Hopeless

BAR modified

My, my. In 1998 the Sun newspapers were sold to Quebecor for almost $1 billion.

This week the Quebec-based company dumped not only the Suns in Toronto, Ottawa, Calgary, Edmonton and Winnipeg but 170 other newspapers and about 40 pieces of real estate for just $316 million. The buyer was Postmedia, which already owns newspapers, loses money every day and has no cash. It will be financing the full amount.

This is the state of the mainstream media these days. Zombies. The publishing dead. The deal’s a shocking admission that news which is printed on former trees and once delivered by 11-year-olds has met its demise. Maybe this is what makes reporters so angry and irritated. Soon they’ll all be reduced to being bloggers. Oh. The shame.

Well it’s been a few days since the angry dude at the Financial Post did a little number on me for not being able to make the real estate market crash back in 2008. His thesis is that warning Canadians about the risks and dangers of housing is a growth industry in itself, and since property values are higher now than they were years ago, people like me are pond life.

My detractors liked that. “@garthturner never expected 2.8% 5yr rates when he predicted a housing crash,” tweeted Canadian Mortgage News. “Those doggone unaccounted-for inputs…”

Of course, I haven’t said housing will crash (like the new guy flogging on book on the same topic who forecasts a 50% plop), because it won’t. But it will erode by enough, and for long enough, to have a serious impact on personal finances and the retirement plans of wrinklies. Meanwhile, of course, lots of markets suck. Outside of Van, 416 and Calgary, scores of people cannot sell their homes and realtors are returning their Audis. There is no boom market in Winnipeg, Halifax, Montreal, Oakville or Regina.

Anyway, some folks have tried to defend me, like Ross Kay the renegade former realtor who’s now a housing analyst and CREA’s biggest PITA.

“Reading your blog and the questions posed to you by the reporter that implied you were wrong about 2008 shocked me,” he says. “The market was in full correction mode through all of 2008 and it was headed for a bigger correction than the early 90’s had the Feds not stepped in.

“So to be perfectly clear, from October of 2007 through May 2009, the realty market (resale homes) trended downward for 19 consecutive months just on the sheer number of homes that were being successfully sold.  Apparently no one knows this, or it has been forgotten?  Are you really serious, did he actually ask you that question??

“By May 2009 the realty market had fallen to 76% of the yearly number of sales in October 2007. You had to go all the way back to January 2002 to find the market that slow again. Maybe the next book that needs to be published about real estate is how to read a market.”

And Frank, a blog dog bank analyst, wants everyone to remember just how bad things looked for the real estate market – and the bank mortgage lenders – after the 08-09 financial crisis. He points to a big study done by the Canadian Centre for Policy Alternatives which concludes the bankers took $114 billion in handouts, largely because they were over-extended with real estate loans.

“At some point during the crisis, three of Canada’s banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company. Without government supports to fall back on, Canadian banks would have been in serious trouble.”

Yikes. In fact CMHC itself handed over $69 billion to the banks and in return took a mess of high-risk mortgages off their balance sheets, says CCPA. Because it was classified as an asset sale, none of the money needed to be repaid.

Today we have $1.2 trillion in mortgages outstanding, about half of which are insured by the feds, at the lowest overall interest rates ever while houses cost the most in history. In other words, it only gets worse. Rates will rise. Real estate values will decline. I think we all know that. People who ignore me (pretty much everybody) seem to be inhabiting a parallel universe in which newspapers are good investments and bungalows only go up. Maybe that’s where all the honey bees went.

Well, the core message hasn’t changed. Own real estate if you want (I do), and enjoy it. But never for a moment believe it’s a financial strategy. Don’t keep the bulk of your net worth there. Don’t buy it if you have no money. Don’t expect it to go up. Don’t be wrecked if it falls. Don’t pump money into the house instead of investing. Be diversified. Abide by the Rule of 90. And don’t assume current conditions will last. Properties turn illiquid. Buyers vanish.

You have to live through these things to believe they’re possible. I have.

But then, I used to be a newspaperman, too. Look at me now. Tragic.

188 comments ↓

#1 hunky dory on 10.06.14 at 6:05 pm

That dog don’t look old enough t drink

#2 Anson on 10.06.14 at 6:16 pm

To all the people who think Garth has been wrong over the past 6 years regarding where real estate is headed, I ask you to dust off your history books and see what every bubble from the stock market to real estate has in common? Bubbles almost always go on longer then most people expect. A famous quote from John Maynard Keynes “the market can stay irrational longer than you can stay solvent”

#3 Yuus bin Haad on 10.06.14 at 6:17 pm

#meanreversion

#4 totalinvestor.com on 10.06.14 at 6:18 pm

Garth, let them party like there’s no tomorrow.
I say “the bigger the party, the bigger the hangover”.

http://tinypic.com/view.php?pic=2dt3vhv&s=8#.VDMVHBYpnfc

#5 Greg, Oakville on 10.06.14 at 6:19 pm

Hi Garth,

I just thought some may be interested in this;
Join CMHC President Evan Siddall, in a conversation with Terry Campbell, President of the Canadian Bankers Association (CBA), on Monday, October 20, to discuss how CMHC helps house Canadians and what lies ahead for Canada’s authority on housing….
http://www.canadianclub.org/Events/EventDetails.aspx?id=3276

#6 Derek R on 10.06.14 at 6:20 pm

People quickly forget how bad things were. We dodged a bullet back in 2008. There’s no knowing if we can do it again but it’s crazy to bet that we definitely will, as Postmedia and anybody else up to their eyes in debt is doing.

#7 Shanks on 10.06.14 at 6:23 pm

Tragic indeed.

#8 Chickenlittle on 10.06.14 at 6:28 pm

A rehash of the basics is never a bad thing, Garth. Good post.

#9 saskatoon on 10.06.14 at 6:28 pm

“Because it was classified as an asset sale, none of the money needed to be repaid.”

i.e., grand larceny

#10 mitzerboy on 10.06.14 at 6:30 pm

the trucks with the hanging bull-balls have left
Saskatchewan.

#11 West Coast on 10.06.14 at 6:30 pm

….just managed to sell an ancient piece of property in an ancient land to a relative with a romantic imagination…..Thank goodness the offer came along…I’ve been waiting for more than a decade!….will take the money and follow your excellent investment advice..many, many thanks…..

#12 Ardy on 10.06.14 at 6:32 pm

I remember when the US housing market was slowly crashing, the business news experts were lamenting the fact that it was taking so long to hit bottom and start the recovery.

Many concluded one big severe drop would have been better than years of languishing real estate and construction.

If Garth is correct that there won’t be a severe drop…but a long steady decline, it could be a worse situation than people think.

#13 Frustrated Kiwi on 10.06.14 at 6:33 pm

Great article. “But never for a moment believe it’s a financial strategy.” So many people don’t get this, particularly here in NZ, where investing is hard (local stock market very small and volatile and everything else carries currency risk). So important though.

#14 Smoking Man on 10.06.14 at 6:34 pm

MSM has a huge opportunity to make a come back.

Tell the world about building 7, MH17, Bilderburg. UFOs

They can’t compete with the online interesting content. They are like bald dude with a shity hair piece. They get no respect.

And look at you now Garth. Far from tragic.. You’re a hero to many, including me but that could probably go against you. Lol

#15 Vancouverbound on 10.06.14 at 6:40 pm

I remember those days also. Early 1980’s. Calgary. Boom town. Money growing on trees. New condo development in Coach Hill – show home selling mid $400,000’s. Remember this was early 80’s, over 30 years ago. They went bankrupt. My dad bought one at the bankrupt auction a couple of years later with 80% done, just needed insides finished off. He paid $50,000.

Interest rates in early 80’s 15, 16, 18% and higher. Home owners leaving their keys on the kitchen counter and walked out, stopped paying their mortgage. Absolutely mind boggling what happened in 12 months, from euphoria to depression.

#16 jess on 10.06.14 at 7:06 pm

Rigged?

THE FINANCIAL CRISIS INQUIRY REPORT

OFFICIAL
GOVERNMENT
EDITION

….”
From 1978 to 2007 , the amount of debt held by the financial sector soared from
3 trillion to 36 trillion, more than doubling as a share of gross domestic product.
The very nature of many Wall Street firms changed—from relatively staid private
partnerships to publicly traded corporations taking greater and more diverse kinds of
risks. By 2005, the 10 largest U.S. commercial banks held 55% of the industry’s assets,
more than double the level held in 1990. On the eve of the crisis in 2006 , financial sector profits constituted 27% of all corporate profits in the United States, up from 15% in 1980. Understanding this transformation has been critical to the Commission’s analysis.
Now to our major findings and conclusions, which are based on the facts contained in this report: they are offered with the hope that lessons may be learned to
help avoid future catastrophe.

We conclude this financial crisis was avoidable.
———
“I blame Holder. I blame Timothy Geithner,” veteran bank regulator William K. Black tells Bill this week

http://billmoyers.com/episode/full-show-big-jail/

http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf

===========
The Housing Crisis: How the Fed Turned a Blind Eye
October 6, 2014

The following is adapted from the recently published afterword in William K. Black’s The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry, first published in 2005

http://billmoyers.com/content/bill-black/

#17 Vancouverite on 10.06.14 at 7:09 pm

Garth why are Calgary 416 and van the only markets that are holding their ground and even surging higher? Calgary is obvious due to the industry surrounding it but in curious what is the difference between vancouver and Montreal, Regina, oakville,Edmonton etc. what is it that is keeping these markets hot?

#18 Sheane Wallace on 10.06.14 at 7:10 pm

fantastic post.
there used to be real journalists.

I expect now editorial on CMHC, their reckless ‘insurance’ practices, the moral hazards and financial risks they represent.

If possible with touch on outsourcing/temporary workers and the intentional destruction of the canadian middle class by Harpo and Co.

Pulizter awards are coming next April..?

#19 dosouth on 10.06.14 at 7:22 pm

The Okanagan is off and running…..yet again!

The Okanagan is off and running…..yet again!

#20 joblo on 10.06.14 at 7:23 pm

So whats the play here?
Hedge fund borrows at zero, loans it to Putzmedia at 10%, they hack, whack and slash, sell real estate and pay down debt to Hedge fund, Exec gets big paydays.
Only folks hurt every employee along for the ride.
Who have BIG mortgages in TO, Van & Cowgary.
Solid

#21 Harbour on 10.06.14 at 7:24 pm

Well I’m headed North… actually North West

8hrs up from Edmonton and I’m still in fk ing Alberta?

Believe it or not there’s another 6 hours before NWT !!

There’s some Telus box I have to attend to in cold, Indian, moose, wolf, bear country.

This outta be a trip !!

#22 valleyrenter on 10.06.14 at 7:24 pm

Keep hearing ads on the radio all day from the GOC flogging government savings bonds. Is that a sign we are going to war, or are we just broke?

#23 crowdedelevatorfartz on 10.06.14 at 7:27 pm

@#15 Vanbound
Yup, I remember the early 80’s crash. It was brutal. A friend of mine had a car loan for 22.75%.
A house I was renting was assessed in 1980 at 240k. In 1982…… 80k.
There were many “suspicious” house fires in the Lower mainland over an 18 month period.

The younger people today have never experienced a home price drop that goes on for years…….
Its gonna be a shocker to a LOT of people.

#24 theBarold on 10.06.14 at 7:29 pm

Crashes in Real Estate take time.
1. Not everyone needs to sell at the same time — it takes time for people to lose their jobs, linger dwindle their savings then find another job in another city, then need to sell.

2. Unlike equities and other financial instruments, transactions lack velocity — you can’t dump a house in a 30 sec. sell order – it takes time for the transaction to close. It takes time for a significant volume of the supply to turn over (what would we see if we applied prices to the transaction volume we/CREA keep reporting? Value up or down?)

#25 sideline sitter on 10.06.14 at 7:37 pm

I lived through the crash in the early 90s, and I’ll never forget… I was in my very early teens and we lost everything.

I’ve owned, sold, and profited (and own commercial RE now), so I don’t feel left out, which is probably why I’m so cautious now.

#26 Freedom First on 10.06.14 at 7:40 pm

Yes, I remember the Canadian bank bailouts. It was well hidden by the system, and most Canadians displayed a bravado after the GFC that Canada did not need bailouts like the U.S. Some of us knew the truth because we found it away from the msm and other public figures who mislead everyone. The ignorance and egos of Canadians was astounding at the time, but after watching Canadians gorge themselves on debt of every description the last several years, even more than the Americans did leading up to the GFC, well now, that is what I call tragic. There will be blood, for sure.

Garth, you have lead a life to be proud of as the good people love you for it and the evil people want to get you in their dungeon and perform deviant sexual acts on all the orifices of your body, all of which are described in detail on the mail you are unable to make public on your blog. I am glad that you told us before though that you have all the information ready to go to the RCMP in case anything happens to you. People who are evil hate the truth you write here on a daily basis. Thank you Garth.

#27 crowdedelevatorfartz on 10.06.14 at 7:41 pm

@#21 Harbour
Hilarious!
I have driven across Canada several times and when I get to Ontario I shudder.
The fricken province never ends!
Enjoy the moosemeat and gooseberries.
Oh and watching the northern lights are easy because the blackflies wont eat you alive this time of year :)

#28 Smartalox on 10.06.14 at 7:43 pm

@ hunky dory:
That dog is 21 – in dog years!

#29 Cici on 10.06.14 at 7:44 pm

Hey Garth, you should tweet that annoying little detractor dude back with the following news:

@CanadianMortgageNews should be aware that despite 2.8% 5yr rates, we’re already into a record year for real estate foreclosures in Quebec (and probably at least a few other provinces too):

http://argent.canoe.ca/vos-finances/immobilier/saisies-de-maisons-vers-une-annee-record-au-quebec-3092014

#30 the end is neigh on 10.06.14 at 7:50 pm

Flipping through some magazines this weekend, and I see an ad with the tag line:

“Thou shalt covet”

When the madmen start dissing the deadly sins to sell me stuff, its time to duck n cover.

#31 Cici on 10.06.14 at 7:50 pm

Can’t find anything for any of the other provinces though, although I did happen upon this little gem:

http://business.financialpost.com/2013/02/27/cmhc-seeking-to-hide-foreclosure-information-from-home-buyers/

#32 Mark on 10.06.14 at 8:01 pm

“VCE etf shows price/earnings of 21.5?
In addition it is concentrated in financials and resources. Are you sure they will be able to keep growing the recent earnings?”

Not sure of the source of your data. I know on Yahoo Finance and similar sites, the P/E’s are fairly out of whack or are fairly old. Figure the TSX Composite will earn in the range of 900-1000 this year, and a current index level of 14,700 produces a P/E of around 15, give or take.

Shawn, “Mark you are somewhat close to the model Buffett uses but he (properly) uses the dividend yield not earnings yield as you do. “

You can use either earnings yield or dividend yield to go into the “Buffett” model. Either way yields the same results. You just have to adjust the numbers accordingly in terms of growth rates. Dividends, which represent the payment of current and retained earnings of a firm, assuming accretive re-investment of retained earnings, can sustainably grow faster than the rate of economic growth. But earnings on broad indices cannot generally exceed that of economic growth.

In 1999, Buffett may very well have derived a 7% prediction for the next decade because the broad stock market was very expensive at the time by almost every metric possible. For instance, I remember the TSX P/E in 1999 being around 35 (similar to where housing is priced today!). So invert the P/E of 35, and add 3-5% nominal GDP growth, and voila, you come up with Buffett’s 7% prediction.

#33 Sam on 10.06.14 at 8:08 pm

After reading yesterday’s post, what do you think of these ETFs to build a balanced portfolio: VCN, VUN, XEF, XEC, ZRE, CPD, VAB, XHB, XRB

Also what about using Questrade as a broker?

#34 Mark on 10.06.14 at 8:08 pm

“Garth why are Calgary 416 and van the only markets that are holding their ground and even surging higher?”

All three of those locations have been declining if you control for the nature of the sales mix. Realtors (where you probably get most of your ‘numbers’ from) have been quoting unadjusted numbers, but there has been a significant shift in the statistical nature of what actually is moving.

Lower-end really isn’t moving very well as the CMHC subprime standards have been tightened considerably in wake of Budget 2013. Super-high end is frozen (but is fairly irrelevant in terms of the overall sales volume). Make no mistake, in those cities you name, a melt is underway and has been for the past year and a half.

#35 Shawn on 10.06.14 at 8:14 pm

There was no Canadian Bank Bailout in 2008

Aw Geez now we are feeding the misguided bank bashers false information for their false beliefs.

Canadian Center for policy Alternatives is anti business so we expect this kind of distortion.

“In fact CMHC itself handed over $69 billion to the banks and in return took a mess of high-risk mortgages off their balance sheets, says CCPA. Because it was classified as an asset sale, none of the money needed to be repaid.”

Garth are those your words, I was not sure.

The mortgages taken off the banks’ balance sheets may have been high risk to CMHC but not the banks those were CMHC insured mortgages.

None of the money needed to be repaid. No and you buy a house from me I don’t repay, I “paid” by giving you the house. The banks transferred the mortgages collectible from customers to CMHC. The customers then with very few exceptions have continued to pay those mortgages. CHMC will have made a profit on the deal.

It’s an outrageous misrepresentation of the facts to suggest that he banks got money for free here. I hope it is Center for Policy Alternatives doing that and not Garth.

It’s also outrageous to suggest that
“three of Canada’s banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company.”

All that CMHC did was buy some mortgages that they themselves guaranteed. To suggest that this was a bailout is simply to misunderstand the facts.

It’s outrageous to spread this kind of nonsense.

It’s the same ugly taking of a grain of truth and misinterpreting that doomers do all day long.

OUTRAGEOUS!!!

My words are accurate. Feel free to flummox at theirs. — Garth

#36 Master of Ceremonies on 10.06.14 at 8:20 pm

No more enties please. We have tonight’s drama queen.
Congratulations #21 Harbour on 10.06.14 at 7:24 pm
A big round of clap for our winner please.

#37 Mark on 10.06.14 at 8:23 pm

“Not everyone needs to sell at the same time — it takes time for people to lose their jobs, linger dwindle their savings then find another job in another city, then need to sell. “

Sure, but buyers, who are the only people bringing money to the table (or credit, I guess), can smell fear a mile away. Even if the sellers don’t want to sell, the simple absence of buyers can deep-six prices. It might not show up immediately on transactions, but evidence is growing that there’s a lot of tire kicking but fewer offers being made in most Canadian markets.

Meanwhile the people in the business of RE supply are bringing supply to market faster than ever, trying to compensate for high fixed costs and reduced margins by increasing volume. I personally expect housing starts will actually accelerate next year into the downturn. Think of what that will do to prices in a market that is already in the throes of oversupply!

#38 j shum on 10.06.14 at 8:28 pm

The have and the have nots. This makes me so mad as a non home owner. Apparently I have already paid for other people’s houses. This is the bank and the government’s mistake. They gave loans to people people that should not have gotten them. And they get a free write off from the government for their mistake for a problem that caused me not to be able to get a house because I’m responsible? Yes I know the whole the greater good of the society. This was because of society’s stupidity. I’m not happy to help pay to solve this problem. Bank stocks when I checked a month or two ago (there have been corrections) have done remarkably well. In one year at august they were up 30% ish. You would think they could repay some of the loan or take back some of those high risk mortgages

#39 TEMPORARY® Foreign Prime Minister on 10.06.14 at 8:29 pm

“…..CMHC President Evan Siddall, in a conversation with Terry Campbell, President of the Canadian Bankers Association (CBA)……”
=========================

Now there’s a biologically dysfunctional Host/Parasite scenario if there ever was one.

Almost experienced projectile vomit when I read this one:

“….For nearly 70 years, CMHC has touched the lives of Canadians in communities across the country as it has helped Canadians meet their housing needs……”

TRANSLATION: “…..For nearly 70 years, CMHC has distorted the Canadian housing market in communities across the country as it has helped Canadian Banks meet their record profit needs….”

#40 What about CMHC? on 10.06.14 at 8:34 pm

Go to a bank and ask for:
1. A mortgage to buy a $400,000 condo.
2. Ask the same bank for a $150,000 loan to buy a profitable small business.

Which one will get approved? What interest rate will you pay?

#41 TEMPORARY® Foreign Prime Minister on 10.06.14 at 8:34 pm

Shawn on 10.06.14 at 8:14 pm
“…..Canadian Center for policy Alternatives is anti business so we expect this kind of distortion……”
=========================

Actually, Shawn, the CCA is not anti-business, it is pro-humanity.

#42 Retired Boomer - WI on 10.06.14 at 8:34 pm

Yes, Garth I too remember the days that Newspapers contained journalism. I also remember when AM radio carried all varieties of music, most cars had no AC and manual trannys. Remember the fabled ‘three on a tree’?

So, what? I also remember $2.10 as a minimum wage, but in those days rearmed nearly $8.00. Do the same extensions today and see where that wage would be in relation to the minimum wage.

So, what again he says. Times change, technology changes, our expectations DO rise as our standards of living have risen through the decades.

What I see today, many expect the “ticket” to success is the over-priced college degree. Trust me, that is quickly losing the value it used to convey to an employer.
Perhaps credit will lose its ability to ‘buy’ the good life so many crave today without first “putting forth the inputs” to achieve same. Time will reveal the greater fools could well be you and me.

#43 Mark on 10.06.14 at 8:35 pm

“For nearly 70 years, CMHC has distorted the Canadian housing market in communities across the country as it has helped Canadian Banks meet their record profit needs”

In fairness, the CMHC has funded engineering R&D into housing, and has promoted certain standards of sustainable housing that were not being actively promoted by the private sector.

I personally would like to see CMHC removed from the “financial” business, and turned completely into an outfit that dispenses grants and research funding to engineering R&D institutions, both public and private, to fulfill a mandate of helping Canadians live in less expensive and higher quality housing. I think that’s really the only reasonable role for CMHC and its use of taxpayer’s funds. Instead of the sort of Ponzi scheme they’ve inflated to the benefit of the Canadian banks that have heavily shorted the Canadian housing market and will profit enormously on the downside.

#44 Ben on 10.06.14 at 8:36 pm

Ok it’s an early call but here we go:

there is a whiff of panic in Montreal. I’m not seeing a stampede, just a few sellers breaking into a jog as not to startle the others, but they are moving.

Keep jogging my little real-estate geniuses, I’ll be back to check on you later…

#45 John on 10.06.14 at 8:37 pm

http://www.cba.ca/contents/files/cba-in-the-news/int_20120505_record_oped_bil.pdf

#46 Dave on 10.06.14 at 8:37 pm

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
― Benjamin Graham

For the moment, the majority of Canadians, duped by real estate agents with major conflicts of interest, and the media who backs them (and has lost the art of honest journalism) believe housing will go up forever. But soon enough greed will turn into fear, people will sell and then the smart money will enter.

#47 JO on 10.06.14 at 8:38 pm

If I hear more statements that CMHC “helps house” Canadians I will scream. I have lent money as part of my job for over 14 yrs at a major trust co, bank and a large non bank lender. I also study financial crisis and macro trends for many yrs. let me be clear: The purpose of CMHC and Genworth is to heavily subsidize mortgage debt so that the massive debt bubble that has held up our economy keeps growing. Credit must keep growing at inflation plus about 2% per Richard Duncan as without this, the economy stalls out and the illusion of ” growth” disappears. Phantom collateral values begin to collapse and GDP stalls out with unemployment shooting up.
CMHC since 2000 became a favourite tool of the politicians to keep the false prosperity going. It allows “middle income” borrowers to borrow much more than they ever could without the guarantee of no loss to gone lender. As a result these middle income borrowers can pay seriously inflated prices for housing that other middle income people compete for. Since wages aren’t really moving adjusted for inflation the gap between house price rate of growth and poor wages is filled by the unnecessarily large mortgage.

It is a massive tax on the middle class but fools them into thinking they are getting richer. On the other side, it inflates the bonuses of the top level execs and inflates the govt tax revenues until the inevitable crash comes.

CMHc has nothing to do with helping house Canadians. It use to help veterans. CMHC is a key financialization tool to put Canadians in debt for the benefit of the establishment. It is classic neoliberal economics at work.

It also helps to create massive inter generational inequity as old homeowners enjoy the inflated easy credit driven house prices and sell to mostly younger homebuyers. This will reverse itself in the late stages of the cycle once the burst of inflation comes and wipes out the older fixed income citizens.

#48 jon on 10.06.14 at 8:39 pm

Thanks Garth, you have now explained why F and Pekerets, as you say, took a 10 year average budget surplus of 10 BIL positive yearly from 97 to 2007 to a 55 BIL deficit in 2008 and onwards yearly till today…

A 65 BIL or so yearly secret bailout to keep the system working… What is next and when?

#49 Dd on 10.06.14 at 8:43 pm

Good article.

#50 Snowboid on 10.06.14 at 8:43 pm

#19 dosouth on 10.06.14 at 7:22 pm…

Or so they would like us to believe – volume of sales is one thing, but prices are still below September of 2007.

Not including inflation, SFH residential properties are getting close to catching up to 2007 prices, but condos and waterfront residential are still down from 10% to almost 20%.

Add in the effects of inflation and there is still a long ways to go before real estate will recover in the Okanagan.

Average sales prices September before inflation:

2014 2007
Res. SFH $ 492,571 $ 512,679
Condo $ 244,604 $ 266,596
Res. Water $ 1,758,800 $ 2,135,745

Maybe in another 7 years prices will be up to 2007 levels, but as a determined vurture I don’t think so!

#51 rawdiswar on 10.06.14 at 8:45 pm

# 35 Shawn

Here ya go buddy, give this pdf a read then tell us dogs what’s outrageous.

http://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2012/04/Big%20Banks%20Big%20Secret.pdf

For the record, this is the third time I’ve posted this link on here.

#52 TEMPORARY® Foreign Prime Minister on 10.06.14 at 8:46 pm

“….This week the Quebec-based company dumped not only the Suns in Toronto, Ottawa, Calgary, Edmonton and Winnipeg but 170 other newspapers and about 40 pieces of real estate for just $316 million. The buyer was Postmedia…….”
========================

As a kid, I used to deliver the Winnipeg Tribune in the early 70’s before it was bought out and overrun by a bunch of polarizing, foaming-at-the-mouth, right-wing, Tea-Party nut-jobs whose sole mission was to brainwash a readership of under-educated, Sunshine-Girl addicted banjo-pickers into believing that guns are good, government oversight is bad, and taxes are theft.

Maybe the new owners will purge all the (irrel-)Levants from the payroll and begin the slow restoration from press-ti-tutes to investigative journalism once again.

Then again, given that Postmedia still allows a unconscionable, convicted, non-Canadian to continue to scribe for them, I’m not holding my breath anytime soon.

#53 saskatoon on 10.06.14 at 8:46 pm

#35 Shawn

“The recipients of the bank bailout are also the creditors of the federal government. The chartered banks are the brokers of the federal public debt. They sell treasury bills and government bonds on behalf of the government. They also hold a portion of the public debt..

In a bitter irony, the banks lend money to the federal government to finance the bailout, and with the money raised through the sale of government bonds and T-Bills, the government finances, via the CHMC, the bank bailout. It is a circular process. The banks are the recipients of the bailout as well as the creditors of the State. The federal government is in a sense financing its own indebtedness.”

#54 takla on 10.06.14 at 8:51 pm

ive lived thru these things and KNOW there true as well.what angers and frustrates me is the bailing out of financial entities when their{gov/banking} policies create the market crash’s and severe hardships,and financial delinquencies that destroy families lives with no fault of their own threw jobloss and cost of living hikes.
Also with all the excessive money printing going to the top 10% while everyone else struggles.There should be laws against banks investing in the markets as they get their money for free!

#55 TEMPORARY® Foreign Prime Minister on 10.06.14 at 8:52 pm

#47 JO on 10.06.14 at 8:38 pm
=========================

Excellent post.

#56 Shawn on 10.06.14 at 8:55 pm

Bank Bail Outs

My words are accurate. Feel free to flummox at theirs. — Garth

**************************************
Thank you for the opportunity. I appreciate that you allow my posts to stand even when I occasionally take issue with you.

“Because it was classified as an asset sale, none of the money needed to be repaid.”

It WAS an asset sale so why say it “classified ” as such? Does this imply improperly classified? There is an implication that the money should have been repaid. But they handed over an asset that had the same value as the cash received. When you get cash for selling something there is no expectation that you will repay.

Garth you are of course free to think the banks were “bailed out” I don’t think the facts support it. The Canadian banks were in no danger of sinking at any time and so no bailout was required.

If CMHC had not wanted to buy those mortgages and then I suspect the banks could have borrowed money from the central bank.

I don’t like calling this a bailout because people read way too much into this.

Did the banks get some assistance there. Yes. But I think it falls well short of a bailout and it never cost CMHC a dime. I believe CMHC would have made a profit by later selling the mortgages and /or collecting the interest.

And the article above and/or the Policy Alternative people strongly imply or even state that the banks got free money. (handouts)

“He points to a big study done by the Canadian Centre for Policy Alternatives which concludes the bankers took $114 billion in handouts, largely because they were over-extended with real estate loans.”

Calling the purchase of CMHC guaranteed mortgages by CMHC a “handout” is simply wrong. It feeds the bank bashers and it is wrong.

#57 Joseph R. on 10.06.14 at 9:02 pm

#35 Shawn on 10.06.14 at 8:14 pm

Yes, because they were sold through an auction by the CMHC.

Here is the link to the study from the CCPA:

http://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2012/04/Big%20Banks%20Big%20Secret.pdf

The 69 billions dollar program was called the Insured Mortgage Purchase Program (IMPP) and you can find it here:

http://www.parl.gc.ca/content/lop/researchpublications/prb0856-e.htm

#58 Mark on 10.06.14 at 9:03 pm

“Calling the purchase of CMHC guaranteed mortgages by CMHC a “handout” is simply wrong. It feeds the bank bashers and it is wrong.”

The mortgages, had the financial crisis continued, would have defaulted. The banks would have received 100 cents on the dollar from the CMHC for the mortgages. But the systemic damage to the economy would probably have been enormous, at least for the time. Might not be much damage compared to the sort of carnage in the economy/housing market that is unfolding right now, with 5-6 years of extra supply added and hyper-stimulation of the RE supply sector. But it would have been quite damaging at the time and certainly not very politically expedient to have let housing prices in Canada collapse to their long-term values.

#59 Realitybytes on 10.06.14 at 9:05 pm

Follow up. Jane finally accepted my linkedin invite.

#60 Shawn on 10.06.14 at 9:08 pm

The Big Banks Secret (non) Bailout

Number 51 rawdiswar, thank you for the link to the Policy Alternatives paper.

The first few pages talk about “support” but imply that such support is in the nature of a handout but they don’t quite say that.

On page 11 I came to the following false and misleading conclusion:

By March 2009, government supports to
Canada’s banks peaked at $114 billion. At this point, support for Canadian
banks was equivalent to 7% of Canada’s 2009 GDP. That support represents
a subsidy worth about $3,400 for every man, woman and child in Canada.

Here they have characterized the CMHC buying back CMHC guaranteed mortgage backed securities as a subsidy. That would only be true if the securities were worthless. how could they be worthless when guaranteed by the CMHC.

The whole stupid paper is a slanted study with a government and bank bashing agenda.

They should be sued for slander really.

The whole stupid mortgage purchases were in the news when they were made as I recall. I don’t think there was anything secret about it.

I remain, OUTRAGED.

#61 mishuko on 10.06.14 at 9:10 pm

Humble start Garth! I started as a securities messenger.

#62 ham on 10.06.14 at 9:13 pm

Garth,

What do u think about Jim Rickards prediction? If u dissagree, please explain why?

#63 TEMPORARY® Foreign Prime Minister on 10.06.14 at 9:17 pm

“…..The Finance Minister says banks should not get too optimistic about Ottawa allowing bank mergers even though his boss, Prime Minister Stephen Harper, indicated recently he was “very loath” to impose political judgments on business transactions……”
– National Post, July 5, 2007
=======================

‘F’ had his faults, but, in standing up to his own Führer that year, he probably saved the Canadian Big Five from their own greed-induced self-combustion.

#64 PVS Inquire on 10.06.14 at 9:22 pm

Another informative and well written piece. As an English teacher I am embarrassed to share some mainstream news articles with students. It is a sad day when a blog or FB message has more to offer those who seek knowledge and wisdom. I am truly humbled at my daily opportunity to guide a better generation into tomorrow.

#65 omg on 10.06.14 at 9:23 pm

Garth, I am shocked that one day you cast disparaging remarks at the Canadian Taxpayer Federation and the next day actually quote from a study done by the leftist Centre for Policy Alternatives, handmaiden to unions and the NDP party.

Just follow the money to understand where both organizations are coming from.

Would you like me to write about climate change again? — Garth

#66 Stevimus on 10.06.14 at 9:26 pm

Hi Garth,
I’m a long time reader but first time poster. I have been an advocate of your views for years, long before discovering this magnificent site largely due to personal pain suffered in the early nineties. When I discovered this blog it was validation that I was’t nuts and living in the twilight zone. I am posting tonight to ask a question or more accurately seek clarification. You often site “emergency interest rates” and the BOC intervention back in 2008. When you do so I get the impression that you are critical of this action. Here is my issue; when aggregate demand falls central banks have one lever and that is monetary policy. Governments on the other hand have fiscal policy. Therefore to stimulate demand the BOC acted appropriately in my opinion and I don’t think this should draw criticism in and of itself. I believe that the real focus should be the fact that central banks know that lower rates designed to stimulate demand also often lead to asset bubbles. I think the real criticism should be directed not at the low rates, but rather the fact that actions were not taken to prevent or control the resultant asset inflation. Specifically with respect to equity markets tighter regulation of margin, and with respect to housing immediate reigning in of rules around CMHC (downpayment sizes, amortizations, etc.) Therefore my point is that the failure was in regulation of markets, not in monetary policy. I would LOVE your remarks on this. Thanks and keep it up you are helping people.

#67 Kenchie on 10.06.14 at 9:27 pm

From yesterday

#160 JuliaS on 10.06.14 at 4:00 pm
“I’m in a similar situation to Linda’s. Only a lot more savings. Very few investments. Don’t trust RRSP’s, don’t like TFSA’s….”

This is one of the weirdest comments I have ever seen on this blog. RRSP and TFSAs are whatever you make them be. “Trust” isn’t even a variable that can be attributed to a registered saving account. You need to do more homework JuliaS.

Also, can you enlighten us blog dogs on how your co-op is structured? (i.e do you have equity, how many partners, what’s the aggregate cost to run the household, etc). It’s a living arrangement that doesn’t get much attention, and certainly isn’t close to mainstream.

#68 Shawn on 10.06.14 at 9:33 pm

Okay, Let’s Talk Newspaper Publishing

This week the Quebec-based company dumped not only the Suns in Toronto, Ottawa, Calgary, Edmonton and Winnipeg but 170 other newspapers and about 40 pieces of real estate for just $316 million. The buyer was Postmedia, which already owns newspapers, loses money every day and has no cash. It will be financing the full amount.

The deal’s a shocking admission that news which is printed on former trees and once delivered by 11-year-olds has met its demise.
***************************************
I was under the impression that Post media has been circling the drain for years so this is a surprise.

I expect Post Media to be in creditor protection before too long.

My friend, Mr. Buffett loves newspapers. He appears to believe the big city papers are toast but that local papers are viable.

Perhaps as a hobby he bought a slew of local papers a couple of years ago and has been turning a small profit. He may have done it just to show that he can.

He wrote a brilliant letter to his publishers / editors on how to run a profitable newspaper in this internet age.

http://online.wsj.com/public/resources/documents/LettertoPublisherandEditors.pdf

Buffett also explained his recent newspaper purchase in his 2012 annual letter at pages 16 to 18. Must reading for anyone interested in how to run a newspaper.

http://www.berkshirehathaway.com/letters/2012ltr.pdfhttp://www.berkshirehathaway.com/letters/2012ltr.pdf

I think Buffett would like this blog because of its reader engagement.

Under Buffett’s advice some local papers will be profitable.

#69 Kaganovich on 10.06.14 at 9:33 pm

Shawn writes

“Here they have characterized the CMHC buying back CMHC guaranteed mortgage backed securities as a subsidy. That would only be true if the securities were worthless. how could they be worthless when guaranteed by the CMHC.” The nickel finally dropped methinks.
At the time, much of the world was starting to see the truth about the mortgage backed securities and their worthlessness in the face of a depression. Good post JO, you are right, the cmhc has become the main quasi government tool to financialize the nation. It has also facilitated one of the greatest misallocations of capital/resources in this country’s history.

#70 Piccaso on 10.06.14 at 9:35 pm

#21 Harbour

Try Rainbow Lakes, that’s an 11 hr drive north of Edmonton and your still in Alberta. LOL

Your long past any highway with a shoulder

#71 gmc on 10.06.14 at 9:38 pm

That is why the Brics and africa have banded together for an alternative to the US dollar, they have abused their position and the world is loosing confidence in the dollar, right now the dollar index is showing strength in the greenback, but whats happening is others dollars are droping in value and when the US dollar comes home there will be more inflation and maybe then the over 2 million house in the US will have to come off the bank books, that will affect us all.
Garth was right back then, but what he did not foresee was Harpers elf’s reaction and new interest rate policy, then everyone gorged, so if you held on for the past few years, you did well, but that will not last, and then Garth will be right.
gmc

#72 Mark on 10.06.14 at 9:43 pm

” I think the real criticism should be directed not at the low rates, but rather the fact that actions were not taken to prevent or control the resultant asset inflation. Specifically with respect to equity markets tighter regulation of margin, and with respect to housing immediate reigning in of rules around CMHC (downpayment sizes, amortizations, etc.)”

If you look at the broader Canadian economy, the only ‘assets’ that appear to be inflated are those of residential RE. In other words, the stuff that the CMHC provides subprime credit guarantees against. Businesses, particular medium and large businesses, are actually paying abnormally high costs for their credit (an example I give frequently is that BCE pays dramatically higher interest rates against its borrowing than do most Canadian residential RE borrowers!).

Central banks ordinarily do not have the power to target what market participants do with the credit granted. They can only control the policy rates, and enact policy measures to defend such policy rates. Policy rates are set according to inflation, which is only minimally existent in Canada. The blame for the lop-sidedness in the Canadian economy falls solely onto the government, and it appears very likely that a substantial amount of output is being sacrificed all in the name of supporting one asset bubble (housing) to the exclusion of the rest of the economy. The government has done this by letting the CMHC run wild with the CMHC subprime mortgage insurance program.

As for equity markets and margin, no evidence that there’s a problem there. If anything, Canadians probably don’t borrow enough for equity investment purposes. Which means that the cost of capital for Canadian businesses is quite high and the availability of speculative capital is quite minimal. P/E, P/B, and dividend yields on the Canadian stock market are at levels within earshot of the historical lower band of valuations. A good amount of the contemporary TSX trades at significantly below replacement cost of the assets, even when liabilities are netted out.

#73 Calgary? No problem! on 10.06.14 at 9:56 pm

Shawn #56 speaking of Garth:

” I appreciate that you allow my posts to stand even when I occasionally take issue with you.”

I’ll try my hand at this for a SECOND time: Garth, maybe this was a technical difficulty, but why was the link I provided about mortgages in Calgary being NON-RECOURSE not posted?? I would really like to know what implications this could have (they might even crash MORE than other provinces, for example).

Here is the link once again, and please explain if this EXCLUDES CMHC mortgages or not:
http://www.macleans.ca/economy/business/a-very-canadian-housing-slump/

From the article: “The spike in the early 1980s might have been associated with the arrival of the legislation making Alberta mortgages non-recourse”

PS: I live in the Montreal area, so my interest is purely for learning, and I’m not trying to be a jerk ;)

(a) Nobody walks away from a CHMC mortgage. (b) So why would anyone walk from a non-insured loan? (c) Don’t pay your mortgage? Good luck getting another. — Garth

#74 Retired GenX on 10.06.14 at 9:56 pm

Today Canadians may have $1.2 trillion in mortgages outstanding, but they also have as much in Cash. They also have 9x the amount of assets relative to total debt. And Boomers, the wealthiest Canadian cohort, continue to fund their children’s home ownership goals.

Real estate is fine.
Gold is dead. Gold miners are dead.
The CAD is dying.

#75 Smoking Man on 10.06.14 at 10:00 pm

Why do I get the strange feeling Ebola is going to become prevalent in the gun toting, red neck, tea party States.

Naw.

#76 };-) aka Devil's Advocate on 10.06.14 at 10:04 pm

Believe what you want, anticipate what you will, it is what it is:

http://www.castanet.net/edition/news-story-124269-23-.htm#124269

#77 };-) aka Devil's Advocate on 10.06.14 at 10:10 pm

Oh and yes, at some point, property values will decrease but not nearly so much as they increased the past 9 years. Prices are sticky on the way down but very, VERY fluid on the way up. Fear and greed – facts of life.

Suck it up SHIFT happens, learn to ride the tide.

Didn’t I ban you? Twice? — Garth

#78 Piccaso on 10.06.14 at 10:12 pm

#74 Smoking Man

Why do I get the strange feeling Ebola is going to become prevalent in the gun toting, red neck, tea party States.
……………………………………………………………………….

The Ebola World Tour was supposed to be in Toronto after Dallas, but there’s been a delay.

#79 Mark on 10.06.14 at 10:13 pm

“Today Canadians may have $1.2 trillion in mortgages outstanding, but they also have as much in Cash. “

Guess what that ‘cash’ is doing? Funding CMHC-insured subprime mortgages in the banking system, amongst other credit needs.

You don’t actually think that those who are taking out the subprime loans ($900B under insurance at the CMHC) have that cash just sitting on the other side of their balance sheet, do you?

No, that ‘cash’ is primarily owned by corporations, old people, and various other public and private sector participants.

#80 Mark on 10.06.14 at 10:14 pm

“(a) Nobody walks away from a CHMC mortgage. “

Yeah they do. Its called declaring personal bankruptcy.

That is not walking away in the context of the question about non-recourse loans. It is failure. — Garth

#81 Cici on 10.06.14 at 10:21 pm

I don’t think Buffett’s newspaper investments have anything to do with turning an inherent investment profit, big or small. Neither does he. Hang on til the end of the interview:

http://www.cnbc.com/id/102053601

There’s a bit more to it…think deep Shawn.

#82 Uh Oh Canada on 10.06.14 at 10:27 pm

As I read Garth’s blog with a zen-like mind in my rented townhouse, the peace of being debt free can almost take a person away from reality. And then I scroll to the comments- jealousy, contention, desperation, distrust, self-righteousness, and more. Reality sets in once again.

#83 Spaccone on 10.06.14 at 10:35 pm

>>>#33 Sam on 10.06.14 at 8:08 pm
>>>After reading yesterday’s post, what do you think of these ETFs to build a balanced portfolio: VCN, VUN, XEF, XEC, ZRE, CPD, VAB, XHB, XRB

>>>Also what about using Questrade as a broker?

For myself, I’m looking into VXC for the US & International & Emerging Mkts portion instead of 3 separate ETFs (seems to consist of about 50% US, 12% Emerging Mkts, and the remainder in the rest of the non-Canadian world markets). Only “issue” is that you’re leaving the rebalancing between these classifications to the fund manager.

#84 Jay Currie on 10.06.14 at 10:36 pm

The Sun deal almost looks like an attempt to make Postmedia “too big to fail”. The hedges will find 200 million in assets to strip and peel the locals off to David Black and Glacier Media.

On the CMHC mortgage buy: it was an elegant way of pumping up the bank balance sheets without having to inject actual money. Very much an asset swap to derisk a portion of the banks’ portfolios. As the CMHC was on the hook in any event this really was lipstick on the proverbial pig.

#85 Mike S on 10.06.14 at 10:37 pm

“Not sure of the source of your data. I know on Yahoo Finance and similar sites, the P/E’s are fairly out of whack or are fairly old. Figure the TSX Composite will earn in the range of 900-1000 this year, and a current index level of 14,700 produces a P/E of around 15, give or take. ”

https://www.vanguardcanada.ca/individual/etfs/etfs-detail-overview.htm?portId=9561

What is your source?

#86 Young & Foolish on 10.06.14 at 10:50 pm

Does the rule of 90 include rental holdings, like as in a triplex ?

#87 Kenchie on 10.06.14 at 10:52 pm

TED Talks: Dave Cameron on The New Age of Government, Feb 2010.

For anyone who leans to the right, you may enjoy this video:

http://www.ted.com/talks/david_cameron?language=en

#88 };-) aka Devil's Advocate on 10.06.14 at 10:54 pm

Didn’t I ban you? Twice? — Garth

At least twice.

Ever see The Brave Little Toaster? Jack Nicholson voice overs for an air conditioner which can’t join in the journey.

“So… It’s back to that stupid static again. You think I don’t know what’s going on in here? I know what goes on in this cottage. It’s a conspiracy… and every one of you low-watts is in on it. Just ’cause you can move around, you think you’re better than I am. I’M NOT AN INVALID! I WAS DESIGNED TO STICK IN A WALL!! I LIKE BEING STUCK IN THIS STUPID WALL!! I CAN’T HELP IT IF THE KID WAS TOO SHORT TO REACH MY DIALS…”

It’s my function; I am the Devil’s Advocate. Wouldn’t be if I agreed with everyone on this blog including it’s author. Of course you can reach my dials and shut me down if you must. But why?

};-)

#89 Mark on 10.06.14 at 11:00 pm

“What is your source?”

http://research.cibcwm.com/economic_public/download/tsx_ew_jul14.pdf

“Based on a four-quarter expectations of 978 for
index-adjusted earnings, the Composite is trading at a forward PE of 15.6″

(this written when the TSX was ~15,600 … now 14,7k).

#90 Nemesis on 10.06.14 at 11:01 pm

#”BaaBaa!”,BlackSheep… #YouKnowWhoYouAre… #’Pappy’WouldBeProud,Indeed… #WeSaluteYou. #AttackFormation,”BreakLeft!”..,

http://youtu.be/1WizROIojlA

[NoteToGT: “People who ignore me (pretty much everybody)…”… Don’t despair, AuldPol… or, as I always used to say, petulantly, “Nobody ever listens to me!” Until they did.]

#91 Nemesis on 10.06.14 at 11:06 pm

#iOS8.02Sucks! #Erratum!:

http://youtu.be/pc_xAqmZiR0

#92 };-) aka Devil's Advocate on 10.06.14 at 11:07 pm

Didn’t I ban you? Twice? — Garth

At least twice.

Here ya goThe air conditioner scene.

Like I said, it’s my function; I am the Devil’s Advocate. I’m sure you can see the parallels…

};-)

#93 Ems on 10.06.14 at 11:09 pm

I just remembered, back in 2006 when I was selling a condo I talked with a real estate agent about renting it out versus selling it and he told me, eight years ago, that everybody that was solvent had already bought a home, anyone that could buy had bought, and good tenants were hard to find, better to sell it. Granted, he might’ve been trying to make a commission, but he was a pretty big fish (Faisal Susiwala for you Cambridge folk) and didn’t need the hassle of selling a tiny condo. But that was eight years ago. So all those crappy tenants have bought houses over the last eight years? Where else is the demand coming from? Just struck a bell with me as I read the blog tonight. We are truly F#&%ed.

#94 broadway skytrain on 10.06.14 at 11:12 pm

46 Dave on 10.06.14 at 8:37 pm

But soon enough greed will turn into fear, people will sell and then the smart money will enter.
———————————
and then the prices go back up as the smart money sells for a profit.

i would love to see my house drop by 50% – i’d buy 2 next door in a heartbeat. vancouver is VERY small landmass, and #1 favorite with the teeming masses of the east (many countries ) who will be adding another billion heads needing a place to sleep.

central 604 RE (land) will double again in 7 yrs- asia rising will see to it.

#95 nonplused on 10.06.14 at 11:17 pm

Well Garth, around these parts (Calgary) the real estate market di vapor lock in 2008 and experienced a correction. Prices have only started making new highs recently. So your predictions at the time were half right. Vancouver vapor locked too. But then came zero interest and free money for the banks. I’m not sure anybody could have predicted that level of desperation from a conservative government but it happened.

At that time (2008-2009) I had cash (having sold my house based on your book) and I bought an SUV, a truck and a motorcycle all dirt cheap because at the time they weren’t moving. Don’t we remember GM and Dodge going tits up? Ford was only a hair away as well. How soon we forget exactly how bad it was. GM WENT BANKRUPT!!!! Sorry for the emphasis. Times were terrible.

And we still aren’t done. Right now they are writing the laws in California and Michigan about how much money pensioners can really expect from their municipal pensions, and it’s going to be pennies on the dollar. Those precedents will be looked at all across the land. It turns out that a defined contribution plan might have been a better idea all the while. But time will tell.

I’m always late to follow your ideas but I even have a fee based advisor now. We’ll see how that goes but his strategy doesn’t sound a lot different than yours.

Personally, though, I’m still a lot more freaked out about Fukashima and peak cheap oil than the stock markets. So what if GM goes bankrupt again? Fukashima is only one plant and it seems like it might wipe out the whole northern pacific for a time. And peak cheap oil isn’t the end of the world but it will bring about a lot of changes. No more supped up coal burning diesels with dingle balls for example. That might not be a bad thing; I don’t like the idea of a guy that dumb rolling in something that heavy and fast. My kids are out there driving around now too, and that guy is too self absorbed to care.

#96 Shawn on 10.06.14 at 11:28 pm

Thank You Cici who said:

I don’t think Buffett’s newspaper investments have anything to do with turning an inherent investment profit, big or small. Neither does he. Hang on til the end of the interview:

http://www.cnbc.com/id/102053601

There’s a bit more to it…think deep Shawn.

**************************************
Thank you for the link I had not seen that. I have however followed this newspaper purchase closely since it was announced in 2012. Buffett has been clear all along about expecting to make a profit, albeit a small one.

What he said in the interview is his investment in newspaper will earn a satisfactory return (that means a profit) despite that earnings will fall, because he bought them very cheap.

The local (free) newspaper in my little City is absolutely thriving. It’s chock a block with ads. They recently moved to a big new building. Every indication is that they make an excellent profit. They focus on community newspapers. The type Buffett suggests will do okay.

#97 Shawn on 10.06.14 at 11:32 pm

Mark at 79 about savings funding mortgages.

That’s a post I can agree with completely.

But keep an eye out for fractional reserve nutbars who think the mortgages are funded by thin air. And who think that they read that in a Bank of England paper. Nothing wrong with the paper just the interpretations thereof.

#98 cowtown cowboy on 10.06.14 at 11:37 pm

#15 Vancouverbound on 10.06.14 at 6:40 pm

I remember those days also. Early 1980’s. Calgary. Boom town. Money growing on trees. New condo development in Coach Hill – show home selling mid $400,000’s. Remember this was early 80’s, over 30 years ago. They went bankrupt. My dad bought one at the bankrupt auction a couple of years later with 80% done, just needed insides finished off. He paid $50,000.

Interest rates in early 80’s 15, 16, 18% and higher. Home owners leaving their keys on the kitchen counter and walked out, stopped paying their mortgage. Absolutely mind boggling what happened in 12 months, from euphoria to depression.

I live beside Coach Hill and would like to know what condo was being sold at 400k in the early 80’s?

#99 Shawn on 10.06.14 at 11:42 pm

Misallocation of Resources

kaganovich at 69 says:

the cmhc has become the main quasi government tool to financialize the nation. It has also facilitated one of the greatest misallocations of capital/resources in this country’s history.

*************************************
Perhaps so. This would imply that we have built too many houses and condos?

Bidding up the price of said houses and condos does not really allocate more resources to them.

The resources in houses and condos are land, materials, equipment rental and labour.

Are there really too many houses? Maybe. If so we should see the vacancy rate rise? Have we?

If the land labour and materials and equipment rental that went to houses should have gone elsewhere, where should it have gone? Perhaps into manufacturing things?

But then we have no shortage of things do we?

Perhaps things to export. Yes that might have been good if there was a market and we could compete. Can we?

There is no doubt that CMHC has encouraged home ownership and facilitated high prices. Will it all end badly? Stay tuned.

Interest rates will largely determine it.

Reacting to high house prices is logical. Sell and rent if you will. Railing against causes like CMHC that is not going anywhere is not so logical is it?

#100 Calgary Car Guy on 10.06.14 at 11:44 pm

I’ve spent most of my life working in car dealerships in Calgary. Primarily service department. I started at 18 years old in 1976. In my mind there have only been two real recessions in that time. The first one in the very early 80’s (81?) and the second one a few years later brought on by Trudeau’s NEP. The one in ’81 or so was the worst by far. It was brutal. Business basically stopped. People were literally driving cars to destruction in some cases. What would have been minor repair bills turned into catastrophic failures. The general manager of the dealership at that time had a one on one with every employee. I remember him saying that things were really bad and that we were all going to have to take a cut in pay. He said we’re paying you this much and now we can only pay you this much. Basically take it or leave it. I was still young and with almost no debt so I was able to take the cut and stay on.
I think Albertans tend to remember the NEP recession more vividly because we had just got back on our feet after that nasty early 80’s one and the fact that the NEP recession was so unnecessary made it that much more aggravating. It was a real kick in the groin.
The scary part is I think the economic hit and recession that is coming soon is going to be even worse and much longer lasting than that early 80’s one. There are a lot of people holding their hands over their ears and yelling “La,La,La”. It’s going to be a real shocker when it hits and they hit FAST.

#101 45north on 10.06.14 at 11:45 pm

Cici : from your link : CMHC seeking to hide foreclosure information from home buyers

which is like Canadian foreclosures are being hidden in bankruptcy proposals that do not show up in CBA’s mortgage in arrears stats.

http://www.greaterfool.ca/2012/03/20/cant-cure-stupid/#comment-159534

where is Canadian Watchdog anyways?

#102 CPG on 10.06.14 at 11:48 pm

(August 12, 2013)

“Three-quarters of all Canadian mortgages are insured by the federal government, up from only 30 per cent in 1988. Ottawa guarantees a total of $900-billion worth of mortgage insurance.”

http://www.theglobeandmail.com/report-on-business/economy/housing/after-decades-of-stoking-mortgages-ottawa-in-a-mess-of-its-own-making/article13705668/

#103 Sheane Wallace on 10.06.14 at 11:50 pm

#62 ham

Jim Rickard advocates for gold, Garth hates it.
Other than that they are both decent men.
……………………………..
Garth, were you really threatened? By Real estate or politicians scum?

If I was you I would write anything I know about a certain former boss of yours and certain dirty secrets that I am sure you are aware of store it in a safe deposit box.
It would be your insurance policy.

#104 Stubblejumper on 10.06.14 at 11:52 pm

Prices are dropping in Saskatoon. Been keeping an eye on point2homes, shows former listing prices.

#105 Sheane Wallace on 10.06.14 at 11:53 pm

#79 Mark

All the supposed ‘cash’ is 1-1/5 trillions, debt is over 4.
Check for M2/M3, private, public and corporate debt on the BOC site.

#106 Brandon on 10.07.14 at 12:34 am

What is the rule of 90?

#107 Nemesis on 10.07.14 at 12:36 am

#JustForHarbour… #&OtherMinstrelVagabonds:

http://youtu.be/w-6if333Lak

#108 Tony on 10.07.14 at 12:37 am

Re: #17 Vancouverite on 10.06.14 at 7:09 pm

The Edmonton market tanked in the summer of 2007. Home prices are still lower today and resale condo and resale townhouse prices are still about 40 percent lower than the 2007 peak. Calgary peaked almost a year later and houses finally broke through the 2008 peak earlier this year. Condos and townhouses are about 20 percent lower than the peak. The rest of the country didn’t sewer because they weren’t oil dependent when the price of oil dropped from 140 dollars a barrel to 35.

#109 SydCixel on 10.07.14 at 1:16 am

And who gave approval for “CMHC itself handed over $69 billion to the banks and in return took a mess of high-risk mortgages off their balance sheets?”

Was it not a certain minister of finance known as “F”?

#110 Happy Renting on 10.07.14 at 1:21 am

Soon they’ll all be reduced to being bloggers. Oh. The shame.

LOL.

Garth, you bring a whole other level of excellence and credibility to blogging.

#111 Waterloo Resident on 10.07.14 at 2:15 am

Well, the ‘DON’T BUY’ signals have gone, but the stock market charts still have not given a ‘buy’ signal just yet. So if you want to buy stocks now you can but there still seems to be a general downward trend to the market so I’d advise everyone to just stay in cash right now.

#112 OttawaMike on 10.07.14 at 7:52 am

For all the Ebola fear mongers.

The virus has the same rates and routes of transmission as Hep c. We never had an international panic over Hepatitis or did I miss that one?

#113 yorel on 10.07.14 at 7:58 am

And then there’s the Black Swan. Ask the house owners in South Burlington who got flooded out in the “Civic Holiday” storm.

#114 Dominoes Lining Up on 10.07.14 at 8:08 am

Toronto CBC radio this morning did a story about a couple who happily jumped into a bidding war a year or so ago, winning with an offer with no conditions.

After occupancy, they discovered the house was a former grow-op. Moved out, changed the kids schools, renovated, disclosed the problem and sold at a loss.

Then they bought another house (!!) at the peak of the bubble. Happy to “own” again.

Total losses (so far) are $89,000. The woman sounds heartbroken. (I am sure she tells herself that at least real estate always goes up, and she will recover quickly)

Pretty soon every house in Toronto will devalue like a former grow-op. :(

http://www.cbc.ca/metromorning/

#115 TurnerNation on 10.07.14 at 8:23 am

Woe will be betiding upon web site which has blog dogs unleashed upon its (un-moderated) comments section.
Quickly, a shiny, shimmering online tabula rasa will be transformed into a quivering and soiled, fetid pool of dross indecency.

#116 maxx on 10.07.14 at 8:35 am

Sold the condo and cottage near the top and would never buy them back for the sum obtained.

Today, we can buy much more for the same money. We are renting a superb place and have not had a rent increase in 4 years- even though the owner has been paying special assessments every single year, with more to come. She told us that great tenants are hard to find.

We are definitely hanging back because money is so hard to earn and even harder to keep as good jobs are practically a thing of the past. Moreover, we find that mobility and flexibility are a wonderful breath of fresh air. When opportunity knocks…..

Rates are going up, albeit slowly, but they’re headed in the right direction. Suppressed rates have damaged both individual balance sheets and consequently, the economy at large. For at least a generation.

IMHO, a tenth of a percent per quarter would restore economic stability within 5 years. Keep the fools from borrowing too much and tighten the money supply just enough. Business and exports will stamp their feet initially and pull their little media threats to government. Meh, so what? If anything is capable of creative transformation and adaptation for survival, it’s business.

Preservation and growth of cash-on-hand is paramount in this and future climates. Those who live on principal and much worse, borrowed money have their future well-being slipping through their fingers.

The economic hangover has only just begun and the time for government to put an end to protecting banks, FIRE and business at the expense of its citizenry is long overdue.

#117 flummoxed on 10.07.14 at 8:59 am

#19 dosouth on 10.06.14 at 7:22 pm…

Lies, damn lies and statistics…

Do you know how many of those were Timeshares and Fractionally owned units, selling @ 40% or less of original purchase price, in those “units of all types”? Lots!

In addition a good friend of mine recently purchased a fully furnished small mansion that had stalled on the market at over $3 mil for less than $2 mil and the seller took a smaller home worth 35% of the deal in trade!

A co-worker recently purchased a 1700 sq ft 8yr old townhouse on the west side for $220k @ $60k under asking.

#118 xdisciple on 10.07.14 at 9:00 am

“These funding measures were put in place to ensure that credit was available to lend to businesses
and consumers to help the economy through the recession. These funding measures were not put
in place because banks were in financial difficulty. –
Terry Campbell is the president of the Canadian Bankers Association. ” –

Sorry, Terry, but we know that the banks were never and will never be in financial difficulty, but that didn’t stop you from stealing more money from us anyway. Though your statement contains no error, you are a liar still…

#119 saskatoon on 10.07.14 at 9:21 am

#104 Stubblejumper

LIES!!!!!!!!!!!!!!!!!!!!!!!!

;)

#120 tkid on 10.07.14 at 9:24 am

We never had an international panic over Hepatitis or did I miss that one?

We didn’t have 6 out of 10 die within a six week period of contracting Hepatitis. Ebola is very very bad news. The original death rate was 9 out of 10.

#121 Grantmi on 10.07.14 at 9:35 am

#112 OttawaMike on 10.07.14 at 7:52 am

For all the Ebola fear mongers.

The virus has the same rates and routes of transmission as Hep c. We never had an international panic over Hepatitis or did I miss that one?

Because the MSM has been making this the latest flavor of the week/month/year.

But also because the mortality rate is much higher with Ebola (50%/50%) vs. Hep C. (50%-80% recovery).

And Dare I say it… it’s a race disease! “That was OVER THERE… in Africa!!” (not any more! “Welcome to America, Mr. Ebola!!”)

#122 -=jwk=- on 10.07.14 at 9:36 am

@#112 Mike
For all the Ebola fear mongers.

The virus has the same rates and routes of transmission as Hep c. We never had an international panic over Hepatitis or did I miss that one?

You missed it. There was huge concern abour Hep C when it was finally confirmed. Hep C was only confirmed in the late 80’s. It took a while to figure it out because it matures so slowly and most symptoms are treatable with existing medication. It takes years to do its damage, focuses on the liver and is largely containable with medication. 5 year survival rate close to 100%

Ebola is older than Hep C – it was discovered in the late 70’s. It takes 3 weeks to mature, and kills you with violent vomitting, diaherra, internal hemorraging and spasms within 6 weeks and there is no medication that can stop it. 5 year survival rate…less than 20%.

Which one would you panic over?

#123 Grantmi on 10.07.14 at 9:37 am

Canada building permits drop in August from July
Tue Oct 7, 2014 8:45am EDT

OTTAWA (Reuters) – The value of Canadian building permits fell more than expected in August from July, according to Statistics Canada data released on Tuesday.

The total value of building permits issued by Canadian municipalities fell 27.3% to C$6.7 billion ($6 billion) in August, the federal agency said.

It said the August decline was mainly the result of lower construction intentions for non-residential buildings in Quebec and residential buildings in Ontario.

Analysts surveyed by Reuters had expected a decrease of 12.5 percent in the value of building permits in August.

Holy Crap! That’s going to leave a mark!!

#124 Jeff in Moose Jaw on 10.07.14 at 9:52 am

During the GFC housing was definitely going down; the part that was hard was trying to predict how the authorities were going to respond to the crisis. Now with hindsight we know.

#125 Kenchie on 10.07.14 at 10:14 am

Light reading for the blog dogs:

“What caused the Great Recession?”

http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-536.pdf

#126 Kenchie on 10.07.14 at 10:20 am

More light reading for blog dogs, courtesy of the Dallas Fed. This time on how the US economy has evolved.

“Deindustrialization Redeploys Workers to Growing Service Sector”

http://www.dallasfed.org/assets/documents/research/eclett/2014/el1411.pdf

You may not like it, but it is what it is.

#127 Smoking Man on 10.07.14 at 10:23 am

ello 50 million users in two months.

Took face book 4 years….

You can’t buy ELLO but you can sure as hell short FB

#128 };-) aka Devil's Advocate on 10.07.14 at 10:29 am

#120 tkid on 10.07.14 at 9:24 am
We never had an international panic over Hepatitis or did I miss that one?

We didn’t have 6 out of 10 die within a six week period of contracting Hepatitis. Ebola is very very bad news. The original death rate was 9 out of 10.

So… the moral of the story is; enjoy the journey because the kicker is you just never know when it’s going to end and all those pennies you saved for a rainy day may well prove to be for not. Your retirement may never arrive. And if it does you’ll probably be in no physical condition to enjoy it like you could today. Work hard play harder. Find work you enjoy such that it becomes play. Work for the “fun” of it not the money and you’ll have a way better life between now and what ever it is that’s going to get you gets you. And you’ll be a lot better at whatever it is you do if you like doing it rather than doing it just for the money. What a miserable existence anything else must be. Pity the fool who works for a living instead of living for the work which becomes play. };-)

#129 broadway skytrain on 10.07.14 at 10:30 am

10yr bond within a hair of making 52wk lows.

rates not rising in 2015.

further , look for weak equities for the next 2-3 yrs.

want to not lose money until 2016? short the tsx, short the s&p, short europe and china to balance out any long positions you may hold.

or simply go all cash.

good luck to all.

#130 mikethengineer on 10.07.14 at 10:37 am

Garth et al:

More on US Steel…and how they are going to STEAL, pension money from 90 year old grandma’s and grandpa’s, many of them too old to fight for themselves.

Biggest fraud of the Canadian tax payers EVER!

http://www.uswa1005.ca/141006-Local_1005_Press_Release.pdf

You won’t read this on the front page of any of the newspapers…

Bravo MP’s
Bravo MPP’s
Bravo City of Hamilton Mayor

Congrat’s to you all for a job well done. Don’t you feel proud of the great job you did for those people….Bravo to you all.

#131 maxx on 10.07.14 at 10:44 am

#11 West Coast on 10.06.14 at 6:30 pm

” ….just managed to sell an ancient piece of property in an ancient land to a relative with a romantic imagination…..Thank goodness the offer came along…I’ve been waiting for more than a decade!….will take the money and follow your excellent investment advice..many, many thanks…..”

Congrats! You got out!!!! Now you have the entire world as an investment landscape! Well done.

#132 maxx on 10.07.14 at 10:50 am

#12 Ardy on 10.06.14 at 6:32 pm

“If Garth is correct that there won’t be a severe drop…but a long steady decline, it could be a worse situation than people think.”

One of the worst scenarios, because the destination doesn’t change, and just succeeds in putting life plans on hold for ever.

Hanging on to rotting re just means the bucket list shrinks…and shrinks.

#133 young & foolish on 10.07.14 at 11:14 am

Yup, RE is illiquid …. and it’s not an investment. It’s meant to be lived in, preferably for long periods of time.
People who plan on moving ever few years are better off renting. Blog Dogs on here who are licking their chops at the prospect of price drops will be the ones to rush in and put a floor to prices … anticipating higher prices later.

#134 Derek R on 10.07.14 at 11:17 am

#106 Brandon on 10.07.14 at 12:34 am asked:
What is the rule of 90?

For the answer to this (and to many other questions you didn’t know you had) see The GarthFAQ

#135 Mike S on 10.07.14 at 11:32 am

“Based on a four-quarter expectations of 978 for
index-adjusted earnings, the Composite is trading at a forward PE of 15.6″

That one is forward looking. Resources are cyclical, in addition to that there is some downward momentum in China for some time now, which is not positive for resource demand

Financials were doing great the last couple of years, which is only natural given the circumstances, but as things progress I’m not sure if they can continue growing. As you said before, there is a political risk there. I doesn’t seem likely that Ottawa just assumes all future CMHC losses without overreacting

That said, there is no reason not to hold Canadian equities as part of balanced portfolio, but dual digit growth for years to come doesn’t seem likely (unless you assume some above normal inflation)

#136 young & foolish on 10.07.14 at 11:35 am

“Hanging on to rotting re just means the bucket list shrinks…and shrinks.”

So rent. Houses need maintenance. There are plenty of folks willing to “subsidize” your living expenses.

#137 young & foolish on 10.07.14 at 11:39 am

“further , look for weak equities for the next 2-3 yrs.”

Wait a minute, I am expecting my 7%! And no Financial Crash (2008) Redux!

#138 broadway skytrain on 10.07.14 at 11:40 am

…the Bloomberg survey at the beginning of the year in which 67 of 67 economists predicted higher rates in 2014. Now, the year isn’t over but with 10-year Treasury yields down 44 basis points (14.5%), it’ll take a heck of a bond rout in the next three and a half months for consensus to avoid being wrong.
—————————————
nice call from the economists

#139 young & foolish on 10.07.14 at 11:50 am

We are all armchair economists here.

#140 young & foolish on 10.07.14 at 11:57 am

“Easy money leads to bubbles …. and not just in Real Estate”

– Armchair Economist

#141 chapter on 10.07.14 at 12:08 pm

Right now in Uganda there is an out break of Marburg virus. It is considered even more deadly than Ebola cause by the same you show the first symptom a headache 80% of the people that contract this nightmare are dead in 9 days. No vaccine or any sort of special treatment. As with all viruses the more human to human transmission the more it changes. Not good!!

#142 happity on 10.07.14 at 12:09 pm

“You have to live through these things to believe they’re possible.”

All the statements above and no mention of the fact that congress and the regulators have confirmed that the big banks are in no better shape, and have in fact grown in size.

No wonder the FSB put in place a global bail in plan template which most countries have emplaced.

No wonder the BIS and IMF have put in place a new world currency to replace the $US.

Why?

Because do many other countries have lived through this and know it’s possible.

But it just can’t happen in Canada…

#143 Sean on 10.07.14 at 12:26 pm

Hi Garth,

Can you help me understand something. If I buy a house today in Toronto for 700k (i’m talking around the GTA) and the value of the house declines under what my mortgage is. What happens then?

I’m looking to get a house, NOT as a financial asset that I expect to go up, but for a place to settle in for 15+ years. Are you still screwed if the price declines a few hundred grand and im still paying a 500k mortgage?

#144 Black Swanbola on 10.07.14 at 12:40 pm

Google killed the Newspaper Star.

Haven’t bought or read a major newspaper in years.

My 2 community newspapers cover the issues in my neighbourhood and as someone else mentioned, the advertising volume is sufficient to give the paper away!

Real discourse and participation is now contained in blogs.

So radio and large newspapers are experiencing “shift”, and television is next.

The populace is experiencing ADD and the competition for the public’s attention is intense.

This ADD works perfectly for TPTB, as people have trouble remembering what they had for lunch, let alone what happened in the 80’s, 90’s or even 2008.

So the public’s ADD is essential to conducting business right now. As we have seen previously, the Black Swan arrives and changes the game.

The game changer happening right now is the Ebola virus.

Previous outbreaks have been stopped in it’s tracks immediately, with the loss of life in the small double digits. Tragic but contained.

This time around, TPTB have been dragging their feet and the loss of life has already exceeded that day in September.

The cost of this Black Swan is going to be immense and it will be down loaded to your community, because global business will not be restricted and as such this swan will make an appearance in your neighbourhood.

I will allow you to extrapolate the influence that this swan will have on real estate.

Maybe think about pharmaceuticals.

#145 Dr. Mike Hunt & Nurse Pat Magroin on 10.07.14 at 12:53 pm

“My friend, Mr. Buffett”

He let’s me call him Warren.

Garth I used to read you in the Sun when you were the business guy there. Even then your message was one of wake up and use your head. You left and along came Linda (can’t remember if there was someone in between) I got to tell you she looked better sitting on the edge of a desk.

#146 dosouth on 10.07.14 at 12:55 pm

#19 dosouth on 10.06.14 at 7:22 pm

The Okanagan is off and running…..yet again!
………………………………………..

You know this was tongue in cheek…right?

#147 };-) aka Devil's Advocate on 10.07.14 at 12:57 pm

#143 Sean on 10.07.14 at 12:26 pm

If I may… pay your bills and you will be just fine at least until your mortgage renewal. Most mortgage renewals are almost automatic. Fill out their renewal application picking your chosen term etc and bada bing your in. Apply somewhere else bada boom you might be screwed.

Zillow, when it comes to Canada which it will, if your property value, according to their evaluations, falls below your mortgage balance, will flag you as a potential foreclosure. Yes they know both.

#148 Mark on 10.07.14 at 1:05 pm

“Can you help me understand something. If I buy a house today in Toronto for 700k (i’m talking around the GTA) and the value of the house declines under what my mortgage is. What happens then?”

Basically what happens, in a nutshell, is that as your equity recedes, you’ll be paying a higher risk premium on renewing your loan. As moving a loan to a different lender is likely to be impossible when you are in negative equity. This will happen on both an individual basis, as well as on a systemic basis as the broader credit marketplace senses poorer credit-worthiness amongst residential RE-backed borrowers and demands higher spreads for lending. The higher rates may very well occur in the absence of BoC policy action (something that Realtors and other RE commenters are often very confused about, as they mistakenly view “interest rates” as being “set” by the BoC, and not by market forces, and they also mistakenly believe that housing credit will always be abnormally cheap relative to business credit).

The higher rates, of course, will make it extremely difficult to extricate yourself from negative equity.

Another thing likely to happen is that another asset class in the economy, perhaps the stock market, is likely to provide extremely good returns in this environment (after all, all those extra spreads have to flow somewhere!). As someone who is “underwater”, you won’t have any money to participate. By the time that you manage to clean up your balance sheet to actually participate in those assets, chances are, they’ll be quite overvalued and ripe for poor performance.

All of the above actually happened in the 1990s. As the math goes, if you only took your 25% downpayment fund in 1990, invested it in the TSX for a decade (ie: in the TIPS, predecessor to the modern index ETFs we have today), and used the proceeds to buy a similar house a decade later — the combination of stock appreciation/re-invested dividends, and house price depreciation would have fully paid for the house. Meanwhile the guy who took on the mortgage at the 1990 peak would have only made a slight dent against the mortgage despite a decade of payments.

#149 Holy Crap Wheres The Tylenol on 10.07.14 at 1:12 pm

My wife’s uncle in Ireland passed away several months ago and left a large chunk of land with a home on it to her. Just received a copy of the will and how its to be disbursed out. Basically he left everything to my wife as he had no children or wife. He was the last living relative of her family on her fathers side. We are talking some serious cash here but holy shit the Irish inheritance issues are very complex and difficult. We received a letter from his lawyer and it looks like we have to take another trip to Ireland and hire, [email protected]!$ I hate to say this but a Lawyer over there to figure this shit out. It appears that she is going to pay some hefty taxes as well. The first thing I asked her is there any feelings attached to this property and she said not really. I said good then we should unload it as soon as you clear up the will stuff. Having one property to take care of is one thing but another across the ocean, forget it. Hopefully she can come out with some serious investment cash. I have a bad feeling about this land, tax, inheritance thing! I can see the lawyers lining up in Cork. Its’ a good thing shes Irish as she can fight the lawyers, they will be running when she gets fired up!

#150 not 1st on 10.07.14 at 1:13 pm

Who are the doddering fools who can’t read the news online and have to hold a paper and then throw it in the landfill. Its amazing this business was ever built as big as it was and even more amazing it didn’t disappear 20 years ago. Sure takes a long time to dislodge powerful interests.

Just like our energy industry. If the oil and gas which is burned directly in cars and homes was instead put into the manufacturing of solar panels we would have been off fossil fuels 20 years ago. Might have been even an orderly transition. Now its not. Oil business is gone in 20. Oilo Sands…done. Calgary/Edmonton….done.

#151 Mark on 10.07.14 at 1:15 pm

“That one is forward looking. Resources are cyclical, in addition to that there is some downward momentum in China for some time now, which is not positive for resource demand”

Resource earnings have sucked for a few years now. Could they suck even more for the next few years? Absolutely. So mark that 978 figure down closer to 900 if you want. Most of the growth in the TSX composite has been in the banks, and for good reason — they are positioned with an effective short on the housing market.

” but dual digit growth for years to come doesn’t seem likely (unless you assume some above normal inflation)”

At a P/E of 15, 10-12% returns are implied. And eventually the resource cycle will turn up. If you look at most of the resource stocks, most of them aren’t even back to their 2008 levels (which, in hindsight, was a bit of a bubble).

#152 bdy sktrn on 10.07.14 at 1:15 pm

And no Financial Crash (2008) Redux!
———————-
yes , this part is correct.

as garth has said, central banks will prevent a 2008 style crash.

but much like mr. turners RE projections, I see a equities grinding lower for the next 2-3 yrs with the a.higher us dollar(lowers s&p profits) b. comatose EU c. asia slowing back to sustainable growth rates. d.next black swan (i dont believe it is ebola)

Financials and defensives esp cdn banks will provide shelter.

#153 };-) aka Devil's Advocate on 10.07.14 at 1:21 pm

#146 dosouth on 10.07.14 at 12:55 pm
#19 dosouth on 10.06.14 at 7:22 pm

The Okanagan is off and running…..yet again!
………………………………………..

You know this was tongue in cheek…right?

“Hope is the denial of reality.” – ?

#154 Shawn on 10.07.14 at 1:29 pm

Post Media and the newspaper and financial interenet site business

Post Media said it coveted and valued the canoe web site that comes with the deal.

I could barely find the English version (its en.canoe.ca) It looks pretty clunky and I could see no comments on the stores, so no reader engagement.

I tried to make posts to the National post and other post media newspapers over the years and it was very difficult (facebook only or some such nonsense), I gave up and switched to Globe and mail which has better but still poor reader comments ability.

I know of two web sites that get huge numbers of comments and reader interaction. This one and cbc.ca

So Garth or the CBC may need to teach Post Media how to get reader engagement on the web. (As for the physical papers they must follow Buffett’s advice)

#155 Retired Boomer - WI on 10.07.14 at 1:32 pm

#142 & Garth

Yes, we have all lived through those changes, me in the US our writer in Canada.

Oner thing I never have seen discussed here though. It is something we in the US experienced in the S&L crisis and Bailout of the late 1970’s-80’s. Seen again in our RE bubble in the late 90’s blowing up in 2008….

That is the function of “frauds” in the banking business. Tough to spot unless you have access, and you might be a forensic accountant. I noticed quite a number were prosecuted in the S&L Crisis, though none federally stemming from the 2008 debacle.

A few bankers have been prosecuted for “fraud” on a state level (see CA & NY) and a few pending. Curious why your Fed Justice Dept. has been sitting on their hands, or have they been helping the states?

Un-proseccuted wrong doing is an excellent teacher to the perps that what they got away with once, can be repeated only on a larger scale next time. In other words, there will be a next time.

Curious to know what agency or ministries looks out for control frauds in business / banking in Canada?

No, this isn’t a lunatic rant, just a question perhaps poorly framed.

#156 devore on 10.07.14 at 1:52 pm

#112 OttawaMike

For all the Ebola fear mongers.

The virus has the same rates and routes of transmission as Hep c. We never had an international panic over Hepatitis or did I miss that one?

Ebola is EWWWWW! Hepatitis is only eww. That, and reading books is hard, so paranoia full steam ahead.

Spinning conspiracy theories and wild speculations is many people’s pastime. I try to point out stupidity when I see it, but while the Internet infects these sheep en masse, you gotta deprogram them one by one.

#157 Son of Ponzi on 10.07.14 at 1:53 pm

Shawn,
CPA magazine says:
Alberta’s Greg Abel, The next Warren Buffet?
—————–
What do you think?

#158 Happy Renting on 10.07.14 at 2:02 pm

#33 Sam on 10.06.14 at 8:08 pm
After reading yesterday’s post, what do you think of these ETFs to build a balanced portfolio: VCN, VUN, XEF, XEC, ZRE, CPD, VAB, XHB, XRB

Also what about using Questrade as a broker?

I have been using Questrade since the spring and am satisfied with it. My needs are basic and for ETF purchases in a small (new) RESP no commission is awesome.

I hold VCN, VUN, XEF, ZRE, CPD, XRB. For ETFs that track indices I’m not too sure how much else there is to consider aside from tracking error, MER, and maybe how much you require the distributions as income (vs. retained and reinvested). See if they are DRIP-eligible (if you want that?)

#159 Happy Renting on 10.07.14 at 2:09 pm

#47 JO – I really enjoyed your comment, thank you.

#160 Sean on 10.07.14 at 2:14 pm

Thanks for the responses from

#147 };-) aka Devil’s Advocate on 10.07.14 at 12:57 pm
#148 Mark on 10.07.14 at 1:05 pm

Helpful info at least. Walking away from an underwater mortgage would pretty much leave you without anything too right? I guess renting it is for now.

#161 devore on 10.07.14 at 2:16 pm

#122 -=jwk=-

Which one would you panic over?

How about neither of the above? What’s with all the false dichotomy recently, is this something the cool kids are doing or what?

#162 Mark on 10.07.14 at 2:17 pm

“Curious to know what agency or ministries looks out for control frauds in business / banking in Canada?”

I’d suggest, nobody. Especially not at the CMHC, where for some reason, they run around claiming to be a perfectly viable entity despite effectively 45X leverage into subprime loan guarantees.

Deep down in their hearts, the people who run the CMHC must know that it will eventually blow up as the RE and credit cycle turns against residential RE. Either that, or they’re just delusional communist central planners to think that they can effectively dictate the price of subprime credit in the marketplace with the government’s treasury as its ultimate backstop.

#163 Smoking Man on 10.07.14 at 2:29 pm

BONDS AWAY……

Garth best you talk about the dismal housing starts tonight.

Don’t go down the bond and treasury yields getting crushed topic.

#164 Mark on 10.07.14 at 2:35 pm

<b."Helpful info at least. Walking away from an underwater mortgage would pretty much leave you without anything too right? I guess renting it is for now."

It will leave you in personal bankruptcy, which will remain on your credit file “forever”. You’ll also have to make payments into the Estate for a prescribed period of time, and may have additional sanctions applied if you engaged in any practices such as creditor preference, fraudulent conveyance, or misrepresentation when obtaining credit. For a significant number of Canadians, a quick and orderly resolution of debt, and rebuilding their balance sheet quickly may be preferable to a long drawn out repayment scheme on an underwater mortgage. Many recent immigrants who bought are likely to return to their homelands rather than face the full Canadian consequences of their actions.

Some occupations and people are less stigmatized through bankruptcy than others. Almost every junior mining/oil and gas Offering Circular I’ve read over the past decade has a declaration that many of the directors/officers of the firm have declared personal bankruptcy in the past. It is something that will affect others’ perception of your personal credibility for the rest of your life.

#165 Snowboid on 10.07.14 at 2:42 pm

As I pointed out in post#50 (sorry for the lousy formatting – should start using HTML) prices in the Okanagan for September are still below the same month in 2007.

Purveyors of the golden sand would like you to believe otherwise, but other than a narrow band of SFHs under $500K the market is still toast.

#166 bdy sktrn on 10.07.14 at 2:54 pm

10 yr yield getting creamed.

worst i’ve seen -3.3% in one day

a stall warning for the global econony.

#167 None on 10.07.14 at 3:04 pm

#38 j shum on 10.06.14 at 8:28 pm
The have and the have nots. This makes me so mad as a non home owner. Apparently I have already paid for other people’s houses. This is the bank and the government’s mistake. They gave loans to people people that should not have gotten them. And they get a free write off from the government for their mistake

=======

What are you talking about? Gov’t did not bail out homeowners.

#168 Shawn on 10.07.14 at 3:09 pm

Newspapers

Not 1st said:

Who are the doddering fools who can’t read the news online and have to hold a paper and then throw it in the landfill.

Oil business is gone in 20. Oil Sands…done. Calgary/Edmonton….done.

******************************************
There are certain advantages of the traditional newspaper.

One of these is that that you don’t end up reading your news on some doomer site or reading much nonsense like your comment on oil.

The content is more trustworthy on average.

You can scan headlines and flip through and find unexpected things.

You don’t get distracted reading a hundred comments. (Comments have their place but not everyone wants to see them)

#169 Bottoms_Up on 10.07.14 at 3:10 pm

#33 Sam on 10.06.14 at 8:08 pm
————————————
go to google
type in: http://www.greaterfool.ca: questrade
it will search the greaterfool for all mentions of questrade

#170 Bottoms_Up on 10.07.14 at 3:21 pm

#47 JO on 10.06.14 at 8:38 pm
————————————
You do outline some key attributes of the CMHC.

But ultimately it does help Canadians buy houses.

Because wages have been suppressed, and house prices have risen beyond reasonable, people need help getting into homes. You’re right, these days they wouldn’t be getting into homes without CMHC. So it’s a Catch-22.

CMHC was a tool to increase the wealth of home owners by allowing more people into home ownership (to allow the “move-up cash-out” cycle; didn’t hear many people complain about the rising value of their homes in mid-2000’s….); now it is a tool to mitigate an outright crash.

#171 45north on 10.07.14 at 3:32 pm

Retired Boomer – WI : Curious to know what agency or ministries looks out for control frauds in business / banking in Canada?

I’m not an expert but from what I’ve read the banking industry in Canada is fundamentally different from that in the US.

Compared to the United States, the Canadian banking system is much more concentrated, with the five largest Canadian banks (out of only 82 in the entire country, compared to more than 8,000 banks in the United States) holding more than 80 percent of total bank assets. This concentration became an advantage during the recent financial crisis because it facilitated critical discussions among the five large banks and the single federal regulator (the Office of the Superintendent of Financial Institutions).

http://www.american.com/archive/2010/february/due-north-canadas-marvelous-mortgage-and-banking-system

I have a pdf from the Richmond Fed titled “Why was Canada Exempt from the Financial Crisis?”

That’s not to say the executives of Canada’s banks cannot suffer from group-think which is to say invalid assumptions.

#172 45north on 10.07.14 at 3:42 pm

Mark : Deep down in their hearts, the people who run the CMHC must know that it will eventually blow up as the RE and credit cycle turns against residential RE. Either that, or they’re just delusional communist central planners to think that they can effectively dictate the price of subprime credit in the marketplace with the government’s treasury as its ultimate backstop.

great prose Mark.

you know the comments on this blog just keep spinning around on a hard disk drive. Forever. As a civil servant, I observed a forgetfulness that was granted with the passage of time – the concern was always on current defined projects, past mistakes were just forgotten. I mean the people that run CMHC can see the criticism that may well apply to them.

#173 LTL_FTC on 10.07.14 at 3:54 pm

#55 TEMPORARY® Foreign Prime Minister on 10.06.14 at 8:52 pm
#47 JO on 10.06.14 at 8:38 pm
=========================

Excellent post.

#159 Happy Renting on 10.07.14 at 2:09 pm
#47 JO – I really enjoyed your comment, thank you.

Me three. Post of the day.

#174 shawn on 10.07.14 at 3:56 pm

Next Warren Buffett

Son of Ponzi asks:

Shawn,
CPA magazine says:
Alberta’s Greg Abel, The next Warren Buffet?
—————–
What do you think?

****************************************
There will never be another Warren Buffett.

Greg Abel is one of several Berkshire managers touted to take over as CEO.

The Chief Investment Officer role that Buffett currently does in addition to being Chairman and CEO will be someone else, likely one of the two investment dudes he hired in the past couple of years and who already each have at least $5 billion that they manage independently of Buffett.

#175 IM in C on 10.07.14 at 3:56 pm

http://www.theglobeandmail.com/life/home-and-garden/real-estate/the-problem-with-vacant-homes-amid-vancouvers-real-estate-boom/article20945702/

#176 Mark on 10.07.14 at 4:13 pm

“I have a pdf from the Richmond Fed titled “Why was Canada Exempt from the Financial Crisis?” “

The other key difference is that Canadian banks generally are not exposed to shifts in the yield curve. In other words, they run duration-matched books. While, if you look at the 2006-2008 era, there was a significant draw-down of bank equity in the USA through yield curve inversion, and the long-end of the curve, as applicable to the assets they were carrying, blew out as such assets lost a lot of value.

Neither of these conditions exist in the Canadian banking system. I would submit that such is the major reason why the Canadian system is fundamentally sound in comparison to the US system which generally funds long-term obligations with short-term borrowing.

#177 BigM14 on 10.07.14 at 4:16 pm

@149HCWTT.

Keep in mind the Irish property market is in a real mess right now, if might be worth waiting a year or two for things to recover a bit better.

#178 };-) aka Devil's Advocate on 10.07.14 at 4:54 pm

I’ll let my good friend Lewis MacDonald tell it like it is;

Making sense of the Real Estate Stats

Although I think he might be wrong on the condo prices as not poised to ramp. My bet is with rising single family prices prospective buyers may well turn to condos as a lower cost alternative. I don’t see quite so many condos being held back by developers but I do know of a number of owners withholding expecting they will get better prices in the Spring 2015 market.

#179 shawn on 10.07.14 at 4:55 pm

U.S. Banking system

Mark:

the US system which generally funds long-term obligations with short-term borrowing.

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

Agreed and that is why it became essential for U.S. banks to package up and securitize and sell off much of those long term obligations. A bank cannot take the risk of holding 30 year mortgages (which U.S. customers have the right to refinance for only small fee) due to interest rate risk.

Stupidly, moronically the banks then bought back some of the mortgage backed securities because bank regulators consider it zero risk despite the HUGE interest rate risk. They may have even bought some of the lower grade tranches that turned out putrid, so they bought their own crap.

#180 Adam Smith on 10.07.14 at 5:20 pm

On an interesting interview between awesome podcast Dan Carlin and Cenk Uygur of the Young Turks, they mention that the average viewer for the majority of mainstream media is now over 50. These are dying entities because nobody trusts them to cover the big things or be honest. Most of them are owned by large corporations that are so involved in so many things going on around the globe that they have conflicts of interest if they want to discuss ANYTHING besides local horror/murder stories.

#181 prairie person on 10.07.14 at 5:39 pm

Garth, how do we protect ourselves from this?
http://news.nationalpost.com/2014/10/07/vancouver-man-who-won-4-million-in-lottery-sues-investment-adviser-for-2-3-million-in-lost-funds/

(a) Hire someone trustworthy, experienced, competent and with a reputable company, (b) don’t go to jail. — Garth

#182 LaughingCon on 10.07.14 at 5:53 pm

Happy Birthday Vlad the Great!

And this is what 15 years of Putin’s oppression looks like in a single picture:

http://1.bp.blogspot.com/-YAzv8iWkIpg/U6qMsPACBeI/AAAAAAAAJVM/v05iyuAxkvo/s1600/5.jpg

#183 OttawaMike on 10.07.14 at 5:58 pm

Double top or batman as our resident dipsomaniac calls it.

http://mobile.bloomberg.com/news/2014-10-07/millennials-spurring-canadian-condo-boom-bet-on-rates.html?hootPostID=85ed01d66a0bc2235cf30ee31729ca8b

Good numbers on SFH sales in secondary markets for September as well. Sorry blog dogs-not yet…

#184 Mark on 10.07.14 at 6:35 pm

Shawn, “Agreed and that is why it became essential for U.S. banks to package up and securitize and sell off much of those long term obligations.”

I believe securitization was a function of taking advantage of Fannie Mae/Freddie Mac’s facilities for mitigating some of the default risk on the higher-grade paper, and increasing the credit-worthiness of the product. Of course, the uncertainty over whether Fannie Mae/Freddie Mac had the backing of the US Treasury featured prominently into the US financial crisis. The bottom of the crisis was in fact marked by the passage of legislation explicitly guaranteeing Fannie Mae/Freddie Mac debts.

Unlike in Canada, subprime debt was mostly held by private sector at-risk participants. While in Canada, subprime is nearly entirely held in the public sector, at the CMHC. Fannie/Freddie in the US RE bubble, at least kept its standards, with a limit of $477k (??) for the maximum insured loan (anything greater was a so-called “Jumbo” loan), and the 20% down requirement was never relaxed. Considering these facts, its not hard to see how Canada’s housing price collapse could end up being even more severe than that of the USA, without destroying the Canadian banking system (but probably destroying the finances of the government/CMHC). As I’ve opined several times, Canadian banking risk is almost entirely political — what will the government do when faced with $200B worth of CMHC subprime mortgage insurance claims at a time when banks are raking in record profits and homeowners are under severe financial distress? Could really pressure voters to vote for an “orange” political party, that’s for sure (as happened in Ontario in the early 1990s with disastrous long-term results!)

#185 crowdedelevatorfartz on 10.07.14 at 7:06 pm

@#181 Laughing Con

Its a shame that picture doesnt include the Russian (Yanukovich) jailed for 10 years for “tax evasion” while Putin’s friends disassembled Yukos Oil for billions in profit.

Its a shame that picture didnt include the names of Russian reporters critical of Putin mysteriously murdered and the investigations still unsolved.

Its ashame that picture didnt include Putins’ bank account reputed to be worth over a billion dollars ( not bad for an annual salary of $400,000.)

Its a shame that the picture didnt include the dead passengers of the jet shot down in the Ukraine by a Russian missile OR the telephone transcipts from the missile site to a Russian military headquarters minutes after the plane hit the ground( intercepted by european intelligence agencies)

There’s lots to laugh about but not Putins’ criminal reign in Russia.

#186 crowdedelevatorfartz on 10.07.14 at 7:15 pm

@#100 Calgary Car Guy

Hey! Do you remember the huge hail storm in the summer of 1981?
GSL Chev City with its acres of new cars?
Hammered!
I saw a 1980 Chev Malibu about a year ago with the pockmark dents all over the trunk, roof and hood and I asked the owner. “Calgary car”?
He looked bewildered and said , “Yeah! How’d ya know?”

#187 M on 10.07.14 at 8:12 pm

Garth.. you can revise down the expectations.
It WILL be a whole in the ground (canadian housing that is). rates will be pushed up by good old market and feds can do nothing about to save the butt of the 10 yrs bond. The citizen “moron” will lose a job or to for a accumulated effect.
It will not take much to put Canada on the rocks. Then a bank or two will follow. Yes…BANK :) the so safe ones…
Liquidity baby..is the name of the game for the next 10 years.
I have seen it, I have lived it and I came out of it making like thieves.

reverse jap bond though very funny it’ll be a kinder compared to what one can make here in the white north.

#188 maxx on 10.07.14 at 9:32 pm

#136 young & foolish on 10.07.14 at 11:35 am

” “Hanging on to rotting re just means the bucket list shrinks…and shrinks.”

So rent. Houses need maintenance. There are plenty of folks willing to “subsidize” your living expenses.”

Miss reading comprehension 101?