The willful idiot

BIKER modified

“My partner and I,” says Jeremy, “are looking into buying a new home.  I’m really glad I stumbled on your site now. I read a few of your posts and things started to become quite clear (that I have no clue what I am doing and have been a willful idiot for most of my adult life).”

Jeremy’s in Vancouver, where the average property now costs about $830,000. Even in Toronto realtors are telling virgins they need at least $700,000 for an ‘entry-level’ house – and that won’t even get you a detached in most of 416. Van’s worse.

“Basically I’m writing because I want to take control of my life and what I’ve got,” he continues.” My savings are in a TFSA/mutual fund around the 30k mark and I have no clue what to do with it.  I’m in the Architecture profession so my disposable income is laughable so I’d like to make good use of what I’ve got.  I’ve just had a coffee — it is midnight and I’m on a mission to read your entire blog.”

I have no idea if he consumed all 1,900 posts overnight. If so, he’s likely dead. My advice will be irrelevant. But on the chance he survived, Jeremy deserves to be spanked for even thinking about buying a house with net worth of just $30,000. Sadly, however, our rapacious bankers make such things possible.

For example, you need only 5% down to get conventional bank financing, which would be about $40,000 in Vancouver. And while Jeremy and his squeeze don’t have enough, they can borrow the rest – on a personal line of credit, with a loan, or putting it on their plastic. They can find a lender who offers a cash-back mortgage, in which case they get free money but a slightly elevated interest rate. They can withdraw from the Bank of Mom.

The necessary mortgage insurance can be added to the mortgage principal, so no cash is required. Land transfer taxes are reduced or waived for first-timers. There are even federal and provincial tax credits and grants just for virgins.

The point is, the system has made it ridiculously easy for people to walk into the massive debt required to buy. So even a self-avowed willful idiot like J can end up with a house, despite lacking enough to cash-buy a decent car.

No wonder banks are rich. RBC, for example, made $9 billion in profits this year – up about 8% from 2013. Half of all that came from personal and commercial banking, and much of that was from a massive mortgage portfolio. But as I pointed out yesterday, change is in the wind.

This week even the nation’s largest bank admitted housing is overdone and 2015 may be the year everyone feels it.

CEO David McKay now says prices could fall by 15% as interest rates start their inevitable ascent. “There could be some price correction, particularly in a rising rate environment,” he said Thursday. “I don’t see it to the extent that the Bank of Canada does, but I do think you could have a 10 to 15 percent price correction.”

McKay was referring to the central bank’s musing that big-city house valuations are too high by up to 30% – roughly the drop that caused the US middle class to collapse under its own debt load. He’s also acknowledging there’s no way rate hikes in 2015 will be avoided, or that they’ll be temporary. Those who think otherwise are simply not paying attention to the US economy’s fundamental strength, or the fact Canada cannot resist raising rates for long after the Americans pull the trigger. If it did, the loonie would be done like dinner.

Moreover, the RBC guy says all of this – higher rates and cheaper houses – is healthy for the economy. “A slowing market is absolutely a healthy thing right now, so we’re not concerned.”

He’s right. Rates will go up. Property values will come down. It’ll be good for the long-term viability of Canadian society. But it will also kick the crap out of many people who (like Jeremy almost did) borrowed excessively, bought more than they can afford, and have virtually no equity. Even a 15% correction would put them seriously under water, destroy their personal net worth and saddle them with a giant, expensive and illiquid asset. About the last thing a young person needs.

As for the wrinklies so many angry kids on this blog love to disparage, this also sucks. Maybe worse. Most of them don’t have corporate pensions nor are they public servants. Most have surprisingly little saved or invested. Most have plowed their net worth into a single asset. And half believe they’ll have no choice but to sell or downsize in order to generate a living income. So, what happens if prices fall and markets slow just when they need to bail?

Years ago I wrote about the two groups who would eventually be most at risk when the inevitable occurred. Years later, I’m still at it. Maybe I should just get a life.

156 comments ↓

#1 TurnerNation on 12.19.14 at 7:18 pm

How many of Mark’s posts are on billable hours? Tsk tsk.

#2 God on 12.19.14 at 7:22 pm

I love you Garth…but not in an inappropriate or awkward way. No, because of all that you have taught me in the last 12 months vs what I never learned in the last 12 years of school. I think everyone who visits this blog has benefited enormously from your FREE advice and have probably save themselves tens of thousands of dollars in potentially bad investments because of it.
I know you don’t advertise on your site or whore thegreaterfool.ca out in any way but I thought it might be nice if we did some additional good from all that free advice that you give away each year. I have sent you a cheque for $100 (a pittance of what you have saved me) to say thank you for doing what you do and for all the abuse you take from various Cement Heads who miss the whole point of your message. Please donate the money to the animal charity of your choice and again, thank you.
And if any other reader (or Cement Heads for that matter) cares to do the same…
Merry Christmas everyone!

#3 Cy on 12.19.14 at 7:22 pm

First. RBc profits to be 5bil in 2015!

#4 Smoking Man on 12.19.14 at 7:26 pm

Love the pic, If I had a dollar for every time I’ve ended my evening at Seneca just like that kid, I’d be even richer.

As far as rates hikes, 3 years away I’m thinking. All this falling price talk is fear of an insane spring market… Let’s take away some demand.

#5 Mark on 12.19.14 at 7:27 pm

“Moreover, the RBC guy says all of this – higher rates and cheaper houses – is healthy for the economy. “A slowing market is absolutely a healthy thing right now, so we’re not concerned.””

Healthy for the economy all right…. RBC’s “economy“, since they obviously have enough foresight to realize the bubble won’t last forever and have positioned themselves accordingly. It will be the RBC’s of Canada raising the rates as applicable to their own not-so-credit-worthy mortgage borrowers. Not the central banks who are now embroiled in a deflationary quagmire.

Now that I think of it, the whole sequence of events is rather playing out like the Great Depression. Overcapacity in the growth sectors (ie: oil, real estate, etc.), leading to falling prices, and a self-reinforcing spiral of decreased credit availability further suppressing prices. Own insurance against such, whether high quality bonds, or the precious metals/miners accordingly.

How many of Mark’s posts are on billable hours? Tsk tsk.

That’s not the model I work on. Hours are a very poor measurement of output or the usefulness of the “product” in most knowledge-based occupations anyways.

#6 North Burnaby on 12.19.14 at 7:39 pm

The new wave of wealthy Asians looking for save haven to invest is coming to beautiful & politically stable British Columbia!!

#7 crowdedelevatorfartz on 12.19.14 at 7:42 pm

An Architect?
They still exist?
I thought that they were all hunted to extinction by “designers”.

#8 crossbordershopper on 12.19.14 at 7:44 pm

there is major problems with the welfare and odsp cheques and all this blog talks about is real estate, interest rates, bla bla bla.
do you know how many families have no food tonight due to the lesbo’s blunder over a software change.
very little press, very little, but in hamilton 20 thousand families and over 70000 people dont know if they are going to get a cheque, no food, no bus pass, etc.
stocks go up, stocks go down, rates up, rates down, bla bla bla. poverty is everywhere i see in east hamilton.
middle class people going to the mall to buy gifts for each other, perhaps go to a single mother home and see what her kids are having under the tree, oh ya, no tree, no presents, and little food. the reality of many people be it christmas or not.

#9 sideline sitter on 12.19.14 at 7:44 pm

But, if you get a life, what are we supposed to do?

#10 Russ L on 12.19.14 at 7:44 pm

Hey all,
Can someone please spell out, clearly, what is meant by the move to financials? (as per the recent bleating)

Is commodity based ETFs considered “financials” or does this mean the financial sector… maybe even including bonds?

I’m okay on the illiquid portion rule of 90, mortgage-free RE is a home, not part of a retirement plan.
I have cash to do some balancing and a desire of some clarity to follow the plan.

Cheers

#11 Happy Renting on 12.19.14 at 7:51 pm

But Garth, if you quit now, you’ll miss all the years of getting to write, “I told you so!”

#12 AACI Home-Dog on 12.19.14 at 7:54 pm

I can`t believe his eyes would/could be open in that photo…ouch !
Merry Christmas Garth & dogs !

#13 Not Spending on 12.19.14 at 8:07 pm

All is not well in Aussie land either.

The WA State Govt is threatening massive job cuts and increases in taxes as a result of the slump in Iron Ore price.

The budget was based on $122/T, and at its current price in the 60’s, the shortfall is ~ $2B.

And the mass exodus of people out of WA as the mining boom winds down is incredible.

But as they all say over here, it won’t happen to us – we’re different over here, something will come along and pick us up.

#14 Vancouver ,,,really ??? on 12.19.14 at 8:17 pm

Met a newcomer from china once not too long ago and guess what he said….wants to own 20 properties before he retires he says.

#15 Uh Oh Canada on 12.19.14 at 8:17 pm

“I have no idea if he consumed all 1,900 posts overnight. If so, he’s likely dead.”

Garth, that line cracked me up so much I nearly wet my pants. Been a long time since I laughed so hard. Thanks for the comedy.

#16 Ben on 12.19.14 at 8:19 pm

Lower prices are good for the economy!

Do you want land speculation to be the best paid job in Canada? They’ve been getting paid more than doctors for two decades.

Choose what kind of society you want to live in and put pressure on your local politicians.

#17 prairie person on 12.19.14 at 8:21 pm

I keep saying to myself, Garth is right. What he says is logical. And then I go for a ride around town and I see mansions being torn down and being replaced by bigger mansions. And not just one but all over the place. I know the doomer who, for whatever reason, keeps saying don’t buy in Victoria, is probably right but there are still sold stickers in my neighbourhood. These people obviously don’t read Garth. Two of my friends who put their houses up for sale and are renting had no trouble selling. I know this is all anecdotal but I still haven’t seen any realtors working as baristas. The windows at a mortgage company at the Uptown mall are plastered with offers of cheap money. Cars are going off the dealer’s lots at a dizzying rate. Oil field workers in their twenties are coming home in 60,000 dollar trucks. I’m sure there are young families out there in suburbia who can barely pay for groceries but you wouldn’t know it at the malls. Even the downturn in the market hasn’t slowed things down. Maybe we’re the Costa Concordia about to happen. But if the hull is being sliced open by a reef, nobody can hear it for the music.

#18 mark on 12.19.14 at 8:25 pm

“I have no idea if he consumed all 1,900 posts overnight. If so, he’s likely dead.”

LOL

#19 HD on 12.19.14 at 8:26 pm

“Most of them don’t have corporate pensions nor are they public servants. Most have surprisingly little saved or invested. Most have plowed their net worth into a single asset.”

Balanced portfolio value – 170k
Fed Government pension plan – Check
Age – 30 yrs old
House/RE – 0

It can be done. Some are listening.

Thanks Garth for this valuable platform and advice.

Best,

HD

#20 RealistvsExtremist on 12.19.14 at 8:27 pm

RBC does not even have a chip”n”Pin VISA card yet cuz they are too cheap to bring it in unlike the rest of the planet earth. RBC cares about sticking it to people with fees and that’s it. Now that they are not making as much in RE, the fees fees fees will be a coming you can bet on it.

#21 Smoking Man on 12.19.14 at 8:31 pm

#2 God on 12.19.14 at 7:22 pm
I love you Garth…but not in an inappropriate or awkward way. No, because of all that you have taught me in the last 12 months vs what I never learned in the last 12 years of school. I think everyone who visits this blog has benefited enormously from your FREE advice and have probably save themselves tens of thousands of dollars in potentially bad investments because of it.
I know you don’t advertise on your site or whore thegreaterfool.ca out in any way but I thought it might be nice if we did some additional good from all that free advice that you give away each year. I have sent you a cheque for $100 (a pittance of what you have saved me) to say thank you for doing what you do and for all the abuse you take from various Cement Heads who miss the whole point of your message. Please donate the money to the animal charity of your choice and again, thank you.
And if any other reader (or Cement Heads for that matter) cares to do the same…
Merry Christmas everyone!
……

I got say kid, you have potential, very nice thing to do..

I did the same kind of thing.. I’m on record saying.

After I publish my book, it becomes a world wide best seller, I go on to fame and fortune, I’ve authorized Garth, he can publish my deletes. Sell em. Keep half, Rest to Charity..

#22 Realties.ca » The willful idiot on 12.19.14 at 8:33 pm

[…] Source: http://www.greaterfool.ca/2014/12/19/the-willful-idiot/ […]

#23 Nemesis on 12.19.14 at 8:51 pm

#WillfulIdiots&OtherMenWhoStareAtGoats… #TrueGhostStoriesForAssortedYuleLogEggNoggins…

“You mean the guys who sacrifice goats?” — Garth

Seriously. That was MajorFunny. I don’t much about embroidered aprons and unusual handshakes… but I do know a thang about Goats.

http://youtu.be/LS-jutv-rh0

#BonusDuchovnyGoats

http://youtu.be/iJiz3SsY9fE

(NoteToGT: “Wow. Rolling Stone.” — Hon.Garth; Seriously?… Come on, you know you always, always, really, really, really wanted to see your… http://youtu.be/npxRpGguGGI – if it helps, I could have a chat with AnnieL – I’m thinking she’d really dig Bandit&D…)

#24 Andrew Woburn on 12.19.14 at 8:57 pm

122 Things Everyone Should Know About Investing and the Economy

http://www.fool.com/investing/general/2014/12/12/122-things-everyone-should-know-about-investing-an.aspx

#25 Lumberjack arch on 12.19.14 at 8:57 pm

Smoking man is writing a book?
People already saw fear and loathing in Las Vegas and costco sells toilet paper, so we don’t need any printed words from you……cheers hunter!

#26 Andrew Woburn on 12.19.14 at 8:59 pm

The Conventional Wisdom On Oil Is Always Wrong

http://fivethirtyeight.com/features/the-conventional-wisdom-on-oil-is-always-wrong/

#27 JSS on 12.19.14 at 9:00 pm

Will the big six Canadian banks still be profitable if house prices drop 15 to 30%? What will be the impact on their common share dividends?

Yes, they will be profitable, but perhaps less so. They will certainly continue with existing dividends. Cutting them would be costly for share valuations. Remember that no bank reduced a dividend during the GFC. — Garth

#28 Andrew Woburn on 12.19.14 at 9:02 pm

Why Millennials aren’t buying cars or houses, and what that means for the economy

http://www.theatlantic.com/magazine/archive/2012/09/the-cheapest-generation/309060/2/

#29 devore on 12.19.14 at 9:02 pm

#24 Andrew Woburn

122 Things Everyone Should Know About Investing and the Economy

122?! Is there a “…for Dummies” version?

#30 Vancouver ,,,really ??? on 12.19.14 at 9:08 pm

DELETED

#31 Jon on 12.19.14 at 9:08 pm

So, Garth I’ve been following for you for years. I think I have your general thesis figured out. If I understand it correctly; you think that Real Estate is a great investment these days. Particularly in Vancouver, Calgary and the GTA right? Especially condos with parents helping to pay fort he down payments?

#32 For those about to flop... on 12.19.14 at 9:14 pm

Hey Bottoms_Up another kid killed in Surrey.
I,m not moving to Surrey you can shove it up your bottom!

#33 Gypsykid on 12.19.14 at 9:19 pm

#8 Crossbordershopper
This is an investment blog, that’s why we’re talking about real estate and the stock market.
And really? “Lesbo?”
You don’t sound like a nice person at all…no gift for you.

#34 Smoking Man on 12.19.14 at 9:24 pm

#25 Lumberjack arch on 12.19.14 at 8:57 pm
Smoking man is writing a book?
People already saw fear and loathing in Las Vegas and costco sells toilet paper, so we don’t need any printed words from you……cheers hunter!
………..

Hunter S Who…. Is what I’m thinking.

Now this guy, wow.

Charles Bukowski
Absolutely amazing…

Our style, thoughts, prospective.. Identical…

His technical superior, but thanks to the education system, there are zillions of interns I can hire to fix it up for free…

#35 Vancouver ,,,really ??? on 12.19.14 at 9:26 pm

DELETED

#36 Obvious Truth on 12.19.14 at 9:26 pm

The more I talk with bankers the more scared I get. I’m no doomer but the extent of the lending combined with what has been happening in the economy is disturbing.

Now realtors are saying people can sustain a decline and houses are just homes.

There’s always a sales pitch. It’s hilarious.

Only a small percentage of the population respects garth.

Most will mock instead of admit their failures. Like realtors. Change is hard. It usually only happens when forced.

As an aside. I don’t agree with everything mark writes. But that’s a good thing. And what’s so bad with being a little underemployed if you’re trying to make your own little part of the world a better place. We’re going to need it.

#37 Washed Up Lhwyer on 12.19.14 at 9:37 pm

Lumberjack Arch

Thanks for recommending “After the Crash” by Turner. Went to Coles Bookstore at the Peter Pond Mall in Ft. McM but they don’t have it. Was hoping to start reading it on my flight from YMM to YYC tonight. Had to settle for a Louis L’Amour. Either that or a scientific treatise on fracking by Ezra.

An incident at the Ft. McM airport this afternoon. Flights delayed. Article in Edmonton Journal. Frayed nerves of a fly-in/fly-out worker? Hope not.

I am anxious to begin my solstice celebration with the kids and the Wind Neath My Wings.

Best wishes to Garth and the Dawgs for the season. Peace.

WUL

#38 Vancouver ,,,really ??? on 12.19.14 at 9:38 pm

DELETED

#39 paja on 12.19.14 at 9:39 pm

In 2015, there will not be any interest rate hikes in US or in Canada because financial markets have bets on the long term zero interest condition and we have come to know that financial markets never lose. Also, the high office holders like Central bank chiefs, Fed governors are politicians who want to keep their job by keeping the markets up.

#40 Mark on 12.19.14 at 9:42 pm

“Will the big six Canadian banks still be profitable if house prices drop 15 to 30%? What will be the impact on their common share dividends?”

Not only will the big six Canadian banks be profitable, their profits are likely to accelerate as they’ll be able to jack up the risk premia charged to borrowers who are closer to being explicitly subprime than ever before.

As an exercise, take a look at the shares of the big-6 in the period 1990-2000. All of them tripled. Some even went up 5X. In a period of a substantial RE decline and not even a full rebound.

I personally believe the downside risk for the big banks is largely political in nature, and I believe that the next wave of consolidation in the Canadian banking sector is going to involve the big-six procuring, at the behest of government or opportunistically, a significant number of financially troubled credit unions. After all, the big-6 have swallowed up most of the independent investment dealers and most of the smaller banks in the long-term path of the Canadian banking sector towards consolidation.

Why would the credit unions be financially troubled as housing continues to fall? Because, by their very nature, they are not diversified (ie: only operate in one small area), have a higher cost of capital (which they advertise as higher “interest” for their depositors), and tend to concentrate themselves in the highly vulnerable small business and construction lending side of banking. Additionally there’s one reasonably well known credit union that is still offering 0% down mortgages, long after they were banned from CMHC subprime insurance. With the obvious implication that they’re taking outsized risks in the housing market (and the provincial banking regulators are either blind/ignorant, or are simply deliberately asleep at the switch).

#41 Retired Boomer - WI on 12.19.14 at 9:47 pm

Not sure to laugh, or cry? The “architect” has around 30K in his TFSA and is thinking about buying a new home.
“New” as in a replacement for the one you already own, or “new” as in replacing the landlord? Unclear…

Uh, with what, exactly? You haven’t got much of a pot to pee in, besides you’ll need that meager start for old age.

So, now you have to work on saving up a down payment, or do you have equity in an ‘old home?’

Jeremy, you sound broke to this reader. I often misread things here, but let me guess if I am close on this.
You don’t currently own a home. You rent a place. The home idea is nice, but ridiculous in your circumstances. You don’t enough for a new Chev Impala, which depreciates wildly, but IS big enough to live in.
You didn’t make clear any other debt, but first things first. Before you buy another dam thing, make sure you have no debt! Zip, NADA got that one?
Then figure you need to fund your golden years, unless you have a surefire plan of NOT reaching them. No hedging here, either you croak early, or starve slowly.

Assuming you plan to go geezer someday, it helps to have dough. Start with 15% of your net for geezer savings. If you get any match from an employer all the better.

THEN you save up for a house from the 85% remainder.
Can’t handle that idea? You aren’t homeowner material, FAIL… rent for the duration.

Besides, if you followed that idea in 5-10 years you might have enough for the then reasonable down payment, after houses retreat, oceans rise, and the world is a hell of a lot different looking than today. Besides, you might even be earning more money!
Hey, glad I could offer my advice.

#42 Washed Up Lawyer on 12.19.14 at 10:00 pm

Cripes. Can’t spell the name of my profession. It is not Lahyer. It is Attornee. Is SM contagious.

Out,

WUL

#43 Chickenlittle on 12.19.14 at 10:15 pm

#36 obvious truth:

I think almost everyone who reads this blog is a doomer in some form. We have everything from a “soft landing” to Armageddon.
I’m sure the RBC mafioso are hoping for rate hikes. Cue the new yachts.

…………

I just finished my first 2 months in a kindergarten room. My brain is killing me after trying to make a bunch if square pegs fit into the round hole that is Full Day Kindergarten.
It’s so sad to see strong, healthy, active boys labeled a problem. These kids would have been great on a farm doing chores, but now with our sedentary lifestyle they are a “problem”. Sigh. I can’t do it. They don’t need school they need parents.
…………….

Any advice for a chick that needs to buy a new car in the next year or two? My Honda is 12 years old and has 250k. ..I could be good for a while but who knows.

#44 SWL1976 on 12.19.14 at 10:16 pm

I have no idea if he consumed all 1,900 posts overnight. If so, he’s likely dead. My advice will be irrelevant.

You do have a way with words Sir Garth, that one made me laugh out loud

Best wishes and happy holidays. Always an interesting read here at the Greater Fool

This blog and its comments section should end up in a museum some day for future generations to look back on and study

Big props to you Garth, you created an almost living breathing beast of a comments section that provokes plenty of interest and thought

All the best to all the blog dogs out there to…

Boomers, Gen X’ers, Millennial’s, remember we’re all in this together and it’s not fair to generalize.

Stay safe this holiday season

#45 Tony on 12.19.14 at 10:22 pm

Re: #10 Russ L on 12.19.14 at 7:44 pm

It’s time to move 100 percent to cash if you already haven’t. You either have to pick your spots or get in at the start of a long trend. The trend is to worldwide lower interest rates like Japan but probably longer than the next 20 years. The rare car market seems to be picking up. Invest in rare European cars.

#46 don on 12.19.14 at 10:22 pm

#17 prairie person on 12.19.14 at 8:21 pm

People are still buying in Victoria, mostly young without a clue.

As for the sold signs staying up… Watched a realtor put up a sold sign in one condo in an empty complex. Three months later and no one living in any of them, even the one with the sold sign…unregulated realtor advertising. Reality is upside down at the moment. As for realtors, my sis in law stopped 1.5 years ago, and my current landlord had to stop being a realtor, no sales. Victoria has wealthy retired folks so what you may be seeing in some of those sales. My brother and sis in law just brought…I tried, but apparently they listened to those who lived through the last housing wreck and forgot it happened. Oh well…..

#47 Lumberjack arch on 12.19.14 at 10:24 pm

Haha sweet maybe you can rip off his persona too! more material to fuel your frequent bullsh!t ramblings! Cheers! smoke another one bro!

#48 East Van on 12.19.14 at 10:30 pm

Falling Oil Prices Could Rock Canada’s Politics:

http://thetyee.ca/News/2014/12/18/Terry-Lynn-Karl-Interview/

#49 East Van on 12.19.14 at 10:32 pm

Pure stupidity:

http://www.vancouverobserver.com/news/harper-government-leaves-321-million-green-programs-unspent-while-overspending-oil-and-gas

#50 Lumberjack arch on 12.19.14 at 10:32 pm

#37 washed up lawyer

You might want to borrow that one from the library!
It’s more for entertainment purposes now , you’ll see why

#51 East Van on 12.19.14 at 10:34 pm

The future Vancouver:

http://i2.wp.com/spatialities.com/wp-content/uploads/2014/09/Vancouver_ForWeb_20140929.jpg

#52 fred on 12.19.14 at 10:40 pm

oil prices will stay low for two more years.

not sure if garth commented on that in recent posts.

#53 waiting on the westcoast on 12.19.14 at 10:44 pm

#43 chickenlittle

Keep it until you hit 350k… That’s what I did. Early 2000 Honda’s don’t leak oil – amazing… ;-)

Of course, you won’t get marks for being the cool kid…

#54 TEMPORARY® Foreign Prime Minister on 12.19.14 at 11:01 pm

“…..No wonder banks are rich. RBC, for example, made $9 billion in profits this year – up about 8% from 2013…..”
=========================

And, in an effort to keep those billions coming, I received yet another form letter today (so much for those paperless statements saving trees) from my Maroon Bank of Commerce encouraging its debt-bombed customers to remain drowning in interest-sucking debt by lowering the minimum payment on a Line of Credit from 3% to 2% of the outstanding balance.

#55 waiting on the westcoast on 12.19.14 at 11:04 pm

#44 Mark on 12.18.14 at 9:46 pm

My initial comment about your beliefs with respect to the Canadian $ rising…
“Mark – you appear to think that Canada operates in isolation and the BoC will do what is best based on our own internal metrics but I think the need to prevent the $$$ from sliding to far south will outweigh the internal pressures.”

Your response..

I personally doubt the CAD$ will be much of a problem in the future. If anything, keeping the CAD$ down will be very difficult for the BoC in the environment going forward. The bond market seems to agree with me, as despite the CAD$ weakness, it has been bid back to record highs recently (ie: record low yields).
As we’re reminded almost every month with the StatsCan surveys, leverage is anything but under control.

So please, let’s put this “foreign money” myth to rest once and for all. Houses are being bought by Canadians, with large amounts of credit. This is solely what pushes up prices.

My follow-up now…

Mark – my point is that the spread on yields have a significant effect on the forex of a currency. Currencies are not valued against some “eternal measuring stick” but each other. Therefore as the US increases interest rates, so will we or face a declining dollar. Granted, it is not necessarily a fact that raising interest rates will assist the exchange rate (especially short-term) but it is generally a typical outcome. If we are forced to increase rates to help preserve the exchange rate, it will put enormous pressure on our power capita debts. So either or dollar tanks or we raise rates and feel the pain.

With respect to the paragraph about foreign money, I assume you are referring to the other poster regarding rich immigrants. If you have read my posts, I do not believe that foreign buyers of our houses make a market.

On the other hand, if you are tying my post about forex to the some “foreign bogeyman concern”, you are not as well informed about international economics as you profess.

#56 Spaccone on 12.19.14 at 11:21 pm

>#20 RealistvsExtremist on 12.19.14 at 8:27 pm
>RBC does not even have a chip”n”Pin VISA card yet[…]

I’ve had an RBC Visa with a chip for quite a while now. Not even sure how long it’s been.

#57 Mark on 12.19.14 at 11:22 pm

Thanks for the response. Here’s my comments on your points.

“Mark – my point is that the spread on yields have a significant effect on the forex of a currency. Currencies are not valued against some “eternal measuring stick” but each other. Therefore as the US increases interest rates, so will we or face a declining dollar.

The theory that I’ve seen out there is that all currencies trend, through arbitrage, to a common “total return” in constant currency terms. Therefore, when a currency has a higher explicit rate of interest associated with it, the implicit assumption is that the underlying currency itself will devalue.

Of course, the USD/CAD pair is that — a pair, and the relative deflation in each economy must be compared and contrasted with each other.

Canada is on the cusp of a serious decline in housing prices. House price declines in the US are also likely, but nowhere near the same extent as Canada. The long term point of equilibria is for houses to be priced relatively similar on both sides of the border. Hence, the argument is, deflationary forces in Canada (ie: currency strengthening) will be substantially stronger than seen in the United States. Leading to a much higher Canadian dollar.

“With respect to the paragraph about foreign money, I assume you are referring to the other poster regarding rich immigrants. If you have read my posts, I do not believe that foreign buyers of our houses make a market.”

My apologies, that paragraph wasn’t intended in response to your specific question, but was rather an editing mistake as I scrolled up to edit the response to you and for some reason, it didn’t all come together properly.

Unfortunately the blog has neither an edit, nor a preview function, so I will have to do the proverbial mea culpa on such.

I concur with your concluding remarks completely, that there is no “foreign currency boogeyman”.

#58 4 AM Sunrise on 12.19.14 at 11:24 pm

#20 RealistvsExtremist on 12.19.14 at 8:27 pm

I’ve had an RBC Chip and PIN Visa card for at least 4 years: http://www.rbcroyalbank.com/credit-cards/chip/

Are you writing to us from America? I hear they’re a little slower on Chip and PIN adoption.

And if you’re bitter about their fees, why don’t you take their Statement Challenge and get yourself a cool $50, no strings attached? http://www.rbcroyalbank.com/open-an-account/mass-statement-challenge/index.html

#59 Mark on 12.19.14 at 11:38 pm

“And, in an effort to keep those billions coming, I received yet another form letter today (so much for those paperless statements saving trees) from my Maroon Bank of Commerce encouraging its debt-bombed customers to remain drowning in interest-sucking debt by lowering the minimum payment on a Line of Credit from 3% to 2% of the outstanding balance”

That’s all? TD cancelled minimum payments (except for interest) on most ULOC’s years ago. Recently they’re sending out letters increasing the applicable interest rates on customers who draw from such facilities, even without any meaningful negative changes to their finances.

#60 Smoking Man on 12.19.14 at 11:47 pm

#47 Lumberjack arch on 12.19.14 at 10:24 pm
Haha sweet maybe you can rip off his persona too! more material to fuel your frequent bullsh!t ramblings! Cheers! smoke another one bro!
……..
Go back to the archives, I’ve do pages and pages on the art of bullshit. It’s a valuable tool for success, we are programmed to be honest by our overlords, they value the customer list and go to extreme lengths to insure competition is held in check.

Humans are so predicable. Your hostility toward me is school yard tactic that doesn’t work on a free mind.

Garth must get a kick out of posters like you, you suck up to him cause he’s some what of a celebrity. Not realizing this parliamentarian wore cowboy boots to work, Said no to power and was bounced. His crime this blog. Watched his buddies he thought he had in the house walk past him in the hallways like he didn’t exisist, only privately saying HI.

Your one those guys but don’t know it.

If you are not the centre of your own universe, your a slave. And every time you chirp a free spirit, you demonstrate your inslavement.

I’m Proffecer Smoking Man, the leading authority on herd dynamics..

#61 prairie person on 12.19.14 at 11:55 pm

#46 don

The houses that took me by surprise were in Uplands. Big mansions torn down. Bigger ones going up. I assume the owners aren’t people who need mortgages. I live in a modest neighbourhood. Houses come up for sale and the sold sign is up pretty quickly. The only thing that has been for sale for a long time is a vacant lot. I don’t know what they are asking but it must be overpriced. Two other lots, neither very desirable, both sold. One has a house half way built.

#62 Smoking Man on 12.19.14 at 11:58 pm

55 waiting on the west coast and Mark

Reading your banter is like being in God damn school again..

It’s like this, investing, life, everything is a bet.. A bolen..

True or false
Yes or No
Won lose
Black white
Hole stick

Throw in your calculus, algo’s, winning losing is a 50/50 chance.. Plus or minus a few points

Understanding the herd..and betting on that almost always wins.

Heads or Tails boys..

#63 Julia on 12.19.14 at 11:58 pm

Breaking news! http://www.thebeaverton.com/national/item/1695-gingerbread-housing-market-expected-to-crumble

#64 Lumberjack arch on 12.19.14 at 11:59 pm

#61 smoking man

Lol you should be called rambling man…..have another drink and creep out the young waitress some more, she doesn’t like you she just wants a big tip ahahaha

#65 Rick Shaw on 12.19.14 at 11:59 pm

If one only has 5% down, CMHC insurance premiums, as of 2013, were 2.75% of the total loan amount. $700k-5% deposit= $665k + $18288(added to 25 year amort) That extra $18k equates to roughly an extra $27k over a 25 year amortization(based on 3% interest rates which WON’T last 25 years)

#66 Mark on 12.20.14 at 12:05 am

“A central bank afraid of debt deflation will not keep rates at levels engendering more debt.”

Credit-worthiness is now the issue that lenders will look at when writing loans, particularly with house prices going down. We’re constantly reminded that Canadians’ debt ratios are off the charts. Central banks, including Canada’s, traditionally lower rates to induce commercial banks to lend in environments otherwise deemed not to be particularly creditworthy.

Eventually something will come along, a demand driver in the Canadian economy, and rescue the economy from the deflationary abyss. But it could take a while. In the 1930s, it was WW2. In the early 2000s, it was the CMHC putting the pedal to the medal on issuing subprime mortgage insurance. This time around, who knows what it might be — no particular sector with the sort of depth and breadth of exposure to average Canadians similar to that of the housing market exists, although stocks are reasonably widely held.

#67 Smoking Man on 12.20.14 at 12:10 am

#65 Lumberjack arch on 12.19.14 at 11:59 pm
#61 smoking man

Lol you should be called rambling man…..have another drink and creep out the young waitress some more, she doesn’t like you she just wants a big tip a hahaha.
……

I always tip them well, some are special, they get a big one.

#68 Rick Shaw on 12.20.14 at 12:15 am

At this point, the longer you keep your entire net worth in real estate, the further you confirm the fact that your good fortune was pure luck and/or accidental. Just ask all the ex-hippie boomers in Kits how much number crunching went into their purchases. Before Yaletown was Yaletown, people were buying 99K condos on quickly made mounds of dirt extending into the ocean because they were cheap.

#69 Yannick on 12.20.14 at 12:20 am

I don’t think people are buying $800K houses with 5% down and CMHC.

$4000/month payment after tax. For 25 years…

Only people buying detached are those that got into the market before 2009 or recent immigrants with a lot of cash.

#70 Yannick on 12.20.14 at 12:22 am

@Mark

I don’t read your posts. Too many.

Think things through then post once or twice a day.

You are a ‘know it all’, but jokes on….

#71 Smoking Man on 12.20.14 at 12:37 am

So I crash that Xmas party last night, I vowed to pace myself, the after party is always better. I asked for a Jd, damn bartender gives me the honey version..

Never had it before, man did it go down nice.

Doubles then triples, I was like a waterless marathon runner that crossed the finish line, now give me a drink..

I was kissing men, I told a slighty large woman, an older woman how spectacular her top was, then went on to telling her what a night at hotel would be like with me. I was trying to make her feel good about herself. This Intel came to me this morning second hand as I have no recollection of it.

I knew the after party wasn’t in the cards for me, rubber legs, quad vision, my intire goal was to make it to a cab..

And I did.. I demand he take me to south side johnny’s, he wakes me up, inspite of the fact my eyes where wide open..

Shit what are we doing at the airport…

He says you told me to come here, you where catching a flight to the north pole.

So I make it home, I’m pasted out at 9pm.

What I’ve learnd, I should always drink alone.

Shit, probably going to have HR all over my ass, If I’m not fired already..

#72 Retired Boomer - WI on 12.20.14 at 12:40 am

Went to the company Christmas party last night. Fun seeing all my former work mates, and the newer crew. After the party we went to a nearby /irish pub for a couple rounds of drinks.
The boss mentioned they are adding a new position, and asked me if I would be interested. Said, “probably not, I like my life currently.” It hasn’t even been 3 years away yet!
Well, in today’s e mail is the posting for the new job.
Interesting, but no thanks. I had a perfectly good one there, but I wanted to retire! I could afford it, that’s the power of F-U money as it’s called. Well, they seem to be having problems finding ‘well qualified’ candidates these days. – (sigh)

#73 Mamma Mia on 12.20.14 at 1:43 am

#25 Lumberjack arch on 12.19.14 at 8:57 pm

Smoking man is writing a book?
People already saw fear and loathing in Las Vegas and costco sells toilet paper, so we don’t need any printed words from you……cheers hunter!
———————–

No book – he says this over and over – everyone at the globe and mail got tired of hearing this story years ago, so he left.

#74 gioirgio on 12.20.14 at 1:51 am

Sorry dreamers but interest can,t go up till this economy goes up and ain,t happening if anything they will go down like Europe and houses will go up ,keep listening to this old looser he doesn,t have the guts to post my messages anyway!

#75 NEVER GIVE UP on 12.20.14 at 1:52 am

RBC interest rate forecast into 2016.
How much damage will this do to real estate if it were true?

http://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&sqi=2&ved=0CDAQFjAA&url=http%3A%2F%2Fwww.rbc.com%2Feconomics%2Feconomic-reports%2Fpdf%2Ffinancial-markets%2Frates.pdf&ei=kw2VVPzZM8apogSs-oCICw&usg=AFQjCNG56_Rl2sELX0kkVwIxD0Ukx5Jxqg&bvm=bv.82001339,d.cGU

#76 grasshopper on 12.20.14 at 1:53 am

Instead of prices of real estate decreasing 30%, how about the dollar depreciating 30%?

What we export/produce is worth more. But imports cost more so we consume less, or manufacture the product in Canada. Is that a bad thing?

“there’s no way rate hikes in 2015 will be avoided, or that they’ll be temporary. Those who think otherwise are simply not paying attention to the US economy’s fundamental strength, or the fact Canada cannot resist raising rates for long after the Americans pull the trigger. If it did, the loonie would be done like dinner.”

My prediction: interest rates stay low for a prolonged period and the loonie decreases against the USD.

Besides, if interest rates are low, “investors” are forced to invest in riskier ventures.

#77 BG on 12.20.14 at 2:20 am

Yeah get a life Garth!
Just like me, reading your blog in the middle of a Friday night.

#78 Basil Fawlty on 12.20.14 at 2:25 am

“Those who think otherwise are simply not paying attention to the US economy’s fundamental strength…”

If the US economy is fundamentally strong, why have they not raised rates? Why wait?
In addition, since when is increasing rates a cure for deflation? In the early 80’s rates were cranked to 18% to cure inflation. Now we are being told that rate increases are a cure for deflation.
Does anyone else hear the theme from the Twilight Zone?

#79 SWL1976 on 12.20.14 at 2:32 am

#43 Chickenlittle

It’s so sad to see strong, healthy, active boys labeled a problem

—————

Now you get it.

I grew up on a farm and those were the best days of my life. The nanny state we are in really bothers me, but it is what it is. Kids should play in the mud and get dirty, and if they don’t do their chores… Well there should be consequence.

As for cars… Hondas are great. I don’t care what I drive as long as it get me where I want to go, is reliable, and most of all paid for

#80 Steve French on 12.20.14 at 3:15 am

At Chek Lap Kok. En route.

Jees Vietnam is one big bundle of energy. And Hanoi has such an advanced culture.

Pulling in Saturday night. My half sister, who loves wine, Malcolm Lowry and Bob Dylan, is going to have a roast beef and Yorkshire ready to go for my arrival at 2 am.

I call her the Smoking Woman.

#81 LowFatOil on 12.20.14 at 3:42 am

Last year, I read that there was such a shortage of housing & rental apartments in Fort MacMurray, that workers were even renting “walk-in-closets” for $800/month.

Yesterday, I looked on Kijiji – Alberta – Fort MacMurray …..

Real Estate Section: I saw LOTS of “For Sale by Owner” ads

Apartments for Rent Section: many Ads of empty apartments/rooms looking for Tenants.

“Personal” Section: Looks like a young man needs gas money to drive back to Newfoundland. (really? drive across Canada in the middle of winter? Wow. I’d say he needs more than gas $, he needs plane tickets and a moving van to transport his vehicle.)

Anyway, isn’t Kijiji like the canary in the coal mine that shows the job losses in Fort Mac are real?

#82 RealistvsExtremist on 12.20.14 at 4:09 am

#58 4 AM Sunrise on 12.19.14 at 11:24 pm
#20 RealistvsExtremist on 12.19.14 at 8:27 pm

I’ve had an RBC Chip and PIN Visa card for at least 4 years: http://www.rbcroyalbank.com/credit-cards/chip/

Are you writing to us from America? I hear they’re a little slower on Chip and PIN adoption.
+++++++++++++++++++++++++++++++++

I apologize. I meant and Chip”n”Pin DEBIT VISA card which is of course your checking account. They have had this flimsy plastic thing that works online only but NOT at POS machines. I think RBC is the only bank that does not have one yet. I have a CIBC card that is a Debit VISA card (checking account). Sorry for confusion. And the rest of the EARTH has had Debit VISA cards for over 15 years.

#83 Waterloo Resident on 12.20.14 at 5:22 am

Have you ever seen those morbidly OBESE people eat themselves literally TO DEATH?

They are told by everyone to stop eating so much or they will die, yet they keep eating and eating until one day they just die.
Well, our housing market is just like that, no matter what you say the Canadians just keep consuming housing no matter what.

#84 dangeresque2 on 12.20.14 at 6:30 am

SM – always like your posts and enjoy reading. You usually bring a perspective that I agree with. Who cares if you’re sauced at times, makes the writing into a puzzle and sometimes downright cryptic. Sign me up for the fan club, and let the haters hate!

#85 for Smoking Man on 12.20.14 at 7:26 am

This one’s for Smoking Man…

When I saw this youtube.com item I thought immediately of you. It’s right up your alley since you claim to be such a committed supporter of Jack’s product.

https://www.youtube.com/watch?v=Gyo3QIf9Pg4

#86 Luis on 12.20.14 at 10:55 am

DELETED

#87 Tony on 12.20.14 at 12:00 pm

Re: #79 Basil Fawlty on 12.20.14 at 2:25 am

The whole U.S. economy is based on the premise of tell a big enough lie and the whole world will believe it. Problem is every last citizen of America knows it’s all one big lie. The ruse about raising interest rates is just another laugher when in fact the entire America public knows rates will fall until they turn negative.

#88 Phil on 12.20.14 at 12:25 pm

Hi Garth, have read your blog everyday for years, can’t seem to help myself. Maybe I do it to feel good about my decisions which seem to be working out well- sold the house in 2010 and have been renting, and saving/investing, since. Anyway, one comment in this post struck me when you said J doesn’t have enough “to cash-buy a decent car”. I know the line is clever but seriously, if people who aren’t rich don’t think 30 grand is enough to buy a ‘ decent car’ isn’t this why Canadians are all screwed financially? We have been a 1 car family (yes it’s possible!) for a few years and the Mazda 3 is decent enough! Choices and decisions. Thanks for all the knowledge and entertainment Garth. Merry Christmas.

#89 SwampLily on 12.20.14 at 1:11 pm

The waiving or reducing of transfer taxes in BC for first-time buyers is a bad joke, at least in Victoria, since it doesn’t apply to houses over $500K.

The good news is house prices have been falling steadily here, $50K drops in prices are not uncommon now.

#90 Casual Observer on 12.20.14 at 1:16 pm

“A central bank afraid of debt deflation will not keep rates at levels engendering more debt.”

I wish that were true, however, the default response from all other central banks in the world when faced with the possibility of deflation has been interest rate cuts and/or QE. Why would Canada’s central bank react differently?

#91 Uh Oh Canada on 12.20.14 at 1:42 pm

Garth’s message on buying RE is now popular in the MSM. (This must be a sign that the RE market is collapsing.)

This just in- saving money is the nouveau cool. (Before, this was just called common sense.)

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/if-buying-a-house-is-a-financial-stretch-keep-saving/article22130503/

#92 Tremblant110 on 12.20.14 at 1:51 pm

I am senior professional well into another career. I don’t believe in retirement. I have followed your posts for a long time. Your advice is right on. I have followed it over the years and I have been early into a discount brokerage and ETFs. I liked John Bogle’s advice also. A lot of folks follow you but by far not enough. Poor investment decisions, particularly by the young, can have a devastating long term wealth impact. I too would be glad to make a donation to a charity of your choice if you so indicated the charity on your site. You are making a great contribution and keeping many Canadians out of financial trouble. Thanks for your efforts.

#93 Andrew Woburn on 12.20.14 at 2:49 pm

Maybe there’s more to the problems of Europe than the eurocrats of Brussels. Here’s a comment I picked up from Barry Ritzholz’s blog.

“I live in Spain, and it saddens me no end to read what you and others say about Europe and why it isn’t working. You talk of central banks, monetary policy, more or less QE, the Bundesbank, etc., etc. You should live here, and the problems and their solutions are easy and everywhere to see, unless you are a politician or financial expert.

In Spain, I know a father who is a skilled motor mechanic, but he is 66 years old. He son runs a very busy, successful garage, but as a small business he would like a break or a holiday or a little help from time to time, and his father would be ideal. But the police, yes the police, visit this business regularly to check his employment records. If they found his father working even 5 minutes in that business, they would not only fine him but he would lose his pension.

I know a cleaner lady who earns less than 100 euros per week, who took on a little extra work to help her budget “on the black” and was caught and fined 10K euros. Self-employed people have to pay 250 euros a month “tax” every month simply because they are self-employed. That represents for many over 40% of their total earnings. No wonder they don’t work self-employed willingly. I could go on and on and on. Liberty? It doesn’t exist in Europe.”

#94 CalgaryBoy on 12.20.14 at 2:50 pm

Just doing a search on mls in Regina and tons of listings under $200K!

Early this year, there were hardly any listings under $250K!!!

I am completely shocked!

#95 Mark on 12.20.14 at 3:43 pm

“RBC interest rate forecast into 2016.
How much damage will this do to real estate if it were true?”

My views on interest rates for much of the next decade are probably well known to anyone who reads my comments.

However, I’ve always wondered, do Canadian banks come up with ‘research’ that they make public, as a sort of marketing tool? And research that they use internally for the purposes of running their business?

It would appear that way. Much like is commonly alleged of Goldman Sachs, whereby when they tell the public to “sell gold, its going to $800/ounce”, they’re secretly buying. Perhaps in this instance, RBC is trying to scare the public into higher-spread fixed rate mortgages, when they know that deflation and prolonged periods of low policy rates are coming in response to the deflating Canadian economy.

#96 edmontonian on 12.20.14 at 3:56 pm

In Edmonton here I’ve seen a few condos that were originally advertised back in 2007, then cancelled and restarted a few years ago. Here is an advertisement for a condo now (a highrise condo) that is almost completely build here in Edmonton, Alberta Canada.
https://twitter.com/AlbertaBoy2013/status/546392744772792320/photo/1

#97 omg the original on 12.20.14 at 4:02 pm

(RBC) CEO David McKay now says prices could fall by 15% as interest rates start their inevitable ascent.
———————–

Its getting pretty hard to be a contrarian when everybody (except real estate hacks) thinks housing is going to correct.

So do you think these guys talking about a correction are getting nasty calls from the CREA telling them to shut up about a correction already.

#98 omg the original on 12.20.14 at 4:12 pm

27 JSS
Will the big six Canadian banks still be profitable if house prices drop 15 to 30%? What will be the impact on their common share dividends?
——————————–

I have been watching the The Canadian banks for 3 decades now.

After about the first 10 years my conclusion was;

“Canadian banks don’t lose money, they just raise fees”

#99 YoungBuck on 12.20.14 at 4:21 pm

This greater fool needs some ADVICE:

I am a recently graduated 26-yr student with $20,000 in student loans at 7%.

Would you:

1) Pay down loans aggressively and exclusively, or

2) Pay loan balance down monthly and contribute an equal amount to a “Garth Turner” balanced/liquid ETF-portfolio that is reserved for retirement..….

Thank you, Mr. Turner, for this wonderful blog!

#100 omg the original on 12.20.14 at 4:33 pm

#63 Smoking Man

55 waiting on the west coast and Mark

Reading your banter is like being in God damn school again..
—————–

right-on, Smokin’

If the world worked like the cookie cutter economic theory we got in University all macro economists would be billionaires.

………….things are just too complicated and shit happens.

#101 Entrepreneur on 12.20.14 at 4:37 pm

I guess the picture is suppose to represent the lifestyle of the house buyer, hard landing with eyes open to the debt ratio. Some homeowners in this area are now stuck with the houses that they bought at a high price and cannot sell with their asking price or lower.

They have it backwards in Europe #94 Andrew Woburn. The self-employed are not the ones to be worried about, it is the public workers that work under ground, same here in Canada. They seem to think that it is okay to not claim the extra work since it is not on the payroll. The small businesses has been picked on too long but I guess they are easier to deal with, paper and ink.

#102 waiting on the westcoast on 12.20.14 at 4:38 pm

#63 smoking man… Follow the herd…

While I agree that there is an element to both luck and the herd… My greatest successes have come from contrarian views (against the herd) and sheer hard work.

But hey – I am only semi retired and don’t have the time for living it up at the Seneca. ;-)

Maybe in 10 years, I will be worthy…

#103 Smoking Man on 12.20.14 at 5:16 pm

Rudolph the Red Nose Reindeer, had a very shiny nose, probably attributed to sneaking honey dipped Jack Daniels with the elf’s,. He felt sorry for them. Poor working conditions, the fat bastard could never keep up with these billions of people, he took his frustration out on the elf’s. They tried to make him happy. But he got pissed, which frightened them, they worked harder, they did not want to end up like Rudolf. As for Santa, he just got fatter.

Rudolph was special, different, all of the other reindeer use to laugh and call him names, after all, they were trying to imitate humans, that’s all there was on TV. No shows, or teachers to train the reindeer how to really live a free life..

Elf’s busted their ass, Reindeer hauled cargo.

Because Rudolf was excluded, all he did was drink. Not to numb the pain but to fly. He loved flying. He was destined to live on the out side. No one would have him and he was happy about that.

No longer required to wear that plastic, the enormous effort required to fit, in was not worth it.. He was happy as shit.. Alone in his cave drinking, dreaming about flying..

One day the fat bastard was in a jamb, he needed Rudolf, Rudolf only agreed to help cause he was hammered, and Miss Rudolf was getting on his nerves. A trip around the world, a pit stop in Bangkok was appealing.

The mission was a success , Fat Man praised old Rudolf. The other Reindeer accepted Rudolf, not because he did something magnificent, but we’re terrified of passing of Fat Bastard..

As for Rudolf, rumour has it, he spends his weekends getting shit faced at Seneca, far away from all the other reindeer, Flying HI….

Merry Christmas Bastards.

#104 espressobob on 12.20.14 at 5:23 pm

Funny pic, better known as a ‘face plant’. Cycling humor.

#105 devore on 12.20.14 at 6:05 pm

#89 Phil

I know the line is clever but seriously, if people who aren’t rich don’t think 30 grand is enough to buy a ‘ decent car’ isn’t this why Canadians are all screwed financially?

It’s called a scale comparison. It’s intended to convey that someone without enough money to buy an average car, might actually be perfectly qualified to buy a house. I don’t think Garth is implying this person needs to go out and buy a car.

For your benefit, the real price of a car has been falling for decades.

#106 devore on 12.20.14 at 6:16 pm

#90 SwampLily

The waiving or reducing of transfer taxes in BC for first-time buyers is a bad joke, at least in Victoria, since it doesn’t apply to houses over $500K.

The starter house of old is now a condo, and there are plenty of condos under $500k, even in the heart of Vancouver. It’s not meant for millionaires.

#107 devore on 12.20.14 at 6:23 pm

#94 Andrew Woburn

Self-employed people have to pay 250 euros a month “tax” every month simply because they are self-employed.

This is common in practically every civilized country in the world, because these people automatically qualify for and benefit from universal government programs, while paying no payroll tax that a conventionally employed person would generate to help fund them.

#108 Obvious Truth on 12.20.14 at 6:45 pm

#101 omg

Agree. It’s impossible to predict life on any sort of time frame. Life tests you at every corner. Cause and effect don’t always match up.

Markets are similar. They test everything. They make new rules.

Charts can tell us a lot about behaviour but we need square them with much more to understand risk vs reward. Textbook school stuff is useless in this respect. They impair thinking. Too many variables. Not actionable knowledge. Especially longer term.

I will always say that what guys garth, jack bogle and yes that BRK guy preach seem to always work longer term for average plain vanilla folk.

Personally I just like having a little more fun with it all.

#109 Doug in London on 12.20.14 at 6:53 pm

Oh dear! If Garth got a life and stopped writing this blog, then the rest of us would have to go get a life too! We must prevent that from happening!

#110 espressobob on 12.20.14 at 7:11 pm

#100 YoungBuck

Pay off the debt first! Diversified & contrarian investing is worth the study. Maybe that’s why I enjoy Garths blog. Actually it is.

#111 Smoking Man on 12.20.14 at 7:37 pm

DELETED

#112 Mark on 12.20.14 at 7:50 pm

“Instead of prices of real estate decreasing 30%, how about the dollar depreciating 30%?”

Problem with this scenario is that if the dollar depreciated 30%, interest rates would spike as investors would demand higher rates/more yield to invest in CAD$ obligations. Such would thus produce a RE decline in and of itself. Since Canada is self-sufficient and a net exporter from a long-term trade balance point of view, excess CAD$ depreciation, especially against the net importer currencies (ie: USD$) is not sustainable.

#113 Brian Romanchuk on 12.20.14 at 8:06 pm

#96 Mark

Bank/broker research is produced for their clients; good research is a competitive advantage. The researchers presumably talk to others within the bank, but the decision makers do not have to listen to them.

There is a “Chinese wall” between the public research people and the people doing proprietary trading. The proprietary traders have their own research staff, and their internal reports are not distributed publicly.

If the people producing public research were too closely tied to their firm’s proprietary traders, outsiders would trust the research even less than they do now.

#114 JimH on 12.20.14 at 8:08 pm

#88 Tony on 12.20.14 at 12:00 pm
“The whole U.S. economy is based on the premise of tell a big enough lie and the whole world will believe it… The ruse about raising interest rates is just another laugher when in fact the entire America public knows rates will fall until they turn negative.
=====================================
Wow, Tony! You’ve been gazing into those crystal balls of yours again! How astute!

Now, help me out… please? Tell us EXACTLY how you have invested your piker 5-digit investment account so you can profit from your own sage advice?

You must be so short the American markets that you can sit on a dime… and your feet still don’t reach the floor!

You must be making millions! C’mon! Enlighten us poor fools!

#115 espressobob on 12.20.14 at 8:11 pm

#104 Smoking Man

Rudolf was probably a closet alcoholic. This link is for you.

https://www.youtube.com/watch?v=qYbm096uzEc

#116 crowdedelevatorfartz on 12.20.14 at 8:12 pm

@#104 Smokey the Man

Wow! And i thought I hated crass Christmas consumerism.
Do you mind if I plagerize some of that nonsensical rant for my “Festivus Cards”?

#117 Nemesis on 12.20.14 at 8:36 pm

#IWasn’tGoingDoThis… #Really. #ButIJustKnew… #ThatItWouldComplete… #HommeDuTabagisme’s… #FestiveCelebrations… #JingleBells:TheSordidTruth!:

[CBC] – Jingle Bells Christmas song started as a drinking song written by a ‘jerk’: The truth about Jingle Bells – drag racing, drunk driving, a deadbeat dad and conspiracy theories

…”So how did a drinking song by a deadbeat dad under the thumb of his strict father ever get to be the Christmas song of record?

“There’s people that have really strong conspiracy theories about this song. I really don’t know why people get so impassioned about this song,” Hamill said.

The theory stems from the fact that when Pierpont’s first wife died, he moved to Savannah, married the mayor’s daughter, and became pastor at the church.

During a Thanksgiving service, he led the congregation in a rousing rendition of Jingle Bells. They loved it, and he performed it again a month later at Christmas.

Thus, Jingle Bells became a Christmas song — Savannah’s Christmas song.

One more thing about Jingle Bells.

Some 115 years after it was written in a pub in Medford, Jingle Bells became the first song ever broadcast to earth from space, during a Gemini mission in 1965.”…

http://www.cbc.ca/news/canada/british-columbia/jingle-bells-christmas-song-started-as-a-drinking-song-written-by-a-jerk-1.2874860

[NoteToSmokingMan: You’ve got to admit… that’s quite the bio – and I daresay the ‘Reverend’ Pierpont had no shortage of detractors in his day. JoyeauxNoel!]

#118 Smoking Man on 12.20.14 at 8:47 pm

Christmas is going to suck this year.

I no longer can chirp the family from the safety of my Gazibo, and Jd courage.

I’m terrified of having to give love, to my brother in law and sister in law. Who lost a perfect son.. My pall. Kid I inspired.

We live weird world, when a deranged Palestinian blows up a bus, takes a child, or a isreal Fighter drops a bomb kills, an uncles favorste, ones left behind, it’s tourcher.

Why can’t we all get along… Something seriously FD up with humanity..

#119 Nemesis on 12.20.14 at 9:11 pm

#GEM7fromGEM6… #GEM7! #Houston!Houston!:UNIDENT/UNIDENT/UNIDENT… #LowTrajectoryPolar… #NORAD? NORAD? NORAD?… #OMG,It’sThatBeardedF*****…

http://youtu.be/RmsOmqf7Hso

#120 Smoking Man on 12.20.14 at 10:00 pm

If I ever decide to get into politics I have huge problem.. NSA sees all my Web searches.

At leased 100 a day for sort term rentals. The pricks will black mail me, making me out to be a deviant of some kind.. If I don’t go along.

How do I get out of this at the press conference..

I have a confession people.. I have an illegitimate child my wife doesn’t know about..it was before her. Her name was Claire…

A friend saw her on backpage, I’ve spent every waking moment look for her to save her…

Smoking Man for prime minister any one..

I got game…

#121 gill on 12.20.14 at 10:13 pm

you are pathetic!!!! if you believe what you are writing here………..

life is not over…because of financial markets…

inflation is so high…that you don’t talk stupidity about deflation…for naive maybe…

borrowers are winners anyway and always have been!!!!

#122 Smoking Man on 12.20.14 at 10:19 pm

DELETED

#123 Retired Boomer - WI on 12.20.14 at 10:40 pm

#19 HD

Congrats, my young friend. You listen well, and learn FAST! Well done!

#100 Young Buck

Pay off the student loans in 1-2 years.

THEN feed the investment / retirement portfolio. At your age I would be rather light on bonds 10-15-20% max.

Increase them 1% a year until you hit 40%. Then sit back, and wonder at how well you have done.
NOTE: (This cake takes a LONG time to bake to perfection)

I am amazed at the young having such an affinity to “SAFE” investments. Really, nothing could be further from financial freedom than “safe” bonds, or GIC’s. I guess every generation has to learn it for themselves. These times are hardly safe, and will change again in due time.

#124 Don on 12.20.14 at 11:25 pm

#62 prairie person

People are still buying in Sooke also. You are right about Uplands, only money moving in there – no mortgages required. Victoria has a diverse range of those with money and gov workers feel secure enough to trade up. I know 5 people who recently bought 2 in the 20’s, on in the 30’s and 2 in the 40’s. Not one of them knew anything about the state of the present economy. But sales are stagnating in Victoria, condo’s sit empty and one or tow houses also.

To each their own.

Take care Praire person nice to have you in Victoria.

#125 Retired Boomer - WI on 12.20.14 at 11:30 pm

#121 Gill

gill = fish out of water (need MORE borrowed air, gill)?

Life is never over because of financial markets. You may just feel it is over when those financial markets crush your borrowed arse.

peace

#126 Harbour on 12.20.14 at 11:49 pm

The oil crisis won’t have the same effect as the financial crisis did on real estate in Alberta

#127 Rambling man on 12.21.14 at 12:28 am

I’m in my suite here in Vegas, I’m not really drunk but I’m going to write and say I am. I have no life and like to ride Garth turners blogs coattails cause I suck. Schools for the herd brain washing slaves in servitude I say I’m rich and think I’m cool but I’m really just a burnt out nerd who has no life. Blah blah blah honey jd Seneca blah blah blah nonsense. I write like a regard cause I never passed English 10 blah blah blah

#128 who's the loser? on 12.21.14 at 12:58 am

DELETED

#129 Tony on 12.21.14 at 1:12 am

Re: #115 JimH on 12.20.14 at 8:08 pm

I bought a lot of Canadian strip bonds in 2011. I have been constantly buying physical gold and silver and have been shorting stocks since the fall of 2009. Day trading since around the summer of 1983.

#130 eric on 12.21.14 at 1:19 am

Is Mark the oracle? Is there something he doesn’t know? Why waste time here?

#131 LowFatOil on 12.21.14 at 1:39 am

FYI – Nov. 2014 article – OREB (Ottawa Real Estate Board) said Ottawa was entering into a “Buyers Market”.

http://www.obj.ca/Real-Estate/Residential/2014-11-05/article-3929777/City-entering-buyers-market%3A-OREB/1

#132 Kenchie on 12.21.14 at 1:40 am

#6 North Burnaby on 12.19.14 at 7:39 pm
“The new wave of wealthy Asians looking for save haven to invest is coming to beautiful & politically stable British Columbia!!”

That’s a pretty pathetic economic model, eh?

Also, don’t expect the past to be an indication of the future. Lots of headwinds going against that continuance of that trend. Particularly, the Conservatives killing the immigrant investor program, which allowed in about 180,000 people over 28 years or so, and replacing it with a 50 person per year program that requires the “Rich” investors to put $2 million in a venture capital fund for 10 years.

Read about the new program:
http://www.cbc.ca/news/politics/canada-seeks-50-millionaire-immigrant-investors-under-pilot-program-1.2875518

And here:
http://news.gc.ca/web/article-en.do?nid=915049

IIP Termination news release:
http://www.cic.gc.ca/english/immigrate/IIP-EN.asp?_ga=1.34627814.672243213.1419139366

Those who applied prior to Feb 11, 2014 will get their permanent residency. But that list is dwindling every day. Eventually, the list will end. And that economic model you seem so high on for British Columbia will be broken…

Other headwinds to think about: the JPY and KRW are being devalued intentionally, which will make it more difficult for those people to move to Canada. Not to mention that those countries are rapidly aging, and the old are less likely to move. China has a similar demographic issue, considering their working age population is already shrinking (in 2013, it shrank by the equivalent of one Metro Vancouver ~ 2.4 million). And if the Chinese economy goes full financial crisis in relatively short order, lots of people there will have less capital to move abroad. Not to mention the $1.25 trillion that has left China over the past decade in an illicit manner. It’s just a matter of time before the ability to repay the large expansion in credit reaches its limit. Either way, it won’t be good for Vancouver housing.

#133 Andrew Woburn on 12.21.14 at 1:41 am

108 devore on 12.20.14 at 6:23 pm
#94 Andrew Woburn

Self-employed people have to pay 250 euros a month “tax” every month simply because they are self-employed.

This is common in practically every civilized country in the world, because these people automatically qualify for and benefit from universal government programs, while paying no payroll tax that a conventionally employed person would generate to help fund them.
=================

Self employed Canadians have to pay both the employee and employer portion of CPP and UI for just that reason. However they only pay it when they actually have taxable income. The way I read the quote re Spain is that the self employed have to pay regardless of income level. Maybe I misunderstood.

I think the author’s larger point was that European employment policies and practices may be hindering their recovery as much as their monetary regime. For instance I have read that it is virtually impossible to fire an employee in Italy. Possibly this partially explains the current high youth unemployment rate in Europe.

#134 Millmech on 12.21.14 at 2:14 am

To the blog dogs,I have a copy of both Money Road&Greater Fool to pass on.Dont need to follow them as I have Garth running things for me,willing to give them as a gift to someone that they can use the information or pass them on to enlighten someone else.

#135 Guilt trippin' on 12.21.14 at 2:23 am

#8 crossbordershopper on 12.19.14 at 7:44 pm
“there is major problems with the welfare and odsp cheques and all this blog talks about is real estate, interest rates, bla bla bla.
do you know how many families have no food tonight due to the lesbo’s blunder over a software change.”

[How about blaming the company that was contracted to make the system and work out the kinks? Or the employees who were working the new system? Politicians don’t control the competence and skills of the private sector or the public sector, you know… And ever heard of something called “sh!+ happens” that can’t be controlled, no matter how powerful an organization is.]
———————————————————

“very little press, very little, but in hamilton 20 thousand families and over 70000 people dont know if they are going to get a cheque, no food, no bus pass, etc.
stocks go up, stocks go down, rates up, rates down, bla bla bla. poverty is everywhere i see in east hamilton.
middle class people going to the mall to buy gifts for each other, perhaps go to a single mother home and see what her kids are having under the tree, oh ya, no tree, no presents, and little food. the reality of many people be it christmas or not.”

[Sounds like you’re trying to guilt trip the people of this blog into feeling bad that they are doing well while certain people in society aren’t. As unfortunate as it is in East Hamilton, have you thought that not having presents for Christmas isn’t the end of the world? Too often it seems people try to play “keeping up with the Joneses” by buying expensive gifts (as per their family income) for their children and other family members who do not actually need the specific present purchased. The process often worsens the family net worth by turning a scarce resource – cash – into illiquid toys or clothes that do not hold value once opened.]

This should be read by everyone on December 1st of every year henceforth:
http://www.pbs.org/newshour/making-sense/the-economics-of-wasteful-spen/

Food, on the other hand, is another story. Everyone needs to eat.

#136 Don't Panic on 12.21.14 at 2:45 am

Homeowners went seriously underwater in the price/market collapse between 1989 and 1999. They did fine if they held on and paid their existing mortgages ( 16% at the time) for ten years until the market/prices began to recover. Putting people underwater does not necessarily destroy the market over the longer term. In fact the ones that held on made out like bandits…..ZIRP rates kicked in an mortgage debt pmts went to zero.

#137 LowFatOil on 12.21.14 at 3:34 am

The reality is…

With the high cost of living in Calgary, many are on a tight monthly budget (whether paying a monthly mortgage or paying rent), and there is no wiggle room if someone or their spouse loses a job, or gets hours cut back.

They don’t have to have an oil-sands job. They could be providing services to the workers…i.e. restaurants/servers, clothing stores/cashiers, hairdresser, etc.

According to CBC:

“Tonight, there will be 3,500 Calgarians without a place to live.

…the vacancy rate in Calgary is 1.4 per cent and 15,000 households are at risk of becoming homeless.”

http://www.cbc.ca/news/canada/calgary/mustard-seed-campaign-uses-airbnb-ads-to-raise-awareness-for-homelessness-1.2880297

#138 Canada not going to follow USA on 12.21.14 at 5:33 am

Canada won’t be following the U.S. with rate increases. Look at RBC forecast.

When Fed raises, RBC says Canada stays put.

Dollar crashes to 60 cents. We inflate our way out. 1 million dollar homes remain.

#139 Obvious Truth on 12.21.14 at 10:46 am

#137. We are at zirp. What’s next?

People just don’t understand how money works. What it’s measured in relation to. How it can work for you. When it works against you and what opportunity cost is.

Nobody should panic but this is quite a serious situation. For all the reasons garth continually eludes to. Our current scenario in canada is much different from the late 80’s and early 90’s. If you can’t see the difference then you haven’t learned anything. How about being proactive instead of using the don’t worry approach sales pitch approach.

#139.

It might take 60 cents and half price homes to make us competitive again. Even at 80 cents there is talk of Toyota moving corolla production from cambridge to Mexico.

The best part is that we get to see how it plays out. Many things could happen.

#140 Detalumis on 12.21.14 at 11:03 am

#8 Hamilton is my hometown so my former street which once was solidly working class, had one welfare family, it’s now a cesspool of baby mamas who “propagate” with a ragbag of guys that go in and out of prison and flit from flower to flower. There is no solution that I can see.

The factories were more of a “sheltered workshop” system that allowed people who aren’t all that intelligent, to have a semblance of a normal life. The whole country can’t retrain as engineers and RNs. I don’t see any solution besides bringing back some work for people to do. They have one of the highest teen pregnancy rates in Ontario since if you pop out a few you get your subsidies and then when you hit your 40s you retrain as a PSW and wipe senior bums.

The smart ones go on disability for “anxiety and depression” – it’s the new bad-back. You see the same behaviour in places like Niagara Falls and Welland and Windsor. The life expectancy there is now 66.5 so few people make it to OAS age or need LTC.

#141 Dominoes Lining Up on 12.21.14 at 11:25 am

136 – Guilt Trippin’

Discussions of poverty and the growing gap between rich and poor are relevant now, as well as waste in the economy that you reference.

This time period, I think, will go down as the calm before the storm in so many ways.

Wealth disparity, the lack of perceived prospects for so many, the inability to buy a home here, the (very soon) inability to get out of home “ownership” debt prisons across Canada, and general feelings of injustice are rotting out the floorboards beneath us.

As I had feared, the shooting of two NY cops has now been confirmed as an act of revenge for the chokehold killing of Eric Garner and the failure of the grand jury to indict those officers.

“I’m putting wings on pigs today. They take 1 of ours, let’s take 2 of theirs”

http://www.theglobeandmail.com/news/world/two-new-york-officers-killed-in-retaliation-for-police-chokehold-death/article22170934/

Listen to this police spokesman describing all the protests as being “based on lies.”

That kind of talk won’t end well. And you have to wonder how many alienated people may identify with the shooter in this latest episode. There will be more of this on the horizon, and soon.

http://therightscoop.com/i-guess-al-sharpton-got-what-he-wanted-former-nypd-cop-on-cnn/

The Occupy Movement is coming back, wealth disparity is getting worse, trust in police and the legal process is withering, international (and convenient) distractions like Korea, Iraq and Russia abound. Trust in our economic and social system, even with the uneven US recovery, is at great risk here and through the world.

Sadly, the only ‘good’ news may be that by the time our real estate bubble is in full meltdown it may rarely make it onto page one. There will be too much else going on to worry about real estate.

In spite of this, enjoy the holidays everyone, what may be one of the last calms before the storm of our lives.

Merry Christmas/Happy Holidays to you and your families.

#142 earthboundmisfit on 12.21.14 at 1:42 pm

@141 Detalumis
Re: Hamilton …. Man-o-man…have you ever nailed that one right on the head. However, you missed the disproportionate share of gypsy refugees from the Balkan war, now crowding the welfare and ODSP offices. Never have, don’t want to, never will…work. The public teat is so much tastier.

#143 Victor V on 12.21.14 at 2:39 pm

Realtor vs Financial Expert re: rent vs buy in Toronto

http://globalnews.ca/video/1730741/what-will-torontos-real-estate-market-look-like-in-2015

#144 Nemesis on 12.21.14 at 2:40 pm

#It’sComplicated, or… #”America’sGotTalent”… #Mobility,NotSoMuch

[WaPo] – Fixing the broken talent flow: New barriers have sprung up to push workers into lower-value positions

…”The median prime-age American male — 25 to 54 years old — earns less today than he did in 1966, adjusted for inflation. After decades of social and economic progress, the median prime-age woman earns less now than she did in 2000. The typical two-parent American family works nearly two more days per week, full time, than it did in 1979 — but earns less per hour, in real dollars. The Federal Reserve calculates that the typical household has less wealth than it did in 1989. Economists Emmanuel Saez and Gabriel Zucman reported recently that 90 percent of U.S. households are worth less today than they were in 1987.”…

http://www.washingtonpost.com/sf/business/2014/12/19/fixing-the-broken-talent-flow/

#ComicRelief

[UK Independent] – 9 things the Sony hack has taught us about Hollywood

…”Keen to establish a story trust of its own, Sony this year tried to recruit Phil Lord and Chris Miller, writer-directors of The Lego Movie, to lead its animation division. But they declined the offer, and in emails cited the fact that Sony recently moved its visual effects outfit, Imageworks, to Vancouver for financial reasons, leading to an exodus of talent. “It’s too hard to do great work [at Sony],” Mr Lord wrote.”…

http://www.independent.co.uk/news/world/americas/9-things-the-sony-hack-has-taught-us-about-the-hollywood-9937994.html

#145 Victor V on 12.21.14 at 2:58 pm

#34 Smoking Man

https://www.youtube.com/watch?v=Hu62kQha8hs

Watch the teaser, then find the documentary and watch that too. The mirror has two faces.

#146 Mister Obvious on 12.21.14 at 3:04 pm

I’ve been giving some thought to whole concept of the TFSA lately. Not because I’ve got an axe to grind or a specific point to prove, but simply because I find it an interesting subject.

The main thing that got me thinking was the information Garth recently provided that his original concept presented the TFSA specifically as a retirement plan. That aspect was stripped away by the late finance minister F before implementation. I never knew that. It’s a good thing to know and it does make a difference to my point of view.

I am led to believe it went something like this: The Tories noticed Canadian personal savings on the whole were vastly inadequate. In addition, a federal election was nearing and they found themselves dangerously short of offerings.

Garth’s proposal to F had the potential to kill two birds with a single stone. As an added bonus it would not become onerous, at least in the early years, since contributions were capped at $5000 per year.

I’m supposing now that in F’s judgement (which may been correct), the retirement aspect of the plan would only confuse the electorate. Remember, most Canadians barely understand the mechanics of an RRSP let alone a second plan that would work essentially in reverse.

So the TFSA was born as a place to save after tax money that would be free from further taxes on any income it could generate. It was designed to contain any investment that would also be valid within an RRSP.

As might have been expected, most Canadians entirely missed the point and used it to save cash (at pathetic rates of return) for vacations and various frivolities. That is, if they saved anything at all.

But the TFSA itself is truly a profound development even though it is seldom recognized as such. For many decades, there were only two ways to tax (in the temporal sense):

1) Tax Me Now
2) Tax Me Later

But now there is this:

3) Tax Me Never

This is something that the Canadian mind has yet to fully wrap itself around. To be clear, ‘Tax Me Now’ means tax me yearly on all forms of income according to the established rules for each type of income (cap gains, dividends, interest, income etc.). ‘Tax Me Later’ means tax me at the full rate (i.e. as if it were income) regardless of how the wealth was generated in some later year when it is possible that my tax bracket may be lower.

But ‘Tax Me Never’? That is brand new. Of course contributions are made with after-tax money but gains are yours to keep. Now that the contribution limit is growing ($36, 500 per individual in 2015) certain people are finally beginning to take notice. The CRA itself seems unsure of where to draw the line when the intent of the legislation is breached.

I believe the TFSA will eventually be tested in court. I also believe the status quo will prevail. The CRA will continue, as always, to decide if the rules have been broken. For practically every Canadian, nothing will change but it will be interesting to see the drama unfold.

Like I said, it’s something we have never seen before.

#147 Victor V on 12.21.14 at 3:26 pm

#59 Mark

That’s all? TD cancelled minimum payments (except for interest) on most ULOC’s years ago. Recently they’re sending out letters increasing the applicable interest rates on customers who draw from such facilities, even without any meaningful negative changes to their finances.

I have prime + 2% on my unused TD ULOC and the letter they sent me offered a fixed loan at 2.49% on the balance.

Was tempted to draw it down in full, invest and deduct the interest. Maybe next time, if they tempt me with sub 2%.

#148 Idunno on 12.21.14 at 3:32 pm

I see what’s going on out there. I got it wrong when I figured realestate would take a beating a couple years ago. I use to own some gold but bought at the $300 level. I’ve sold my storage business just before the big crash in the markets. Bad move in hindsight. You can never get back in. I’ve got a house paid for and a remaining commercial property / land and 7 digits in cash. I don’t know what the hell to do with. I’m 49 in 2 days and I’m worried about long term surviveability. If your not growing your dieing. Pray for a major market correction but don’t count on it its left a lot of people in the cold. And J. You better get another job. If you want a albatross around your neck buy that home. I’ve got a couple mill and no debt and I’m worried about my retirement. I have know idea how most of the youth is going retired at all. Crappy wages hi cost of everything. An oil crash is looking better all the time. Kids/idiots driving around in $60k jacked up trucks going home to their rental trailer…..
Well Garth, I’m sh#t scared of putting that kinda cash in anything right now. Sad that it doesn’t buy much today.
Looking for a good cash flow biz…shoot me one if you got one.

#149 Shawn Allen on 12.21.14 at 3:40 pm

Tony’s Investment Style

Tony at 130 revealed:

I bought a lot of Canadian strip bonds in 2011. I have been constantly buying physical gold and silver and have been shorting stocks since the fall of 2009. Day trading since around the summer of 1983.

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

Thank you Tony for sharing that. I have a few responses as I know from past comments that you have the greatest respect for my views.

I bought a lot of Canadian strip bonds in 2011. (Response: I would never have predicted it, but that has worked out well so far)

I have been constantly buying physical gold and silver (Response, well they lost money for several years as measured in American dollars, though less so measured in Canadian dollars but are perfectly even as measured on ounces of Gold and Silver. If you get satisfaction from it , then why not?)

and have been shorting stocks since the fall of 2009. (Oops, that gotta have left a BIG hole and explains part of why you are so adamant that stocks are over-valued)

Day trading since around the summer of 1983. (Well day trading is a zero-sum game, unlike buy and hold the index which is always a positive sum game in the long term as money flows in from customers to owners. If you are a skilled day trader you can certainly take money from the less skilled)

Again, thank you for sharing.

#150 don on 12.21.14 at 3:54 pm

#139 Canada not going to follow USA on 12.21.14 at 5:33 am

Canada won’t be following the U.S. with rate increases. Look at RBC forecast.

When Fed raises, RBC says Canada stays put.

Dollar crashes to 60 cents. We inflate our way out. 1 million dollar homes remain.
*******************

A bank is a business isn’t it?…meaning a bank’s marketing strategy it to tell people what they want to hear to get them in the door. It’s a sales funnel.

The bank’s were recently telling us we weren’t in a bubble and all was fine. Believe the bank…isn’t that how we got to the present state.

Why not believe a realtor??? geezus

#151 Shawn Allen on 12.21.14 at 4:11 pm

Tax me now and/or later?

Mr. Obvious explored this topic, because he finds it interesting, at 147 and stated:

For many decades, there were only two ways to tax (in the temporal sense):

1) Tax Me Now
2) Tax Me Later

But now there is this:

3) Tax Me Never

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

I would put it a bit differently:

The traditional way of taxing was:

1. Tax me now AND tax me later

That is tax was paid on all income. If initial income was invested the income on the investment was taxed again. In its purest form, income is income and all income is taxed.

There were many variations and some income was exempt or taxed at lower rates (capital gains) and in Canada there was (and is) lower taxes on dividends to reflect that these usually come out of the corporations after-tax income.

2. RRSP No tax now, but fully taxed later

Various benefits came from this such as tax shifting to lower tax rate years.

The real benefit is often said to be tax deferral for decades, this can be HUGELY beneficial. But actually it’s much better than that…

Mathematically if the tax rate is unchanged (at say 40%) the tax refund can really be thought of as the government becoming a partner in your RRSP. They put in (say) 40% (via tax refund) and in the end they take back (say) 40%. In the net YOUR share being 60% grows completely tax free for decades. Yes, completely tax free while growing and when withdrawn. The tax at 40% can be thought of as the government taking back its 40% share of “your” RRSP. They put in 40%, they take out 40% in the end. The very popular notion that you have lost the lower tax rate on capital gains and dividends in this scenario is completely wrong. Your share, the 60% grows (and is withdrawn) completely tax free if the tax rate is unchanged and setting aside impacts on social benefits like the clawback. With these assumptions an RRSP is mathematically identical to a TFSA. This has been explained by myself and others on this blog many many times. (Perhaps it has even been understood by a couple of people)

3. TFSA – Tax me now and then never again

A certain amount of income is taxed when earned and then never taxed again. This is a HUGE benefit.

Mathematically an RRSP can be the same (on YOUR say 60% share of the RRSP) assuming tax rates unchanged and assuming no impact on social program eligibility.

Given that tax rates will likely rise (after all they have been falling for several decades, a fact seldom admitted) and particularly given the likely impacts on social programs of RRSP withdrawals TFSA is likely to work out better.

TFSA offers the double edged sword of flexibility. You can take the money out if needed. Problem there is most will do so and it won’t be there for retirement. TFSA is the winner for the most disciplined savers.

Yes, the math is interesting to Mr. Obvious and I. Unfortunately many others will make arguments and claims with no support in math. Feel free to do so now.

#152 Shawn Allen on 12.21.14 at 4:27 pm

P.S. My number 2.

2. RRSP No tax now, but fully taxed later

That is how people think of it but mathematically they should think more like:

RRSP: Income is taxed now and then never again (if tax rates unchanged and assuming no impact on social programs)

My share of the RRSP really goes in from my after tax money. The government kicks in its share Say 40% via the tax refund. (I upfront government’s share and then they give it back in a refund so we are even there but thereafter the extra say 40% is in the RRSP and the government really always owns that)

Then my share which came from my after tax money is never taxed again (assuming tax rates unchanged and no impact on social programs like clawback of old age)

As it grows I never think of my RRSP as being fully mine, I think of it as say 60% mine and 40% the governments.

The tax refund is like a marketing trick to get us into RRSPs. The real benefit is NOT the tax refund (because it will be reclaimed later. with interest equal to the return on the RRSP0, the real benefit of RRSP is our (say) 60% share of it growing tax free and untaxed at withdrawal. If tax rates are lower at withdrawal we may even have negative tax on our 60% share. All told even with impacts on social programs the tax on our share of the RRSP is minimal.

Where people go wrong is they think of their RRSP as 100% theirs and resent paying the hefty 40% tax plus impact on social programs. If they realized that the government was always a 40% partner and that the RRSP was always only 60% theirs, they could chill out about the return of the 40% and focus on the HUGE benefit of their 60% share having grown and withdrawn tax free (assuming same tax rates and no social program impact).

Okay, if a few of you did not understand this before and have managed now to read and understand this then my efforts have been worth it. I congratulate those with the patience to understand the math.

As to those who refuse to follow the math, it is understandable. Humans are innately stubborn that way. We don’t have time to follow every new argument and we cling to our established ideas. Usually that is beneficial and time efficient, but not in this case.

#153 Andrew Woburn on 12.21.14 at 5:32 pm

#147 Mister Obvious on 12.21.14 at 3:04 pm
But ‘Tax Me Never’? That is brand new.
===================

Technically true but “Tax me almost never” has been around for a long time for long term real estate investors. If they mortgage the equity growth in their holdings to buy new properties, they never sell anything and so don’t attract tax on their gains. This can last until their estates face a “deemed disposition” and even a ways past death with good estate planning.

It is curious that capital property held in trusts must be revalued and taxed every 21 years, but the real estate investment train just keeps rolling. Just another brick in the inequality wall.

#154 jess on 12.21.14 at 5:48 pm

http://www.justice.gov/usao/nys/pressreleases/July14/BankofAmericaMortgageFraud/Countrywide,%20et%20al.%20%28Banf%20of%20America%29%202014%2007%2030%20Opinion%20and%20Order.pdf

….” the way the mortgage frauds operated. The officers running the schemes to originate millions of fraudulent mortgages routinely provided exceptionally generous incentives to the loan brokers to ensure that they delivered those millions of fraudulent loans. A loan broker – among the lowest employees in the mortgage fraud food chain – could get a $20,000 fee for originating a single crappy “non-conforming” loan in the range of $700,000 if he or she could con the borrowers into paying about 200 basis points above the rate at which the lender was actually willing to fund the loan. The FCIC report quotes the testimony of the guy that Countrywide and its ilk hired to train loans officers. He explained that the typical prior job for a loan broker was a minimum wage fast food job and that the “best” (by which he meant “worst”) loan officer could easily make $1 million annually by making crappy loans. The $20,000 fee that loan brokers could make for making crappy/predatory loans was a significant portion of the “profits” that the lender would (fraudulently) recognize on making the crappy loan and then selling it through fraudulent “reps and warranties” to the secondary markets. The senior officers running these fraud schemes recognized that they would make far more money by being generous and using the prospect of such a killing degrade the ethics of the brokers and induce them to bring in huge amounts of crappy/predatory loans with fraudulently inflated appraisals and borrowers’ incomes…”

#155 Shawn Allen on 12.21.14 at 6:05 pm

Don’t Tax me!, I’m rich

Good post by Andrew Woburn just above.

It’s amazing how many tax breaks there are for the rich.

Popular support is maintained for this by convincing people that taxes are generally bad. The poor pay no taxes, The Rich never ever pay their share and the middle class carries the burden.

The middle class should be up in arms but instead have been trained to hate taxes rather than to hate tax unfairness.

Long live the tea party and their ilk, great friends to the rich.

#156 Bobs ur uncle on 12.21.14 at 6:19 pm

#100 YoungBuck

I was in your situation. My brother’s approach was to dedicate all cash flow to paying down debt, which left him, after many years, at zero. Mine was to view the tax-deductibility of the student debt (the interest paid at least) as ‘good debt’ and pay only the min. payments, and start inventing as much as I could right away. Once my portfolio was equal to my debt (which happened quicker than I might have imagined), I didn’t feel like I was at zero – I felt like I had a built a lot of momentum toward my financial future. I have no regrets at my approach, but you need to think about your own psychology. I would suggest you look at what is going to keep you motivated to set money aside – reducing debts, or accumulating assets – and focus accordingly. Tho one other reason to start investing sooner is that it gives you more time to make your mistakes with less $$, when it won’t hurt as much.

Others may have differing opinions, esp. when interest rates *may* rise in future, but you gotta think about what is most likely to keep you following your plan.

And given the fact that you’re even thinking along these lines in your twenties, you’re way ahead of your peers – and many folks twice your age…