plane pink. Put loud speakers on the it like in apocalypse now, rather than play Wagner, These boats are made for walking…

And it won’t be Ala Akbar, it will be Ala you sonamabitch. Run bastards run..

Lol

#142 Shawn on 09.26.14 at 6:35 pm

Mark says:

Personally I believe pensions already expose most retirees to more equities than most would buy if they had self-directed accounts.

********************************************
Completely wrong. A government DB or any really strong DB pension provides the retiree with fixed income.

The pension plan sponsor and anyone contributing to it may be affected by the market performance. The retiree is not impacted at all. No exposure to equities,

Of course if the plan is weak and might go bust, then the retiree is exposed to equity risk. But for a strong DB the exposure to current retirees is very close to zero.

#143 Westcdn on 09.26.14 at 6:48 pm

I have been mulling over the assertion that the current equity market decline is due to the fear the US Fed will allow interest rates to rise earlier because their economy is strong. The assertion runs against my belief that “funds” are afraid of sovereign debt defaults. The bond market is hugely larger the equity market and means debt sustainability (repayment or roll over) is most important to the global economy. George Soros has proved that betting on exchange (futures) rates is the best way to make money fast. Oligarchs (the 0.001%) are holding a lot of cash from what I read– why? My conclusion – they don’t want to hold bonds.
So how much will interest rates rise in North America? – Who knows but I have made my guesses. I tend to think well run businesses are the best thing to invest in but my experience has been a lousy September is followed by a worse October.
On a side note, my brother is a manager with the LCBC. He has been dealing with getting millenniums into a low paying unionized floor jobs and getting them productive. As an accountant, I got a kick of his definition of FIFO (first in, first out) as “Fit In or F##k Off”. Cruel if not applied equally amongst cultural, demographic or gender groups but necessary in an environment that doesn’t change quickly. We also joke that happiness is dependent on how high you set your bar of standards (ethics).

#144 Daisy Mae on 09.26.14 at 7:20 pm

#92 Helen: “…free trips to ER for a cough…”

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

As a hospital volunteer…tell me about it. Such abuse of the system — 80% should be going to walk-ins.

#145 Daisy Mae on 09.26.14 at 7:56 pm

#127 Son of Ponz: “No postings from Mark?
After posting 85 times, he’s probably reverting to his mean.

I am told you dissed me on the Vancouver Condo blog. Why? — Garth

#128 Sunny123: “Hi Garth

Here’s more evidence that Son of Ponzi should be banned as he slams you on the Vancouver Condo Blog”

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

To ‘Son of Ponz’…WHY? If you don’t agree with Garth or appreciate what he’s doing for us, then GO AWAY AND STAY AWAY!

#146 Tony on 09.26.14 at 8:23 pm

Re: #4 Fred on 09.25.14 at 6:09 pm

As can be seen the FED will make sure the markets don’t crash in May, September or October. Like ’29 when the shoe shine boys were giving stock tips today the shoe shine boys know the market will crash at least 70 percent from present valuations. The only buyers left are the banks and the FED no one else is left (The short sellers are not buying shares back yet).

#147 Tony on 09.26.14 at 8:28 pm

Re: #143 Westcdn on 09.26.14 at 6:48 pm

The opposite to everything you state is true. Junk bond yields are at lifetime lows because everyone wants bonds and no one wants stocks. Commodity prices are falling not because of a strong U.S. dollar but because of the pending recession that never ended in America. Everyone has heard all the lies about rising interest rates and they keep on falling and will likely turn negative like in Europe.