Welcome to the whine-and-sheesh edition of GreaterFool. We’ll get to some of the moaning in a moment.
First a brief update to yesterday’s heretical post about US interest rates rising in 2015. When they do, the bond market will follow. After that happens, mortgage rates here will swell. If you doubt this, look at history. Over 90% of the time, Canadian and American bond yields have tracked each other – and both will be higher. So get ready. Lock in. Above all, use these absurdly low rates to trash debt. And don’t get a trophy house. Or spouse.
Here’s the latest evidence that America’s a phoenix. Stock markets hit more heights this week. Consumer confidence (as measured by the Bloomberg Consumer Comfort Index) is at the highest level since 2007. Buying sentiment is the best since November of that year, while Americans feel the most confident about their finances since April of 2008.
Why? Jobs, mostly. It looks like 2014 will be the strongest year for job creation since 1999 – that’s fifteen years ago. The federal deficit is back to 2008 levels, and now disposable incomes are rising, partly because gas prices are crashing. Oil’s at $73 a pop which means gasoline costs what it did in 2010. As mentioned yesterday, we’ve just seen the strongest six-month period of economic growth in ten years, and corporate earnings have made robust gains this year. In the last quarter 80% of companies exceeded profit expectations. Meanwhile rising equity markets have breathed much-needed life into millions of Americans’ 401(k) plans, the equivalent of our RRSPs.
Pay attention to what this means. It would be a good idea to assume that in about six months, big changes begin. I sure hope your daughter can get out of that pre-construction condo deal you financed.
Okay, I promised you moaning. Here’s some from a depressed soul calling himself, “Feeling Aged Out of the Market.”
“What is an early 50-something renter/wannabe-owner to do in this housing environment? I was once an owner, having sold my Vancouver condo in 2005 after it increased in value by 70% in just 2.5 years. I figured that was the top of the market. Little did I realize…. I sold it to start a new career in Toronto. I never bought in TO, awaiting the stability of a permanent position and anticipating the correction that never seemed to come. A few years ago, I balked at the notion of paying $400K for a 600-sq.ft. shoe box on the 7th floor of a condo near Yonge and Eg. Affordability deteriorated even further from there. I accepted a permanent position in Kelowna, but I’m still waiting for the normalization that never comes (despite a partial correction during the GFC before I arrived).
“I’ve been expecting a correction for as long as you have. I never dreamed that valuations could reach such extremes and become so dislodged from reality, and for so long, to boot. Dare I say it? I never appreciated the extent nor the depths of financial ignorance of the population. I’d also expected a normalization of interest rates long before now. Meanwhile, I’ve grown older and increasingly concerned that I may not be a viable borrower. Will banks offer mortgages to 50-somethings knowing they’d be in their mid-70s when they finally pay it off? My gf is 10 years younger and doesn’t understand my concerns. In the UK, they already seem to be rejecting borrowers over 40? Where does this leave people like me? Am I destined to be a renter for life?”
Dude. Seriously. Listen to yourself. In the past nine years you’ve lived in Vancouver, then Toronto and now Kelowna. You had job insecurity in 416, then went back to BC to get a full-time gig. So why are you bitching about not buying real estate? Yours have been exactly the kind of circumstances in which mobility, freedom and flexibility were your friends. Even with the recent housing pop, you’d have had a hard time making any money buying and selling twice in that time, absorbing commissions plus Toronto’s punishing land transfer tax, along with property tax and other ownership overhead.
A house is not the Holy Grail. What is? A 10-year-younger girlfriend who thinks you worry too much and should cuddle more.
Now Ahmed has the opposite problem.
“I am not sure what to do as I am very confused and under tremendous pressure from everybody around me and I am being termed as fool of the century. I am 44 years old only person to work in the family and have three kids. I have been renting for some time now. I moved here in 2009 and in these 5 years we have saved around 237K CDN and have invested most of the. Since the day one people around me (wife’s family and mine too) have been pushing me to buy home as my wife’s sister bought a home in 2008 (right before we moved to Canada) for 350K in Burlington and it has appreciated almost 200K since then and I have been termed as fool as I have been renting. Those people recently bought another home in Oakville for 900K and they have their home listed for sale (550K) now. They will have to move in coming February and have been praised very much by other family members for their decision.
“We do not have any debt and the home I am renting is close to 750K in Mississauga and I pay only $2050 in rent for this, I know owner is subsidizing. I try to explain these facts to people around me and they just laugh at me and mock me around. I am getting frustrated and demoralized and seriously thinking about buying a same type of home (I know it will be a financial mistake and I will not be able to save money after that purchase). I need help desperately as my wife is also turning against my thinking and she says she does not want to keep on moving. I have explained her the numbers but she seems to be in doubt now, of course people are feeding her wrong information, PLEASE HELP and write me something which can be a motivation for me again as I am weakening.”
Well, Ahmed, if you bought the house you live in, the monthly (mortgage, property tax, lost returns on $250,000 down, insurance etc.) would be almost $4,500, or more than double what you currently shell out. What doesn’t she understand about paying twice as much for the same thing? Or going from having $275,000 in savings, to zitch? How is that possibly being responsible for your young family? Is getting into a spitting match with her sister that important?
The good news is there’s absolutely no financial argument for buying a house someone else is subsidizing you to live in, not with a rate storm on the horizon and real estate wobbling. It’s a slam-dunk.
The bad news? Her family.
When you married her, you married it. So you’re screwed.
195 comments ↓
Isn’t that why people get married?
Happy Thanksgiving everyone!
The Baconator is First!!
Great post Garth, I just had a conversation with my boss today and you summed up my feelings perfectly. Renting makes so much more sense right now.
Dear Pathetic Blog : Bear Markets and Oil price Crashes are very healthy occurrences. They both tend to cull the herd and bring financial lives back into perspective although there is always a lot of collateral damage along the way. There will be blood come mid 2015 or so. A strong indicator of higher interest rates to come is the low Oil price. Huge capital flows (petro dollars)from Oil using countries to the Oil producing countries then back out into the capital markets is drying up. Therefore the lower availability of these petro dollars means higher bond yields and higher interest rates.
Been there. I had many discussion with my spouse without making progress in getting her to understand the financial advantages of renting. It was a video that I found on youtube that I showed her that clearly explained the advantages. I think she just need to see it visually from someone else to be convinced. Good luck.
Renting a house for LESS than it would cost to OWN it?
That seems like a no-brainer too me especially in this low interest rate environment. When (not IF) rates rise, you will merely be more screwed. To have nearly $300,000 in INVESTMENTS (earning money) is FAR more valuable than having a mortgage for twice that amount with no savings.
Of course, you are always free to take your chances in the markets, be they Real Estate, Bonds, or Stocks.
Just remember, when the water heater takes a dump, along with the garbage disposal, roof, and central air unit, it is much easier to call the landlord, rather than your friendly Banker to bail your ass out.
Home ownership is greatly over rated! I know, I own one.
#165 devore on 11.26.14 at 6:52 pm
#155 HD
So I guess those 2 very experienced lawyers don’t know what they are talking about….
Yes, “legal experts” know more and have more information about the facts at hand than the grand jury, who have access to all the evidence and witnesses. No one opining about this case knows what they are talking about, furthermore, none of it concerns them.
—————————————
Not sure if you watched the video but I don’t recall either of them claiming knowing more and having more information than the grand jury.
They merely pointed out that the process was conducted in an unusual fashion potentially resulting in the decision not to indict.
And respectfully disagree with you on your last point. Someone with expertise/experience in the field can indeed offer an opinion and know what they are talking about.
Best,
HD
The first person was lucky to make money from buying and selling a condo in Vancouver. Very few people who bought after 2006 have done so. (Now SFH in the core and westside, that’s a very different story.)
Garth, let me get this right, since 2008 you’ve been pounding the table to get out of real estate, hmmm
So if I had sold my Toronto home in 2008 at the average back then of $450,000 I would be looking at a loss of 65% gains as today I could sell for $750,000…who is the Greater Fool, those that took your advice or you?
The average is $538,000, not $750,000, minus double land transfer tax and commission. Far less than the return on a balanced portfolio. In any case, I have been pounding the table for people to be diversified, not to sell. — Garth
5 year variable 2.45%, 4 year fixed 2.89%, 5 year fixed 2.99%…
The bankers tell me that even if the rates rise, they would have to rise more than three times 0.25% before the variable gets higher than the fixed (and then you would’ve saved on the variable all that time before the rise), all that in 5 years,
Sooo, should I take the variable, fixed 4 or 5 years?
I found a cool calculator but I don’t think it calculates mortgages the same way as in Canada (bi-annual compound) http://www.yourmortgage.com.au/calculators/fixed_variable/
“….Here’s the latest evidence that America’s a phoenix. Stock markets hit more heights this week. Consumer confidence (as measured by the Bloomberg Consumer Comfort Index) is at the highest level since 2007……It looks like 2014 will be the strongest year for job creation since 1999 – that’s fifteen years ago…..”
=========================
In other news, the Canadian economy remains completely stalled under its current government, as global corporations refuse to invest in a country whose citizens require above-market wages to pay for million-dollar bungalows.
“Over 90% of the time, Canadian and American bond yields have tracked each other – and both will be higher.”
Are you kidding? A collapsing domestic RE economy does not lead to higher bond rates in Canada. Not by a long shot. Perhaps MBS and Corporate spreads will invert (ie: corporate spreads narrow, MBS spreads widen), but the BoC is very likely to be spending the next 5-10 year fighting deflation in Canada, not tightening up monetary policy.
You might be right about that 90% statistic, but remember that 10% of the time, it doesn’t happen. The amount of deflationary forces, a reversal of the wealth effect, in Canada’s economic pipeline is tremendous. Not only from housing, but also from the O&G industry.
“Meanwhile rising equity markets have breathed much-needed life into millions of Americans’ 401(k) plans, the equivalent of our RRSPs.”
Multiple expansion. Hardly sustainable, especially in a hypothetical environment of rising interest rates, given the strong positive correlation of US equities to long-term interest rates.
Yes, the stat is correct. And, yes, Canadian bond yields will once again follow US securities. The domestic economy is not going to collapse, and the Bank of Canada impacts only the short end of the yield curve. You are embarrassing yourself again. — Garth
America – The land of milk and honey!
http://theeconomiccollapseblog.com/archives/50-percent-of-american-workers-make-less-than-28031-dollars-a-year
I suggest you worry more about us. — Garth
I had s chat with a coworker today about mortgage and real estate.
The guy has been looking for a property for some time now.
I told him that the market was in a weird state and might want to postpone.
His reply was basically that with a young family, he HAD to buy, and there was no other way to invest for “normal people”.
I tried to reason him, but he would just make it sound like he had no choice.
These kind of people will not change their mind until they lose a lot of money during a correction.
Whatever… Haters gonna hate… But buyers gonna buy.
I am seriously wondering if it is going to happen in Dawson Creek B.C and Ft St John area, prices are still climbing with FSJ being the most expensive city in the north average price is 400,000k!!
#6 Mark
Well, hi there Mark; dude, I like your style ;)
Wow Garth, Mark really spanked you there!!
Did it hurt? In a good way?
Why don’t you go back to your room and rewrite today’s blog to please Mark, Garth?
Better yet, why not let me write it? My offer is still on the table – guest blogs weekly for a small stipend.
Besides, now I’m stuck in the parental basement with nothing to do, like all those house horny millennials you are always making fun of.
#10 Montreal
Did you miss the part about rates rising gradually by an estimated .25 basis points every three months after the initial pop? Or Garth recommending us to lock in at the fixed rate in the paragraph above?
Of course, you could just TRUST the bankers…they most surely have your best interests in mind.
Oops, I meant #11 Montrealer
With rates this low would using a small loan/creditline to invest make sense? I’ve got no debt, an investment advisor I like and a regular income (tax free) from an annuity.
Poor bastard. Imagine having to live with that crap. Even when he’s right, the people who are meant to be his support network belittle him.
#14 Mark
He did not say higher bond RATES, he said higher bond YIELDS.
Without comment:
Surprise! Canada’s Largest Industry Is Real Estate:
http://www.huffingtonpost.ca/greg-sward/canadas-largest-industry-_b_6227344.html?utm_hp_ref=tw
IMF: Uninsured Mortgages Booming In Canada, Pose Risk To Economy
“In its latest report on Canada, the IMF still expects a “soft landing” for the housing market but worries about the boom in uninsured mortgages, which it says are growing at a rate of 10 per cent per year and account for the “bulk” of new mortgages in the country.”
http://www.huffingtonpost.ca/2014/11/26/imf-canada-mortgage-housing_n_6226584.html?utm_hp_ref=tw
Well first off some flame for “Feeling Aged Out of the Market.”
What a jerk. I’d give my house away for a 10 year younger girl and then renting in Kelowna with a solid job. Poor guy. Just goes to show everything is relative. I mean PLEASE! Some of us have real problems.
Ahmed seems to be suffering through some very first world problems as well. Men, don’t get married.
So here is the rant: The ideal “man’s” life is:
– single
– employed
– motorcycle (at least one)
– sports
– pubs
If you don’t have a wife or kids you don’t owe anybody anything! And you don’t have to argue or pay child support for kids your ex has moved away to a different city! Cheers!
Had a conversation with a banker today that doesn’t get this. How can a bank hire a finance major who doesn’t get it.
I feel for you Ahmed. Many similar stories. The people around you love to love themselves and feel smart instead go indebted. At the worst time ever. Nothing can help RE here.
Here’s a tip. Buy her jewelry. More savings more jewelry. Consider it part of your PM allocation. Portfolio insurance.
She’ll have something to brag about.
Hey Garth,
I recently had a patient in his late twenties who needed an essential non-cosmetic procedure done, co-pay was a few hundred dollars. He said he needed a payment plan for this sum (no problem, happy to do that), and added in the same sentence “we just bought a house.”
I’ve been thinking about that interaction. It’s possible the house thing was a lie: maybe he was just embarrassed he didn’t have a few hundred bucks to pay, and came up with a believable excuse (got mortgage payments now!). Personally, I would be much more embarrassed to admit I chained myself to a house whose mortgage payments I could barely afford than to say ‘I’ve been having trouble finding full-time work.’ Sign of the times I guess.
#23 Cici
Don’t bother. Highly doubtful Mark understands the difference between the two…
Move to a small town and buy a house for $150k. Live mortgage-free, rent-free and debt-free. Put your savings into renos as well as invest in the stock market.
Been to Lillooet. No thanks. — Garth
Ahmed, you are doing the right thing and ignore all these idiots in the background.
If you have $237,000 invested properly as Garth suggested, allocated in the right asset classes, you should be easily generating $1,200 to $1,300 a month in a lower tax manner.
This is on a simple basis but compounding growth over the next 10 years, it is more like $1,800 to $1,900 a month which is almost paying your family’s monthly rent of $2,050.
The person that owns that $750,000 house is making next to nothing after property taxes, inflation and other expenses, repairs, maintenance, insurance etc.
A 3.28% annual gross yield on $750,000 is crap and if you buy a similar property, you will be making the biggest mistake for your self and your family.
After just property taxes, insurance, they are clearing only $1,250 a month which is about 2.00%. This is not even factoring in all the mortgage interest costs and other costs, expenses to keep this house.
Also, this is not even including the real risk coming sooner then later of 10% to 15% drop in Canadian housing prices. Garth talked about this as equity erosion.
I don’t like GIC’s at these ultra low interest rates these days but 3.05% 5 year GIC’s are even way better than 2.00% which they can’t get that in the house you are renting.
It is more like 0% to -2% to 4% annually after things change in coming years.
“Well, hi there Mark; dude, I like your style ;)
Wow Garth, Mark really spanked you there!!
“
Its not about spanking, its about healthy debate. I know me and Garth will probably strenuously disagree about rates, but for those who suggest rates are going higher, I would simply ask them, “where are the inflationary pressures driving such going to come from”. Without inflation, rates cannot and will not rise. Inflation requires either a significant addition of demand, or a significant contraction of supply.
He did not say higher bond RATES, he said higher bond YIELDS.
What’s the difference? I think most of us use the terms interchangeably, but if there’s a difference, please enlighten us!
Central bankers (the smart ones) don’t wait for inflation. They preempt it. This will happen in the US in 2015. — Garth
Real estate in Canada has become a disease that has spread through most of the population. Most people do think that it is the road to riches and only scum rent.
Last week at work we were talking about lay offs. Approximately 25% of our department is the number out there due to the price of oil. Next subject I kid you not, and no more than 30 seconds later was… dadatada Buying real estate and having to get an offer in before the price goes up again.
All of this for a piece of dirt in Edmonton
Yikes is what I though, but kept that thought to myself as being on the wrong side of real estate with the wrong crowd will not end well
Correction to my last post, it is more like 0% to -2% to -4% annually after things change in coming years. This is not even factoring in income taxes and inflation.
So what about student loans? Do I lock those in too?
Also, starting 2015, Ahmed and other Canadians can have for each 18 year old Canadian adult, taxpayer citizen, $36,500 of TFSA contributions in total.
Ahmed and his wife can have $73,000 in total TFSA contributions. This is 31% of their $237,000 investments earning tax free growth which that $750,000 rented house they live in can’t do.
“With rates this low would using a small loan/creditline to invest make sense? I’ve got no debt, an investment advisor I like and a regular income (tax free) from an annuity.”
Sure, if you can find investments that have reasonably inverse correlation to your financing, and you can stomach the risk. The problem you’re going to probably run into as a pensioner is that few reputable investment advisors would actually find such to be within your risk tolerance, and hence, wouldn’t set such an arrangement up for you out of fear of decapitation from the compliance department. You could DIY, but that would involve a significant learning curve.
Of course, as we know, the RE industry has no problem putting almost-retired people in mortgages that they literally won’t be able to pay off until they’re dead. Reverse mortgages are similarly tragic. And there’s no extensive requirement to test clients or investments for suitability. Such recklessness is part of the reason why we have the RE bubble.
The same day as Ghomeshi is arrested one of the most overpaid and bloated govts in Canada closes down its only two battered women’s shelters.
Ok. I’m always reading about the “Nurses and Police and Firefighters and Teachers” being 99% of all Public Sector workers. Come on now….where are your strike signs. Where are the pickets. Where is the solidarity.
Yeah that’s what I thought. Crickets. It’s only EVER EVER EVER EVER EVER about money for the public sector. There will be ZERO ACTION by the Public Sector on this because they will “fear losing their jobs”.
http://www.bcgeu.ca/ishtar-141125
DELETED
“Central bankers (the smart ones) don’t wait for inflation. They preempt it. This will happen in the US in 2015. “
Perhaps in the US, I don’t disagree. But in Canada, it’ll be many years until the present housing bubble is anywhere near reasonably liquidated, household balance sheets repaired, etc. So a very high probability that policy interest rates disconnect between Canada and the USA.
Understand that our bonds will ape US bonds, regardless of what the BoC does. The housing bubble has nothing to do with it. — Garth
Ahmed, please stay strong boy…your wife won’t appreciate you if become too spineless anyways.
Time to not care about what other people think of you. Try it, it’s very liberating…just don’t let it get to your head.
Now, look at the facts:
1. Your friends have NOT SOLD their first home yet, so the $200,000 windfall in appreciation is technicially speaking imaginary at this point.
2. Even if they get that $200,000, once they deduct that from the price of the new home, they are actually in debt to the tune of $700,000 plus land transfer taxes and commission, plus any outstanding amounts left on the mortgage of the home they are trying to sell. So, they’re probably going to be close to $900,000 in debt.
3. You, on the other hand, have almost $240,000 in savings. Even if you are only invested in a crappy $2.55 GIC, that should be pumping out close to $6,000 a year. If you apply that amount to your rental costs, you’ll be shaving your monthly down to about $1,550. Now, if you invest that in a well-managed (Garth!) diversified portfolio churning out at least 6%, you’ll be getting over $16,000 in yearly interest, which applied to your rental costs would shave your monthly rental fees to around $685.
3. If you’re even smarter, you’ll keep all the interest compounding in the investment account, which should bring you up to about $317,000 in five years, or over 424,000 in ten years.
4. Wouldn’t you rather buy when you can put a huge chunk of cash down AND keep a huge chunk growing in the investment account to meet future needs?
5. Waiting another five to ten years could also bring the following benefits:
*Your house horniness may fade completely, meaning you’ll have a pile of cash to spend on something far more fun that particle board
* If not, house prices will likely be lower at that point
*Interest rates may be significantly higher, in which case, even the cash portion of your diversified portfolio would be spoiling you.
Now, lift your chin up and feel the renter pride!
STET!
Oops, sorry Ahmed…I meant:
Now, if you invest that in a well-managed (Garth!) diversified portfolio churning out at least 6%, you’ll be getting over $14,000 in yearly interest, which applied to your rental costs would shave your monthly rental fees to around $883.
Smoking Man reporting for 30 thousand feet..
A bungalow in long branch, a teardown in the crapiest month of the year for the seller, just sold shy of 700k
The spring market will be on fire..in this hood anyway.
Another good one Garth, thanks. When interest rates rise I gather the higher mortgage rates will put off a number of would be buyers, thus causing a swelling in inventory and putting a strain on prices. N’est Pas?
D’accord. — Garth
#11
“The bankers tell me that ….”
Three .25% interest jumps in two years, not four or five years, is quite possible. Then you would be ahead for 2 years and behind for 3 years. How does that mortgage plan look now? Sounds like a plan for the bank!
If the bond vigilantes start calling the shots, anything that the BoC does is irrelevant with respect to mortgage rates.
Let’s just think about this variable/fixed mortgage scenario. The bankers suggest getting you into a variable rate mortgage so that you will pay less interest and they will have less profit.
Does that make any rational sense??????
So now it has become the governments problem that there isn’t enough daycare/childcare available?? Really?? Here’s a thought….maybe we should consider having one parent actually stay home and raise their own child and don’t say you can’t live on a single income….there aren’t many young parents out there driving older vehicles or living in cheaper housing……but rather driving new (financed) vehicles and homes in the $400K and up range….gosh…when we were newly married and had a young family we lived 30 miles out of town just so we could afford a little 900 sq ft home and we drove old beaters that ran just fine but looked like hell…..didn’t care though because it was what we could afford and we didn’t live beyond our means….credit cards weren’t even an option back then…if you didn’t have the cash you didn’t buy it….easy as that…..come on people….give your head a shake and give up the ‘entitlement’ attitude…..take care of your own shit!!
#29 Lillooet, BC on 11.26.14 at 8:44 pm
Nice one Garth….I mean who would want to live in a place that used to be called Cayoosh Flat!
14 mark
A collapsing domestic RE economy does not lead to higher bond rates in Canada. Not by a long shot.
————————-
Don’t put too much stock in the Canadain economy being decimated by a housing correction. Sure it will have an impact but not like the US correction did on the entire world’s economy – completely different kettle of fish.
As for interest rates, keep in mind the BOC is “influential” in setting rates – it does not control rates. Ultimately for a small nation like Canada its the bond market that sets interest rates.
Canada is essentially a commodity economy – what is happening in those markets will swamp any impact caused by housing “deflation”.
#122 Cato the Elder on 11.26.14 at 11:43 am
“Re: #81 Kenchie
Your simple calculations don’t take into account shrinking package sizes, among other things.”
Lol, I never said it was supposed to. But it’s not difficult to modify to a per gram-basis and re-calculate. I dare you to do the math.
==================================
“This simple example also does not calculate the QUALITY changes in the ingredients. There could be a reduction there as well.”
Did you read the British article on Mars? Did you intentionally ignore the part where they purposefully cut saturated fat by 15% and all transfats? Maybe you prefer less healthy food, but some people are conscious of these things, particularly counting calories. Each to their own. IMO, Mars has all the right in the world to charge more if people are still willing to buy.
Do you agree that Mars has the right to increase prices if they see that demand is strong enough?
==================================
“In this example, 500g down to 375g (a 25% decrease):
http://www.huffingtonpost.ca/2014/05/05/pork-prices-canada_n_5270838.html
Shrinking package sizes is the exact same thing as a price increase. Your money is buying LESS.”
I find it funny when people purposefully ignore the information that states the causes of pork prices to go up, despite it usually being in the same article, and focus only on the inflation part and blame it on the central bank. Sounds like these people don’t understand how “supply” (i.e. quantity) actually works. Here are some more sources on the cause of pork prices to increase:
“…a disease that has wiped out 10 percent of the U.S. hog population will be harder to contain than producers and veterinarians expected.”
http://www.reuters.com/article/2014/05/28/us-pig-virus-immunity-idUSKBN0E811N20140528
“The PEDv has spread to 29 states, killing more than 4 million young pigs.”
http://www.argusleader.com/story/news/2014/04/19/virus-blamed-million-pig-deaths/7901867/
“A virus that kills young pigs is roiling the U.S. pork industry, boosting prices in the $9 billion hog-futures market and threatening to create more pain for food shoppers.”
http://online.wsj.com/articles/SB10001424052702303754404579308903141230092
PS: since you quoted a British newspaper, here’s a link to buying British-made Mars bars. It’s horribly expensive though…
http://www.amazon.com/Mars-Chocolate-Candy-England-Pack/dp/B000RQ10QU/ref=sr_1_3?s=grocery&ie=UTF8&qid=1417046881&sr=1-3&keywords=mars+chocolate
Rates will be rising by summer 2015 due to a lack in confidence, the other side of the coin most know only as inflation – globally – Yes, the hyper variety. #Timestamp
US “growth” is an illusion
World “growth” is an illusion
Paper wealth is an illusion
But by all means, keep spewing the headline data like a good little muppet.
Good luck
#150 NoName on 11.26.14 at 4:42 pm
“@Kenchie
maybe reason because that chocolate bar don’t cost 4$ is because is made in china, does foxcon rings a bell every tome when come to electronic assembly?”
Mars Canada has a production facility in Newmarket, I believe. Dollarama, though, has some dicey looking stuff that they import from less savoury locales…
==================================
“and you are missing picture why isis wants gold and their own currency, it is for same reason why americans want us$ to reserve currency, so they can control trade of goods.”
No doubt they want to get away from USD controlled financial system. That’s all fine and dandy. However, it using gold and silver dinars won’t bring an economic utopia to that horrible part of the world. It certainly won’t stop desperate people from debasing that currency like what happened in previous eras.
#107 Holy Crap Wheres The Tylenol on 11.26.14 at 10:02 am
#103 Cato the Elder on 11.26.14 at 9:29 am
Definitely proof that 2 wrongs do not make a right! A weak currency has been the prime export-led rapid economic growth vehicle since the end of WW2. The Japanese economy surged in the 70s/80s based on this right up until a forced appreciation by the G7 with the Plaza Accord. Now we see all of the Asian economies jostling in competitive currency wars to see who can ramp up exports the quickest.
In Japan’s case, the weak currency will harm no-one, except people who want to travel abroad and a few industries dependent on imports(as oil plummets, the net effect could be zero). Meanwhile, exports of big ticket items are going to go through the roof,…..
Ahmed, please dont given. 5 years back, in the Van Metro area, I went exactly through the same steps to instill sense with numbers into my wife and myself. Eventually, I gave in. 5 years in the making, have regretted the decision every bit, have regretted all arguments in favour and affected health and happiness. Please…dont do it! With 250K+ in your hands, you are in an exponentially better position then with 0 on hand and 450K in debt. No one will understand and dont care about it. With the money and freedom you have, take your family for travel and fun. If you must spend your savings somewhere, spend it on experience, not on debt. Please.
Garth, your answers to both men in today’s Post. Perfect.
And I am not blowing sunshine, that’s a fact, as the home owners at any cost hate my guts too.
Your last sentence today is one of the many reasons I live alone, as I always put my Freedom First. She can visit, but no key. The laws today are brutal for men. No win, no matter what. Fact. I help others, but I am #1.
I can’t believe how important interest rates are and how much they are talked about in today.
We never talked about them or worried about them, well a little bit when they were 20% but other than that… the interest rate was what it was, big deal.
But we weren’t drowning ourselves in debt either where a 2% interest rate move would kill us.
Today that 2% rate move would be a double on the real estate junkie’s monthly mortgage payment.
Ouch!!
Re small town living as in Lillooet. The small town from which I come has housing taxes double those in Victoria. Very few services. Any serious medical issue requires a long drive to the nearest city. Overnight stays mean hotels, restaurant meals, etc. Serious entertainment means travel, overnight costs. Groceries are more expensive. Many items are not available re business materials. Depends what you want and what you need, I guess. I love that little town. Visit there regularly but no illusions about costs.
Can I borrow that picture?
Mark, when US rates rise, if Canadian rates don’t move in lockstep with them, the Canadian dollar falls. That makes imports more expensive in Canada. There is your inflationary pressure.
#31 Mark
Well hi again, Mark. ;)
“Its not about spanking, its about healthy debate.”
That’s good, really good, man. Basically that’s exactly how I view all my, er, consensual interactions, too.
I wrote that one down. I think I can use it in my court case. Hope you don’t mind.
Thanks bro!
Why are you picking on Ahmed’s wife’s family, if you read the letter his family is on his case as well. This column seems to be written in 1960, Mad-Men-land. All that’s important is whose girlfriend is younger and hotter than whose, nothing else counts. No matter if your wife earns as much as or more than you or can invest like a dream, the 10 years younger girlfriend trumps all that.
The other extreme is the #45, the self-righteous, Mommy quit your job and stay at home, be financially dependent on Mr Big Provider. Then if he dumps you for 10-years-younger-and-hotter too bad, c’est la vie. There’s nothing more self-righteous than the single earner family man and his sainted wife.
Yeah let’s congratulate each other at not buying a house, those stupid women and their obsession with owning property.
And the advice is that men of all people, should stay single, geez-us, what the heck.
Lillooet BC, Ah Yes I can still smell the acrid dense forest fire smoke. Smoke so thick that it permeates everything you own. I have been to Lillooet many times before they put the new highway in 30 + yrs ago. Great train resting (ie : idling for days) area along the river.
#TheSecretLifeOfAhmedAfterTheInlaws,Or… #”YanahYanah”MemorialTributesToSabahيانا يانا – صباح …
http://youtu.be/89tokXyVp0o
[NoteToGT: Just between the two of us… As StripMalls somewhere off the I5 go… there are worse places – by far – that one might experience a transitory, “I Am Weakening…”… Nope. I’d better not… Oh… What the Hell: http://tinyurl.com/olgn23d ]
From:
http://www.afr.com/p/business/property/offshore_buyers_swoop_on_melbourne_E3oA7c2VS1E8kTzqfk6kGK
Malaysian developer UEM Sunrise virtually sold out a new high-rise residential tower in central Melbourne after two weeks.
Three-quarters of the apartments were bought by foreigners.
With 941 residential apartments and around 210 serviced units, the 92-storey Aurora Melbourne Central is the developer’s first local project.
Construction is due to begin next year.
The developer has sold 895 units already, mostly through its strong networks in south-east Asia and China. Local buyers account for 25 per cent of the apartments.
Around 60 per cent of buyers are investors. Raymond Cheah, director of UEM Sunrise’s Australian subsidiary, said the sell-out was “breathtaking”, as the project launch had originally been slated for January next year.
“In UEM Sunrise’s 49 years of history in property development, the intensity and excitement of Aurora Melbourne Central is unmatched,” he said.
Mr Cheah said the project’s offshore buyers were attracted both by Melbourne’s reputation as the world’s most liveable city and its relatively low prices by international standards.
“As a benchmark in Australasia, Melbourne core CBD prices are on par with KL, 50 per cent cheaper than Sydney, 200 per cent cheaper than Singapore, 350 per cent cheaper than Hong Kong, and a staggering 550 per cent cheaper than London,” he said.
“So if you look at the macro context, Aurora Melbourne Central is really an affordable luxury.”
…
And we care why? — Garth
So Ahmed, you and your wife are going to financially cripple your family so your parents and in-laws will praise you more? Your dependency on what your relatives think of you is excessive and makes you subject to their opinions, even if they are wrong or damaging.
#26’s suggestion is brilliant. Every six months buy your wife a big piece of gold jewelry. Take her on an expensive holiday and encourage her to post lots of Facebook photos if she needs to brag about something.
The previous poster’s suggestion of finding a third party to explain the numbers (a video or finance blog, for instance) may also be helpful. We are not all skilled at teaching concepts to others, and hearing it from someone else may lend more credibility.
In a marriage it’s better if neither spouse is pushed into doing something they don’t want to do. Good luck!
#31 Mark
“‘He did not say higher bond RATES, he said higher bond YIELDS.’
‘What’s the difference? I think most of us use the terms interchangeably, but if there’s a difference, please enlighten us!”
“Rates” are interest rates that are specified in the contractual terms of an agreement, typically on bank lending agreements. Things like the Prime Rate.
A bond yield is a calculated rate of return, based on the secondary market price. The contractual coupon rate is fixed, but the yield varies as the bond price moves.
This is why financial writers distinguish the “10-year swap rate” and the “10-year bond yield”. (The rate on a swap is fixed when you enter into the contract.)
Does anyone have data or charts on how a balanced 60/40 portfolio did during the 80s and 90s?
Not exactly a valid comparison as ETFs were not in existence then, and now offer small investors big, low-cost diversification. — Garth
It won’t be any recovery … Dubya Dubya III is coming.
#10. C’mon jr. 08 was almost 7 years ago. Put a measly 10% on that 450000 and what do you get? Rule of 72 jr.
Blows it away and you can shell out less money monthly if you rent. And you can tell your boss where to go when you want. Plus less risk liquidity and so on.
It’s fine to love houses. I love boats. But at least know the math so you live in reality. Houses like boats cost money. Both can provide enjoyment but they won’t line your pockets.
Out for a cold walk this week around the much plainer hood in November in Toronto I looked at houses a little differently.
I asked myself what I think they’d be worth in a fair market economy based on salaries like mine and the utility value of a house in this area (average prices are around 700K give or take)
I came up with a reasonable figure of, maybe $185K for a SFD or bigger semi. Even $250K seems high.
Then I remembered this video from 2012. I don’t watch RT at all much and you have to look past Keiser’s theatrics a bit, but give this a few minutes if you can.
http://www.youtube.com/watch?v=_acwahNKjNU
What this woman is saying about our economy and RE prospects seems remarkable, calm and prescient two and a half years later.
She seems bang on about our RE bubble, the dynamics of a RE crash, the dollar about to dive, deflation, and the dangers and limits of the oilsands economy as well as with the dominance of real estate in the broader economy.
She says she thinks RE will drop by 90%. Seems high still, but my own unscientific “utility value” calculator suggests a drop of 75%.
Maybe its just the depressing weather making housing look so plain this month, I don’t know.
#59 Detalumis
Younger does not trump everything. For most men it is just a plus.
STICK WITH THE RENTALS AND OTHER SIMPLE STUFF…BECAUSE,
it’ll be your only way out of what’s about to clobber Canada’s economy in the coming months.
Who cares about what’s shaking our increasingly moribund real estate so-called industry. That discussion is about to become awfully moot.
Why?
Because two, countem’ two, financial tsunamis are closing in on us:
FIRST: The looming international financial fallout from the end of the US QE program last month.
As Ambrose Evans-Pritchard writes in this latest edition of the London Daily Telegraph:
“The US Federal Reserve matters most in a financial world that still moves to the rhythm of the 10-year US Treasury bond… More than 40 currencies have dollar pegs…including China, joined to America’s hip whether (it) like(s) it or not.
Some $11 trillion of cross-border loans and bonds issued outside the US are denominated in dollars…US capital markets are still a colossal $59 trillion, more than the total for Europe and Japan combined…(and) “twice as large” as moves by the European Central Bank.
The Fed can hardly put off rate rises for much longer as the US economy grows at a 3.9pc clip and the jobless rate drops to a six-year low of 5.8pc…jobs market…slack is vanishing and wage pressures will soon rise.”
TWO: Thursday’s OPEC meeting in Vienna, Austria. It’s amazing how a dozen oil producing nations pumping out way less than half of the daily world oil needs, may soon wreak havoc on our economy.
Here is Andrew Critchlow, the Telegraph’s man in Vienna:
“Major Opec nations, Russia and US shale oil drillers now appear on the brink of a price war as these three giant producing blocs fight for a greater share of global demand. Although Opec states enjoy the lowest average production costs – in some cases around $2 per barrel – they have increasingly lost ground in North America, which remains the world’s largest consumer of oil.
Some Opec members now want producers outside the cartel, including Russia and the US, to shoulder some of the responsibility for…cutting their output… (because) Opec alone was not responsible for the stability of the oil market.”
To repeat, in support of those of you who may decide to criticize St. Garth of Coming Tidal Waves, big outside international events always wash up upon our beaches.
So, renters should continue renting; debtors should stop spending and start repaying their debts, and Albertans should prepare for a repeat of the early 1980s, where the oil and gas industry essentially collapsed in the wake of the National Energy Program and big offshore oil pricing moves.
This time the causes are a bit different but younger Albertans are about to get that ol’ shakedown feeling their elders still talk about.
The Rest of US will get whacked as well.
Badly.
“Mark, when US rates rise, if Canadian rates don’t move in lockstep with them, the Canadian dollar falls. That makes imports more expensive in Canada. There is your inflationary pressure.”
Nope. The Canadian dollar doesn’t necessarily fall in such a scenario. I don’t know if you’ve read my previous comments on the topic, but higher interest rates do not result in currency appreciation. If anything, higher rates cause currency depreciation, a reflection of the inflation is occurring in the currency in question. Inflation = higher rates = weakening purchasing power = lower currency.
Want proof of this? Look at most of the “high rate” currencies out there. Most of them have experienced, or are experiencing significant currency depreciation, as well as inflation. In many cases, high rates will shake out malinvestment in their economies, and their currencies will strengthen, but there is typically quite a lag. Sometimes the mal-investment never really is shaken out and the extreme condition, of hyperinflation, occurs. Hyperinflation being a condition of extremely high interest rates (ie: lending is practically non-existent and prohibitively expensive).
“Hyperinflation being a condition of extremely high interest rates (ie: lending is practically non-existent and prohibitively expensive). ….”
BTW, just to add (sorry if I’m long winded), hyperinflation or even strong inflation is practically impossible in an economy loaded to the gills with consumer credit. Not until, at the very least, the credit is liquidated and/or defaulted on. I don’t believe anyone believes that the RE collapse in Canada is going to be so dramatic as to rapidly liquidate all of the credit, especially since the CMHC stands behind $900B of it. Hence, inflation in Canada over the next 5-10 years of a probable continuation of the current RE price declines is practically impossible.
In short, people paying back debt, and not taking on new debt because the price of their major asset, their house, is dropping, do not spend much. Hence, deflation. This is the BoC’s biggest concern over the next 5 years, along with a rapidly rising currency (CAD$) that is likely to result from such a lack of domestic consumption and savings. Not non-existent inflation. Think of the “wealth effect” in reverse. Housing ATM’s in reverse, where houses destroy consumer wealth, not create it.
Garth stated above that – “Consumer confidence (as measured by the Bloomberg Consumer Comfort Index) is at the highest level since 2007. Buying sentiment is the best since November of that year, while Americans feel the most confident about their finances since April of 2008.”
So, what is the difference between “Consumer Confidence” and “Consumer Sentiment”.
Yesterday a headline in Bloomberg news announces – ” Consumer Confidence in U.S. Unexpectedly Dropped in November” – By Danielle Trubow Nov 25, 2014 9:45 AM CT.
Today in Bloomberg the headline , by the same journalist states ” Consumer Sentiment in U.S. Rises to Highest in Seven Years” – By Danielle Trubow Nov 26, 2014 9:06 AM CT.
You can read the articles here :
-https://www.bloomberg.com/news/2014-11-25/consumer-confidence-index-in-u-s-decreased-to-88-7-in-november.html
and here
-http://www.bloomberg.com/news/2014-11-26/consumer-sentiment-in-u-s-rises-to-highest-in-seven-years-1-.html
Economic news these days sounds more like announcements from our Federal Government, anything can be quoted on any given day and depending on the Quoter, may be believed or not.
Your are so right, here from the trenches of the Valley of the Sun:
Milk is $ 2 CAD per US gallon, raw honey is $ 9 CAD a litre, and the average family size SFH costs under $ 200K CAD.
Oh yeah, and gas is down to .72 CAD a litre.
The report you mention also states it costs about $ 50K a year to support a middle class lifestyle for a family of four in the US.
Which is $ 56K CAD – not too many places in Canada (except Lilloet) where a family of four can have a middle class lifestyle on $ 56K!
Sadly we have to suffer our second annual Thanksgiving tomorrow in 28C weather, but we only paid $ .79 CAD a lb for our turkey!
#59 Detalumis:
Mad Men- good call. Some of the commenters just make me laugh now, they’re either average age 70 or living in some alternative reality/time warp.
The irony is that it’s two men in today’s post who 1)care about appearances 2)fear aging
Huh? If they were women the same commenters would be all over them criticizing their shallowness in that regard.
What the heck, indeed! :)
Too many beers today putting up the Xmas lights, forgot to add who I was responding to…
#15 Bob Copeland on 11.26.14 at 7:52 pm…
All well and good but what the heck happened to Old Man, anyone? Just wondering. Miss him
Math doesn’t lie, people do!
#50 Kenchie on 11.26.14 at 9:36 pm
what could keep a price of chocolate bar down is efficiency but efficency on both ends, manufacturing end and raw materials end. imagine what cheap cuban sugar would do for prices of coca cola. and that is a reason we have “tons” of candy factories in canada
http://online.wsj.com/articles/SB10001424052702303672404579147660261502416
small example
place i worked for went from producing 2.2 a year, to 6.1 a year, over 5yrs without “major” investment in equipment just small twiks, and funny thing is that all that was done before chuckles brought LSS “expert”. and price to consumers didn’t change but margins for corp went sky high. and LSS “expert” made us so efficient that we don’t have to work anymore someone else is making it cheaper now… (probably not, but what do i know). good thing was is that we were not in a food business!!!
anything that my family buys is significantly more expensive now than before, especially thing that we need aka food. increase in price of mars bars is not problem, but price of the bread, dairy and of course bacon are. i do believe that cpi does not realistically represent average consumer spending needs.
when it come to isis they don’t care about value of their currency or using a gold as a base, “their” money gives appearance of “legitimacy” of their agenda, and them as ruling body to the local populace or however you spell that.
RE: #65 lee on 11.26.14 at 10:28 pm
Does anyone have data or charts on how a balanced 60/40 portfolio did during the 80s and 90s?
There are some fun tools to play around with out there on the old internet. They are only as accurate as their database/programming is of coarse:
http://www.ndir.com/cgi-bin/downside_adv.cgi
http://www.bankrate.com/finance/investing/historical-returns-investing-calculator.aspx
http://www.theglobeandmail.com/globe-investor/personal-finance/investing-calculators/portfolio-growth—historical-returns/article651822/
Nobody mentioned the super appropriate pic today. (Probably because no hot chick) One stop shopping.
#63 put it all together for you Ahmed.
You’re a bright guy. Run with it and have fun doing it.
@#25 “If you don’t have a wife or kids you don’t owe anybody anything!”
…and you won’t fulfil the biological imperative to reproduce. You will miss out on the purpose of life.
“Central bankers (the smart ones) don’t wait for inflation. They preempt it. This will happen in the US in 2015. — Garth”
This flies in the face of 100 years of money printing, which has debased the US dollar by 95%. Not to mention the recent ponzi pump that increased the Feds balance sheet by $3.5T.
Your call on increased interest rates has been wrong for years. Maybe it will happen in 2015, or will it be QE4 instead?
Dude. Seriously. Listen to yourself.
So why are you bitching about not buying real estate? Yours have been exactly the kind of circumstances in which mobility, freedom and flexibility were your friends.
so if he didn’t sell in Vancouver, for sure he wouldn’t have a new career and I guess he wouldn’t be happy with the old one
BG : These kind of people will not change their mind until they lose a lot of money during a correction.
Whatever… But buyers gonna buy.
and sellers gonna sell
the character Shelley Levene played by Jack Lemon, Glengarry Glen Ross
http://www.imdb.com/title/tt0104348/?ref_=nv_sr_5
Shelley was a seller, when he couldn’t sell real estate he sold the companies leads
Cici : Even if they get that $200,000, once they deduct that from the price of the new home, they are actually in debt to the tune of $700,000 plus land transfer taxes and commission, plus any outstanding amounts left on the mortgage of the home they are trying to sell. So, they’re probably going to be close to $900,000 in debt.
what if they don’t sell? they could lose both houses but then Ahmed would be glad to take them in
#62 HAM and investors in Oz
And we care why? — Garth
——————-
This is merely another example showing that almost every aspect of the unbalanced, oversold, and overbought Canadian real estate market is mirrored by the equally unbalanced, oversold, and overbought Australian real estate market. Thought it might be interesting for Canadians to know it’s not only your market that’s special.
Thank you Garth for another great post. I’ve been reading most of your past posts for this year and learned a great deal of useful information that I plan on putting into action.
However, I’ve been also reading posts from Cato the Elder in the comments and found them to be quite revealing about how central banks and big government works.
Cato, all I have to say to you is have you ever wondered about the information presented in http://www.youtube.com/user/StormCloudsGathering ?
#JustFor… #HolyBoomerWISnowBoids… #OnSchnickelFritzGreatWhiteNorth… #BlackFridayBulkTylenol… #RepeatBroadcast:
http://youtu.be/VsnZxfkkoKQ
Mark you’re an idiot. Back to the 900 billion bullshit again. Purely nonsense. Stop it already. You sometimes say something sensible and then destroy it by stating a bunch of rediculous nonsense. Quit embarrassing yourself.
There is no slow down yet in cowtown! Building has not slowed down every quadrant of the city is growing at incredible pace. Resales sell within days of coming on the market, shopping malls are swamped and everyone is driving new vehicles – I can’t see this continuing, to me it is unsustainable! If oil drops below 60 bucks for a sustained period then the shit could hit the fan otherwise it is all hunky dory in the wild west!
Here In Edmonton I am surprise to see the amount of walk-outs in the High-rise I live in. People leaving in the middle of the night and dumping most of their items around the Garbage bins, running out on their leases. One guy moving out says he can’t afford to live off part-time work in Edmonton, now that he’s been demoted because of the plunge in Oil Prices.
The conservative Government of Alberta couldn’t even balance the budgets at $100 a barrel, little alone the plunge to $73 today. Luckily the previous Conservative Government of Alberta is being investigated by the RCMP.
Plunging oil prices, a gong show of a Conservative Government (in ALberta too-my opinion) demotions and lay-offs. This won’t end well in Alberta, where $96,000 homes in the 1990s are selling for almost $400,000 this year again. (we came close to the peaks of 2007 but never made it in the Edmonton Area).
My the Lord have mercy on the Middle class, or what will be left of it come 2016!
DELETED
Re: #11 Montrealer on 11.26.14 at 7:47 pm
That’s an easy one take the variable rate mortgage or take one year closed mortgages. Rates are certain to fall. The joke about rates rising next year in America has been told for the past 5 years and most people just yawn when they hear it. I’ve been loading up on more strip bonds which will yield huge capital gains when Canadian and American rates turn negative.
Ahmed, hang on in there dude. You are not the only one going through this.
Just remember, the consequences of giving in now would be far, far worse than anything the family can throw at you. Imagine a life where interest rates have gone up; prices have fallen; you work without rest just to live like a pauper; and furthermore, there is no escape because you are in negative equity.
In a few years time, when house prices have done the stone through a wet paper bag thing, you will be able to vulch something really nice for cash. Don’t expect praise though, by this time your family and in-laws will have become fearful, having seen house prices collapse and will call you a fool for buying.
“Central bankers (the smart ones) don’t wait for inflation. They preempt it. This will happen in the US in 2015. — Garth”
Targeting interest rates through Monetary policy is reactionary to inflation, not the other way around. That being said, central banks don’t have to wait until inflation is present before setting a higher target rate. However, they do need to see inflationary pressures building and, at the moment, not one single G7 central bank sees this happening – not the ECB, not the FED, not the BoE and certainly not the BoC. This doesn’t mean that inflationary pressure can’t develop in the next 6 months, but predicting that it will and that, as a consequence, rates will rise in 2015 is just showing your bias. You’ll only truly know when rates will rise when the data supports it.
Anyways, the discussion around the BoC’s policies are moot. Anyone thinking that rate rises by the central bank will facilitate a housing market correction is wrong. Real inflation will cause house prices to go up not down.
Ahmed – your sister in-law is a fool (don’t worry, I have one as well). Having said that, you need to make a decision that works for you and your family. Be careful with what advice you take from the comments on this blog (mine included). After all, it’s your life not ours and we don’t have to live with consequences.
Happy Thanksgiving.
The real truth the fed and media work together and they will tell you interest rates will be going up next year.Didn’t they say that last year,the year before that and the year before that.Its a lie but they want the public to keep believing it.It won’t happen so keep a variable rate and don’t sell your house until they actually announce a rate increase.Keep making huge profits in real estate because these intersest rates will be low for many years to come just like Japan.
Keynes said something like this,
the market can stay insane, longer than you can stay solvent. Ahmed is solvent now, once he capitulates the top is reached. He is the unfortunate proverbial straw who will break the camel’s back.
Smoke and mirrors
That’s what it’s become. The house is mortgaged the furniture is financed and the car is leased. Your eating craft dinner and canned tuna because all your disposable income is going to service debt. All the while you post on Instagram, Facebook and Twitter pictures and messages showing your friends you’re a winner.
Garth I completely agree with you that Canadians are hooped. I posted a few years ago that housing will not correct until the average Canadian hits the debt wall. I believe it has come. The most important metric is the household debt ratio, a slowing of debt accumulation will be the signal that Canadians can no longer get credit. Once that happens the smoke will clear and you’ll see the emperor has no clothes.
Hello Mr. Turner,
I wish to recommend to you and all your blog posters here that since feminists may be reading this blog it is advisable at all times to wear cameras and recording equipment in order to prevent besmirchment.
I have been doing so for some time reading the entries here on Greater Fool. Because my recording equipment also links through the webcams on your computers I have seen some truly strange sights. Let’s just say, some of you are worse than Louis Riel!!
(And no, I have not been drinking and will not take a breathalyzer)
As for you Garth, one request – my camera has observed that you seem to write most of your blog entries buck naked with a Harley hat and clothespins attached rather strategically to your body.
Would you mind cleaning that up a little? How about at least wearing a hospital gown; since you (in your anti-Harper diatribes) are obviously living in a mental institution they should have no shortage of such items.
Thanks.
And don’t forget to smile for my camera :)
If you need a different perspective on owning versus renting in today’s globe and Mail in the business section titled retirement security starts at home. It’s a refreshing positive article on home ownership. Note it is based that you are mortgage free. But one nice additional is the positive aspects of ownership. I have been arguing a losing battle with Mr. Turner that old people will not be rushing to sell there homes to pay for retirement.
Because living in a house is cheaper than renting. Again if you have no mortgage.
Each to their own I love my house and my freedom. I pay less in property taxes and utilites and living costs then you pay in rent.
Most importantly it’s a personal choice. One thing people must listen to Mr. Turner, is high debt is bad to finance your life away. But for many of us older folks I enjoy living in a house that is mortgage free.
I have no quarrel with that so long as your financial life is diversified and you have at least twice the amount in liquid assets as you possess in home equity. Sadly that is not the case for most Boomers, who will have little choice but to sell or downsize. BTW, you make the classic mistake of saying ‘owning is cheaper than renting’ in ascribing zero value to your equity. A $500,000 mortgage-free home is actually costing you at least $35,000 a year, or $3,000 a month, in lost income. Think better. — Garth
Bought my house in Burlington back in 2006 for $580k and now could easily sell for $890k. Sold my last two houses privately so would do so again.
Mortgage was paid off 3 years ago and the house is less than 1/3 of our net worth as our investment portfolio is growing rapidly (up $200k in the last 12 months inc growth and contributions).
Now would I buy the same house today for $890k? I doubt it. I think its a great time for young people to be renters and investors. Same with old farts with all their net worth tied up in their homes. For the 1%ers like us the nice renovated house with pool in the private backyard backing onto a big ravine and 20 minutes from work will do fine.
Re: #48 Kenchie
I find your responses to always be humurous – thank you.
You, like many others with previously held ingrained beliefs, will find a way to justify what is really happening around you.
Mars bar sizes shrinking is ‘healthier’. OK. Why not keep the sizes larger, and let consumers decide to EAT LESS of it?
Your reasoning is flawed. The sizes are getting smaller because prices are rising. Raw material input costs are getting higher.
I have been predicting, privately, for some time that the way all this is going to be marketed is it’s ‘a healthier and more convenient way to eat/drink’. Look at coke can sizes now – they are all marketing the smaller size.
And your believing this ‘pig virus’ is responsible for the MASSIVE increase in pork costs is laughable as well. My uncle grew up in Poland under the Soviet Union and he said they had a new excuse every week about why food was scarce. Everything we’re being bombarded with on a daily basis on television is EERILY similar to that. ‘global warming, polar vortex, some new virus affecting meat supplies, drought, etc.’.
If this was a supply/demand issue, supply would drop (slightly), prices would rise (slightly), more production would come online, and prices would fall again. But that ISN’T what’s happening. What’s happening is a constant gradual increase in prices ACROSS THE BOARD in ALL areas.
Quit trying to use your beliefs to conform reality around them. Instead, use reality to diagnose what is really happening.
I still feel like you’re going to take every bit of logic I just said and turn it on it’s head because it doesn’t conform to your world view, but at least I tried. The fact that both examples I gave – shrinking packages AND decreased quality of ingredients – both immediately refute the accuracy of government inflation statistics (without even going into detail about how they fudge the numbers in other ways) is blatantly ignored.
http://www.bostonglobe.com/lifestyle/food-dining/2014/02/11/the-incredible-shrinking-package/Ti6VwQCCcg0whLdr8bHnyJ/story.html
http://consumerist.com/category/grocery-shrink-ray/
************
Re: #51 Mercantilist
Whoever reads this will be smarter than most Phd economists on the basis of why a currency’s value is important:
You’re wrong. A weak currency hurts everyone that holds it. Japanese citizens have been irreparably harmed by it.
A weak currency only temporary helps exports. Current inventory can be sold off at lower prices on the international market.
But what happens next? The producer of the goods now has to buy raw materials on the international market with a weaker currency.
That means their raw material costs go up. That means their finished product export prices must rise to accommodate those increased costs.
That means we’re back to square one.
Except now, we’re worse off than before. Why? Because the equipment wasn’t upgraded. The equipment they use to make the finished goods costs more. There was no incentive in the rapidly depreciating currency environment to invest in ‘capital equipment’. The only incentive is to SELL constantly before the next currency devaluation happens.
If they had a strong currency, they would instead use their profits to invest in new capital equipment. They would seek to extract healthier future profit margins from increased efficiency in the production of their finished goods.
That means that in spite of a stronger currency, they could actually sell their finished goods FOR LESS because it was so cheap to produce. Machinery upgrades, efficiency upgrades, economies of scale, and a more productive/trained workforce would bring costs down.
And ESPECIALLY for Japan a strong currency is needed. They are an island nation with almost no domestic supplies of raw materials. They have to import everything, add value to it, and then export it. The amount of ‘value added’ that they create is what they are able to earn on the international market. The amount of value added is directly proportional to the productivity of their economy.
Their economy has been completely ravaged by the demented Keynesian policies their leadership has embarked on. Over 200% of GDP in debt, massive inflation, and a declining population. Socialism destroys the family unit as people come to depend on government for assistance, rather than family members.
What a tragedy. Keynes is up there with all the other evil people in history – Stalin, Hitler, etc.
You have flipped. — Garth
@#101 Cato the Typist
It’s a shame that your “verbal” diarrhea is so voluminous. My “scroll bar” finger gets a tad cramped rushing past your paraniod ramblings.
It must be a busy world in there.
If you live in Alberta, you have balls on the back of your truck. If you live in Ontario, you write a post like Lorne did above
There is no inflation. People all around the world are loaded with debt that they cannot repay. The lower price of commodities is signalling that a depression is coming and people are running of spending money.
This is why Belgium is talking about a minimum guarantee wage. The only way now to generate inflation is to give money directly to people. This is why Japan and Belgium are looking at such alternatives.
Talking about Canada economy without talking about oil seems strange to me. It seems to show a lack of understanding of what the Canadian economy is.
The Canadian economy is a housing bubble, mixed with automobile bubble, supported by high oil price.
Because of the cold climate, the Canadian economy will never have strong industrial base because of the cost of heating. Same with Russian.
http://www.weather.com/safety/winter/news/winter-storm-cato-news-and-impacts
Winter Storm Cato is blowing hard and dropping pellets that form huge piles of crap that must be shovelled away.
Sounds just like this blog.
Yo yo ya’ll:
Greetings from Central Kalimantan, blog dawgs!!
Funny, no housing bubble here….?
Time for another Bintang.
#99
But that $3000 in lost income a month would be needed to pay the rent and other life incidentals, unless your going to live free somewhere.
Ahmed, dude you should be happy. I am ( and probably many more people) in the same boat.
Think of it like this. They are always talking about you. Imagine, if you buy a house, you will be normal. Just like them. Enjoy the spot light.
#74 Snowboid on 11.26.14 at 11:18 pm
“Your are so right, here from the trenches of the Valley of the Sun…”
I’m not saying it’s not probably a great place to live, but maybe there should be fewer people doing it: http://www.azfamily.com/news/Report-warns-of-looming-water-crisis-in-Arizona-246800721.html
The low cost of services may be artificial.
Ah, you know what- Arizona will likely be able to build enough solar capacity to power some serious desalination. I shouldn’t let myself worry about things I can’t control anyway.
Garth
Just an anecdotal evidence but a friend posted the other day that prices in Whistler have decline precipitously. Have you seen real data about this?
Love the blog and you sense of humour, great style.
Ahmed is here in Canada only for 5 years (immigrant, i believe), only earner in the family, saved $237K in 5 years ($3950 per month), pay $2050 for rent, have three kids. If we assume other cost is $1500 per month…so it comes $7,500 after tax income per month.
Wondering is he a doctor? or he found a great formula for saving?
#100 Lorne
Hahaha.. Burlington…. Hahahaha
#101 Cato the Elder on 11.27.14 at 9:16 am
“And your believing this ‘pig virus’ is responsible for the MASSIVE increase in pork costs is laughable as well. […] If this was a supply/demand issue, supply would drop (slightly), prices would rise (slightly), more production would come online, and prices would fall again. But that ISN’T what’s happening.”
You don’t say. A lot of your economic analysis seems to be a few centuries old, when Farmer Jones would notice that pork prices were higher, and decide to raise two more pigs and one fewer cow than last season. Today, an efficient swine operation costs several million dollars to start, and few capital allocators are going to spend that to get into a low margin business with temporarily high prices. Also, you may have heard the one about how nine women can’t get together to make a baby in one month?
“A weak currency only temporary helps exports. Current inventory can be sold off at lower prices on the international market.
But what happens next? The producer of the goods now has to buy raw materials on the international market with a weaker currency.
That means their raw material costs go up. That means their finished product export prices must rise to accommodate those increased costs.”
You need to do the analysis consistently either in a stable foreign reference currency, or in the devalued local currency. And you need to account for the costs of labour, for fixed plant which is at least partly local in all but the poorest countries, and for financing costs.
An uncharitable person would say your above analysis deliberately ignores labour and other costs and conflates local and foreign prices, but perhaps you’re just confused.
To the Vancouver guy. Like Garth said, you have enjoyed freedom all along. You made money from selling your previous property. What more is there to say? You have rented all these time, I don’t see what’s wrong with keep renting and enjoy that freedom you have there.
To Ahmed, I think you have truly messed up. You could have bought a house back in the $300’s but you chose not to. Buying it at $550k now pretty much means wiping out your $200k saving, or in another perspective, you worked for free for the past 5 years. I wouldn’t buy it now at the peak. Think about this, your kids will eventually move out, and you will turn 65 before a new mortgage can be paid off. If the market continues to climb, you are shielded by renting. If the market goes down, at least you don’t have to go down with it. So, renting would be the smart choice at this point.
“No oil output cut”
And with that ladies and gentlemen, it gives me great pleasure to announce that Calgary housing market is DONE.
#102 crowdedelevatorfartz
Is this you?
http://youtu.be/_D87w9NhGlg
#electronicverbaldiarrhea #crowdedelevatorfartz
The OPEC meeting is soon and it looks like America is in cahoots with the OPEC nations to sink Russia. This could be the end of Fort McMurray and the rest of Alberta. It’ll take the Albertans years to figure out what a person of average intelligence could figure out in one day or less. So the Albertan housing market might have upwards of 2 years to go before it collapses.
Re: #101
You have flipped. — Garth
**********
Garth, I like you. I think that you’re principled. But I challenge you to refute, with tangible real world evidence, that what I said in that post was not true. Official statistics are not accurate – we both know the government has the capacity to lie – your access to it’s inner workings has taught you that first hand.
Package sizes ARE shrinking. This is a hidden price increase on the consumer (inflation). In several of the few examples I have given, it ranged from 5-25% per year. Quality is also decreasing, evidenced in the building sector with things like copper piping being replaced with pex plastic, and 2x4s now being 1.5×3.5″.
Weak currencies ARE bad for economies – especially tiny islands that must import everything. Weak currencies mean your citizens can buy less with their money. When and where and what time period in history has that ever been good?
Keynes = Hitler. You’re an idiot. — Garth
#46 thenameisdagame: “#29 Lillooet, BC
Nice one Garth….I mean who would want to live in a place that used to be called Cayoosh Flat!”
**********************
Kelowna wants to improve the image of RUTLAND. A name change might do it. ;-)
But every time the subject comes up, there’s an uproar by those who remember Mr Rutland (may he rest in peace).
Can’t win for losing….
#95 Rexx Rock
That’s not true. The central banks don’t coordinate with the media to confuse consumers. It’s the media that jumps to conclusions and the central banks have no way to defend against them. Over here in the UK, every Q&A session following the inflation report is the same. 70% of the reporters ask the same question in as many ways as they can phrase it: When will rates go up? The BoE answers the same way each time: when we see a reduction in the output gap, real wage inflation and employment supported by data to show it’s sustainable. The media then goes out and interviews “economists” as to what they think that means. Economist says rate will rise by “[pick random month of random year]”. It’s supported by nothing. This then goes out as a news release. Next quarter the process repeats itself with a different “economist” and a different prediction. Why doesn’t the media just report what the Bank actually says? Because it’s boring and no one wants to hear it. They would rather be lied to by fortune tellers who claim to predict the future.
Ahmed, sit her down with these numbers:
We have $4500 monthly to spend on shelter and on ‘stuff/fun’.
Do you want to spend $2050 per month on shelter and have $2450 left for fun? Plus have $275,000 in the bank.
Or, spend $4500 for shelter and $0 for fun? And, lose access to savings of $275,000?
#104 justeunperdant on 11.27.14 at 9:51 am
Oh … That is why my taxes are going down. Look beyond the bs gov stats for the real inflation number.
Get ready cow town for lots of job loses and bankruptcy for homeowners. Oil will crash to at least $65 making the oilsands a money loser. Canadian RE going to face a world of hurt. It’s over realtors it’s over and many of you have read the internal memo. I have..lol. If you are on RE it maybe to late.
@ #97 I’m stupid on 11.27.14 at 8:12 am
Smoke and mirrors
That’s what it’s become. The house is mortgaged the furniture is financed and the car is leased. Your eating craft dinner and canned tuna because all your disposable income is going to service debt. All the while you post on Instagram, Facebook and Twitter pictures and messages showing your friends you’re a winner.
———————————-
Awesome comment!
#74 Snowboid
Sounds like the “Valley of the Sun” AZ is the perfect winter hiding place! A good choice!
Standing in my garage this morning feeling that 15 degree WI morning, made we wonder, what ARE we doing here?
It is “Thanksgiving Day” here. A simple American holiday much abused these days by retailers trying to sell us more junk we really don’t need but that’s another story.
Glad to hear that most are doing OK, and most have much to be thankful. Really, that is the most important part.
#166 Andres on 11.26.14 at 6:25 pm
——————————————
Yes that is a good point that a small amount of monthly savings can grow into quite the sum over 25 years and be worth a lot relative to buying a house. But, a couple things have to happen in that scenario, #1 you need decent investment returns and #2 house prices cannot exceed inflation. Also, while you’re “renting, saving and investing” over those 25 years, the “mortgagee” pays off the house and owns that. Yes, they might not have the $400,000 in savings, but they have a house…that might be worth double or triple the savings of the renter. Then going forward, the homeowner now does not have to pay a mortgage to live there, while the renter still shells out rent for shelter…..
@ #100 Lorne on 11.27.14 at 9:12 am
For the 1%ers like us the nice renovated house with pool in the private backyard backing onto a big ravine and 20 minutes from work will do fine.
——————————————-
That is so cool that you live so close to work!
Know what is even better? Not having to work.
It’s simple, Ahmed. Ignore what the in-laws are saying and follow logic, not emotion. If you can’t ignore them, politely tell them to mind their own business and that you’ll mind yours. As for the missus, kindly explain that you are, under no circumstances, going to financially sabotage yourself and your family just so the two of you will look good in the eyes of your respective families. It’s you who will have to live with the consequences of your actions, not anyone else. If you think that you’ll have to suffer your wife’s wrath, believe me when I tell you this, but she will respect you more as a man if you stand firm and don’t let a hissy fit scare you into screwing yourself financially. Good luck!
#116 Cato the Elder on 11.26.14 at 11:18 am
Cop is 210lbs 6’2″ he’s hardly small.
I saw the so called ‘injuries’ – didn’t look like anything a 300lb raging person would induce. According to the officer Darren Wilson, he felt another blow ‘could kill him’ – do these pictures make you feel the same way?:
===============
Cato, I agree 100% with your take on this. Whoa, I just had to duck to avoid a pig from hitting me as it flew into the air!
Been to Lillooet. No thanks. — Garth
how about Brookmere ?
lovely old KVR watertank there… uh thats pretty well it for infrastructure. lands ‘cheep’ though eh?
http://www.panoramio.com/photo/43125215?source=wapi&referrer=kh.google.com
Cato, mein freund, you’ve got it all wrong.
I even predicted the calamity of 1940s Europe after the rest treated Germany so badly in the wake of the Great War.
http://en.wikipedia.org/wiki/The_Economic_Consequences_of_the_Peace
Without proper intervention in the form of fiscal and monetary measures in the months and years ahead, it really will be…
Deflation Uber Alles.
My, my, the price of oil is in free fall. Those that keep their jobs are finally getting a raise, kinda.
#119 Cato the Elder –
”and 2x4s now being 1.5×3.5″
Now that made me laugh.
@nonplused, post #25:
Your ideal single man’s life reads like something a marketer would say in order to create wants which are perceived as needs. Thus if you are single and worry about what everyone else thinks, you may feel you don’t measure up if you don’t have these things. I am single and have the following:
– A car and bicycle, no motorcycle.
– No interest in sports or pubs whatsoever. The only kind of sports I was interested in are fun things like white water paddling, canoe trips, SCUBA diving, parachuting, mountain biking and other fun stuff.
– Interest in science, nature, technology, economics, investing, and generally what’s going on in the world.
– not employed but more or less retired, helped by my interest in investing and not spending a fortune in pubs. When you are single you have only one income, so you have to manage money wisely.
Otherwise, you are right. When single you have a lot of freedom and flexibility.
Crazyland:
$7500 net a month is ~ $130k/year. I suspect he’s not quite in the Doctor wage level. We net $9k/month in AB and we’re not doctors.
That old pumper sticker comes to mind,, now 67.95 and dropping… There are thousands of Alberta workers living in the Okanagan as well ..
#124
I have been in this O&G biz for 35 yrs in Alta and oil price corrections are always a good thing. It culls the herd and resets our economic reality. Besides Canadians who wish Alberta bad fortune had better remember were the Feds get the bulk of the equalization payment funding.
#26 Obvious Truth – There is a famous quote that answers your question, and explains lots of other things we see here. “A person cannot be made to understand something if their paycheque depends on them not understanding it”
Attributed to: Somebody famous and smart, not sure who.
Oil services sector rocked by plunge in SeaDrill’s stock
http://www.marketwatch.com/story/oil-services-sector-rocked-by-plunge-in-seadrills-stock-2014-11-26
SeaDrill’s stock SDRL, -22.79% the ETF’s 10th-most heavily weighted component, plunged 23%, to the lowest close since Aug. 17, 2009, after the Norway-based company said it was suspending its dividend as it looked to reduce its heavy debt burden. With volume of 84.8 million shares, or 11 times the full-day average, the stock was the broad market’s most-actively traded.
Notice the phrase heavy debt burden
When I am talking about depression, I am making reference to the lack of real growth and long term growth where debt can be repaid. Debt is now growing exponentially and we cannot create enough economical activities to keep the debt growing. We are in a depressionary environment.
We are now in a situation where company, individual, and government cannot service their debt and it is creating a depressionary environment where debt cannot be service and it is shutting down the whole economical system. This is why we see lower commodities prices.
Re: #119
Keynes = Hitler. You’re an idiot. — Garth
**********
Keynesian philosophy influenced many of the dictators of the 20th century.
The middle class of the Western world has been completely butchered by following Keynesian philosophy.
Advocating for government power, less freedom, more taxes, insurmountable debt and inflation led to a lot of suffering for people. Millions have died as a result of wars that were preventable if not for the distortions caused by politicians following Keynesian philosophy.
So I stick by what I said.
Ideas can have incredibly profound consequences. While it may not have been Keynes’ intention, and he may have been a good man, his ideas have been incredibly destructive to the world.
Seems like Harper’s new government hired the number crunchers from CREA.
http://in.reuters.com/article/2014/11/27/us-canada-payrolls-idINKCN0JB1II20141127
Dancing as oil hits $69 and falling. Alberta faces a world of financial pain which will demolish their housing and debt bubble. Many will lose it all.
Garth, you say Lock in, we are on a variable mortgage right now, do you mean LOCK IN before the fed rate announcement of an increase around May? or LOCK IN after the rate increase?
Crude Oil below $70
Love it !!
http://finance.yahoo.com/q?s=clf15.nym
Re: #132 Adolf
Keynesian philosophy advocates for inflating the currency and taking on insurmountable debt.
When you do that, you wipe out the middle class. The middle class becomes despondent. The middle class becomes susceptible to radicalism out of desperation.
That is what happened in Germany in the 30s. The inflation that raged there made people desperate enough to listen to a madman like Hitler.
Now, before the Treaty of Versailles, and before WW1, many governments were listening to Keynes’ advice on this matter. It doesn’t matter if he disagreed with the Treaty’s provisions – his philosophy had already ingrained itself in too many of the decision makers’ heads.
Prior to WW1, distortions were being created that unfairly benefit certain issuers of currency over another. In that day, it was Britain who benefited, and Germany who suffered.
Today, the prime beneficiary is the US and it’s reserve status in the world. The conflict in the Ukraine currently is a result of the tensions that arise when the issuer of the day abuses it’s power. Russia is trying to unburden herself of it by transacting oil for rubles, and the US doesn’t like that. It is creating a situation where a war may be necessary. This is the end result of Keynesian philosophy.
The problem with Keynes is he was naive. He thought that you could have an activist government that does not inevitably lead to requiring violent force to coerce an unwilling population. History has proven he was completely, irrefutably, and totally wrong.
All governments that have subscribed to his philosophy for decades have grown massively. They now involve themselves in every facet of our lives from telling us what we can ingest to how we can run our businesses. Now, other more deeply held freedoms like speech, jury by trial, and protections against torture are under siege. Why? Because centralization REQUIRES no resistance – from anywhere – not even criticism. There must be complete adherence to the planners’ plans.
While this is mostly manifesting itself in the US, it is starting to creep it’s way up here. Look no further than the dangerous legislation being proposed after the attack in Ottawa which has nothing to do with protecting us against terrorists, as it has to do with protecting the government against Canadians (by spying on them).
This is the danger of Keynesianism.
Ahmed,
The next time the subject of houses comes up, start talking about your investment portfolio instead. Brag a little bit! It doesn’t even have to be true. Tell them you made a killing in Apple stock. Say that you shorted oil and cleaned up. They will never know the difference. Sure it doesn’t seem honest, but what the hey. This is no different from people buying houses and cars which they cannot afford and then acting rich. Most people are full of crap.
Cato:
“What a tragedy. Keynes is up there with all the other evil people in history – Stalin, Hitler, etc.”
Totally 100% wrong dude. He’s not even in the same ballpark as these other two, heck, not even in the same league.
Garth,
It might be time for a new reader poll.
Suggested Questions:
(1) How many 50 year old guys would gladly trade in their house for a rental and a younger girl friend.
(2) What is the most effective way to deal with annoying relatives and other busy-bodies that insist on meddling in your financial affairs.
Cato:
“Package sizes ARE shrinking” are you kidding me? You are saying this sort of economic change brought on by Keynes is comparable to the murder of people? You need a perspective change man.
#126 Retired Boomer – WI on 11.27.14 at 11:50 am
It is “Thanksgiving Day” here. A simple American holiday.
Enjoy your Thanksgiving from your Canadian neighbours and friends.
Holy crap. Look out below, Alberta.
A $500,000 mortgage-free home is actually costing you at least $35,000 a year, or $3,000 a month, in lost income. Think better. — Garth
——————————————————-
And that my friends is why you need an investment HELOC if you are in the position to do so.
In other news, a bombshell from Beijing…
Garth, you decide if this is worthy for your blog.
“China has ‘wasted’ $6.8tn in investment, warn Beijing researchers”
Jamil Anderlini in Beijing, FT.com
“‘Ghost cities’ lined with empty apartment blocks, abandoned highways and mothballed steel mills sprawl across China’s landscape – the outcome of government stimulus measures and hyperactive construction that have generated $6.8tn in wasted investment since 2009, according to a report by government researchers.
In 2009 and 2013 alone, “ineffective investment” came to nearly half the total invested in the Chinese economy in those years, according to research by Xu Ce of the National Development and Reform Commission, the state planning agency, and Wang Yuan from the Academy of Macroeconomic Research, a former arm of the NDRC.
China is this year on track to grow at its slowest annual pace since 1990, and the report highlights growing concern in the Chinese leadership about the potential economic and social consequences if wasteful investment leaves projects abandoned and bad loans overloading the financial system.
The bulk of wasted investment went directly into industries such as steel and automobile production that received the most support from the government following the 2008 global crisis, according to the report.
Mr Xu and Ms Wang said ultra-loose monetary policy, little or no oversight over government investment plans and distorted incentive structures for officials were largely to blame for the waste.
“Investment efficiency has fallen dramatically [in recent years],” they say in the report. “It has become far more obvious in the wake of the global financial crisis and has caused a lot of over-investment and waste.”
Beijing has in recent years sought to move from its investment-heavy, credit-dependent growth model to one that relies more on consumption and services.
But slipping growth rates this year have seen it fall back on loose credit and government-mandated infrastructure investment to prop up the economy and ensure steadily rising employment.
Much of the investment in recent years has been funnelled into real estate projects, but apartment sales and prices have fallen this year, leading to fears of an impending property crash. Most of the industries that feed the real estate sector, such as steel, glass and cement, are awash with overcapacity and have been hit hard by the property downturn.
Misallocation of capital and poor investment decisions are not the only explanation for the enormous waste in China’s economy. A significant portion of China’s post-crisis stimulus binge was simply stolen by Communist Party officials with direct responsibility for boosting growth through investment, according to separate estimates by Chinese and overseas economists.
For the past two years, President Xi Jinping has been engaged in a wide-ranging anti-corruption inquiry that has engulfed thousands of officials.
Jonathan Anderson, founder of Emerging Advisors Group, the consultancy, estimates that about $1tn has gone missing in China in the past half-decade as a result of weak oversight and the enormous opportunity provided by the investment boom. “That translates into maybe 5 per cent of GDP per year worth of skimming off the top,” he says.
“Think about it: every local government wakes up one morning in 2009 and finds that the central authorities have lifted every single form of credit restriction in the economy,” he says. “With no one watching the till, it would be awfully hard to resist the temptation to sidetrack the funds, squirrelling them away in related official accounts or paying them out through padded contracts to other connected suppliers and friends.”
#92 Tony – anyone who is that sure they know the direction of rates is very likely to be someone you *don’t* want to listen to…
“As your funds grow, you can add lesser weightings in XEM (emerging markets) or XCS (small-cap Canadian companies)”
This is from a post several days ago, but when do you think is a good point to add these lesser weightings. What does “as funds grow” really mean? Is it 100K, 200K, 500K?
Why not go for broad Canadian market from the first place? like VCN (or similar) instead of XIU/XSP?
156 Mike S on 11.27.14 at 1:54 pm
“Why not go for broad Canadian market from the first place?”
VCN is composed of less than 10% small-cap. If 20% of your portfolio is Canadian equities, that’s a miniscule part. You might do better with 5% (or whatever- but a more meaningful amount) small cap Canadian, so you’ll need a different fund.
Garth – can you please do an updated write up on Alberta tonight (or tomorrow?). Would like to read what your thoughts are on real estate, and economy in Alberta, based on current and future oil prices.
“Mark you’re an idiot. Back to the 900 billion bullshit again. Purely nonsense. Stop it already. You sometimes say something sensible and then destroy it by stating a bunch of rediculous nonsense. Quit embarrassing yourself.”
$900B is not bullshit, nor nonsense. It is the amount of CMHC subprime mortgage insurance/re-insurance that they’ve written (~$600B of insurance, ~$300B of 90% re-insurance of 3rd party subprime mortgage insurers). So the embarrassment falls upon you, for what obviously was a lame attempt at trolling.
“Why not go for broad Canadian market from the first place? like VCN (or similar) instead of XIU/XSP?”
XIU has the advantage that it is treated preferably for the purposes of margin borrowing, compared to most other Canadian ETFs. Not that everyone would use a margin/leverage strategy, but there are many reasons to consider using margin (ie: borrowing to buy a car, for instance, far cheaper than one can borrow from a bank) occasionally.
Also, at some point, there might be a shake-out in the Canadian ETF industry with the smaller ETFs culled. But since XIU is Canada’s largest mutual fund, very unlikely it would suffer such.
#154 Kenchie
“‘Ghost cities’ lined with empty apartment blocks, abandoned highways and mothballed steel mills sprawl across China’s landscape
These new cities were built to house the connected / 1%’er citizens of the world after the old cities of London, Paris, New York and Moscow are destroyed by WW3
Watch the movie 2012 : http://www.imdb.com/title/tt1190080/
In the movie the world commissioned China to build the “arks” to house humanity but in reality China built these “ghost cities” to house humanity.
~This tin foil hat makes me see everything~
Re: #148 None
Then you do not understand what Keynsianism represents. Once you start to centralize processes, it can not be stopped. Eventually everything must fall into line. Why do you think governments around the world love Keynes? It promotes their own agenda of increasing state power. As a result, we have been progressively having our freedoms taken away one by one incrementally.
There was a time where we paid no income taxes, where paper money wasn’t issued by private authority, where education wasn’t dictated by the state, where we didn’t pay property taxes, where we didn’t have to ask permission to renovate our own property, when we weren’t banned from ingesting substances, etc. the list is too long to name. Of course, it’s all done out of concern for our ‘safety’ – that was what all the dictators said too.
I’m not saying Keynes was a bad person. His philosophy is evil though because of what it ultimately leads to. People don’t want to work and not receive the fruits of their labors – yet in a centrally planned state, coercion must be used to compel them to do the planners’ bidding.
We must also take into account the amount of suffering economically that has occurred from all the policies implemented worldwide. Hundreds of millions if not billions affected by this false economic model. Pensions destroyed, savings destroyed, nations completely indebted, families ruined by inflation, starvation, massive misallocation of capital, recessions, depressions, etc. There are many ways people can suffer from these ruinous policies, and not just through war.
Here’s a quote from Keynes admitting his ideas are most effectively implemented under a dictatorship:
“The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a TOTALITARIAN state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. ”
And that, ladies and gentlemen, is why we are getting the big government we have. It is because his ideas are best implemented with violent authority that we are trending in that direction.
https://en.wikipedia.org/wiki/The_Road_to_Serfdom#Summary
https://www.youtube.com/watch?v=y8l47ilD0II
https://www.youtube.com/watch?v=gPJWwiKnYGs
To all the idiots laughing and happy about low oil prices keep that in mind when ur an old fart waiting a year for a specialist surgery or MRI or when thy start taxing rrsps. Dumbasses
#119 Cato the Elder
Package sizes ARE shrinking. This is a hidden price increase on the consumer (inflation). In several of the few examples I have given, it ranged from 5-25% per year. Quality is also decreasing, evidenced in the building sector with things like copper piping being replaced with pex plastic, and 2x4s now being 1.5×3.5″.
******
Lumber Dimensions
2x4s are not actually 2 inches by 4 inches. When the board is first rough sawn from the log, it is a true 2×4, but the drying process and planing of the board reduce it to the finished 1.5×3.5 size. Here are the common sizes of lumber, and their actual sizes.
http://mistupid.com/homeimpr/lumber.htm
#148 None on 11.27.14 at 1:25 pm
”Totally 100% wrong dude. He’s not even in the same ballpark as these other two, heck, not even in the same league.”
I would go further : keynes was in a completely different sport….
Ahmed, my friend. Remember (and keep repeating it to yourself when those pesky relatives keep butting in:
An insult is like a drink. It affects one only if accepted.
#138 Drill Baby Drill
I have been in this O&G biz for 35 yrs in Alta and oil price corrections are always a good thing. It culls the herd and resets our economic reality.
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Well I don’t have nearly the years in the game as you do but, I completely agree. I have been saying for a long time now a slow down might be nice to trim the fat, but a lot of people will be cut deep.
As for my take on what’s happening in America these days, lies lies lies. They didn’t build all those FEMA camps out of the goodness of their hearts to put people to work. They haven’t changed the laws and given ultimate authority to the state in times of emergency for nothing. America is right on the brink of being a totalitarian police state, all they need is a catalyst.
Ever wonder why the IMF already has a name for a new currency should it be needed? SDR’s or special drawing rights. The name does suit their style of printing money out of nothing though. Don’t worry they can bail us all out. Hmmm is that thinking ahead, or PLANNING ahead.
Now I know I’m gonna get chirped as a conspiracy nut, but really if one can believe government stats as gospel, why not take a look at the other side of the coin?
Governments have been known to lie especially when their books are cooked
#149
1. Maybe a younger rental girlfriend.
2. I tell everyone I’m broke.
While at the bank the other day, and being somewhat nosy, I thought I’d ask about the debt ramifications if a 500K 5% down residential mortgage sold for less than was paid 3 years prior. What happens to the debt?
The answer.. I have no idea! I’ll get someone who can help you.
Enter a scrubbed young lad from behind a kiosk.
After hearing the question he said.. that’s a good one, I don’t know, I’m not in mortgages..I’ve only been with the bank for 3 years.
ok, well do you think rates will start inching up next year as rumored?
I haven’t heard..
is there anything else I can help you with?
new rule: never seek info from a bank guy that doesn’t yet shave.
#154 Kenchie on 11.27.14 at 1:45 pm
In other news, a bombshell from Beijing…
Garth, you decide if this is worthy for your blog.
“China has ‘wasted’ $6.8tn in investment, warn Beijing researchers”
Jamil Anderlini in Beijing, FT.com
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And were expecting what?
Somebodys gonna get a hurt!
http://www.youtube.com/watch?v=yVcePxjFujs
#144 paulywolly on 11.27.14 at 1:02 pm
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He means use your crystal ball and lock in the day before banks raise their 5-yr fixed.
#141 Cato the Elder
“Keynesian philosophy influenced many of the dictators of the 20th century.”
j.d. salinger influenced the man who shot lennon–but few would say this makes salinger evil.
It’s American Thanksgiving today, but I am feeling thankful recently.
Thankful that our little baby was born healthy and is thriving, despite the required C-section and the recovery that entails for mom.
Thankful that mom’s kidney stone issues appear to be over, despite occurring three weeks after birth.
Thankful that, with a layoff occurring a two weeks after baby’s birth, we have EI to assist, and savings to carry us for a few months before we touch investments.
Thankful for the job opportunity that has come up. More pay, longer commute, hope it works out.
Thankful for our health, and to be living in Canada.
It’s strange, with all the stuff that has come up, I can only be glad for things not being worse.
That last sentence wasn’t quite right. The sentiment I was trying to express was that, with the not-so-great stuff that has come up, for some reason I remain positive and grateful for the blessings we do have.
wow, energy TSX down like hell today. Told you to seellllllllllllllll
http://www.financialpost.com/markets/sectors/index.html
Totally oil-related. Stick to your craft beer label collection. — Garth
fall in oil price to $60s reveals very weak economy in world AND USA. Rosenberg: USA is running closer to 2% GDP now.
Falling oil will ignite the US. — Garth
“PLEASE HELP and write me something which can be a motivation for me again as I am weakening.”
REad this:
Speeches & Testimony
Remarks by Thomas M. Hoenig, Vice Chairman, Federal Deposit Insurance Corporation: A Credible Case for Resolving Through Bankruptcy Presented to the George Washington University Law School conference on Financial Stability After Dodd Frank: Have We Ended Too Big to Fail?; Washington, DC
November 5 , 2014
https://www.fdic.gov/news/news/speeches/spnov0514.html
https://www.fdic.gov/about/learn/board/hoenig/capitalizationratios2q14
Re: #155 Ben on 11.27.14 at 1:51 pm
Then don’t believe the bond market in America either.
I thought sharing this blog with the coffee drinker seniors would bring new discussion to our daily meetings at the coffee shop.
Unfortunately everyone is hanging around a computer anxious to read Cato the Elder. The coffee shop is empty.
The petrodollar has been dying and will accelerate it’s passing.
rtner, the US of A.
As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their “petrodollars” out of world markets this year, citing a study by BNP Paribas (more details below). Basically, the Petrodollar, long serving as the US leverage to encourage and facilitate USD recycling, and a steady reinvestment in US-denominated assets by the Oil exporting nations, and thus a means to steadily increase the nominal price of all USD-priced assets, just drove itself into irrelevance.
Cato ,
Have you read this chapter? Also What about all the “rigging” going on such as libor,forex, HFT trading (wash trades ) commodities etc etc.
John Maynard Keynes
The General Theory of Employment, Interest and Money
Chapter 12. The State of Long-Term Expectation
Canada’s Job Growth At Zero, Says Latest Contradictory StatsCan Survey
http://www.huffingtonpost.ca/2014/11/27/job-growth-canada-unemployment_n_6232336.html
In September the StatsCan labour force survey said 74,000 jobs were added. Now their own actual data shows a loss of 600 jobs from August to September.
http://www.statcan.gc.ca/daily-quotidien/141127/t141127b002-eng.htm
The 74,000 jobs number was always laughable. It’s a figure that is triple the rate of US job growth, and their numbers in a global context are questionable. It really must be different here.
At $69/barrel oil and falling, how much longer the Alberta housing market got?
Garth:
First- I must admit I come for the twisted pictures; I stay for the financial advice.
To the point, my question: Just as stocks appreciate in value, and may also offer dividends (which in and of themselves may not be much), it is the combination which adds up, so can you explain why it is inaccurate to think of owning and renting a home (from a financial perspective) similarly?
For example- Ahmed’s rental in Mississauga costs $750K, and the rent (before taxes, and expenses) brings the owner about $25K/yr in income- about 3%. If we also consider the appreciation of the home- say 4% per annum- we get 7%- given, there are expenses, but the house is tax-free, so couldn’t this be a similar case as with stocks?
Many thanks
until few days ago a didn’t know who are Hayek and Keynes, now that i know lets watch this.
epic battles Hayek and Keynes
https://www.youtube.com/watch?v=d0nERTFo-Sk
https://www.youtube.com/watch?v=GTQnarzmTOc
Garth,
Would like your thoughts on the more global long term implications of things like the growing trend towards currency swaps and the planned BRICS bank.
Such as the accuracy of this non-bullion licker article on the declining petrodollar:
https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20141127/RBRICRUDE
Seems like CIBC is advertising 2% savings account now (for new deposits) I wonder why they do it? out of funds to finance ever increasing variable mortgage pool?
#158 JSS on 11.27.14 at 2:48 pm
Garth – can you please do an updated write up on Alberta tonight (or tomorrow?). Would like to read what your thoughts are on real estate, and economy in Alberta, based on current and future oil prices.
what’s there to write about? houses are a religion here in alberta. those few who will suffer the temporary oil-prices slump will rather eat cardboard than sell for less. so, while re prices might not rise at the same pace they most certainly will not fall. this being said I do believe that the 20% correction is long overdue – but is just not going to happen.
” If we also consider the appreciation of the home- say 4% per annum- we get 7%- given, there are expenses, but the house is tax-free, so couldn’t this be a similar case as with stocks?”
Long-term housing appreciation, and that is, if and only if regular maintenance was performed and properly performed, is around the rate of inflation. Closer to 2%, not 4%. Net imputed rent has to be added to such for a total return, and net imputed rent is, on average, around 3% in Canada today. For a total long-term implied return of Canadian RE on the order of 5%/annum.
Stocks’ returns more closely resemble, over the long term, the average current earnings yield (currently around 6-7%), plus the nominal rate of economic growth (which tends to be in the 3-5%/annum range). For a long-term implied rate of return, at current valuations, of 10-12%/annum.
Now, 10%/annum in stocks versus 5%/annum in housing might not seem like much, but over the span of 30 years, the guy who bought stocks instead of buying housing will have 4X as much wealth. Even if the government takes some of that as capital gains tax, it still remains a very wide gap in wealth creation nonetheless.
So, while re prices might not rise at the same pace they most certainly will not fall. “
Are you kidding? First of all, RE prices in Alberta have been falling for the past few years, the consequence of oversupply. Secondly, as new oilsands projects are increasingly cancelled, the available labour pool to work on building even more houses will increase, driving down costs and driving up availability of new supply. Additionally, there will be the obvious impact to incomes from a loss of value in so much of Alberta’s primary production.
The early 1980s bore this out, as did the oil price collapse of 2009. So to claim that prices will not fall is something more akin to delusion. Housing is, like oil, just another commodity, and just as easily as prices can soar on shortages, prices can collapse on surpluses.
I encourage men to go as young as possible.
Speaking from experience, there’s very little difference in maturity between a woman who is 35 vs. another who is 20.
Housing is, like oil, just another commodity
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except housing in van and toronto. otherwise yes.
but you want to live near the beach(van) or the center of the universe(to) land no longer becomes a commodity , but a truly differentiated product. diversidied, stable and supply constrained.
#87 Nemesis on 11.27.14 at 1:42 am…
Thanks for the turkey song!
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#109 Rational Optimist on 11.27.14 at 10:35 am…
No doubt there is less water in the lakes feeding Nevada and Arizona water sources (and the Colorado river).
And it’s hard to believe, but there is no restriction on water use here, despite living in the desert.
But many cities, including the one we live in, have been diverting water into underground aquifers for years now.
We are used to water restrictions (from Kelowna and even Victoria), and maintain desert landscaping in our yard, with minimal water use.
I think you would see water restrictions here before it hits a crisis level.
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#126 Retired Boomer – WI on 11.27.14 at 11:50 am…
It’s going to be hotter here today than forecast, 88F/31C, may have to crank up the AC again!
We aren’t shopping today or tomorrow – already got our ‘deals’ in the last couple of weeks, so a quiet day to enjoy some good food and give thanks, including to the wise professor, who steered us into financial security.
#192 Snowboid: “We are used to water restrictions (from Kelowna and even Victoria), and maintain desert landscaping in our yard, with minimal water use.”
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It’s coming to the Okanagan. Eventually. Ya can’t teach old dogs new tricks so it’ll take a number of years…until water costs wake people up and they finally get the message. Gawd, people are stupid….
Xeroscaping is actually so much more interesting…adding garden ornaments, waterfalls (using recycled water) and so on. Great expanses of grass is totally boring!
Those HELOCS in the States that are now nearing their ten year mark. The time when the principle has to be nibbled at, looks not so good. Especially in a rising interest rate environment. Would the FED take this into consideration before raising rates? HELOCS in Canada would be a bigger burden too with rising interest rates and a depreciating asset.
Cheers.
#192 Snowboid
I think you are wise top stay away from the retailers this weekend. Too crazy in most places.
As for the wise professor, who steered you into financial security. I would think that would be the bearded one who has warned all of RE excesses here. Certainly his advice is good, for those who listen. Naturally, there are scoffers in the crowd, but following his overall advice myself here in the U.S. I must say the results have been, well spectacular!
Not having to worry about something as silly as money, is one of the results of listening, learning, and acting on good advice.