Love your landlord

DAVE modified

So, a big mistake people reading this pathetic blog make is thinking they have to choose between real estate or a financial portfolio. They don’t. It’s just fine to have both (in which case my Rule of 90 applies).

But if you must choose one, take the money. That way you have more liquidity (62% of all house-sellers in Canada were unable to find a buyer in the last six months). You have diversification, instead of one asset on one street in one city. You have balance, with assets that pay interest or dividends, or the potential to yield capital gains. And you have less risk of loss, given all that real estate leverage. Plus you get to live for less.

That last point is a giant one. Every time I hear of another moist virgin succumbing to her mom and buying a condo with a heaping mortgage, I despair. Do the kids not know they could be a lot richer if they rented and just “paid somebody else’s mortgage”?

Lincoln is one smart little Millennial dude who gets it. He writes:

“It’s amazing how much difficulty I have convincing friends that landlords are very heavily subsidizing renters in many many parts of the country. They steadfastly maintain that buying a house is a good investment. “You’re always building equity!” They say. While I have tried to explain just who amortization schedules favour (hint: if you think it’s not the bank, you’re dead wrong), there is a serious head in the sand attitude here.

“My personal favourite is “Well, there may be a bit of a bubble, but it can’t possibly affect us much here [Kelowna] – real estate has been dropping slowly for a couple of years now!” Apparently it’s not just people in the major metro areas who believe that they are special snowflakes.

“I’m renting for about 2/3 of what I would otherwise pay for housing here. I’m going to have my student loans paid off about one year after I graduate. And until this housing gasbag deflates in a major way, I’m going to work on making out my TFSA. And when things break around the house I’m going to keep picking up my phone and saying “Hey, you’ve got a problem to fix over here.”

But let’s bring in the experts at the International Monetary Fund to prove the point I’ve made here repeatedly: it’s less costly to rent than to own, even with 3% mortgage rates. Property prices have swollen to the point where we’re way past the rest of the world in terms of crappy affordability, and have shot through historic norms for rent/price ratios.

See what I mean?

international-price-to-rent-ratios-deviation-from-historic-average_chartbuilder

Now, we have another little problem. The economy. Unlike the US, which I explained this week is in fine shape (all things considered), Canada’s seriously lagging. The American economy is growing at the rate of 3.5% (down a little from the 4% earlier this year), while we’re barely doing a third of that.

In fact, on Friday Stats Canada delivered the latest bad news. Already the oil plunge is hurting GDP, coming as it does on top of a weak jobs market, a floundering manufacturing base and our hipster-inspired condo economy. So, like Jian Ghomeshi’s reputation and Facebook Likes, we’re shrinking by the day. The economy in August contracted at an annualized rate of 1.2%. Ouch.

And poor Alberta. Oil and gas extraction plunged 2.5%, the second drop in a row – and there appears to be more coming as crude barely hangs on to the $80 mark. (Commodities in general are being spanked as money flows elsewhere – gold was nailed for a $30-per-ounce loss Friday, and is now at $1,170. Drop since 2011: 38%.)

Manufacturing output also shrank, which sucks, because we’re turning into a nation of salesmen and kids with two arts degrees. Tough to see how that will generate a ton of prosperity, or exports earning hard currency.

There’s a reason our dollar’s dropped to 88 cents and the Bank of Canada is freaking over deflation. We’re struggling. And what does Ottawa do? The feds promise $26 billion in tax cuts for families, based on a budget surplus which doesn’t yet exist, and probably won’t next year.

Sigh.

Rent, save and invest, children. You shall inherit the dirt. Cheap.

188 comments ↓

#1 Suede on 10.31.14 at 7:29 pm

Amen.

Trade of the generation was to lock on sub 4% 30yr mortgage rates in US last year. A bearded blogger called that one..

RE appreciation + currency exchange today and you’re up at least 25% in places like ariana. Rent you collect in most parts covers mortgage and all payments. Caaaraaazy

#2 Suede on 10.31.14 at 7:30 pm

Whoops.. Arizona

#3 Obvious Truth on 10.31.14 at 7:30 pm

That GDP report was scary. Oil really hasn’t dropped yet and those I know in manufacturing say closer to 80 cents is what we need. But it may not help that much. Base is much smaller now and it’s still cheaper elsewhere.

I’m also hearing of much tougher appraisals.

Now we need draghi to bring his chequebook to the stock market party. Maybe that will get some ‘likes’ and fb gets to new highs.

Pension funds and people in general may be shifting their balance. I personally think what was announced in japan is crazy. But who am I to judge. I’ll take the extra money. It will end some day but likely not soon. Feels like PE ratios want to go up. Just hope it doesn’t get leverage crazy out there.

#4 A Yank in BC on 10.31.14 at 7:30 pm

So much for the correction.

“To infinity.. and beyond!”

— Buzz Lightyear

#5 mortgagebrokeron on 10.31.14 at 7:31 pm

Garth you are correct housing is overpriced!!!

I think if we see oil prices stay the same then that is another crutch taken away as far as fuel added to the real estate fire.

When do you suppose BOC will ever raise the rate?

I think next year variable rate mortgages will be the big seller

#6 mortgagebrokeron on 10.31.14 at 7:33 pm

oh almost forgot……

When is the crap going to hit the fan with the Ontario debt problem (government), ie interest rate increase?

sooner or later they have to raise taxes and maybe start cutting their budget no?

#7 Wthisgoingon on 10.31.14 at 7:34 pm

What would Mike Ruppert say to the M-gen if he were still alive?

#8 Mister Obvious on 10.31.14 at 7:34 pm

Every now and then, just for laughs, I will look at MLS listings in Victoria and up in the Fraser Valley to see what kinds of “investments” are available.

Pretty slim pickings, my friends. You could easily become a landlord subsidizing renters and earning a fantastic capitalization rate of -3%, if you’re lucky.

There are days when I wonder how the owner of my own Vancouver building gets by. Fortunately for him, he has commercial space on the bottom level, but even that is no longer fully occupied these days.

He is clearly being squeezed and I actually feel sorry for him. But of course, I have no plans of voluntarily increasing my own rent to help out. That goes up at the rate of inflation determined each year by the BC provincial government. Lately, that’s been rather a pittance in the grand scheme of things.

#9 Mr. White on 10.31.14 at 7:38 pm

I rent a home for a couple of grand a month, maybe a bit more. The house would currently sell for about $950,000. I feel a bit bad about stealing money from the guy who owns the joint. He is losing about $3,000 bucks a month to put me up in grand style.

I sold my other home at the peak, I mean really the peak. So the money I made on it is doing really nicely in a balanced portfolio, I can turn it into cash in a day or two if I needed to.

House prices will need to drop in half or rents increase by double for me to get interested in owning again. If that happens, I will write a cheque for the joint and live in it until I die.

#10 Retired Boomer - WI on 10.31.14 at 7:38 pm

Look who is at the head of the bubble parade here?

Ya just HAD to take over from the idiots downstairs didn’t you? Sure, it’s different there. We shall see. It would appear the “Renter’s Rule” in the land to the north of the 49th parallel.

I just hope the soon to retire can get the BIG MONEY they think is in their homes out before the gas bag leaks faster, and faster! Always happens when things get so inflated and out of alignment. Whether they be stocks, bonds, real estate, collectables, art…whatever.

Uncharted waters might mean sharks, alligators, or not much at all. UNCHARTED means just that 0- you haven’t been HERE before!

As the DA has warned so often SHIFT happens!

#11 Kenchie on 10.31.14 at 7:40 pm

Nice chart, Garth. It was #9 in the “Scary economics charts” I posted a link to earlier today. That chart, in particular, is why I posted it.

As they say, “Great minds like a think”!

#12 Freedom First on 10.31.14 at 7:45 pm

That last sentence of your Post today made me all fuzzy and warm inside Garth. You talk my language, as I buy nothing unless it is a good deal for me. There is something magical about paying 50%-60% less than the previous owner, after a RE bubble, on a house in a good neighborhood that had been renovated, had new appliances installed, and the offer to buy has any # of my “subject too’s” on it. And, have the seller thank me for taking it off their hands. Of course it is made more delicious when it is only a part of your net worth. It is worth waiting for, as timing is critical, for a case of
the “wants” can financially kill you. Patience and discipline are worth cultivating and pay off very very well. I have been blessed, and feel extremely fortunate. My “paying someone elses mortgage today” is really really sweet today. Cheap.

#13 Allen on 10.31.14 at 7:46 pm

Markets are not manipulated or controlled by central Banks… markets are rooted in economic fundementals – if you still think that after today . You are not paying attention.
The Market is NOT The Economy … never really was , but today proves loud and clear and makes completey obvious where the market gets direction.
If you believe the next 10 years will be like the last … or even close … you are an idiot.

#14 Kenchie on 10.31.14 at 7:50 pm

#87 Retired Boomer – WI on 10.30.14 at 9:40 pm
“#57 Kenchie

re: Texas Highways are a state wide form of population control.

TX has the highest speed limits in the nation. 80 mph on some roads.

TX has lower gas taxes than 43 other states.

TX has no state income tax.

TX has the 11th highest death by road per vehicle miles
traveled.

TX citizens are getting exactly what they are paying for!

Leave them alone, they voted for it, they are NOT paying for it, and it IS Texas after all. An illustration of what NOT to do for the rest of us.”

Totally agree, they can do whatever they want with the taxdollars (or lack there of). I do not give two flying bucks how many Texans die a year from preventable accidents. You’re right with everything you said. And my point of posting it (and using the term “irresponsibly”) was to highlight you get what you pay for…

But I doubt many blog dogs would read this if I didn’t post it.

#15 Kenchie on 10.31.14 at 7:53 pm

#75 Joe2.0 on 10.30.14 at 9:08 pm
“Kenchie
Wiki Stockholm Syndrome.
Nothing has been fixed its been prolonged.
The QE injections have devalued everyone’s assets.
The US has the lowest home ownership in 2 decades, 20 years .
It’s because they can’t meet lending requirements which
boils down to $ or lack of.”

Hi Joe, can you be a bit more specific about which post that you are responding to?

#16 Puzzled on 10.31.14 at 7:54 pm

The number of houses exchanging hands in west Toronto is the highest I’ve seen in the four years that I’ve been looking at them. Most are at the lower end of the price range and are sold at below list. The odd ones that sell way above asking tend to be at the most expensive, therefore are likely to skew the Frankennumber.
Seems that people are still drinking the Koolaid, poor souls.

#17 North Burnaby on 10.31.14 at 7:58 pm

Seems like the real estate market is still sizzling hot near my area. 230 pre-sales condos were sold in less than a week. http://i.imgur.com/ZnIHwBR.jpg

#18 North Burnaby on 10.31.14 at 7:58 pm

I meant *320 units were sold in less than a week!

#19 Cow Man on 10.31.14 at 8:02 pm

Sir Garth:

Well you definitely nailed the state of Canada’s economy. The two Arts Degrees gave us the kind of Provincial Government we have today in Ontario. Everything based on “protecting the view”. Niagara Escarpment Commission, Greenbelt, Oak Ridges Moraine, Rouge Valley National Park, Natural Heritage Imitative, Cultural Heritage all nice ideas with no economic sustainability. Export nothing, and import all of our food and manufactured products.

A collapse in housing will be the least of our problems in the next decade.

#20 Garth is my Enabler on 10.31.14 at 8:06 pm

#13
Markets are not manipulated or controlled by central Banks…

hahaha
what are you smoking Allan?

#21 Kenchie on 10.31.14 at 8:09 pm

#183 Trojan House on 10.31.14 at 6:02 pm
“#4 Kenchie on 10.30.14 at 4:25 pm

Even Keynes admitted before he died that he was wrong and that you can’t manipulate/control the economy.

Hence governments/central banks have no idea what to do. They try things (QE) not realizing if you pull one string, it affects another.”

He never believed that any government could “manipulate” the economy. Here is what the article quotes: ‘We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand,’ he wrote in 1930.” That said, he did believe that when consumers and corporations aren’t spending (i.e. low aggregate demand), the only way to break the “vicious” cycle is through extra government demand. This makes perfect sense, if you understand anything about macroeconomics. However, this is not “controlling” or “manipulating” the economy.

And Keynes, according to the article, never advocated a QE type solution: “The limited effectiveness of those measures (i.e. QE) is sometimes chalked up as a failure of Keynesianism, but it’s just the opposite. Keynes was the economist who demonstrated that monetary policy ceases to be effective once interest rates hit zero and whose recommended policy in those circumstances was tax cuts and spending hikes.”

#22 Sydneysider on 10.31.14 at 8:09 pm

It’s naive of the IMF to quote price/rent ratios to +/-0.01%. I wonder what kind of analysts they employ. Not trained ones, evidently.

#23 Kenchie on 10.31.14 at 8:18 pm

#17 North Burnaby on 10.31.14 at 7:58 pm
“Seems like the real estate market is still sizzling hot near my area. 230 pre-sales condos were sold in less than a week. http://i.imgur.com/ZnIHwBR.jpg

#18 North Burnaby on 10.31.14 at 7:58 pm
I meant *320 units were sold in less than a week!”

So why is “Solo District” taking so long? Nissan moved about 4-5 years ago…

And just because units are selling does not mean they make money as investments. Ask people who invested in the Olympic Village in 2007-08, or people who invested in the deluge of condos near Coquitlam Centre. Talk about bad (mal en francais)investments…

#24 pravchaw on 10.31.14 at 8:22 pm

mmm …maybe these moist virgins should go to japan

#25 Inglorious Investor on 10.31.14 at 8:23 pm

184 The Man From Nantucket on 10.31.14 at 6:13 pm

“OK, brother, convince me… I’d like to know why I should invest in someone who is risky enough that they cannot borrow from the banksters at three to four points, so, needs to come to me to borrow it at twelve, or fifteen, or???? Do I get to break his thumbs if he’s a day late in servicing his debt?”

What can I say… There’s a legitimate market for it. Those who are in the business and can mange the risks are apparently making very good money. Not my thing, but I must say if I wasn’t involved in a very large deal right now (large for me, anyway) I’d be very tempted to just toss the guy that I know $50,000 for a mortgage pool and see what happens (after doing the proper due diligence first, of course).

#26 Inglorious Investor on 10.31.14 at 8:27 pm

#181 frank on 10.31.14 at 5:42 pm

“through society’s lenses one’s net worth = self worth.”

I choose to look at things through my own lenses. Which, by the way, are corrective.

#27 Kenchie on 10.31.14 at 8:27 pm

#23 Kenchie on 10.31.14 at 8:18 pm
#17 North Burnaby on 10.31.14 at 7:58 pm
“Seems like the real estate market is still sizzling hot near my area. 230 pre-sales condos were sold in less than a week. http://i.imgur.com/ZnIHwBR.jpg

#18 North Burnaby on 10.31.14 at 7:58 pm
I meant *320 units were sold in less than a week!”

Furthermore, I have a couple of friends that have condos in North Bby. They have not seen appreciation worth mentioning since 2009 (constructed). Maybe 4-5% over that period (pre-commission). After commish, probably nil appreciation.

Place to live as a young married couple sans kids? Works fine for now.
Asset to invest in? No, they are not worth the time and effort.
Are they better off owning rather than renting over that period? No they aren’t. One couple moved to Europe for a year. They rented it out for about $1450 per month (blend of two 6 month contracts).

#28 Brian Ripley on 10.31.14 at 8:34 pm

Of interest from PragCap.com are some charts I mashed up on how low (negative) interest rates in Europe are not producing economic growth:

http://www.chpc.biz/history-readings/supply-side-failure

That’s because banking is a demand side business. If you are credit worthy, you will get a loan; but if prices are not rising, buyers remain averse to borrowing.

Said Garth “Manufacturing output also shrank … Tough to see how that will generate a ton of prosperity, or exports earning hard currency.”

#29 not 1st on 10.31.14 at 8:38 pm

I was unable to find a buyer for the ETF I own that dropped like a rock last month.

What ETF? — Garth

#30 Nomad on 10.31.14 at 8:40 pm

Japan announced a huge increase to their stimulus program. They’re started to buy a lot more stocks. All kinds of stocks. Canadian stocks included!

Result: stocks soared

If you don’t invest, your cash is loosing its worth, because while stock assets are going up, your cash is doing 0% after inflation.

Look at what the US stimulus did to stocks over the last 3 years. Now Japan is doing it. Europe is next.

If you have cash, invest it…right away.

#31 Joe2.0 on 10.31.14 at 8:41 pm

Kenchie post -53
No economy has ever been fixed by the pumping of paper.
Never, it devalues real wealth.
Greenspan author of QE 1 said, it didn’t work and recommended gold.

The FED will continue to manipulate the market for a while but the BRICS are sick of it amongst others.
The amyl nitrate will run out.
It’s going to go down after the elections way DOWn.

Not a doomer a realist based on historical facts and events.
History will repeat it self.

#32 Inglorious Investor on 10.31.14 at 8:45 pm

IMO…

The only ‘proof’ needed that governments, at the very least, attempt to control or manipulate markets is their ability to do so.

#33 gmc on 10.31.14 at 8:46 pm

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#34 Happy Renting on 10.31.14 at 8:47 pm

Renting is also a savings because you’re not tempted to blow money putting in an expensive, new kitchen or upgrading appliances.

My other half and I lived in modest places before meeting, and cut our overall rental costs by 20% when we moved in together. It doesn’t even occur to us to pay more to live somewhere fancier, despite increases to our income (we will pay more for more space if we have a second kiddo). It is eye-opening to see how much we’ve saved because we kept lifestyle inflation under control. The state of the Canadian economy is worrisome, but we can worry a bit less than those living paycheque to paycheque and with no assets.

Happy Halloween, everyone!

#35 John in Mtl on 10.31.14 at 8:48 pm

#31 Joe2.0 on 10.31.14 at 8:41 pm
It’s going to go down after the elections way DOWn.

Why do so many people think things will tank after the US elections?

#36 gmc on 10.31.14 at 8:52 pm

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#37 JO on 10.31.14 at 8:53 pm

the BoJ’s desperate move just laid out the main trend we will see over the next 5-6 yrs.
-trillions of dollars in yen and euro bank deposits and especially govt bonds are in the early stages of a panic into good quality local and US RE and blue chip stocks
-while we will see very volatile markets with at least one more violent short term panic on 2015 prior to what will be a breath taking parabolic rise in us blue chips and the usd
-no one knows when it will peak and collapse but I am speculating the sp500 could peak out around 3-3500 between Sept 2016-May 2017 before losing 70-80%
-as the USD and blue chips and RE vacuum up more and more of the panic yen and euro, commodities will be under severe pressure – bad times for Canada and Australia etc. canadian dollar could easily reach low 70’s by h2 2016. Gold and commodities will have very powerful multi month rallies prior to the final low
– Japan last night accelerated the export of massive deflation from the east to the west. The euro is next
-this will eventually hasten the collapse of the global developed govt bond markets as gov’ts go broke and the rising usd leads to massive defaults on the huge amount of usd bonds held outside of the U.S.
-effectively the usd was a massive short that now needs to be covered and the impact of a rising usd is the same as a rate rise
-one needs to be careful and consider selling most of their U.S. shares should the sp500 exceed 3000. Bonds should sold on any spike lows over the next 1-3 yes, and most importantly, invest that outside of the system in good quality income producing RE and land, quality art, and yes some pm
-very bearish for Canada. Poloz is more likely to lower rates over the next 1-2 yrs

Bye bye Japan, Europe then for the grande finale-America in 2017-2020
JO

Melodramatic much? — Garth

#38 Obvious Truth on 10.31.14 at 8:54 pm

#29

Give Kuroda a call!

#39 Inglorious Investor on 10.31.14 at 8:54 pm

My understanding of Keynes is that he prescribed that governments should run surpluses during good times, and draw from those savings in hard times in order to augment demand via government spending on value-added projects.

Basically, save for a rainy day.

He didn’t say governments should blow their brains out on debt during good times and then blow their brains out even more during hard times.

How many trillions were spent on QE? Where are the infrastructure projects? Where is the investment in the future?

We don’t have Keynes. We have Krooks.

#40 Don Derc on 10.31.14 at 8:54 pm

1) I think the rule of 90 should have an adjustment for the two types of real estate out there – one calculation for real estate with a highly leveraged mortgage, and one calculation for real estate which is mortgage free. How about the real estate that is rented and mortgage free…we could go on.

2) The USA economy is a phantom economy. $13 trillion in the hole, and a wiped out middle class that can’t be the consumers to bring the economy truly back to life. The usa is like a 200lb jockey on an overweight thoroughbred horse. No Jian jokes here would do justice to the subject.

3) Hope your not renting in Vcr/lower mainland. Complaints filed at the Tenancy branch take a year to get to a hearing. Both parties are screwed if either party decides to screw – ok where’s Jian when you need him.

4) Job hunting in Alberta like I am? 3 bdroom condo in Edm – list $148K with a $550 monthly condo fee – the future isn’t friendly, it’s expensive.

#41 Trojan House on 10.31.14 at 8:57 pm

#21 Kenchie on 10.31.14 at 8:09 pm

“…extra government demand…” Call it tomato or tomatoe, if it smells like a fruit, looks like a fruit and tastes like a fruit it must be a fruit. It is still government/central bank manipulation. That is the job of the central bank. To ensure “growth” of the economy through continued manipulation (continued inflation of the money supply or credit). Problem is when the manipulation does not go the way they want it to, ie. deflation, they have no clue what to do. Therefore, they try to further manipulate through ZIRP, QE, etc.

The only problem is, they end up making things worse. They should just let things take their course instead of kicking the can down the road.

And the bottom line is that Keynes was for some sort of “control.”

#42 Born Again Investor on 10.31.14 at 8:57 pm

Just loaded up XEG, XGD, XBM, CMW, HOU, HNU this afternoon!!!!!

Insider Bay street says H is thorough pissed by Fed, ECB, HAM. This morning’s action by JCB was the last straw! F***ing phony money buy our oil, gold, NG and all other hard stuff. Summoned the Polish guy and gave the deal he cannot refuse.

Monday morning before the market opens, poloz announces that Canada buys $100 billion each month of the above mentioned ETFs!!!

#43 Spectacle on 10.31.14 at 9:01 pm

Thanks for a nice blog recap Garth.

Noticed Japan is at the bottom of your chart this evening, which actually makes it top of the list for repeated loss over a period of time! Canada demographics and economics might just follow that country 100% .

And a big thanks to Agenda-21, I mean BC Vision Party, oops, I mean the BC government. Oh, it all the same thing. Taking away your wealth, property rights, inheritance and sooo much more to come. So not funny, and it’s so here now.

http://www.vancouversun.com/opinion/columnists/Barbara+Yaffe+City+Vancouver+likes+your+home+worth/10335962/story.html

They found a great way to take retired boomers wealth!

Or is Agenda -21 , just an ecological world saviour? Anyone…..

#44 devore on 10.31.14 at 9:01 pm

#187 Kenchie

Precisely why I said what governments have done and what JMK prescribes are two different things. Did you even read the article?

Yes, I read the article, full of Keynesian apologetics. Dogmatics will always find some fault with the implementation of their theories to explain why they failed. Too much regulation, or not enough. Too much money thrown at it, or not enough. Too many freedoms, or not enough. At least Keynes seems to have eventually realized the error of his hubris; same cannot be said about his followers.

The point was there is no such thing as Keynesianism, capitalism, communism, etc, that can exist in the real world. These are all fine theories, that work great in the clinical vacuum of academia they are evaluated in, but will never work when faced with the reality of human behaviour, which is both predictable and erratic, both logical and emotional, both self-interested and self-destructive. Saying “if we only followed the theories of Keynes everything would be fine” is exactly the same as saying “if we only followed the theories of Mises, or Marx, or /insert name here/, everything would be fine”. Both can be heard spouted by their respective dogmatic adherents, and both fail spectacularly in a real world.

#45 Sheane Wallace on 10.31.14 at 9:02 pm

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#46 Drill Baby Drill on 10.31.14 at 9:04 pm

#31 John in Mtl
“Why do so many people think things will tank after the US elections?”

Because it is the oldest trick in the political book. Boost confidence with the electorate just before an election then once the election is over let the market go were it wants.

#47 Drill Baby Drill on 10.31.14 at 9:06 pm

Look at Harper’s income sharing announcement yesterday. 2K + in tax rebates for families with kids in spring 2015 right before they need to call an election. It works everytime.

#48 sandy sheldon on 10.31.14 at 9:15 pm

many posts deleted today.

old fart in bad mood?

This is not a gold blog. — Garth

#49 not 1st on 10.31.14 at 9:31 pm

#39 Inglorious Investor on 10.31.14 at 8:54 pm

How many trillions were spent on QE? Where are the infrastructure projects? Where is the investment in the future?

The first bailout in the the final months of the GWB administration was in the order of 700 billion dollars. That is enough money to put solar panels on every home in the USA and get the country off oil for good and at the same time eliminate our climate change worries.

That was enough money to repave every road and freeway in the country. That was enough money to build cross country high speed rail. That was enough money to go to the moon and mars. That was enough money to cure every disease known to man. That was enough money to invent a time travel machine so we could go back in time and kick ourselves in our collective heads.

Instead, it went to banks.

And then after that, another 12 trillion dollars was pumped right in behind it.

And instead of lamenting this colossal waste of resources. Garth has cheered it cause his own portfolio is up. I don’t care if I made a dime in the past 8 years, I do weep for mankind though as we locked ourselves into a 50 year stagnation cycle because of severe short sightedness.

Concentrate on using you life to achieve some good for yourself, and others. Railing against the gods wastes your most precious gift, while changing nothing. — Garth

#50 Vincent on 10.31.14 at 9:42 pm

but Garth, #49 has a point: while it’s hip to be printing money to pad up the economy, why not print a few more bills to directly stimulate innovation so that some smart yet-to-be-born-kids can think our collective way out of this mess?

#51 devore on 10.31.14 at 9:45 pm

#187 Kenchie

Don’t get me wrong, I’m not being negative, or saying Keynes was wrong, or anything like that.

The reasoning is simple. People aren’t very good at following arbitrary rules set out for them by arbitrary authorities. They will find ways around rules as they see fit, no matter how “good” or well intentioned they may be. We have never followed the “optimal” path. Our history is a series of humanity falling and picking itself up again. It is also a series of literal and ideological corpses of those who tried to impose their particular -ism on others. This cycle will never be broken.

So it is important to realize that most economic theories ARE valid and self-consistent, yes, even those you disagree with. It is also important to realize it is impossible to perfectly implement them, and thus they will always fail. Leaders, elected or otherwise, in the end always pick and choose the best solution to the problem at hand, much to the chagrin of ideologues, who will always chirp “if only you did what we told you to do, you wouldn’t have this problem”. Perhaps not, but we’d assuredly have other problems instead.

#52 Mog on 10.31.14 at 9:45 pm

Very interesting to see Yellen’s comments.
I believe we had a link on this blog about the financial inequality gap growing.
The Fed may start to find ways to trim the balance and not just improve the top 5% wealthiest accounts.
QE was presumably promoted as usual by interest groups and lobbyists to improve their supporters balance sheets.
Maybe realizing that putting spending power in the hands of the 95% could actually drive the economy.

#53 Happy Renting on 10.31.14 at 9:48 pm

#47 Drill Baby Drill on 10.31.14 at 9:06 pm

Look at Harper’s income sharing announcement yesterday. 2K + in tax rebates for families with kids in spring 2015 right before they need to call an election. It works everytime.

Are the tax changes for families with kids enough to really buy votes? (Honest question, I can only gauge my own reaction to the announcement, not that of other people.) The benefit of the $50k income splitting is dramatically less when capped at only $2k.

#54 Rainmaker on 10.31.14 at 9:54 pm

Sold my home in the big smoke last year and now moving into a nicer rental for $3k/mth. Nice detached home with 4 bedrooms, 3 bathrooms throughout, nice kitchen – all current, nice hardwood throughout. Took a while to find this gem as some homes for rent not in very nice condition or far too expensive..

Prior to deciding to rent looked around to buy for about a year and just gave up, lost out in a bidding war or simply was not quick enough or aggressive enough with some insane offer.

Took a while to get my head around it as the ingrained cultural thinking that you should own is strong – but once I broke free this renting is great, stress levels are so much lower w/o that monster mortgage..

Now need to work on that balanced portfolio…and stop with the bonehead investments… negatively impacting some of the above stress benefits

#55 Inglorious Investor on 10.31.14 at 9:55 pm

#50 Vincent on 10.31.14 at 9:42 pm

“but Garth, #49 has a point: while it’s hip to be printing money to pad up the economy, why not print a few more bills to directly stimulate innovation so that some smart yet-to-be-born-kids can think our collective way out of this mess?”

Catherine Austin Fitts said the elite gave up on the US in the late ’90s. It’s interesting that the DOW (so far) peaked in real terms in year 2000. Is it possible that at least part of the reason why the US gov and corps are not investing in the future is because they see no future in which to invest?

#56 Trojan House on 10.31.14 at 9:56 pm

#44 devore on 10.31.14 at 9:01 pm

Excellent post!

#57 Drill Baby Drill on 10.31.14 at 10:05 pm

#50 Vincent
You’re idea is a very good. We do need an economic theory (algorithm) that will enable us to see our way around our politicians and banksters and provide us with a much clearer path forward.

#58 NEVER GIVE UP on 10.31.14 at 10:08 pm

As usual our gov will buy our votes with our children’s future income. (debt)

Why do we get sucked in to this every election?
Because our voters are so stunned they may as well have been tasered.

Like Homer Simpson following a donut, our voters follow the smell of easy money., Our money, given back to us after the machinations of government devour 40% of it in expenses.

We need to demand a new parliamentary system.
One based on the Swiss system whereby all voters can vote on ALL bills before the house.

Why not? I admit we are stunned right now but if we were given any power we would actually be interested in the governing of our nation, and we could learn!

As it stands right now the apathy is rampant!

Would it not be a good idea to purchase one or 2 large jets to pick up all Canadians for a once a lifetime trip to Ottawa?
I believe this would create much more participation in our system.
For example: If have you ever traveled overseas you would remember so much more about the destination, Sights sounds and smells.
Same as our Nations Capital.
One cannot comprehend parliament until you have sat in the galleries and heard the debates. Also a walk down the street to the supreme court is extremely eye opening.
We could set up a couple of low cost youth hostel style small room hotels at taxpayer expense. (definitely no frills) Just a room and a plane ticket for every Canadian, for once in their life to see Ottawa, we would be setting the stage for much more involvement.

#59 Waterloo Resident on 10.31.14 at 10:12 pm

Remember everyone (if it applies to you); you might need to turn your clocks back 1 hour on Sunday. The annual end of daylight saving time in most of Canada comes early Sunday morning at 2 a.m

#60 espressobob on 10.31.14 at 10:14 pm

Happy Halloween!

https://www.youtube.com/watch?v=cILZ_cB3_so

#61 Kenchie on 10.31.14 at 10:14 pm

#44 devore on 10.31.14 at 9:01 pm

“The point was there is no such thing as Keynesianism, capitalism, communism, etc, that can exist in the real world.”

I agree with your point here. No debate from me on this.

“Saying ‘if we only followed the theories of Keynes everything would be fine” is exactly the same as saying “if we only followed the theories of Mises, or Marx, or /insert name here/, everything would be fine’.”

On this point, I have to say that not all theories are created equal. Keynesian economics is more applicable than the others because fiscal policies react faster and have a more direct impact on the improving the state of economy than monetary policies. And monetary policies definitely distort prices more than fiscal policies. On another note, the impact of expanding fiscal policies when necessary is weakened when there is too much debt. Keynes advocated paying debts accumulated during the bad times. Unfortunately, politicians can’t control themselves in this matter. And thus, people hate on Keynesianism because they associate it with irresponsible politicians. That’s a shame.

It seems that it is your opinion that increasing or decreasing government spending is a form of “manipulation” or “controlling” the economy. I, politely, disagree.

Government needs to purchase goods and services from the private sector, whether it be new highways and overpasses, or servicing farmland for private sector-led development, or building an airport, etc. If they pull some of that demand forward to give the sluggish economy a push, it isn’t “manipulation”. Even if they cut taxes to put more money in the pockets of citizens to boost private spending, this is not some form of “controlling” the economy.

Cheers

#62 Don on 10.31.14 at 10:14 pm

I live (rent) in a nice condo in West Vancouver with a beautiful waterfront view …at a cost of probably half if it was owned…and great property managers that maintain the place to an excellent standard…my accountant every year says why would you buy?

#63 Inglorious Investor on 10.31.14 at 10:19 pm

Seems to be a lot of panic in the financial blogosphere over Kuroda’s decision to blow Japan’s brains out on more QE.

Albert Edwards of SocGen says this latest salvo in the currency war may drag down China and export further deflation to the West, kicking Europe while it’s down, crippling Germany, and sending the US into recession. Europe would have to respond with more QE of their own.

Jim Rickard’s currency wars come true? Well, he does work for the CIA.

Nikkei to soar (more). Martin Armstrong now sees a possible phase change and a DOW rocketing to possibly 24,000, as such actions put the last nails in already shaky confidence in government and a rush into private assets. The great rotation finally here? He warns that this is not good for the economy, even though some will make huge gains in stocks.

Daniel Amerman explains DOW 36,000 would not be a good thing. http://danielamerman.com/va/Dow36.html

Kyle Bass, who has been warning about Japan for years, predicts dramatic currency moves and a stronger US dollar. This forecast meshes with Armstrong’s prediction that currency devaluation relative to the USD would drive capital into the US and US stocks. DOW 36,000?

This could get very interesting.

Some who have predicted hyperinflation (e.g. Prechter) have said that first we would get a bout of deflation. Did Japan just set the stage for a rolling hyperinflation that eventually makes its way to the US and cuts down an expanding economy enjoying higher stocks and stable prices? Don’t empires always collapse from the periphery?

yikes…

What a load of speculative, conspiratorial, tinfoil crap. — Garth

#64 Joe2.0 on 10.31.14 at 10:22 pm

35-John

Because Obama won’t have a chance if the markets tank now.

#65 devore on 10.31.14 at 10:24 pm

#8 Mister Obvious

He is clearly being squeezed and I actually feel sorry for him. But of course, I have no plans of voluntarily increasing my own rent to help out. That goes up at the rate of inflation determined each year by the BC provincial government. Lately, that’s been rather a pittance in the grand scheme of things.

Allowed rate of increase is inflation + some small amount, but rents in lower mainland are barely keeping pace with inflation, and that’s accounting for rent increases between tenants, on which there is no limit. So clearly, rents aren’t going up, and now I know of another person besides myself who asked for a rent decrease, and got it.

Unfortunately, the UBC Sauder rental index data seems to have gone MIA, and I haven’t been able to access it for some months, does anyone have a link to it?

#66 Allen on 10.31.14 at 10:27 pm

# 20 garth is my pimp

I think you misunderstood my post … You remind me of those people who think that listening is simply waiting for your turn to speak…

#67 Kenchie on 10.31.14 at 10:30 pm

#41 Trojan House on 10.31.14 at 8:57 pm

“The only problem is, they end up making things worse. They should just let things take their course instead of kicking the can down the road.

And the bottom line is that Keynes was for some sort of ‘control.'”

We, as humans, have no ability to live in two dimensions at the same time to judge, objectively, what course would be better. Let’s say one is pure laissez-faire policies (i.e. allow deflation to take hold) and the other is increasing fiscal expenditures by issuing government debt (i.e. increasing fiscal expenditures when households and corporate sectors are declining). We have a well-documented example from the first situation, the Great Depression era, in which the young Federal Reserve was governed by predominantly by ideology rather than years of economic studies and a firm grasp of consequences of not doing something.

Watch this video for the first 10 minutes: http://www.youtube.com/watch?v=jOO4kPSaD4Y&index=3&list=PL0364ACCE6C7E9D8E

The second one only came into the consciousness of the world after the laissez-faire policies screwed the world up so badly.

So when you say “they end up making things worse”, you are ignoring specific parts of history.

#68 Godth on 10.31.14 at 10:49 pm

What a load of speculative, conspiratorial, tinfoil crap. — Garth

looking forward to those interest rate hikes, that will be fun and interesting.

#69 Musty Basement Dweller on 10.31.14 at 11:10 pm

Awesome post, so entertaining and I love the millenials comments in the post, he really does get it.
And as soon as I heard about Jian I knew you would be all over that Garth. I know you are fascinated with those kinds of hobbies lol.

#70 Inglorious Investor on 10.31.14 at 11:12 pm

“What a load of speculative, conspiratorial, tinfoil crap. — Garth”

Well, I don’t know if what they predict will come to pass, but “conspiratorial, tinfoil crap”? Really!? Perhaps you might reconsider…

Albert Edwards is head of equity strategy at Societe Generale. He’s been ranked #1 global strategist something like seven years straight in surveys by Thomson Reuters Extel. He worked at the Bank of England for five years.

Jim Rickards was counsel at LTCM. He negotiated the LCTM bailout with the gov and Wall Street. He is now a senior managing director at Omnis Inc. He has been a consultant to the CIA and Pentagon.

Daniel R. Amerman is a Chartered Financial Analyst and a former investment banker. who did work in the security originations and creation of synthetic securities for institutional clients. As an independent quantitative analyst in the 1990s and 2000s, he structured mortgage-backed bond financings and provided analytical services.

Kyle Bass is the founder and principal of Hayman Capital Management, a hedge fund. He became well-known after successfully predicting the subprime mortgage crisis. Bass is a member of the Board of Directors of the University of Texas Investment Management Co. (UTIMCO), a founding member of the Serengeti Asset Management Advisory Board, serves on the board of directors of the Troops First Foundation, Business Executives for National Security and Texas Ranger Association Foundation. Bass has testified as an expert witness before the U.S. House of Representatives, U.S. Senate and Financial Crisis Inquiry Commission.

Catherine Austin Fitts is the president of Solari, Inc., managing member of Solari Investment Advisory Services and Sea Lane Advisory Services. She was on the board of directors of the Wall Street investment bank Dillon, Read & Co. Inc.. She served as Assistant Secretary of Housing and Federal Housing Commissioner at the United States Department of Housing and Urban Development under Bush 1, and was the president of Hamilton Securities Group, Inc., an investment bank and financial software developer.

I don’t just read ANYONE. That’s why I come here.

#71 Cato the Elder on 10.31.14 at 11:13 pm

Manufacturing will continue to decline as long as there are prohibitions to it’s existence. Too many regulations, taxes, and a weak dollar increasing raw material costs. Manufacturers can’t exist in that environment, let alone invest in equipment to make themselves more productive/hire more workers/pay workers more.

Businesses don’t invest in prosuctivity increases because our greedy politicians view profitability as a tax revenue source.

And Garth, I notice you reference stock market returns from the early 2000s, yet reference gold from 2011.

Now, gold isn’t an investment, it’s money, so I wouldn’t compare returns as they aren’t identical in that sense. But it is a little unfair to compare them based on selective yearly returns.

Nominal stock market returns, especially in Japan, are easy with massive money printing. Unfortunately, these increases coincide with a decrease in purchasing power for anyone that holds the currency. It is theft from the middle class to the rich holders of securities. Very simple.

This has happened for millenia and was kept relatively at bay through the gold standard. This will continue worldwide at an exponential rate as these politicans have to save face and can’t admit their policy failures, lack of planning, and lies.

The only difference today is the difference in the rate various nations are inflating their currencies. This masks the general problem as everyone is experiencing price increases at the grocery store and elsewhere. However, the overall decrease in productivity will continue and the populations will continue to get poorer.

This will all come to a head when people start to get hungry. It’s the one thing people can’t ignore while staring at their phones and computer screens.

I sure hope people figure out the truth – that it is central banking that has destroyed their world, and not business owners.

#72 Cato the Elder on 10.31.14 at 11:20 pm

Oh, another thing I find peculiar.

Everyone is talking about the supposed 2k tax rebate from Harper.

Question: why the hell are they taxing us, then making us ask permission to get it back?

This is the problem with interventionist government. All these politicians want the credit for work they never earnwd. This is not Harpers’ money. This is our money. Don’t take it in the first place and we can save millions on the complicated tax code, auditors, and accountants.

Bunch of Keynsian idiots.

#73 Roman on 10.31.14 at 11:38 pm

Bank of Japan is definitely reading this blog. And they finally got balanced portfolio idea!

“BOJ’s board voted 5-4 to accelerate purchases of Japanese government bonds so that its holdings increase at an annual pace of 80 trillion yen ($723.4 billion), up by 30 trillion yen.

The central bank also said it would triple its purchases of exchange-traded funds (ETFs) and real-estate investment trusts (REITs) and buy longer-dated debt…”

See, they like REITs! End diversified ETFs too. Throw some bonds there – and BoJ gets completely balanced nicely yielding portfolio. Buckle up, each year they’ll be adding 723 bln (that’s billions) to it until morale improves.

Hopefully people of Japan enjoying this experiment. It’s even better than million bucks median price for Toronto houses.

#74 will on 10.31.14 at 11:58 pm

hilarious photo.

#75 Trojan House on 10.31.14 at 11:59 pm

#67 Kenchie on 10.31.14 at 10:30 pm

I’m not ignoring specific parts in history. I’m taking into account all of history. No, we can’t live in two different dimensions but we don’t need to. It is all there in the past. How long in history are you going back? Obviously not long enough. The lessons are there you just need to go back many, many, many centuries, right back to the ancient Greeks and Egyptians.

Devore is right. What he is talking about is human nature. The problem is human nature does not change. Study the ancient Greeks, Egyptians, Romans, etc and you will see that the same things are repeated over and over and over again. Yes, times are different and we are more advanced now than those people could ever have imagined but go back. Study their economic systems. Study their political systems. You will see not much has changed in that regard today. Bet you would be surprised to know that the Romans had a pension system. Here is but one example, under the Roman emperor Augustus (475-476 AD), there was a pension system for the soldiers. Of course, when they could not be paid, they turned and sacked Rome.

Too far back for you? How about the French or American revolutions? The American constitution was written so that the mistakes of the past would not be made again. But the one thing their founding fathers did not see or take into account, in my very humble opinion, is human nature. As Devore says “…will never work when faced with the reality of human behaviour, which is both predictable and erratic, both logical and emotional, both self-interested and self-destructive.”

That’s just who we are as humans. Always were and always will be.

#76 Steve French on 11.01.14 at 12:14 am

DELETED

(darn…. tough moderator on this blog)

#77 Carpe Diem on 11.01.14 at 12:22 am

RE: #50 Vincent ” but Garth, #49 has a point: while it’s hip to be printing money to pad up the economy, why not print a few more bills to directly stimulate innovation so that some smart yet-to-be-born-kids can think our collective way out of this mess?”

—–
Simple … Governments don’t understand innovation other than germ warfare, radiation and ads during election campaigns. Especially not the economists working for government. Actually most government workers. That’s why they engage consultants to make things happen.

In Canada, Governments chose to invest in US car companies but let big high tech companies go down. That’s OK, individuals in those high tech companies reformulated the equation, innovated and are all doing fine now. The car bumper dude keeps his job and the investors (like high tech dudes) stay happy.

Innovation comes from individuals and companies. I could be an innovator but measuring risk/reward it’s much easier and almost-as-lucrative consulting government run by loser baby boomers.

#78 Shinzo Abe on 11.01.14 at 12:22 am

Canada is lagging but Nippon leads the way with hari-kari while financial markets give a Hallowe’en zombie cheer.

The negative growth announced recently in US consumer spending should be a warning sign that American trick or treaters have gorged on too much free candy.

#79 Kenchie on 11.01.14 at 12:23 am

#51 devore on 10.31.14 at 9:45 pm

“Don’t get me wrong, I’m not being negative, or saying Keynes was wrong, or anything like that…..”

Firstly, I responded to your #44 post before seeing the #51 post.

Secondly, I agree with your entire #51 post (which clarified some of your points in #44). And trust me, I realized long ago that economic theories are mostly valid and self-consistent in their specific context. My issue (what you interpret as me disagreeing with them) is that Average Joe Sixpacks take those “self-consistent” theories out of the context in which they are created for (i.e. 19th century and early 20th).

On another note:

What you speak about in your third paragraph is part of the reason why I call people “doomers”. Doomers, IMO, are pessimists that only see the worst in situations. These folks just don’t get it that those in charge are humans (i.e. fallible) . The people in charge are, generally-speaking, trying to balance competing interests with the tools at hand and bounded by an ideological base. Sometimes it works, sometimes it doesn’t. And sometimes it doesn’t matter in the grand scheme of things.

IMO, doomers, unintentionally, have unrealistically high expectations of politicians to have all the answers to all of society’s ills. When these humans inevitably fail to live up to the doomers’ expectations, the doomers sh!t all over them and blame them for all the problems of society. But when the politicians do something worthy for certain people, doomers don’t acknowledge the good policies that help those who the policies are intended to help. Doomers just concentrate on the new problems rather than the problems that were previously solved.

And associating with doomers can “kill ya”.

#80 CanadianOne on 11.01.14 at 12:26 am

Read this interesting article on the BV. Would answer some questions to #5 mortgagebrokeron… Interest rates, as Garth points out, are indeed bound to go towards a historic norm. Higher than they are now.

http://www.bloombergview.com/articles/2014-10-31/half-a-century-of-evidence-to-fear-the-fed.

Also a couple of days ago GS (goldman sachs aka govt. sacks) eluded to 75$ oil and then today the market consensus puts it towards 70$ within 6mos, and then as supply creeps back down the price goes a bit more stabilized. But as Garth frequently points out that a major section of our society/population would be doomed in absence of one paycheck, think about what this oil glut(even if it is short lived) in the market would do to an economy like ours. You think this one trick pony town called Canada is immune to world events because we are soooo special here? I guess we will find out.

Maybe, I am being too pessimistic over a comodity price, who the heck knows what price of anything will be tomorrow or 6mos. or a year down the road? I do know that our Canadian economy is prone to MAJOR shocks in even a seemingly short event horizon. It doesn’t take much. We have collectively (sparing a small % of the people) let ourselves become fragile, with all that glitter of debt.

On more academic side of things, for some macro reading for fellow blog members on long run real prices of some 30 commodities over a span of 160 years, let me refer you to a very informative research from a fellow Canadian found here….

http://www.sfu.ca/~djacks/papers/workingpapers/w18874%20(typology).pdf

The world isn’t going to crash, I am sure of that in my mind. Parts of it though…. Oh! HAPPY HALLOWEEN!

#81 Shinzo Abe on 11.01.14 at 12:29 am

@Godth–I guess Japan’s fatal mistake was never raising interest rates.

The Land of the Rising Sun turned out to be Land of Never Rising Interest Rates.

#82 NotAGreaterFool on 11.01.14 at 12:31 am

I was reading about the Bank Of Canada & Senate dialogue earlier in the week. Sustained low price will lower GDP by .25. This is a big deal in a low growth era.

Also, you notice how the Russians have put their guns away? The Saudi’s are tanking the price of oil to irritate Iran and Russia while gaining market and winning the geopolitical sunni/shia mid-east battle.

Rates will continue to stay low. Even the Bank Of Canada admitted house sales/prices have been more robust that anticipated. You can bet more mortgage/house prices will arrive.

#83 Shinzo Abe on 11.01.14 at 12:32 am

I’m sure the rest of the world has now learned not to follow Japan in keeping interest rates too low for too long.

#84 Not an economist on 11.01.14 at 1:10 am

Yo, el Gartho. Your old nemesis Dean Del Fatso was found guilty today. He might even do some time in Stephen’s newly revitalized reformatory industry. Did you hear about it? Feel free to mock him a bit for our amusement, God knows you don’t hold back on your commenters, so don’t hold back on your buddy Dean either. Come on, we already know about F eating eggs with his fingers like a f-ing caveman, while asking you for a primer on how to do his undeserved newfound job as finance minister, surely you have a personal story about good ol Dean you can tell us. Don’t let us down!

#85 Lillooet, BC on 11.01.14 at 2:05 am

How about moving to a small town and buying a 2 bedroom house for $149,000, with a mortgage about a third of what you would pay to rent or mortgage a condo in the big bad city? Why become a corporate slave in the city, fighting gridlock/road rage, two hour per day commutes, high gas prices? Is your corporate career worth that much? If yes, stay in the big smoke, otherwise, check out the benefits of small town life.

#86 Mark on 11.01.14 at 2:08 am

“Would it not be a good idea to purchase one or 2 large jets to pick up all Canadians for a once a lifetime trip to Ottawa?”

Here’s an even better idea, give every new 18-year-old a $1000 non-transferrable/non-refundable voucher credit for VIA Rail if they file a tax return. Not only would it introduce them to the joys of rail travel, and perhaps make VIA a bit of a more economic way of travel (ie: size and scale), but it would accomplish the same. After all, Ottawa already rips 18-year-olds off on the GST credit as you have to be 19 to be eligible.

The incremental cost of adding another couple cars to VIA trains is almost zero, and the sort of goodwill this would generate would be enormous.

#87 NEVER GIVE UP on 11.01.14 at 2:09 am

Are You Afraid of the Dark? (Election 2014 Parody)

#88 Charles Ponzi on 11.01.14 at 4:35 am

America is in fine shape? I will start believing when interest rates finally return to normal.

People tend to see what they want to see. If people don’t want to see a real estate bubble they can ignore it exists until it pops. If you want to see green shoots in America you will see green shoots until the stock market crashes and we have another global banking crisis.

A pig with lipstick is still a pig.

Keeping interest rate too low for too long sure hasn’t helped Japan.

‘That financial markets interpret more QE in Japan as a reason to cheer and party and make lots of dough is yet one more proof of how shallow and single-minded the people operating in these markets are, lacking all insight in historical context, longer term consequences, wars and politics, and the human mind.’

http://www.theautomaticearth.com/japan-qe-as-morphine-for-a-terminal-patient/

#89 Charles Ponzi on 11.01.14 at 4:42 am

• Respectful, wide-ranging discussion on the topic of the posting is encouraged, and will not be censored.
• Abusive, obscene or disrespectful commenters will not be published, and are subject to banning from this forum.

I do not believe that any of my comments that I have recently tried to submit warrant being censored.

#90 Charles Ponzi on 11.01.14 at 5:39 am

The US economy is in fine shape??? Everything looks fine through rose tinted glasses.

QE has been a great success! Happy days are here again!

Real estate is not the only danger facing Canadians living in a globally linked economy.

#91 David W on 11.01.14 at 6:48 am

Hi folks,

Can you recommend a bond ETF that has a good proportion of gov, corporate, high yield, and real return? I’ve found 4 desperate ones but would prefer just one to make up 20% safe stuff in this category of garths balanced portfolio. Thanks

#92 not a gold bug on 11.01.14 at 6:50 am

DELETED. This is not a gold blog. — Garth

#93 sandy sheldon on 11.01.14 at 7:08 am

Concentrate on using you life to achieve some good for yourself, and others. Railing against the gods wastes your most precious gift, while changing nothing. — Garth

Providing you choose the right gods. We have not and they are losing.

#94 };-) aka Devil's Advocate on 11.01.14 at 7:29 am

#183 Trojan House on 10.31.14 at 6:02 pm

#4 Kenchie on 10.30.14 at 4:25 pm
Even Keynes admitted before he died that he was wrong and that you can’t manipulate/control the economy.

Hence governments/central banks have no idea what to do. They try things (QE) not realizing if you pull one string, it affects another.
Next argument.

EXACTLY!!! SHIFT happens, always has and always will. There’s not a thing that can be done about it. Learn to ride the tide. All governments do is exasperate the situation turning ripples into tidal waves.

“I’m renting for about 2/3 of what I would otherwise pay for housing here. I’m going to have my student loans paid off about one year after I graduate. And until this housing gasbag deflates in a major way, I’m going to work on making out my TFSA. And when things break around the house I’m going to keep picking up my phone and saying “Hey, you’ve got a problem to fix over here.” – Lincoln

Nothing at all wrong with what Lincoln states. Even if he were paying more for rent than owning would cost him. Hell the kids still in school and socking away savings in a TFSA that’s far further ahead than many of his peers I’ll bet.

As far as “this housing gasbag deflating in a major way”… Lincoln shouldn’t hold his breath but as long as he’s putting his financial resources into something that might offset a possible error in judgement on the housing scene he should be just fine.

Rent, save and invest, children. You shall inherit the dirt. Cheap. – Garth

That’s a pretty tall promise. I like your previous comment in which there is no potential for false promise…

a big mistake people reading this pathetic blog make is thinking they have to choose between real estate or a financial portfolio. They don’t. It’s just fine to have both – Garth

Makes sense to me.

One barometer on the state of the economy: Trades are getting exceedingly hard to find as they are so busy.

Another barometer on the state of the economy: Our pool guy says he has never been so busy with new installs as he is right now.

#54 Rainmaker on 10.31.14 at 9:54 pm

Your rent now of $3,000 per month is less than your monster mortgage was?!? Yikes. $3,000 a month in rent ought to be getting you a pretty spanky crib. What was your mortgage; $4,000, $5,000? Maybe you needed to learn to live in a home rented or owned for that matter that is/was more befitting of your means. Maybe you didn’t need to “get your head around that the ingrained cultural thinking that you should own is strong” so much as that one should own what they can afford and not what they want.

#95 World Traveller on 11.01.14 at 7:56 am

Amazing, renting still has the advantage in Spain, considering how far their property market has fallen, I suppose Canada would have to drop significantly until we reach even those levels.

#96 Millenial on 11.01.14 at 8:19 am

Disturbing chart. Trouble is coming soon.

#97 OttawaMike on 11.01.14 at 8:25 am

Portugal.

I was pricing houses out this week while vacationing there. 30,000 Euros gets you a solid stone house built in the 1930’s in the island city of Ponta Delgada. Plenty of inventory — no takers. Of course you can also just rent a condo near the harbour for 20 Euros a night.

The locals laugh at the quality of Canada’s disposable housing, made of rickety particle board and vinyl.

I wonder how far down that chart Canadian real estate will eventually end up?

#98 young & foolish on 11.01.14 at 8:42 am

It’s fun being a Armchair Economist, eh? Pontificating on macro policy and history and trying to predict when ’empires’ will collapse. But you can paralyse yourself with fear and uncertainty that way. It’s easier to just embrace the system.

Meanwhile, why not do what Garth suggests and affect that which you can, your own financial situation, and stop reading doomer blogs!

#99 economictsunami on 11.01.14 at 9:11 am

So the Fed exits QE, then the BoJ cranks up the music and pours more hooch into the punch bowl.

All the while Germany waits for the point of no return before green lighting the ECB QE.

Ah, life inside the wealth affect bubble…

Japan’s Pension Fund Cutting Local Bonds to Buy Equities

http://www.bloomberg.com/news/2014-10-31/japan-s-pension-fund-cutting-local-bonds-to-buy-equities.html

Home prices since 1870: No price like home:

http://www.voxeu.org/article/home-prices-1870

#100 young & foolish on 11.01.14 at 9:31 am

About Real Estate … some obvious facts:

1. please note, it will always cost you to live somewhere

2. current international trends suggest people are still migrating towards large cities

3. at first, your landlord may be subsidizing you, but if he/she holds on long enough, you will be subsidizing them

Few people rent their entire lives, and you know it. Renting is logical during years of income growth and initial savings/wealth accumulation when being a tenant means low living costs. Buying real estate correctly can make financial and emotional sense when you raise a family, if you can afford it. Renting in later life maximizes cash flow and provides liquidity, flexibility and freedom. Life’s a journey. Only the foolish would so dogmatic when so young. — Garth

#101 Querulous on 11.01.14 at 9:52 am

Serious question on comparing house prices to rental prices. In Canada, the exact sale price of every house is publicly accessible. But rents are negotiated through the wilds of Craigslist. How reliable is rental data? How exactly do the experts calculate average rental prices?

#102 the truth be told on 11.01.14 at 9:52 am

gold was nailed for a $30-per-ounce loss Friday, and is now at $1,170. Drop since 2011: 38%.)

not true go ahead and buy the dam stuff from your bank,
it cost me $1500/oz. the premium is huge.
even more over seas

It’s priced and quoted in US$. — Garth

#103 Retired Boomer - WI on 11.01.14 at 10:07 am

Smoking Man….

Sorry to hear of the passing of your mom.

It has been a rough period for you. My condolences.

#104 lee on 11.01.14 at 10:08 am

Garth,

The problem with renting: find me a woman that wants to rent. A good looking one.

#105 J Tull on 11.01.14 at 10:18 am

Garth, a question: Why exactly is it that, as Lincoln (the millennial, not the president) put it, “landlords are very heavily subsidizing renters in many parts of the country”? Shouldn’t rents and prices be at least roughly in balance? Why don’t supply/demand forces come into play? Is it simply that supply (of rental units) is far above demand (because of “own-own-own” propaganda)? In short, why is renting so much cheaper than owning? Is “the market” that stupid?

#106 Obvious Truth on 11.01.14 at 10:37 am

My dad always said if you can’t beat EM then join them. What came out of japan yesterday was pure insanity. I really don’t care. There will likely be more around the world.

Governments and central bankes are all looking at beefed up asset prices to judge their success. It’s the only way to make the debt look reasonable and deal with overcapacity.

I’ve said before that financial assets have to go way higher for this to work. They will need inflation and they will get it.

But rivers of money are flowing.

The tide will slowly shift.

Of course many things can go wrong.

But like many have posted today. These people are human and looking for a way to make the numbers work. And this is their current path.

My job is to join them to help myself. And like garth says to enjoy my time. Markets are fun for me. The blowouts a couple of weeks ago were as fun as a rock concert for me. With pyro.

As for gold. Only the physical stuff in moderation. It’s shiny.

For me the thing I think they have wrong is the power of the internet. Silicon Valley is way more important than Wall Street.

#107 crowdedelevatorfartz on 11.01.14 at 10:48 am

@ xdisciple

Did you ever notice that you never see Stephen Harper or Charles Manson together?
They have the same eyes.
Think about it……….

#108 crowdedelevatorfartz on 11.01.14 at 10:57 am

@#103 lee
“The problem with renting: find me a woman that wants to rent. …..”
++++++++++++++++++++++++++++++++++++

Well as the old joke goes.
An ugly old man asks a beautiful woman if she’d sleep with him for $1 she laughs and says no.
He then pulls out a suitcase with $1,000,000.00 and asks “Is THIS enough?”
She hesitates, staring at the money, then replies,
” What do you think I am?”
He replies, ” I already know what you are , we’re just negotiating the price……”

#109 not 1st on 11.01.14 at 11:12 am

#70 Inglorious Investor on 10.31.14 at 11:12 pm

You do know that Kyle Bass bought 5 million dollars of nickels and buried them somewhere.

These guys talk a good talk until you check them out a little closer and see what they are up to behind the scenes. Maybe nickles will become worth dimes one day, I have no idea.

#110 Nomad on 11.01.14 at 11:18 am

There’s a lot of people certain about uncertain things. A good exercice is to send yourself an email with your current forecasts. In a year, review your forecasts. If you failed, stop forecasting. More important, stop sharing your certainties.

It works for stocks. If your ideas keep failing, just buy 3 index ETF every week.

#111 Grasshopper 604 on 11.01.14 at 11:27 am

#103lee
Really, that sort of comment is immensely offensive…time you grow up and meet some real women!

#112 G. Gekko on 11.01.14 at 11:33 am

Hey everyone,

I’m a young business owner (26 years old) and I’m wondering if when applying the famous Rule of 90 I should add the net worth of my business in my financial portfolio? I have some financial assets but in the last few years I’ve put almost everything I own in growing my business. Things are going quite well now and living in a city where you can buy a nice house for 300K$ I’m wondering if I should keep renting or if I should buy a house with my gf in 2-3 years.

Thank you guys for your help!

#113 Jim B on 11.01.14 at 11:37 am

#19 Cow Man

Yeah, how dare they try to slow the rape of the planet? The ingrates!

#114 CalgaryRocks on 11.01.14 at 11:58 am

While I don’t believe that Real Estate/Stocks is an either/or choice, I do believe that a responsible person first takes care of his/her family.

And that includes financially proofing yourself from the bankster sharks, the politicians with their hands in your pockets AND the slimy landlords that will evict you without thinking if they can get another 20$/month from the next ‘renter’.

Having had family in countries where their ‘investments’ came and went, disappeared over night to inflation and trickery I know what is important to me.

Politicians suck up to home owners only second, after families. They couldn’t care less about renters. All policies are aimed at keeping the homeowners happy.

And by the way, there are still areas in Canada where you can buy a SFH on a huge lot for less than 300K. You can get 3 bedroom condos for 150K if that’s your thing. You just gotta learn a bit of french.

No, they’re not in the boonies, they’re 10 minutes from one of our major cities in Ontario.

And I actually went through the bust RE cycle when my parent’s place went from 110K down to 50K. And you know what happened? Nothing. We continued living in it. The bank didn’t throw us out. We didn’t have an asshole landlord to deal with. It was a non event.

Well priced RE first, then stocks, as far as I’m concerned. And the 2 sources of money shall never intermingle. Besides, money you put in the market should be for the long term. Not for speculation while you wait out the Vancouver market.

http://www.elitetrader.com/et/index.php?threads/japan-has-fallen-victim-to-the-keynesian-scam.286029/

#115 CalgaryRocks on 11.01.14 at 12:19 pm

#104 J Tull on 11.01.14 at 10:18 am
Garth, a question: Why exactly is it that, as Lincoln (the millennial, not the president) put it, “landlords are very heavily subsidizing renters in many parts of the country”?

Because the landlords aren’t actually heavily subsidizing anyone. They bought years, decades ago at 50%-75% less than what the property is currently selling for.

If landlords where heavily subsidizing all renters then they would go out of business pretty damn quick.

As an example, when we flipped our SFH in Calgary, we paid 200K (including renovation costs). At that time, the upper would have rented for around 800$ in that area. The basement could have gotten another 4-500$

Now, you can probably get 1400 for the upper alone. The basement would also rent for god knows how much. For a total of over 2000$.

So where is this subsidy? Almost double the rent in 10 years while the mortgage went down. Does it sound like renters got a good deal?

Where is the subsidy? Simple. The cost of renting is less than owning. Hence a person can live in the same abode for less as a tenant than an owner. Duh. — Garth

#116 Snowboid on 11.01.14 at 12:19 pm

#104 J Tull on 11.01.14 at 10:18 am…

In BC part of it is the rent controls that limit annual increases (this year about 2%) – but it’s mainly based on what the market will bear.

Vancouver rents are low in comparison to current values, but in Kelowna rents are very low in comparison to values, but still much higher than the US.

The luxury condo we rent is about 1500 sq ft, granite, stainless, spa master bath, large deck, pool, gym, etc – all for under $ 1500 a month – the current value of the unit is about $ 500K, although the owner paid about $ 600K for it six years ago.

However, $ 1500 a month will rent you this SFH in one of the more desirable managed communities about a 30 minute drive from our place in the Phoenix area, pool maintenance included!

http://phoenix.craigslist.org/wvl/apa/4699240550.html

#117 Joe2.0 on 11.01.14 at 12:38 pm

The Fed, has said it will keep its balance sheet at the current size.
So when ever a bond pays off or matures early they will replace it.
Print the bonds print the money.
Hmmmmmmm
What could possibly go wrong.

Why do you obsess about international macroeconomic policy that will not affect your life? Are your own investments, retirement and tax strategies in place? — Garth

#118 Inglorious Investor on 11.01.14 at 12:41 pm

#104 J Tull on 11.01.14 at 10:18 am

“Shouldn’t rents and prices be at least roughly in balance? Why don’t supply/demand forces come into play? Is it simply that supply (of rental units) is far above demand (because of “own-own-own” propaganda)? In short, why is renting so much cheaper than owning? Is “the market” that stupid?”

From what I’ve seen…

Low interest rates beget higher prices, which attracts more buyers, which begets higher prices. After the crash of ’08/09 many investors would rather put their money in RE than in the paper markets (I’m not saying they are right, just what I’ve seen).

The mania in real estate has convinced many that RE will climb forever, and that it’s safe. So even if the rent isn’t covering the costs, they figure the value of the property will rise enough to more than compensate in the long run.

But a caveat: as an owner you can always make a property cash flow positive by putting down the right amount of cash up front. For example, if you pay for a property all in cash, you will have no debt service, so any income only has to cover operating costs, maintenance, etc. I’m not saying that’s a smart thing to do, but I personally know people who are doing just that––buying houses for cash and renting them out. They surely won’t leave their money in the bank. And stocks? Are you kidding? (That’s them, not me)

Another factor is rent control. In Ontario, for example, any building that was built before 1991 (and there are tons and tons of those) are rent controlled, such that the gov tells you how much you can raise rents every year––and you can only do so once a year. So normal supply and demand forces favour renters in many situations. Higher demand from renters does not necessarily translate into higher rents. But lower demand can result in lower rents.

It’s just one of those times when the market is out of balance. Proceed accordingly.

#119 Happy Renter on 11.01.14 at 12:45 pm

My husband and I are currently renting a house on the water in Victoria, for less than half of what a mortgage at 4% interest would cost for this property. We don’t have to pay the property tax (which is $1100 per month) or any of the repairs (except for lightbulbs.) We have been able to save a lot of money for our children’s post-secondary education in RESPs, and we both have defined benefit pensions.

Occasionally, I get annoyed by the fact that I can’t do my own updating, until I think about renovation costs.

We have the freedom to move to somewhere cheaper if our economic circumstances change, and we’ve lived in some fabulous properties and locations that we never could have afforded.

The biggest downside is having to move every five or six years, when the landlords decide to finally sell their property, but the kids see it as an adventure and we have always been able to find another place in the neighbourhood.

Home ownership levels do not always equate with economic stability or strength. You only have to compare home ownership rates between countries like Romania (97%) and Germany (53%) to debunk that myth.

#120 Millenial on 11.01.14 at 12:46 pm

Hey Garth,

I was just checking out the Globe & Mail website, all 5 top trending stories on the site are about Jian Ghomeshi.

That guy has got some serious problems now: PR, legal, and personal.

#121 Mister Obvious on 11.01.14 at 1:02 pm

Hey, Jethro…

Most people would like to profit from their assets. The financial system we have allows us to do that whenever possible. Lucky us.

The fundamental question is: how much money do my assets earn? With residential real estate it gets complicated because the asset offers the added benefit of a place to live.

I prefer discussions about RE ownership for the purposes of profit. That tends to cancel out the emotional “my-kids-need-a-yard-to-play-in” arguments.

Any asset bring carrying costs. When you subtract those costs (all of them, that is, without conveniently forgetting a few) from the income your asset generates, you have the real income. That figure, divided by the value of the asset times 100 is the capitalization rate (somewhat simplified, of course).

That is your true profit. A ‘cap rate’ is exactly that. It’s a rate, or a ‘ratio’. If the value of your property rises and all else stays the same, your cap rate falls.

In the case of Canadian residential real estate, the astute observer will notice that ‘all else’ has indeed stayed much same while property values have risen dramatically in a relatively short time. (Thank you Stephen Harper, Bank of Canada and CMHC).

Thus, cap rates are obviously falling in the asset class this blog usually concerns itself with. That’s why renting residential real estate is now far superior to owning in most population centers.

#122 bill on 11.01.14 at 1:12 pm

#101 the truth be told on 11.01.14 at 9:52 am

http://www.vbce.ca/rates/precious-metals
looks like a falling knife to me. better wear some gloves or something…

#123 Renter on 11.01.14 at 1:23 pm

Garth,

Yes, rent vs. buy is a no-brainer. But for how long? Won’t the landlords come to their sense at some point and realize that they are subsidizing their tenants?
Isn’t there is risk here?
Just wondering.

S.

#124 nobody on 11.01.14 at 1:32 pm

#94 World Traveller on 11.01.14 at 7:56 am
Amazing, renting still has the advantage in Spain, considering how far their property market has fallen, I suppose Canada would have to drop significantly until we reach even those levels.
———————————————-
Prices in Spain have gone down over 40% but still have a ways to go. Apartments renting for around 700EU/month are priced in the 300,000EU range which is over 35yearsx rent.

#125 Joe2.0 on 11.01.14 at 1:54 pm

116-Garth
why do you obsess about a policy that won’t effect your life….

It does effect my life, the low interest rates banks now pay makes it necessary to participate in a Fed fueled market.

The cost of food(real food) way up.

The banks renting out foreclosed houses.

Proven manipulation in the banking and metal markets.

That effects everyone.

Re investments and tax strategies I make around 5% on my money, and have cash on the sidelines for when this market turns.

I appreciate that you take the time to answer me I know i can be annoying.

Part of my diiscontent is fuelled via travel in the states and talking to oldsters who’ve been forced back into the work force because the market downturn, 401s hammered, retirement policies changed.
80 year old great great grandmothers slinging hash in the IHOP.

The reasons for the market down turn and housing fractionated practices are not associated with ethical practices.
And once again some brokers are starting to lend to higher risk individuals.

It’s BS, and it pisses me wayyy off.
And it’s not going to end well, I’ll put money in that.

#126 NEVER GIVE UP on 11.01.14 at 2:13 pm

#85 Mark on 11.01.14 at 2:08 am
The incremental cost of adding another couple cars to VIA trains is almost zero, and the sort of goodwill this would generate would be enormous.
————————————————-
Great Idea using Via Rail. It would give Canadians a chance to see the vastness of our country. And even cheaper!

I notice in our area it seems young people are so focused on getting a career going that they are skipping out on the travel portion of being young and free.

My own kids all went straight to University without any travel. Some of them are getting a little bit in here and there but no one I know is going for an around the world hippie experience like us old guys went for!

#127 Inglorious Investor on 11.01.14 at 2:14 pm

#120 Mister Obvious on 11.01.14 at 1:02 pm

“A ‘cap rate’ is exactly that. It’s a rate, or a ‘ratio’. If the value of your property rises and all else stays the same, your cap rate falls.”

True, but that only matters to the person who would buy the property today. I don’t know any owner who would lament that their property value has increased.

Also, perhaps a better metric is ROI (net income after debt service divided by cash invested). This tells you the rate of return on your actual cash invested.

#128 Yuus bin Haad on 11.01.14 at 2:23 pm

#119 Millenial

It’s going to be more fun watching the CBC execs skate around this one.

#129 SRV on 11.01.14 at 2:31 pm

Almost all of the GDP “improvement” was military spending ($500,000 a pop missiles will do that for ya) to punish Syria for their support of the Russian (also I key factor, along with the Tuesday mid terms) / Iraq pipeline over the Qatar (western supported) plan.

But hey, why not make money on the blood of innocent pawns…

Categorically wrong. Auto, durable goods, real estate, consumer goods production, services, all up. Take your America-hate elsewhere. So old. — Garth

#130 Nemesis on 11.01.14 at 2:37 pm

#FromSeriousToSilly&BackAgain… #SaturdayEclecticaForSaltierDogz:

[Salon] – The Ghomeshi syndrome: Delusional creeps, from Clarence Thomas to Gamergate

http://www.salon.com/2014/11/01/the_ghomeshi_syndrome_delusional_creeps_from_clarence_thomas_to_gamergate/

#”ThePartyCommandsTheGun”

[XinhuaNet] – Xi stresses CPC’s absolute leadership over army

http://news.xinhuanet.com/english/china/2014-11/01/c_133759418.htm

#ButWhoCommandsTheParty? #”Oooops”

[SCMP] – Corrupt coal official had 200 million yuan in cash stashed at home, prosecutors say: Seizure was biggest haul in a single anti-corruption operation since 1949

…”The microbloggers estimated that the notes would weigh more than 2.3 tonnes.”…

http://www.scmp.com/news/china/article/1629225/corrupt-coal-official-had-200-million-yuan-cash-stashed-home-prosecutors

#IllustratedTales’oTwoEconomies… #Compare&Contrast… #SpotTheDifference,Much?

[CBC] – Vancouver Canucks tickets still going cheap despite customer service rebrand: So far this season, average attendance at Rogers Arena is the lowest since the 2002-2003 season

http://www.cbc.ca/news/canada/british-columbia/vancouver-canucks-tickets-still-going-cheap-despite-customer-service-rebrand-1.2818925

#Vs…

[NYT] – Tailgating Goes Above and Beyond at the University of Mississippi

“We want to put on the dog here,” one fan said, using regional vernacular for “over the top.”

http://nyti.ms/1vr6ftc

#PosterChildren…

[G&M] – Builders and neighbours battle over WestVan reno

…”Ms. Booth says that when she saw the proposed size of the house — originally 17,500 sq. ft. — she had thought it was a typo.”…

http://www.theglobeandmail.com/life/home-and-garden/real-estate/builders-and-neighbours-battle-over-westvan-reno/article21398261/

#OneCandidate’sCunningStunt…

[CBC] – Squamish council candidate, will set himself on fire for higher voter turnout

…”Kent says he’s appalled that voter turnout in his community was only 40 per cent in the last election and he’s willing to walk through fire to get that number up.

“I, as a professional stuntman, will set myself on fire in the centre of this street…district [fire] permit of course,” says Kent in the video.”…

http://www.cbc.ca/news/canada/british-columbia/peter-kent-squamish-council-candidate-will-set-himself-on-fire-for-higher-voter-turnout-1.2820504

[NoteToGT: Just between the two of us… as viral campaigns go, I think Mr. Kent’s really on to something… albeit, upon careful reflection, it had occurred to me that public amusements featuring BlazingPoliticos could prove a ‘tad’ too popular… NoteToSM: HeartfeltCondolences. This is just for you – and never forget, we are all made of stars: http://youtu.be/1WvuJwMFPz4 ]

#131 SRV on 11.01.14 at 2:43 pm

“Why do you obsess about international macroeconomic policy that will not affect your life?”

While the follow up to this quote is quite valid, this (advice?) is truly stunning, and dangerous, in the interconnected (by fraud and corruption) world we live in.

The sentence above goes with the second one. Those who obsess about issues they have zero influence over, at the expense of their own affairs, and those of their family, waste life. — Garth

#132 Granny Annie on 11.01.14 at 2:56 pm

On having to move frequently (every 5-6 years imo is not that frequent:

You learn to accumulate and keep only stuff that is truly worth keeping. As someone who ha moved from continent to continent and across continents several times, I speak from experience.

When we just got married, we knew we wanted yo,emigrate to Canada from Germany, so what we purchased fell into one of two categories – to be taken with us (ie small or valuable) or to be thrown away (esp used furniture or kitchy souvenirs).
Since, we have moved from Vancouver to Windsor to Europe and to Toronto. We have learned it does not pay to move furniture or appliances. Knic knacks have been kept to a minimum. Our only problem has been books (reference/professional) before the advance of the internet.
The more selective you are with the stuff you accumulate, the easier life (and moving) become. Eventually you (or someone) will have to get rid of it anyway.

#133 Mister Obvious on 11.01.14 at 3:46 pm

#120 Mister Obvious

“A ‘cap rate’ is exactly that. It’s a rate, or a ‘ratio’. If the value of your property rises and all else stays the same, your cap rate falls.”

#125 Inglorious Investor

“True, but that only matters to the person who would buy the property today. I don’t know any owner who would lament that their property value has increased.”
—————————

But it should also matter to the person who has held property for some time. Presumably, the reason one holds property at all is to eventually profit.

I agree nobody laments the fact that their property has increased in value but they should lament the fact it does not return nearly what it would if that capital were invested elsewhere.

The only way to realize an increase in value is to sell and crystalize gains. Now what will you do? Become one of those people who now cares about cap rates because you are now a present day RE buyers?

Probably you would instead seek a better home for your newly realized wealth. And that is my point. Your increasingly valued RE asset is not working properly for you until you put that capital in a better place.

Instead, its stagnating and not achieving its potential.

#134 Suede on 11.01.14 at 3:47 pm

#17 North Burnaby

To who? Real estate brokerages to resell to potential buyers? That counts as a sale lol

Also it’s been half a dozen months those condos have been on sale! Nice try

#135 Keith in Calgary on 11.01.14 at 4:03 pm

I spend approximately 12 hours a day in my place of shelter.

Normally 8 of those hours are sleeping. When you are sleeping, you cannot see the granite counters, hardwood floors, kitchen island, French doors, etc……….

So…….for the 4 hours a day I am awake, in my place of shelter, I want to pay as little as possible for the “privilege”.

This is why I rent……and have done so my entire life.

If I can maintain my average historical annual investment returns, in 2.5 more years I will be a liquid millionaire……..and a renter……..

Cue the famous boardroom speech in the recruiting scene from the classic movie “Boiler Room……..

#136 Kenchie on 11.01.14 at 4:10 pm

#74 Trojan House on 10.31.14 at 11:59 pm

You are, in effect, agreeing with me (and Devore). You clearly didn’t understand my point of view though (people blaming Keynes for irresponsible politicians). We are both talking about human nature. The difference is some people (doomers) don’t recognize human nature for what it is and expect things to magically work out exactly as planned, while completely ignoring the politics behind decisions and policies.

However, you said that government intervention always makes things worse. And you are wrong. I provided you with a great video by Milton Friedman that talks about why the great depression became as bad as it did (i.e. it was the wrong policy applied), and why Keynes was the only person with the influence from stopping politicians from learning the wrong lessons from his theories. Unfortunately, as Milton says, Keynes died a decade to early to stop the Western governments from making critical mistakes (i.e. politicians acting as politicians).

And I am well aware that Romans, among other civilizations, provided a “pension” (aka stipends) to soldiers for loyalty. How else are the armies supposed to be raised? Soldiers need to know their risks are being rewarded. And yes, as you mention, when the govts of the day can’t afford it it generally turns out bad for them.

But none of what you said has to do with the idea of boosting aggregate demand during recessions, as prescribed by Keynes, to get the economy going again…

#137 Ozy - come on Garth show me stats that renters are richer! on 11.01.14 at 4:44 pm

No, really! Show me that majority of Toronto renters are richer than their landlords – from renting long term of course – and I’ll sell my house

Nobody claims renters as a group are richer. But renting is as valid a path to follow for wealth accumulation as owning. Childish comment. — Garth

#138 Angry Saver on 11.01.14 at 4:48 pm

I hope you are right Garth and interest rates start rising soon in America.

Best to start gradually raising interest rates now so that the we have room to manoeuvre in the future. It would be a mistake for the economy to keep interest rates too low for too long.

Low interest rates are hurting savers who have been forced to consume less. Those on fixed incomes have kept their wallets firmly shut. Continually low interest rates also sends a strong signal that our economy remains at an emergency low level and this is bad for consumer confidence.

Low interest rates are pushing investors into real estate. A bursting property bubble in the future will have a devastating impact on our economy.

Money that is being invested in property speculation is not being invested in small business.

Low interest rates have only increased social inequality. The divide between the rich and the poor is growing due to low interest rates as it is mostly the rich who benefit from a propped up stock market and rising house prices.

Stop being angry and start exploring low-volatility options to earning interest. — Garth

#139 Rick Johnson on 11.01.14 at 4:59 pm

I guess the Federal government should not almost double the annual TFSA limit from $5,500 to $10,000 on your thinking Garth?

Allowing everyone to invest for their future in a tax-free environment with non-deductible contributions is not the same as reducing tax on earned income for selected couples. You didn’t think that one through. — Garth

#140 Rick Johnson on 11.01.14 at 5:06 pm

To Angry Saver #136

Interest rates will rise eventually but don’t expect anything close to past interest rates for savers savings bonds, GIC’s, government bonds, term deposits, savings accounts.

You will not see 6% rates like in 2000 or even 5% like back in 2006 to 2007.

You may see 4.00% to 4.50% but will it last more than a 12 to 24 months like back in 2007 to 2008.

Savers are going to have to eat their life savings, basically deplete their savings, interest bearing investments because there is no going back to the old days. Governments and banks, financial institutions, consumers, borrowers can’t afford it for too long like 5 to 10 years like the 1990’s.

#141 Inglorious Investor on 11.01.14 at 5:33 pm

#131 Mister Obvious on 11.01.14 at 3:46 pm

There are three ways to gain from investing in RE:
• capital appreciation
• income
• leverage the equity

With an income property you do not have to sell anything to realize gains. You are getting income. And if the price goes up you have more equity upon which to borrow for other investments (e.g. another property). In other words, your net worth increases so the bank is more willing to lend you more money. There is no downside to higher prices. For investors who have a large portfolio of RE assets things can get more complicated, but generally speaking you always want your property value to rise.

Think of it this way: if you buy a stock that provides a dividend yielding 3%, are you going to get upset if the stock price doubles so that new buyers of that stock will now only yield 1.5%? You are still yielding 3% on the divy even at the higher price because your yield is based on the lower price.

The current price does not matter until you sell. But if you do have to sell for some reason, you’d much rather sell for more than what you paid. And don’t look at tax loss selling. That’s just a way of minimizing losses not actually making higher gains (unless you get lucky enough to get back in at a lower price after the waiting period and the stock then rises sufficiently).

So, if you are basically saying that you can shift from one asset into another smartly if you buy low and sell high, sure that makes sense. But you don’t realize lower returns from an income producing investment because the price increases after you bought it.

#142 Rick Johnson on 11.01.14 at 5:59 pm

To Angry Investor #136

I don’t know your personal circumstances but my uncle retired in 2009. He worked for 2 different companies in the precast, construction industry for 36 years. The last company had a pension plan as part of his benefits and pay scale for 16 years.

He gets a okay amount $985 a month pension that is C.P.I annual inflation indexed. He gets C.P.P and OAS as well that adds up to another $1,475 a month.

He contributed to his RRSP’s over many decades as much as he could. He currently has the following,

$285,000 in RRSP’s longer mix of investment grade longer term bonds

$365,000 in non-registered interest bearing government bonds

$63,900 in TFSA’s

$155,000 in 25 year term certain annuities

$95,000 in 1-5 year laddered GIC’s

All this money will payout income of $58,000 over the next 25 years and he is currently setting aside $30,000 a year from his investments to boost future income and for future rising costs and expenses.

He has a modest $355,000 house in East Toronto and is debt free. He is unfortunately widowed.

He was in a way came into good timing back in 2004 to 2007 government bond yields and annuity rates were much higher when 82% of his money as invested already then.

That is a low-yield, tax-inefficient portfolio. — Garth

#143 Rick Johnson on 11.01.14 at 6:06 pm

Garth, I brought up the topic of the $4,500 TFSA limit increase in one move because there would be much more income taxes saved over many years and decades compared to $2,000 or $1,140 a year per Canadian family.

If the Federal, Canadian government does and will not have a surplus in the next 12 months or so then where is the fiscal responsibility in any taxes cut, saved, reduced in any form.

Dollars are dollars no matter where they go to or to whoever gets them when any government is in deficit is not fiscally responsible. I thought this out very clearly, Garth.

There is no valid comparison between a cut in taxes on earned income for some and a growth shelter for after-tax non-deductible contributions for all. — Garth

#144 Rick Johnson on 11.01.14 at 6:25 pm

To Angry Investor #136

You will not get more than 3.05% for GIC’s these days, http://www.cannex.com. Don’t expect much more in the coming 1 to 2.5 years.

#145 Rick Johnson on 11.01.14 at 6:31 pm

Garth, a 6% annual yield is not a low yield in 2014. This is a lower risk portfolio too compared to other 6% annual yield portfolios.

$58,000 annual income/$965,000*100% total RRSP’s, TFSA’s, investments etc.=6.01%.

After tax? — Garth

#146 Mister Obvious on 11.01.14 at 6:45 pm

#139 Inglorious Investor

OK, your point is taken and I would agree: “you don’t realize lower returns from an income producing investment because the price increases after you bought it.”. Fair enough.

My point is only that your wealth, which has certainly increased on paper, is underperforming increasingly over time relative to other investments offering better returns on total capital. If there is a better reason to exit real estate I can’t imagine it.

Granted, there is an un-harvested capital gain sitting there but it’s not working for you. With the current RE market at its probable peak, it actually represents excessive risk.

I don’t buy the argument that a potential capital gain represents usable loan security. It seems like a bad idea to swap easily realized profit for debt. That’s going backward unnecessarily.

#147 not 1st on 11.01.14 at 7:11 pm

Garth, in case you didn’t hear, the market is struggling in Regina, aka the next silicon valley;

“With more than 400 unsold new housing units on the market, Regina’s housing construction activity is expected to slow by 25 per cent in 2014, followed by an 8.5 per cent reduction in 2015 and a 2.3 per cent decline in 2016, according to the Canada Mortgage and Housing Corp. (CMHC) fall housing market forecast.”

#148 Macrath on 11.01.14 at 7:15 pm

#136 Angry Saver

I always wondered what low rates would accomplish in a debt saturated economy. I calculate it has been doing more harm than good for all the reasons you mention plus, lower government tax revenues.
They were having a fit because they were theoretically loosing a few bucks on income trusts, but losing 4% of all the interest and other income in the country, no problem !

We are just a branch office of America Inc and Mr. (Independent) Poloz has orders from the monetary Gods.

#149 Trojan House on 11.01.14 at 7:39 pm

#134 Kenchie on 11.01.14 at 4:10 pm

Ok, let’s talk about aggregate demand. Simply put – it is government manipulation. Yes, the thinking is that by government investing in infrastructure, etc, that it will help re-start the economy if you will. Of course, that results in government debt which they are hoping to pay off if the economy recovers and they can reap the rewards of it from taxes.

However, that may have worked 40, 30 or maybe even 20 years ago. But you do realize times have changed once again since the mid 90s when Clinton repealed the most important parts of Glass-Steagal allowing banks to trade. Therefore, the risks changed and the banks became too important, at least in the minds of politicians, to resort to old solutions. I’ve talked to many people who say “well, you just couldn’t let the banks fold.” In all the previous times of “crisis,” at least the ones I can remember, it wasn’t banks failing, although I suppose the S&L crisis could fall into that category.

So depending on the situation, people react differently. As I said, most seemed to be happy with bank bailouts and the bailouts of GM and Chrysler.

Lastly, I read your posts regarding “doomers” as you, and many others, call them. Apparently anyone with an opposing opinion from you, those who question the actions of government, etc, is a doomer. That’s like calling Ben Franklin, George Washington, etc, doomers.

Anyway, the opposite of a doomer then must be a “sheeple.” Sheeple are people who are predominantly optimistic that only see the good in situations. These folks never question the government or systems that we live in and see every action of a politician through rose colour glasses. Sheeple also place high expectations on governments and would rather rely on politicians for all their answers. They want to be told what they want to hear and are perfectly happy with the status quo. They are more interested in the latest gadget, the latest episode of the Kardashians and the final score of the football or hockey game. They would rather kick the can down the road than deal with the issue of the day.

#150 Omg the original on 11.01.14 at 7:44 pm

114 Calgary Rocks
So where’s the subsidy?
———
Do not forgot to take the opportunity cost of what the property is worth into account.

For example my landlord is sitting on a property he likely paid $250k for 20 years ago.

Now it’s worth $700-$800 and after he pays taxes and upkeep he likely nets about $1500/m which is about a return of about 2.5%.

Not much compared to what he could be making invested elsewhere.

Also consider that property in Victoria has actually depreciated 10-15% over the past 5 years.

#151 Vangrrl on 11.01.14 at 8:11 pm

#96 Ottawa Mike:
Thanks for the heads up. I’m heading to the Mediterranean next month for the winter. Hope to get to Spain, Portugal, North Africa. Will keep Ponta Delgada in mind!

#152 devore on 11.01.14 at 8:18 pm

#140 Inglorious Investor

Think of it this way: if you buy a stock that provides a dividend yielding 3%, are you going to get upset if the stock price doubles so that new buyers of that stock will now only yield 1.5%? You are still yielding 3% on the divy even at the higher price because your yield is based on the lower price.

You’re still getting your 3%, but your asset is likely underperforming as it’s now overpriced, unless you realize the capital gains and re-invest into better, underpriced opportunities. That’s opportunity cost.

It’s the underlying argument behind rent vs own. Yes, you have to live somewhere, so a house you 100% own is yielding rent-equivalency, minus ownership costs, mainly taxes and maintenance. (If not 100%, you also need to add in financing costs.) This is great, but if the rent-own ratio is too high, you’re foregoing a lot of potential income and capital gains, that’s your opportunity cost. It’s a good reason to sell and downsize into a less overpriced area, or to rent. That’s a lot of hassle, so hardly anyone will go this; a big reason why real estate prices are sticky, and price discovery lags light years behind financial assets.

#153 The Marquis de Big Ears Teddy on 11.01.14 at 8:25 pm

Glad to hear the CBC is weeding out the sadists. Alumnus Mr Rogers would approve

http://www.youtube.com/watch?v=OFzXaFbxDcM&sns=em

#154 pinstripe on 11.01.14 at 10:09 pm

interesting read

http://www.theatlantic.com/business/print/2014/10/do-financial-experts-make-better-decisions-than-the-rest-of-us/381902/

#155 Mark on 11.01.14 at 10:20 pm

““With more than 400 unsold new housing units on the market, Regina’s housing construction activity is expected to slow by 25 per cent in 2014, followed by an 8.5 per cent reduction in 2015 and a 2.3 per cent decline in 2016, according to the Canada Mortgage and Housing Corp. (CMHC) fall housing market forecast.””

Actually it wouldn’t surprise me if there was an increase in construction in Regina next year. Why? Much of the cost base of the housing supply industry is fixed. Leases still have to be paid on the fleet of pick-up trucks owned by the industry. Land has already been invested in heavily, and the owners are eager for a return. Even at contemporary (falling) prices, there’s still significant margins for building housing across Canada. A natural response of an industry that isn’t quite as profitable as it once was simply is to attempt to increase volume, to out-muscle competitors while there still is a lucrative pricing environment.

Only selling houses beneath cost (and ‘cost’ tends to fall significantly as prices come down, as corners get cut, and tradespeople become more available at cheaper rates) and bankruptcy of some significant players in the industry will meaningfully reduce new supply. And we’re a long, long ways from that.

Any ‘prediction’ by the CMHC always needs to be taken with a grain of salt. They tend to be more about propaganda (like claiming they don’t insure subprime mortgages, when the definition of CMHC insurance pretty matches the definition of subprime) than actual facts and truth.

#156 #136 Ozy - come on Garth show me stats that renters are richer! on 11.01.14 at 10:50 pm

#136 Ozy – come on Garth show me stats that renters are richer! on 11.01.14 at 4:44 pm
No, really! Show me that majority of Toronto renters are richer than their landlords – from renting long term of course – and I’ll sell my house

Nobody claims renters as a group are richer. But renting is as valid a path to follow for wealth accumulation as owning. Childish comment. — Garth

Ozy: In a normal system, sure SAVING is KING, but this is Canada/Toronto XXI century :) … sadly I remember the years we worked hard and saved and saved and saved and still could not save the $75000-100000 the prices kept shooting higher…. every single damn year….
so, again, once people have 20% down payment, stable jobs, solid qualifications, maybe they should actually go and BUY??? I haven’t seen such a balanced message in here….

#157 Detalumis on 11.01.14 at 11:52 pm

#144, what does it matter what rate your uncle gets, unless you’re in the will of course. Judging by his modest house and pile of assets, he’s the kind of guy who gets enjoyment out of looking at the numbers. I live surrounded by these old guys, they do nothing but look at their money, watch it grow and think they will live forever, denial at its best.

My favourite is the guy 3 houses from me with a 110K plus income, his wife took over 3 weeks to die in the palliative care ward and he complained to me about having to pay for the phone bill, what a ripoff. I had to pay the very expensive hospital parking myself, he never offered. I took him there every single day and paid for her fresh flowers, he never did, not once, flowers are a waste of money. He does have a nice portfolio though, much larger than mine will ever be.

#158 Coughlin on 11.01.14 at 11:55 pm

Did Vancouver Real Estate Really go up 6.6% in the last year?
True or False?

Year to Date Real Estate Price Changes

Single Family Homes Top 50% See all Markets

Here on the first Graph the Year to Date Price Changes for the Top 50% Single Family Housing Market comparing all cities in the Greater Vancouver areas is up an AVERAGE of near 4%.

Do note that in West Surrey and a few other cities prices are actually DOWN!

So the Realities are that Prices in a few cities actually went up over 6.6%.
See which 44 Greater Vancouver city markets did not even beat our annual inflation index http://vancouvermarketreports.com/index.php?fuseaction=cPageGoTo.GoToDoc&DocumentID=707414

#159 Godth on 11.02.14 at 12:27 am

#124 Joe2.0

No Joe, it won’t end well. Your points are well taken but Grannie isn’t the only one that’s going to suffer. So long as gasoline can be poured onto the flames of the the future then why not? The boomers think they won’t be around to suffer the consequences – Four! As a Gen-X I’ve been told this for decades by my elders – “oh well, too bad for you, I won’t be around”. They really don’t give a shit as long as they get theirs with an umbrella and a back rub.

Of course it’s so much bigger than all that but the immediacy that’s rampant is unbelievable. Real estate agents ride whatever wave they can, as do financial planners – even those that call out real estate agents! It’s hypocrisy extraordinaire.

Such is life. The Mayans went on a sacrificial binge too, at the end. At least they held the beating hearts of the young dead in their hands. These modern vampires are feeding on zombies of their own creation, milking them for all they’re worth.

The tide will turn though. The suburban Harley riders will learn what patches are all about when the roast beef doesn’t hit the table. Emulating thugs isn’t the same as being a thug. I’m not advocating any of it, it’s frightening actually, but I know some of these actual thugs and they’re scary. Those that play at being a rich thug types are in for a shock. A hummer won’t save anyone. They’re setting the stage for something epic. It might be 5 years, or 10 – I don’t know.

Clowns are terrorizing France – clowns. hahahaha

As Bob Marley said “a hungry man is an angry man”.

The stage has been set and there’s no exit stage left.

#160 Inglorious Investor on 11.02.14 at 12:48 am

145 Mister Obvious on 11.01.14 at 6:45 pm

“My point is only that your wealth, which has certainly increased on paper, is underperforming increasingly over time relative to other investments offering better returns on total capital.”

It depends on the ROI, which is based on the amount of cash you actually invested and the income generated, not the current price of the asset. You’d have to compare your actual current ROI to the projected ROI of the alternative investment to see if switching made sense. Now, there is nothing wrong with harvesting gains, but there are many, many things to consider if the asset in question is a property.

————-

“With the current RE market at its probable peak, it actually represents excessive risk.”

Well, I won’t try to guess the peak, but the risk is defined by the individual’s circumstances as much as by market conditions.

————

“I don’t buy the argument that a potential capital gain represents usable loan security. It seems like a bad idea to swap easily realized profit for debt. That’s going backward unnecessarily.”

Leveraging equity (which you can gain in properties by paying down the mortgage and via CAPITAL APPRECIATION) is how many people accumulate investment properties and build wealth.

The prudent use of leverage is the key to increasing ROI and making real money with investments. Most people should never entertain the idea of using leverage to buy stocks, but not so savvy people utilize huge leverage every day to buy properties. And the banks are on board! Why? Because they understand the risks. And believe me, the banks aren’t trying to screw you out of your property. They want cash flow, not bricks and dirt.

—————–

#151 devore on 11.01.14 at 8:18 pm

“[…] if the rent-own ratio is too high, you’re foregoing a lot of potential income and capital gains, that’s your opportunity cost. It’s a good reason to sell and downsize into a less overpriced area, or to rent.”

Well, in my comments I was referring to investment properties. Primary residences are an entirely different matter, with considerations that go far beyond mere money––especially if you have a family with kids. But I agree with you in principle that selling your home and renting could be financially advantageous under the right circumstances and with a smart investment plan. Personally, I would never treat my home as a trading asset. However, if I was just starting out today with not much money, I’d probably rent and be as mobile and as liquid as possible.

#161 boomorbust on 11.02.14 at 3:31 am

Garth, you have an unbelievable amount of patience…

#162 juno on 11.02.14 at 3:32 am

#17 North Burnaby

The only thing I see selling in burnaby is old houses sold to developers.

After the sold sign comes, the bulldozers come out knock down the old house and pop goes the new house with a “for sale sign” shortly after.

#163 T.O. Bubble Boy on 11.02.14 at 7:31 am

Not sure if anyone posted this yet… the scariest of any financial facelift (Globe & Mail financial planning article) that I’ve seen:

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/soon-to-be-married-couple-needs-to-make-paying-off-debt-a-priority/article21412759/

30 & 33, engaged
$260k/year income
2 properties, but they were bought with over $1M in mortgage debt (88%+ LTV)
Also: personal loans, car loans, credit card debt

Somehow they’ve saved $240k in RRSPs… which is shocking, given the insane spending everywhere else.

#164 Dominoes Lining Up on 11.02.14 at 9:11 am

This is the beginning of the end for climate change denial. Finally.

http://www.cbc.ca/news/technology/un-climate-change-report-offers-stark-warnings-hope-1.2821093

There is no longer a choice.

The 2015 Summit will be a watershed moment for the planet. Emissions must be cut by 80% by 2050. That is only 35 years away, a blink of an eye, really. (Wasn’t Boy George and the Eurythmics only 30 years ago?)

What about Calgary and Alberta?

Your current economy is utterly doomed. You are now the poster child for what NOT to do for our future.

Expect an ENORMOUS CRASH in Alberta real estate, probably beginning within MONTHS of the 2015 summit results, and extending for decades. House prices will be lucky to be at 25% of current values within a decade.

Get out now while you can, oilpatch kids.

Big Ears Teddy – look away, this will be UGLY :(

#165 bob on 11.02.14 at 9:50 am

I know this isnt a gold blog but with the Swiss vote coming on a backed gold franc currency wouldnt this have a big impact bullion? Or is this the latest gold bug propaganda

The Swiss are irrelevant. Gold is dead money. — Garth

#166 Daisy Mae on 11.02.14 at 10:01 am

#160 boomorbust: “Garth, you have an unbelievable amount of patience…”

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

Isn’t that the truth? Wow!

#167 Kris on 11.02.14 at 10:07 am

RATES matter more than any other factor, by far, by far. Another 5 years at these levels (recall last week’s announcmeent that rates won’t rise in the foreseeable future), and many Cdn families would have paid off some parts of their mortgages. Then they’ll be in a position to handle higher rates too.

It’s very possible the govt will manouvre in this manner to guard the majority of the indebed – Look at the last 5 years and this has been happening. The housing market doesn’t necessarily need to see a downturn if this continues.

Jobs matter more than rates. And there was no announcement last week that interest rates would remain at current levels. — Garth

#168 Ronaldo on 11.02.14 at 10:49 am

#163 Dominoes Lining Up –

Is that you Tony?

#169 Dominoes Lining Up on 11.02.14 at 11:27 am

Wow, this new climate change consensus is much more dramatic than I thought at first.

“By the end of the meeting, for the first time in over 20 years of UN negotiations, all the nations of the world, including the biggest emitters of greenhouse gases, will be bound by a universal agreement on climate. ”

http://www.diplomatie.gouv.fr/en/french-foreign-policy-1/sustainable-development-1097/21st-conference-of-the-parties-on/

Some more background:

http://www.huffingtonpost.com/2013/04/23/2015-climate-conference_n_3140679.html

Mark your calendars: Nov 30 – Dec 11, 2015

http://unfccc.int/meetings/unfccc_calendar/items/2655.php?year=2015

The outcomes will all be implemented by 2020, barely 4 yours later. France has already committed to a 40% reduction by 2030, 60% by 2040.

Canada? Alberta? If you think we can avoid this, you are crazy. Even if not all nations sign on, the international social backlash this time will be huge.

Just remember how Jian Ghomeshi went from a persecuted star, to a universal outcast, all in the space of one week. Canada will be in the same category, and most of Canada will turn against Alberta.

Canada? Harper? Alberta? Our overall oil-dependent economy?

We are about to be SOOOOOO screwed it’s incredible, and quite deservingly so, sadly.

If you own Alberta real estate, for godssake get yourself out now while you can!!!!!!!!!!!!!!!!!!!!!!!!!

#170 Ronaldo on 11.02.14 at 11:29 am

#131 Granny Annie –

”The more selective you are with the stuff you accumulate, the easier life (and moving) become. Eventually you (or someone) will have to get rid of it anyway.”

So true. And don’t expect your kids to want any of it except maybe a few pictures. They have their own “stuff” to contend with.

#171 Dominoes Lining Up on 11.02.14 at 12:12 pm

Folks, the latest report on climate change places the certainty that greenhouse gas emissions are human-caused….

is NOW AT 95%.

http://newsroom.unfccc.int/unfccc-newsroom/christiana-figueres-reacts-to-ipcc-synthesis-report/

This is it. We are now in the era of no turning back. People everywhere and especially their leaders, especially after 2015, will understand the costs of inaction and be willing to endure the price of action. (It all might be too late, by the way, but that’s how we humans operate)

I expect the US innovative spirit to pump trillions into alternate energy sources, even while some think they can just reduce coal emissions to play their part. Other countries and companies will also leap to the fore, and get filthy rich doing so.

But in Canada? We are stuck, really. Our PM can’t lose his Alberta base, stuck in 1950s thinking. And we can’t sell all that tar oil just to ourselves.

Posters here have reported job losses starting all over the oil sector. Expect that to become a flood. As Garth points out, job losses will be far more powerful than interest rates in affecting our real estate and general economy.

What’s coming should be good for our planet and our species, long term.

But terrible for our backward-looking, soon-to-be second (third?) world country.

By the 2040s though, Canada may be able to come back :)

#172 Dominoes Lining Up on 11.02.14 at 12:18 pm

My last comment today – please read and think for yourselves. I am curious what other posters here think about this, and will shut up now.

From the commentary on the UN report I just cited in my last post:

“Today the 5th assessment puts that certainty at 95%—a level at which to not act collaboratively and in a timely manner would fly in the face of both reason and responsibility.”

Game changer.

#173 Dominoes Lining Up on 11.02.14 at 12:26 pm

P.S. (last one)

Oops, sentence structure typo – of course it’s not greenhouse gas emissions themselves, but the WARMING/CLIMATE CHANGE caused by them that is now established with 95% certainty as being caused by humans.

(sorry deniers, that’s not a hole in the argument, I just typed a little too fast)

#174 rosie "moving forward" in the knowledge that, "this won't end well" on 11.02.14 at 12:48 pm

#168, 170, 171, 172

Calm down.

#175 countrymusicfan on 11.02.14 at 1:32 pm

#173 rosie “moving forward”

#168, 170, 171, 172

Calm down.

——————————————————————

He is on a bit of a tear today, but I’m not so sure about your comment.

Isn’t “calming down” what we have been duped into doing for too many years now? And what’s happening to the planet, sea levels, increases in extreme weather etc… all has me very concerned.

Rather than calm down, I think we should really sit up and take notice.

It looks like some leaders are finally getting ready to do their jobs.

Just my point of view.

(Full disclosure, I recently sold my home and left Alta. partly because I don’t see much of a future there after the next couple of years and can’t afford to lose money on my holdings. Yes, I agree we are in for a heap of trouble and especially in Alta.)

#176 bdy sktrn on 11.02.14 at 1:39 pm

Dominoes Lining Up;

You must start cutting back right now. Don’t drive anywhere. Set your thermostat at 10C. Turn off your computer and lights immediately. Panic. Consider your excessive generation and exhalation of all that CO2 poision.

However, since all their last predictions have failed so miserably (as in antarctic ice is now larger than ever in recorded history and global temps are flat) and since the ipcc is a collection of ‘scientists’ who couldn’t find real work (or their behinds without a flashlight) , AND in honour of your alarmist panic. I will take the v8 suv to seattle today (bigger tank to bring home cheap gas!) instead of the 4cyl compact car

Good for you!

#177 Inglorious Investor on 11.02.14 at 1:42 pm

#171 Dominoes Lining Up on 11.02.14 at 12:18 pm

Don’t panic. The climate always changes, with or without us.

The IPCC is like a petulant child that can’t get enough attention, so they just yell louder and louder until someone listens. When cooking the books is not enough they issue increasingly dire warnings. I can imagine what the next report would say if the current attempt at fear mongering doesn’t do the trick. “Stop all emissions or DIE tomorrow!!”

Denying that the climate is changing is like denying water is wet. Big swings in temperatures and weather patterns are natural and have occurred often, even during human history. But are humans the cause? Were we the cause before? Maybe in pre-industrial times it was all those cow farts. Anyone who thinks we are more powerful than Mother Nature herself has delusions of grandeur.

Any attempts to actually stop climate change would be quixotic and a colossal waste of resources, and will likely do more harm than good––like the idiotic idea of seeding the atmosphere with sulfur! That’s not to say we shouldn’t react and prepare, and indeed this could be a huge undertaking. But please stop trying to geo-engineer the planet, or society, for that will have far more dire consequences.

If you want to agitate for change, I’d suggest you focus on the various forms of pollution, which are causing all sorts of problems around the world right now and into the future, which we know are caused by man, and which we can actually do something about.

#178 Cato the Elder on 11.02.14 at 1:59 pm

I love it when people don’t realize the full extent of our situation.

China has EVERYTHING. Read that again. EVERYTHING.

Even industries that many Canadians think we are world leaders in like potato, wheat, and gold production, China is ahead of us. Yes, China is the world’s number 1 producer of both, and it’s pretty much double the number 2 on ALL FRONTS.

This doesn’t just extend to wheat and potato. They are number 1 in almost all food crops by a LARGE margin.

They are number 1 in many metals like gold as well.

They are number 1 in manufacturing, which is the WEALTHIEST way to increase value of raw commodities.

Our service industry ought to be secondary to our manufacturing/industrial sector, not number 1 like it is now. Services don’t exist without products with which to service. A doctor is worthless without their tools. A banker is worthless without real tangible goods with which they have a paper claim.

The only reason the USA is still able to extract more wealth than it produces EVERY YEAR (500 billion dollar parasite this year) is because of it’s military. They can boss around the world and force them to use US dollars. If you don’t use US dollars in your trade, you end up like Iraq and Libya. But that is ending, and it is ending quicker with every passing day as Russia and China become more emboldened.

China is able to acquire this massive amount of wealth because it is providing value. Unfortunately for our southern neighbors, you can’t fight the marketplace forever. True value will always win over violent force in the long run.

If the US lost it’s military today, it would instantly collapse. No one in their right mind would trade with them at a loss.

Unfortunately, what this very real problem is presenting the world with is an almost guaranteed conflict. If the US doesn’t back off, China and other nations that are being strangled by this system are going to be forced to fight back. I don’t need to tell anyone what that will be like with nuclear weapons.

It’s the same situation the British did to the Germans at the beginning of the 20th century which led to two calamitous wars. While winning the wars, Britain bankrupted herself, caused massive losses of lives and wealth, and lost her empire and privileged world status anyways.

Reserve currencies don’t last. The privilege bestowed upon their safe keepers presents too much temptation to abuse. Hubris, debt, an insatiable mob and never ending war end all empires.

In understanding this, we really as a nation need to adopt a more neutral stance in the world. We need to stop obeying every whim the US dictates. We need to trade with EVERYONE and be friends with everyone. We can’t be a target in this upcoming financial collapse of the empire. If we do, our citizens can come out ahead, relatively unscathed, and wealthier than ever.

I hope our politicians are smart enough to realize this, but I’m not holding my breath.

#179 Mark on 11.02.14 at 2:11 pm

“It’s very possible the govt will manouvre in this manner to guard the majority of the indebed – Look at the last 5 years and this has been happening. The housing market doesn’t necessarily need to see a downturn if this continues.”

Classic rookie mistake, thinking that the government controls interest rates. And almost as importantly, the spreads charged against “interest rates”. They don’t. The marketplace controls such. And as the pile of unsold houses continues to pile up, as prices continue to decline, inevitably, lenders will demand more return on account of the increasing amount of risk they’re being forced to take when they lend. This can all occur without the BoC moving their interest rate at all.

#180 Son of Ponzi on 11.02.14 at 2:35 pm

Wow, some of the regular posters are no realizing that economists are humans prone to making irrational decisions, just like the rest us.

#181 waiting on the westcoast on 11.02.14 at 3:14 pm

Dominoes….

I think you are correct about the damage and recognition of the damage we are doing.

I believe you are wrong to assume that massive change will happen. There are huge interests that suck at the teat of the energy industry (including many citizens who rely on low cost energy for much of our day to day lives. There will be migration to new energy sources that are cleaner but it will be over a 50-100 year horizon.

We will continue to pollute and some of that damage will likely need some new innovation to solve it. But there will not be a radical shift away from fossil fuels in the next 5 years.

#182 bdy sktrn on 11.02.14 at 4:09 pm

#180 Son of Ponzi on 11.02.14 at 2:33 pm
#175
you sound like some of the parents on my son’s hockey team.
——————–
perhaps they too have seen the dismal record and the ridiculous assumptions of the self serving ipcc perversion of science.

#183 Mark on 11.02.14 at 4:20 pm

“Unfortunately, what this very real problem is presenting the world with is an almost guaranteed conflict. If the US doesn’t back off, China and other nations that are being strangled by this system are going to be forced to fight back.”

China’s in a real nice position right now as they have the production, and they have a big surplus of goods they can trade with. Even if they had to write their US Treasury holdings down to zero, they’d still be way further ahead than the USA which has been systemically de-industrialized and de-capitalized.

Would the US attack China militarily because China fails to fill up container-loads of ships with “stuff” to be sold in American retail outlets? I’m not sure. But what is fairly certain is that global trade imbalances are always, over the long term, cyclical. And that chronic net exporters, eventually become net importers. The interlude can, of course, be quite violent to the value of assets though, as we are now seeing.

#184 Kenchie on 11.02.14 at 4:29 pm

#148 Trojan House on 11.01.14 at 7:39 pm

“However, that may have worked 40, 30 or maybe even 20 years ago. But you do realize times have changed once again since the mid 90s when Clinton repealed the most important parts of Glass-Steagal allowing banks to trade.”

This is what I said in different words! To Devore: “My issue (what you interpret as me disagreeing with them) is that Average Joe Sixpacks take those “self-consistent” theories out of the context in which they are created for (i.e. 19th century and early 20th).”

For example: Keynesian economics was created for the effects of the Great Depression, when government debt was not very high, unemployment was catastrophic and the money supply was shrinking year-after-year. Once things changed after WWII, there were splinters of “Keynesian economics” into many different branches because the problems of the day changed. Believe it or not, IMO, Keynesian economics doesn’t work when govt debts are super high, or when so many goods and services are imported from other countries, as in today. The difference between what you’ve said and what I said is you are talking solely about how politicians react to problems, while I am taking it to a derivative: how people perceive how politicians react to problems.

“Ok, let’s talk about aggregate demand. Simply put – it is government manipulation.”

I, politely as possible, disagree for reasons mentioned above.

“Yes, the thinking is that by government investing in infrastructure, etc, that it will help re-start the economy if you will.”

And allow the economy to achieve greater efficiencies (i.e. interstates helped trucking become more efficient than railroads, getting people in and out of downtowns as fast and efficient as possible, among countless other examples and unintended benefits which leads to economic growth).

“Of course, that results in government debt which they are hoping to pay off if the economy recovers and they can reap the rewards of it from taxes.”

If no one is employed, if no company makes profits, there are no taxes. So sometimes, as in the 1930s, the government has no choice. Today, it’s not so necessary.

“I read your posts regarding “doomers” as you, and many others, call them. Apparently anyone with an opposing opinion from you, those who question the actions of government, etc, is a doomer. That’s like calling Ben Franklin, George Washington, etc, doomers.”

Not exactly. My opinion about people does not matter about who is and who isn’t a doomer. You clearly misunderstood what I said (unsurprisingly since you checked most of the boxes and, of course, you are making the asinine assumption that you know exactly how dead people from another era would respond given the situation today – not to mention both of them were optimistic and worked to form the central government from fledgeling states in order improve the collective strength of a new optimistic nation). A doomer, in my opinion, is someone who is negative first and foremost. They blame other people (predominantly the government) for their problems. They ignore the successes of government and only acknowledge the failures of government.

“the opposite of a doomer then must be a “sheeple.” Sheeple are people who are predominantly optimistic that only see the good in situations.”

You are correct. Almost bad as a doomer. However, at least people who are optimistic see opportunities and are more willing to invest capital in starting new businesses and expand the economy.

#185 Not that simple on 11.02.14 at 6:28 pm

#177 Cato the Elder on 11.02.14 at 1:59 pm
“I love it when people don’t realize the full extent of our situation.

China has EVERYTHING. Read that again. EVERYTHING.

Even industries that many Canadians think we are world leaders in like potato, wheat, and gold production, China is ahead of us. Yes, China is the world’s number 1 producer of both.”

Yet, it’s not enough because they have been a net food importer since 2004. Do you know how the benefits of trade works? Comparative advantage helps both countries…

http://www.ft.com/intl/cms/s/0/6025b7c8-92ff-11e3-8ea7-00144feab7de.html#axzz3Hx3Uo6ao

http://www.forbes.com/sites/chriswright/2014/02/11/when-chinas-food-runs-out/

“They are number 1 in many metals like gold as well.

They are number 1 in manufacturing”

And #1 in pollution and deaths due to pollution. When there are 1.3 billion people, they have the manpower to mine more than Canada, a population roughly 1/40th of the size. Seems like an unfair comparison…

“We need to trade with EVERYONE and be friends with everyone.”

We can’t force people to trade with us nowadays. Of course, the US forced open Japan in the 1850s, and the West forced open China in the 1800s. But Canada can’t do anything of the sort. We don’t manufacture many things China or others can’t produce themselves for cheaper. The only things Asians want from us are resources. We can’t sell them refined petroleum products, they don’t want our wooden furniture. They want to process resources themselves, and no amount of complaining or wishing will change that…

#186 M on 11.02.14 at 10:48 pm

“Rent, save and invest, children. You shall inherit the dirt. Cheap.”

..hallellujaaa Garth BABY !!!!!!

#187 James Dickerson on 11.03.14 at 1:46 pm

Garth, I am a CGA for 18 years now and looking at Rick Johnson’s information on this post, his annual after income tax rate of return is 4.98% since his roughly $4,000 TFSA income is income tax free.

This guy’s uncle first $13,000 is not taxable due to personal amount, pension income tax credit and in Ontario, he would be paying about $10,000 annual income taxes on his $58,000 of annual annuity, investment income.

This is calculated by taking $48,000/$965,000*100%=4.974%-2.20% annual C.P.I inflation and it is a net annual after tax, after inflation return of 2.77%.

This is not lower than the roughly annual 3.50% most advisers are telling their clients that a balanced portfolio is supposed to earn on average after income taxes and inflation.

Equity prices are pretty high now and this could pose a risk in the next 1-2 years.

I would say his uncle is doing okay if this is what he is content and comfortable with, he should stick with it.

I did a more detailed post earlier but it seems it did not go show up.

#188 Trojan House on 11.03.14 at 5:51 pm

#186 Kenchie on 11.02.14 at 4:29 pm

Actually, I was being a bit sarcastic. Sheeple are neither optimistic nor pessimistic. They just are. They take no risks. They are comfortable with the status quo. They’ve bought into the equation of go to school, get a good job and retire on a pension. They follow the herd – for example, they buy overpriced homes (the point of this entire blog), they buy the igadgets, the big screen tvs, the nice cars and all of these purchases mostly funded by debt. They are comfortable with their lives and are apathetic. They vote one way because their parents voted that way. I could go on and on…so for the most part, sheeple don’t “invest in starting a new business and expand the economy.” They are more of a drain on the economy.

“…you are making the asinine assumption that you know exactly how dead people from another era would respond given the situation today…” Actually, I’m not. My point is that if you look at history, which I mentioned in one of my previous posts, you will see that what happened then is repeating today. Therefore, if it wasn’t for people like Franklin and Washington questioning the system (which you can take as being negative) and then taking action, things would not have changed and perhaps America would have gone in a different direction. My point is that they were moved by the actions of the government, the king at that time, to take their own actions. Is that a doomer? They were obviously upset and disillusioned with something – as many people are today. In fact, you disprove your argument that doomers are predominantly negative by stating that Franklin and Washington were optimistic. They were obviously negative about what was going on to the people there at the time to take action. Are there some people who go beyond and are wildly crazy with their predictions, etc? Of course there are. But you can’t put everyone who is so-called pessimistic about government, central banking or whatever into the same water bowl. A majority I believe have legitimate concerns about how government operates.

“And allow the economy to achieve greater efficiencies (i.e. interstates helped trucking become more efficient than railroads, getting people in and out of downtowns as fast and efficient as possible, among countless other examples and unintended benefits which leads to economic growth).”

Yes. The city I live in is spending $3 billion on a light rail transit system. This is only phase one. Phase 2 is also predicted to cost another $3 billion (in today’s dollars. Who knows the actual cost when it begins in about 5 years). This city’s motto: Live within our Means. Sure, the feds and the province are kicking in some money but who is stuck paying the majority? The taxpayers of course. Add that to an unfunded pension liability of $450 million. I guess living within our means means going into lots of debt. I guess it is good though since it will lead to economic growth and the debt will be kicked down the road to my kids and their kids and their kids kids…