Mental

SNOW modified

The median price for a listing in San Diego these days is $499,000, which (in Kanuckistan dollarettes) is roughly the same as Toronto. In the past two years real estate in that part of Cal has bloated by about 34%, as the American economy rolls into full recovery mode, fuelled by jobs, confidence, and cheap gas.

It’s enough to make buyers crazy. And is. Like Kathy Rowe. She went nuts.

K ROWE modified “I had put so much hope into this house,” she says about a property she viewed, and lusted for. “When I walked in, it felt like my house… it’s almost like, you know, you hear bluebirds sing and music play. I walked in, it was my house.”

But it wasn’t. She lost it in a bidding war to Janice Rhuter and Jerry Rice, a young couple with a kid. That’s when Kathy decided if she couldn’t have the house, the buyers shouldn’t be able to enjoy it. She billed them for adult diapers and magazines. She advertised a giant New Year’s Eve Party at their house, had their mail stopped and listed the house for sale online. She sent Valentine’s cards to all the neighbourhood wives with Jerry’s name on them and topped that off with online ads inviting strangers to come by during the day to have sex with Janice.

Incredibly, there is no evidence Kathy reads this blog.

I mention this because it’s now widely believed (at least in California) that a new housing bubble is developing as the US economy heats up, hundreds of thousands of new jobs appear monthly, government finances improve, car sales explode, energy cost plunge and mortgage rates stay in the ditch. (Lock in for 10 years at 3.1% or for three decades at 3.9%.) Of course, home loan interest is also tax-deductible in the US, as are most property taxes. It’s enough to make you flip out.

As you may know, Apple just became a $700-billion corporation, the first one in history. American stock markets have been consistent, solid performers for the last three years now. Washington’s budget deficit has shrunk by 60% since the financial crisis. Corporate profits have powered ahead while consumer confidence is at an 11-year high. And every year that we get further away from 2008, people feel better. Even the obsessive middle-class love affair with real estate is being rekindled, even though home ownership levels stay far below those in Canada.

Of course, nobody – especially the pointy-heads at the US Fed – is forgetting it was exactly this kind of manic, have-sex-with-Janice mentality that created the mess that carved $6 trillion out of the middle class, almost sank the world and still plagues the rest of the planet. In fact, check out where the American housing market sits these days relative to the insane levels it reached almost a decade ago. Here is the widely-watched Case-Shiller index:

CASE modified

Now do you see why US interest rates will start to rise in 2015?

Even the rate bears are changing their tune, like legendary bond fund manager Bill Gross. Months ago he was forecasting no rate increase – ever – but that’s off the table. The fed, he believes, will move to end the distortions that cheap money has caused to markets of all kinds for the past six years. Not only have stock values been plumped by a river of liquidity, but (as in Canada) dirt-cheap money has turned consumers into debt piggies. The result has been an explosion in zero-interest and 84-month car loans, lines of credit and (above all) mortgages. This is not good long-term monetary policy, and as soon as a central bank can start normalizing rates, it will.

That moment, at least for the US, is now a few months off. July or August, says Gross. June, say most Bay Street economists. So, barring something awful (like a terrorist attack on US soil), this is a done deal.

Nobody wants another runaway US housing bubble. No more obsessed buyers. No more credit balloons. Just a nice, steady, persistent deflate of the American penchant for excess.

What does this mean for us?

Higher US rates (even marginally) would certainly raise the value of the US dollar, even from its current lofty level, and nail the loonie. A rate hike to the south would also start to suck in capital from around the world, since US Treasuries are already the gold standard of risk-free investing. Once they pay more, the rush would swell. Not so hot for us.

In fact, our central banker boss, Stephen Poloz, said as much when he was dropping his rate last month. More expensive money in the States will have a tightening effect across the entire world. No central bank will be able to resist for long, as the US begins to Hoover up the world’s cash.

Meanwhile an even-lower dollar will increase consumer inflation in Canada, which sucks when the oil shock is boosting the ranks of the jobless and chewing up national net worth. Over 90% if the time, the Bank of Canada has quickly followed the Fed in terms of tightening or loosening monetary policy. This time will likely be no different. The same bank that lowered rates in January, propelling delusional, moist Millennials back into GTA bidding wars and fights over Van micro-condos, could be raising rates by Christmas.

Think I’m mental? Think of Kathy.

175 comments ↓

#1 Oil Is Sticky on 02.15.15 at 4:36 pm

So why is the G20 pleading with the Fed to NOT raise rates then?

I explained why. — Garth

#2 CPG on 02.15.15 at 4:38 pm

“I have posited that recent decades have been unique in economic history. For the first time on a global basis, there were no constraints on either the quantity or quality of Credit. History has shown Credit’s proclivity for instability. I have argued that the transformation to market-based Credit – first in the U.S. and then globally – ensured acute instability. We’ve now seen global monetary managers go to incredible extremes – zero rates, massive ongoing monetization and previously unthinkable market intervention and manipulation – desperate to keep this financial scheme from imploding.”

http://creditbubblebulletin.blogspot.ca/2015/02/store-of-value.html

#3 Conservatives are socialists for the rich on 02.15.15 at 4:42 pm

The conservatives have allowed the banks to give out a trillion dollars in sub primes mortgages all backed by taxpayers. Way to go harper. Oh yeah good job betting Canada’s future all on oil. Why does harper and bankers hate free markets? Answer :It’s easy making money with no risk . I can’t wait till harper gets the big boot. It’s to bad canada is now economically ruined

#4 bankruptcy geek on 02.15.15 at 4:45 pm

Oh my…

http://www.nytimes.com/2015/02/07/your-money/home-loan-programs-let-buyers-put-less-down.html?ref=your-money&_r=0

#5 Nobody on 02.15.15 at 4:48 pm

Of course not. CDIC is a federal agency without enough capital to cover deposits at a single bank. As I said, if your bank is failing and you need CDIC to protect you, it’s already over. — Garth
______________________________________

Why do you say “it’s already over” in yesterday’s blog? Correct me if I’m mistaken but, as a federal agency, isn’t CDIC backed by the crown and, therefore, taxpayers similar to CMHC whose bonds are indeed crown backed? If so, why would one not expect to be compensated for one’s loss even though in both cases neither entity has sufficient funds to do so?

One bank failure would cause all six banks to fail. CDIC nor the Feds would have the capacity to restore depositors. Do not be so naive. Fortunately, it will never happen. – Garth

#6 North Burnaby on 02.15.15 at 4:48 pm

Not so fast, Gartho!
Condos seem to be selling really well everywhere in Metro Vancouver. Saw a line-up for the new projects of The Independend and RiverSky. The Brentwood’s 2nd tower is nearly 90% sold in 3months! Crazy! http://i.imgur.com/phpMCqs.jpg

#7 Vancouver Troy on 02.15.15 at 4:50 pm

Excuse my ignorance, but what does this Case-Shiller chart show?

175 what? Percent? Dollars? People?

The C-S index. — Garth

#8 LeafsWillNeveWin on 02.15.15 at 4:55 pm

Not since the Roaring 20’s has such a large central bank / government induced bubble existed with labour force participation rates at all time lows and total debts (government plus consumer plus corporate plus banks) over 50% higher than they were before the 1930’s great depression. There are more payday loans locations in the US than McDonald’s now….

#9 Jay Currie on 02.15.15 at 4:55 pm

Rates are going up. Probably not much to start but over a couple of years two or three points is pretty much baked in for the US. Canada? I can’t see us with rates much lower than the US, but I can see the rate going a point or two higher simply because where a .85 CDN dollar is helpful, a .75 dollar is too much of a good thing.

If you go outside the Vancouver and Toronto markets it is pretty clear there has been a slow motion housing correction. My own little market of Victoria has seen prices fall and all those million plus houses? Largely withdrawn from the market. Part of what drove the higher end were a lot of oil guys whose wives had had enough of the joys of the Calgary, much less the Fort MacMurray, winter. They’d cash out and buy something pleasing in Oak Bay. Not all that much cashing out going on in the oil patch these days.

#10 Randy on 02.15.15 at 4:56 pm

Garth…Is there a list available of all the recent Toronto House Bidding War Winners ? It might be worth some money.

#11 Bottom Feeder on 02.15.15 at 5:07 pm

Garth, any merit in locking for 10 years at 3.84%?(Bank of Montreal and Royal Bank).

This is just over 1.1% more than a 5 year. In the past you mentioned it is too rich a premium. Any updates?
Thanks.

A huge premium, but this is likely the bottom. — Garth

#12 Jay on 02.15.15 at 5:13 pm

It’ll be interesting seeing if the fed can reel in bubbles without damaging anything in the process.

It’s a really interesting study in parallels the situation in the US and everywhere else though.

Glad I was diversified while the dollar was high.

#13 Nobody on 02.15.15 at 5:24 pm

One bank failure would cause all six banks to fail. CDIC nor the Feds would have the capacity to restore depositors. Do not be so naive. Fortunately, it will never happen. – Garth
_________________________________________

Pardon my naivety, but I do believe you’re making this stuff up. Not all six banks would necessarily fail if “a” non-major CDIC insured bank failed. In fact, if anything, the Lehman experience would indicate that the greatest efforts would be made to stop contagion.

The reason I brought this point up is that in yesterday’s blog you insited that the 1 million of investers insurance is far superior to CDIC, and that is clearly not the case. Correct me if I’m wrong again, but my understanding is that investor’s insurance is based on the financial industry members’ pool of funds and has no crown backing what-so-ever. Once that pool or a significant portion of the members become unable to meet their obligations, there is no recourse other than the courts. How is that better than having Crown backed assurance?

#14 unaffordable RE on 02.15.15 at 5:33 pm

When will the laws of economics take down the bubble in Canada? People are maxxed out plus you have job losses everywhere. Buying an average home in the Gta takes $4000 a month while renting is just a little over $2k so RE is cash flow negative. The average canadian doesn’t make enough to afford the average home. When will economic sanity finally take over? Can the canadian taxpayer continue to back more then a trillion dollars in sub prime mortgage? Can the economy continue to have everyone spend their money on RE while spending nothing in the economy? Will we see a continued closing of retail and factories in Canada? I don’t get what the crazy conservatives are doing? Harper hates canada but I know he loves himself

#15 ANON on 02.15.15 at 5:40 pm

CDIC, one will fail all, and other such words are being uttered. Rest assured, blog dogs, the depositors will* be made whole.
http://www.theglobeandmail.com/report-on-business/economy/new-alarm-bells-ringing-over-household-debt/article22797037/
(*)all three of them.

#16 Jimmy on 02.15.15 at 5:45 pm

Don’t you have something better to do on your Sunday?

And you? — Garth

#17 Keith in Cagary on 02.15.15 at 5:47 pm

“American stock markets have been consistent, solid performers for the last three years now…………….stock values been plumped by a river of liquidity”

You are so contradictory it is hilarious…….keep pumping the paper Garthie boy. You just laid out a wopper here. The “ONLY REASON” the markets are looking stupid is because there is so much printed money looking for a place to go.

The FED, nor anyone else, cannot raise rates nor will they………..because the bankrupt nation would have to fold……..and right now they are only existing because of the life support of low rates.

Raising rates is deflationary.

As I pointed out, corporate profitability has rewarded stockholders well. Rates will, of course, rise. And try to be more respectful. Won’t kill you. — Garth

#18 Washed Up Lawyer on 02.15.15 at 6:10 pm

Garth:

Thanks for today’s blog. It will help me sleep a bit easier as I will be placing my John Hancock on the renewal of the indenture on my abode in Calgary this week. Appreciate your efforts.

#19 Londoner on 02.15.15 at 6:11 pm

“Higher US rates (even marginally) would certainly raise the value of the US dollar…”

Can you explain why (in your view) you think that, without corresponding wage inflation or a substantial bump in economic productivity, this would be good for the US economy?

Where did I say that? — Garth

#20 Dave on 02.15.15 at 6:14 pm

Incredibly, there is no evidence Kathy reads this blog.

Your so funny Garth!

#21 amazon girl on 02.15.15 at 6:17 pm

Garth ,Happy Valentine day to you and the love of a
balance portfolio with a good return many thanks..

#22 Scott in Gibsons on 02.15.15 at 6:19 pm

So, barring something awful (like a terrorist attack on US soil), this is a done deal.

It’s going to take something like this to bail you out Garth when you’re proven wrong. Un-flipping-believable that you would repeat all that statistical nonsense about the US economy and ignore things like 100 million working aged people with no job. They’re lies Garth. Written to fool the general public, not know-it-alls like you and me. Whatever. Time will tell who’s the greater fool.

The US government publishes statistical lies, and you know the truth. Beam me up. — Garth

#23 The Fuzzy Camel on 02.15.15 at 6:22 pm

Garth, I don’t know if you fully understand the implications of a rate rise. Lets say the Fed/BoC put rates to a modest 2%.

-Housing will cool off, maybe stagnate.
-Construction will slow down, lay-offs.
-Government is already maxed out, will try to raise taxes, it won’t work. Creditors force austerity like Greece.
-Mass layoffs begin.
-Fear grips the market, housing demand drops, prices collapse.
-Unemployment skyrockets, stock market tanks.
-A bond panic will ensue, no one wants to buy governments bonds fearing a default.
-Interest rates skyrocket to attract investors.
-Immigration stops, and reverses, fear grips the public.

There is a good reason interest rates have been on a 30 year downtrend, and the last austerity was 25 years ago. They have been trying to prop this system up as long as possible. An interest rate hike signifies they are ready to collapse it. These new anti-terrorism laws, they are to take out trouble makers when all this goes down.

This is a very serious matter, interest rates cannot go up without triggering a collapse. I won’t even get into the quadrillion dollars of financial derivatives that will pop too…

It will take two years for a 2% increase. Stop being extreme. — Garth

#24 Sympathy for the devil on 02.15.15 at 6:26 pm

When I read this blog I agree with Garth 95% of the time. The 5% of the time I dont agree with him is concerning interest rates. Higher interest rates will never happen again. The way the system work, based on household and government indebting themselves to death to pay things they cant affort, the rates CANNOT go up.

I think the Fed will raise rates this year by a very small amount but it will be a symbolic thing. Rates will not go up significantly in the next 20 years, if anything theyll go lower.

You are right 95% of the time. But not now. — Garth

#25 Two Pack Shacker on 02.15.15 at 6:41 pm

Bitchez b crazy!

#26 salonist on 02.15.15 at 6:41 pm

respectful?
bug off

See what happens when you’re not? — Garth

#27 Cici on 02.15.15 at 6:42 pm

Unsettling that that freakshow got off so easy…she tried to get Janet Ruhter raped and killed:

“San Diego County Deputy District Attorney Brendan McHugh says Rowe’s behavior was originally considered harassment “but then we saw that it was clearly beyond harassment,” when Rowe, pretending to be Ruhter, told a man she was corresponding with via email that she loved “to be surprised and have a man just show up at the door and force his way in the door and on me, totally taking me while I say no.”

http://www.people.com/article/kathy-rowe-terrorized-jerry-rice-janice-ruhter-dream-home

So, this psycho B8ch was declared mentally ill, yet still has custody of a special needs child. I fear for the safety of that poor child.

#28 pinstripe on 02.15.15 at 6:50 pm

if the drop in price for oil is bad enough for alberta, then the case of BSE, refered by cfia as non-negative, will drive the province into more chaos. This is not much comfort in the quality of the meat we all consume.

I wonder why the condo fires of late are becoming such a common occurance? three went up In smoke in Ft Sask.

You shouldn’t be eating meat, anyway. — Garth

#29 Babblemaster on 02.15.15 at 6:58 pm

Unbelievable! Still predicting higher rates. Well, maybe they will go a little higher, but not significantly. And certainly not enough to sink the GTA housing market. Ever.

I said US rates will rise in the summer, with the BoC likely moving up by the end of the year. Neither you nor I know the consequences yet. — Garth

#30 Wildnut on 02.15.15 at 6:58 pm

I thought you lived off sardines pinstripe? Jeez keep the story straight

#31 Baz on 02.15.15 at 7:00 pm

Mr. Garth,
If we are so sure that our loonie will go down more, why don’t you recommend your readers to buy US $ and have a portion of their portfolio reserved for the currency exchange game ?

The best way I know to lose money is to play the forex game. — Garth

#32 For those about to flop... on 02.15.15 at 7:09 pm

I said US rates will rise in the summer, with the BoC likely moving up by the end of the year. Neither you nor I know the consequences yet. — Garth
——————————————————————-
I find it weird that people are already doing the
“I told you so”line on predictions that have yet to unfold.
My crystal ball has a crack in it ,just like my bum.

#33 amazon girl on 02.15.15 at 7:09 pm

Dear GARTH, I am heart broken you respond to all most everyone but not me, on valentines . I am the amazon I been here since this blog open…. so I am in the dog house now…with bandit

#34 NUTS! on 02.15.15 at 7:17 pm

There are many economic forces at work. Unfortunately drawing conclusions based on evidence gathered during the Great Depression or any other historical economic event would be foolish. Too many factors and influences are distinctly different each time.

However, I’ve said it before, unless Xi is successful in reining in the Tigers, prices in 604 will continue it’s upward trend regardless of what happens in the rest of the country.

#35 TS on 02.15.15 at 7:21 pm

The real question is how is Kathy related to Smoking Man?

#36 lala on 02.15.15 at 7:22 pm

The only problem is strong dollar, a small rate increase it will make it worse. I was talking with my dog today while we were enjoying the weather.

#37 crossbordershopper on 02.15.15 at 7:28 pm

is mid february and the early people get their t4 and rush in for a refund. i find these people all strange, like starving for a few hundred dollars. a lot of people who work for a living have no money, totally hand to mouth. no reserve, no plan, totally flying at the seat of their pants.
you should see their faces when i ask what if you didnt get paid next friday, they say the house of cards would come down in due course.
people dont work and have no money, people work every day and still have no money. and the weather sucks for both.

#38 Russ L on 02.15.15 at 7:36 pm

amazon girl on 02.15.15 at 7:09 pm
—> Dear GARTH, I am heart broken you respond to all most everyone but not me, on valentines . I am the amazon I been here since this blog open…. so I am in the dog house now…with bandit
******************************

dear amazon girl,
You are too kind. Try being more like one of the wingnuts. Say stupid things.
… now, where did I read recently, “It’s too bad stupidity is painless.”

Anyhow, I think that is key to getting a comment from Garth.

Say ‘Hi’ to Bandit for us. I’m sure he appreciates the company.

#39 213 fool on 02.15.15 at 7:38 pm

I think rising rates will result in “buy now or buy never” kicking into top gear. Leave no fool behind…

#40 Snowboid on 02.15.15 at 7:42 pm

#35 TS on 02.15.15 at 7:21 pm…

Possibly, but not likely. Kathy is a psychopath and SM is merely a sociopath.

#41 Paul on 02.15.15 at 7:42 pm

Did I just read Garth mention the GOLD standard?

#42 David on 02.15.15 at 7:43 pm

Rates need to rise to stave off a housing bubble? Isn’t this one of the myriad reasons the ‘raise rates’ camp tosses out to justify their position? Not that I believe the Fed won’t raise rates, I just don’t think they should.

#43 A bit of star stuff on 02.15.15 at 7:51 pm

Its time to raise rates.. the us economy has improved substantially…. it’s on.. slowly but it’s coming for sure… now those massive canadian mortgages hmm … that’s gonna be a problem… better pay them down fast

#44 Waterloo Resident on 02.15.15 at 8:06 pm

So as the U.S. economy improves dramatically, so will demand for Canada’s exports (other than oil), so out economy will start booming also. That probably means that our housing market will continue to rise even in an environment of rising rates, because people will have drastically higher incomes due to a dramatically strengthening Canadian job market starting as soon as the American economy finally picks up steam.

Or not?

#45 Canadian in Portland on 02.15.15 at 8:12 pm

#17 Keith in Cagary on 02.15.15 at 5:47 pm

Rates will go up in America, the people have been prepped and warned long enough. Everyone expects it and is now just waiting for it, and the large uptick in housing is people wanting to buy and lock in before it…

#46 Nicolas on 02.15.15 at 8:25 pm

Montreal update : people are still house horny. Signs everywhere, though.

#47 Victor V on 02.15.15 at 8:30 pm

#37 crossbordershopper on 02.15.15 at 7:28 pm

is mid february and the early people get their t4 and rush in for a refund. i find these people all strange, like starving for a few hundred dollars. a lot of people who work for a living have no money, totally hand to mouth. no reserve, no plan, totally flying at the seat of their pants.

you should see their faces when i ask what if you didnt get paid next friday, they say the house of cards would come down in due course.

people dont work and have no money, people work every day and still have no money. and the weather sucks for both.

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

http://business.financialpost.com/2014/09/10/more-canadian-workers-are-living-paycheque-to-paycheque-saving-less-survey/

The CPA, in its sixth annual survey of thousands of Canadian employees, says it found more are living paycheque to paycheque, most are saving less than they should and even more are falling further behind in meeting their retirement goals.

The association said the survey found that more than half of employees — 51% — would find it difficult to meet their financial obligations if their paycheque were delayed by a single week. That was up from an average of 49% over the past three years.

For those aged 18 to 29, the number is even higher — 63% report living paycheque to paycheque.

Meanwhile, more than a quarter of respondents — 26% — said they probably could not come up with $2,000 over the next month if an emergency expense arose.

#48 aL pacino on 02.15.15 at 8:32 pm

Think I’m mental? Think of Kathy.

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

Fugget about it homie…ain’t gonna happen here…EVER.

#49 DreamingInTechnicolour on 02.15.15 at 8:33 pm

If China’s economy keeps sucking as the US continues to improve, the big IOU may have to paid back to China by the USA sooner than one might expect. Keep your eye on world events……

#50 Just Saying on 02.15.15 at 8:36 pm

Luv You Garth !
You are the Beast !!

#51 Vanecdotal on 02.15.15 at 8:37 pm

#6 North Burnaby

Oh RealTroll™. Perhaps a truthful condo market backgrounder is needed here for the common “sheeple” before they rush out to buy that overpriced microclosest er-condo?

Those who bought into the attached Van market, (condos and townhomes), in the last 5 years appear to be largely underwater, according to REBGV’s own already “upwardly-massaged” Jan. 2015 stats:

http://www.rebgv.org/sites/default/files/REBGV%20Stats%20Package%2C%20January%202015.pdf

Only 4 local markets are barely “keeping up with”, or just squeaking past the average “stated” rate of inflation (actual inflation is likely higher)… which these stats do NOT account for in the calculations.

***All other areas have a negative rate of return AFTER adjusting for inflation, and even BEFORE adding in the 10’s of thousands of $ that would have been paid in property taxes, utilities, strata / maintenance and realtor fees, as well as lost opportunity costs of investment capital. Including all 3 Burnabys… Ouchie.

Best Attached “Gainer” Highlights: Past 5 years Van & area Townhouse composite “increases” per REBGV:

NOTE: In the Editor’s Notes NEW Disclaimer where REBGV states they have altered the HPI formula bias quietly in their favour. I guess this meets the legal requirement of “full disclosure”?

Van West Side: +18% (@+8% over 5 years, after adjusting for inflation) WOW. That’s @ 1.6% / year after adjustment increase. My zombie chequing account pays me more each year, with far less expense AND risk. It’s easy to paint a rosier picture than reality when one obscures real market data under the guise of “proprietary info” and ‘forgets” to remind potential buyers (and sellers) about that whole relentless annual inflation thingy eating into your home value. Note: this example is presently the largest “gainer” in the mix.

East Van: +16.3%
New West: +12.9%
Richmond: +12.7%

The other 15 areas included in the REBGV stats are actually DECLINING in value once adjusted for inflation. Maple Ridge (-0.4%) & PoCo (-0.3%) indicate 5 year price declines BEFORE adjusting further downward for inflation.

Best Attached “Gainer” Highlights: Past 5 years Van & area Apartment composite “increases” per REBGV. Everything in this category is in NEGATIVE returns over last 5 years after inflation adjustment, including the “gainers”:

Pitt Meadows: +8%
New West: +7.8%
Van West Side: +7.5%
East Van: +7.9%

All 15 other areas are NEGATIVE (losing value) when adjusted for inflation. Whistler (-26.3%), Maple Ridge (-11.8%), PoCo (-6.2%), Richmond (-3.7%) and Tsawwassen (-3.3%), indicate 5 year price declines BEFORE adjusting further downward for inflation.

To clarify, I’m no statistician, although I’ve read the HPI Methodology Tome (great for insomnia!) and can not find any reference to INFLATION being factored into the HPI pricing model, anywhere, which is the basis for these observations. (As always, Buyer Beware – do your own Due Diligence).

If any Actuarial-type Dawgs care to elaborate/correct/clarify this assumption please do chime in.

#52 Vanecdotal on 02.15.15 at 8:39 pm

For the Insomniacs:

http://homepriceindex.ca/docs/ref/HPI_Methodology.pdf#View=FitV

#53 WHY PAY MORE on 02.15.15 at 8:41 pm

If any of this was as foregone and obvious as you claim, the bond markets would have priced it in already. To the contrary, global yields (US inclusive) have plunged throughout 2014, and 2015 looks to be no different.

You often harp on the prescience of the bond market, but in this case your failure to reconcile the divergence between what they are telling us and what you are is impossible to ignore.

If the US yield curve really does start to inch upwards, trillions (that’s a t) stand to be lost on treasury and corporate debt. On the other hand, appealing to the fed funds rate is a monster cop-out. With nearly 2T in excess reserves in the banking system, the funds rate is as close to irrelevant as it can possibly get, and would have zero effect on the shape of the yield curve even if the Fed raised it to 20% tomorrow.

#54 Nosty, etc. on 02.15.15 at 8:41 pm

#82 Smoking Man on 02.13.15 at 10:11 pm — >cite>”Boom, . . . Perfect.”

Hi SMan. The terms “BOOM”, “PERFECT” and “HUGE” have different meanings for different people.

#55 Mental | Realties.ca on 02.15.15 at 8:42 pm

[…] Source: http://www.greaterfool.ca/2015/02/15/mental/ […]

#56 Vanecdotal on 02.15.15 at 8:46 pm

To clarify; “…in the last 5 years” Should actually say “bought 5 years ago”. This is the scenario the examples are based on.

#57 Kathy Rowe on 02.15.15 at 9:13 pm

I am not mental, I’m just sick … sick and tired that is of throwing my money away on rent.

I’d much prefer to send 70% of my paycheck to a banker and be locked into a depreciating asset for the next 20yrs, than to send 35% of my paycheck to a landlord and be locked into a 12 month lease.

I’m desperate to over pay at the peak of a housing bubble just as the economy is beginning to slip into a deflationary downward spiral.

If buying now means that I’m the last living greater fool to jump on board this epic debt ponzi just as it inverts and billions begin flowing out, then so be it. My realtor says that if I don’t buy something now there will be no homes left.

Do you have any idea how hard it is to find a rental with a Wolf range and a Sub-Z? Please, have some damn empathy, you old bastard!

#58 Smoking Man on 02.15.15 at 9:14 pm

#54 Nosty, etc. on 02.15.15 at 8:41 pm
#82 Smoking Man on 02.13.15 at 10:11 pm — >cite>”Boom, . . . Perfect.”

Hi SMan. The terms “BOOM”, “PERFECT” and “HUGE” have different meanings for different people.
……

No links, you always link… Hum
. Gartho broom it?

Lol just got the visual.. Huge.. Lmao..

My physic powers at work again..

#59 Mark on 02.15.15 at 9:16 pm

“Rates need to rise to stave off a housing bubble? Isn’t this one of the myriad reasons the ‘raise rates’ camp tosses out to justify their position? Not that I believe the Fed won’t raise rates, I just don’t think they should.”

Indeed, just like last time (2008/2009), housing will collapse into over-capacity as speculators are stuck with housing they can’t resell and credit quality goes into the toilet.

Most available evidence points to a very slow US economy, one that is closer to its death throes, than one that is resurgent. Christmas sales were a disaster. Bond yields are signalling significant amounts of deflation. Housing and stock market speculation is, at best, transitory.

#60 Editrix on 02.15.15 at 9:28 pm

Interest rates will increase by Xmas? Nope, it’ll be very soon after the Canadian federal election.

#61 Sydneysider on 02.15.15 at 9:28 pm

#51 Vanecdotal

I don’t see much point in doing the inflation correction, because the same attenuation factor applies to all investment strategies. Consequently, it does not change any buy/sell/rent decisions, unless you forget to include it in one part (e.g. your zombie bank account returns).

#62 kommykim on 02.15.15 at 9:33 pm

RE: #13 Nobody on 02.15.15 at 5:24 pm
The reason I brought this point up is that in yesterday’s blog you insited that the 1 million of investers insurance is far superior to CDIC, and that is clearly not the case.

Comparing the investors insurance to CDIC is a bit of an Apples to Oranges thing. The investors insurance only covers you if your brokerage goes bust, not if the ETF provider does. Since ETFs are trusts, your pretty safe without the investors insurance. I don’t know what happens if there is corruption or bankruptcy at the trust company though. Of coarse your Ballard stocks are at the mercy of the market and Ballard’s CEO, and would not be covered by the investors insurance if Ballard went bust.
A GIC is 100% safe (Both principle and interest earned) for all intents and purposes and that is why the return sucks so badly in this market.

#63 A box in the Sky on 02.15.15 at 9:36 pm

I’ve been sitting on the sidelines since 2009 here in Toronto thinking the prices for SFH’s were too high based on local wages and rents.

Obviously proven wrong (so far) but given how the well the stock market has done in helping build wealth it’s not a disaster or anything to cry about.

But I’m not going to lie – it is a bit disconcerting that the majority of housing bears on this blog are some form of goldbug / anti central banking / anti vaxxer / “truthers” etc.

I look at the math of owning a SFH for $800,000+ in Leslieville or Riverdale and don’t get it …. but when the majority of people who are on my side of the argument are some form of wackjob it makes me feel like I’m really missing something and am actually on the wrong side of the trade.

#64 Lillooet, BC on 02.15.15 at 9:49 pm

Toronto, Ontario, Feb. 15 2015:
> -21C (-35 wind chill)
> 6 feet of snow on ground
> average price of 2 bedroom house $875,000

Lillooet, British Columbia, Feb. 15 2015:
> +12 C (warm and sunny)
> all snow has melted, grass is green
> average price of 2 bedroom house $175,000

http://weather.gc.ca/city/pages/bc-28_metric_e.html

#65 john on 02.15.15 at 9:54 pm

Garth,
The US have kept domestic and offshore printing presses printing dollars for the last 6 years with an attempt to devalue the dollar and alleviate the burden of their 18 trillion dept without success. Last year the US government payed 430 million dollars interest on the dept at 2.5% rate. At 5%, the interest will be over a trillion, or about two thirds of US government total revenue, do you think they will be able to service the dept? I don’t think so.
As for all the paper profits in the equity markets, they can evaporate in few minutes, unless you liquidate while ahead and buy something tangible like land or gold.
The rates will remain at this level or lower in the US and Europe, until the dept accumulates to the point that it can’t be serviced.
Than the austerity measures will be implemented as it happened in Greece.
No government will implement policies that will cause the house of cards to collapse until it is forced.

#66 Timmy on 02.15.15 at 10:00 pm

So rates will raise a percent or so…wow….they would still way below the long term average and most will be able to hang on to their mortgages

#67 Victor V on 02.15.15 at 10:02 pm

#63 A box in the Sky on 02.15.15 at 9:36 pm

Since when does a vocal minority constitute a majority?

#68 TS on 02.15.15 at 10:03 pm

“I look at the math of owning a SFH for $800,000+ in Leslieville or Riverdale and don’t get it …. but when the majority of people who are on my side of the argument are some form of wackjob it makes me feel like I’m really missing something and am actually on the wrong side of the trade”

Dude, you really need to get out of Toronto if you want a SFH that bad.

And if you think that just a bunch of wack jobs read this blog from their parent’s basement with a bunch of gold stuffed into the closet, I think Garth needs to do another informal net worth / salary survey like last year.

I think you would be surprised……

#69 john on 02.15.15 at 10:03 pm

correction: 430 billion not million

#70 bullshitallergy on 02.15.15 at 10:06 pm

From where I sit in Winnipeg, houses now sit on the market for months not days like in the spring. Prices are up for necessities, and people still don’t appear afeared of taking on unnecessary debt for vehicles or other nonsense. So glad I listened Garth, have lots of nice shares paying decent dividends.

Thanks

#71 SWL1976 on 02.15.15 at 10:06 pm

US Treasuries are already the gold standard of risk-free investing

————————————

Wow! I found that comment as shocking as I am sure you have found some of mine.

That’s putting a lot of faith in a currency backed by a government who has quite an impressive track record for starting conflicts all over the globe in the last 50 years and leaving destruction in their wake. A government who uses depleted uranium in their munitions with no regard for the soldiers handling them or the environment left behind. A government that openly tortures in the name of freedom. A government who will destroy your country if you decide you would rather sell oil outside of the USD. The list is much much longer, but point made.

All in the name of freedom and democracy I guess.

Freedom ain’t free.

Speaking of democracy looks like south of the border its going to be bush 3 or clinton 2 to choose from. How’s that for democracy? The US has torn countries apart in the name of democracy yet fail at home in my view. Remember who won the election of 2000 before Jeb AKA bush 3 did his recount? Ah yes democracy at its finest in the US of A

I’d be careful with US Treasuries being the gold standard for risk free investing cause clearly we are looking at two separate versions of the same story

#72 Vanecdotal on 02.15.15 at 10:09 pm

#61 Sydneysider

Fair comment. I would wonder then, why the REBGV stats do not then simply state clearly on their landing page “HPI Price Model does not adjust for inflation”? (Rhetorical question).

When doing their own DD on potential financial investments, including historical and projected ROI, I think it’s fair to say most educated investors are making those adjustments for annual inflation in their decision making process. Arguably, so would smart money buying investment RE.

However, for some reason, RE (in the midst of this slowly dying speculative mania here) does not get the same DD treatment from potential buyers (Joe Average), and the RE Boards are only too happy to further muddy the water in their favour by not pointing out this simple truth.

You have a valid point, by that measure, BOTH the zombie chequing account, AND the local RE that has had a comparably poor rate of return, (of which there are many examples in the attached categories in Van), have lost money in the last 5 years, which is also why my own $ works hard for for me elsewhere.

#73 Christian on 02.15.15 at 10:10 pm

Mean reversion will take this chart to 100. :-) The US never can repay their debt.

#74 april on 02.15.15 at 10:15 pm

#57 – Something is wrong with you or anyone who believes a realtor who’s trying to persuade them to buy a home at this time.

#75 West Coast on 02.15.15 at 10:16 pm

As Bill Gross so aptly puts it: “Capitalism’s distortion, with its near term deflation, poses a small but not insignificant risk to what my mother warned was the final destination for all games – entertainment (as in Monopoly) or real. “In the end,” she said, “all of the tokens, all of the hotels, all of the properties – they all go back in the box.”
https://www.janus.com/bill-gross-investment-outlook

#76 Canadian in Portland on 02.15.15 at 10:23 pm

#63 A box in the Sky on 02.15.15 at 9:36 pm

I too was in your position, but Vancouver. The city became impossible to live in without having already bought, so I did the only rational thing i could do. I left.

Since 2008 did not level out the Canadian housing market i wondered about my sanity too, since those who stayed on the sidelines seemed to be poor. But, if you pause to look, you will see the renters are right, and always have been. Canada just fails at reporting the truth of the housing market there.

on that note:
the American recovery is full steam. The Chinese Slowdown is far worse than they report. And the demand of oil continues to slip causing an oversupply.

Canada has a lot of catch up to do to steer the economy away from oil, but mark my words there will be a reckoning, and too many drank the kool-aid. put your money in American dollars and consider yourself blessed you can. You can’t do that with a house

#77 Nerf Herder on 02.15.15 at 10:24 pm

Garth, doesn’t the US achieve a raised rate by doing absolutely nothing, because of the purposeful tanking of everybody else’s currency?

#78 Observer on 02.15.15 at 10:25 pm

Got sticker shock today in Vancouver for some USA product I was shopping for. Low dollar. My message to those responsible for the dollar’s fall….my wallet stays CLOSED for anything remotely discretionary until you smarten up.

#79 Bobs ur uncle on 02.15.15 at 10:31 pm

#63 A box in the Sky

I rent. I don’t hoard gold. I’m all for vaccinations. Central banks? Dunno – no one can predict the future. Greenspan was apparently a bright guy, and look what he hath wrought. Doesn’t mean I’ve loaded up on ammo, canned goods, and tinfoil hats tho. And I’ve done much better staying invested and diversified than had I bought in the past four years.

Feel better?

But when the hell did 800K to 1M for a house sound sane anyhow? Did everyone in TO and Van all of a sudden win the lottery? It’s just delusional.

Sure. It happened in the US, but Canada’s different.
Riiiiiight.

#80 Sam604 on 02.15.15 at 10:40 pm

regardless of what happens south of us Canadian interest rates will not rise till after the election

#81 Obvious Truth on 02.15.15 at 10:43 pm

All the well read economic doomers get sucked in every time. Rates can’t go up, trillions in debt, real unemployment, no insurance on stocks, deflation; oh maybe a token raise….

None of that is investable. Its a cop out. If you say that crap you don’t actually have to be smart. You just have to sound like you are. You are more likely scared. In a passive aggressive kind of way.

Don’t worry your heads doomers. The latest market rotation is telling you everything is just fine. And maybe really good. Money tells the story in markets every time.

But again. Garths portfolio doesn’t care much about any of this. It just profits from it.

#82 Sue on 02.15.15 at 10:48 pm

#63 A box in the Sky on 02.15.15 at 9:36 pm

No, Mr. T. is right. Stick it out. If you must buy something go find something cheap in a place that you’d like to retire to (only the filthy rich should retire to Toronto or any huge city, imo) and don’t spend too much on it.

Or better yet, go rent a place for a few weeks in various locations while you decide where you’d like to live when you ultimately retire, moderately wealthy.

#83 Andrew Woburn on 02.15.15 at 10:53 pm

As I read recent amazed comments on the ever-decreasing size of downtown condos I realized history is rhyming itself. As a student in London, Ont., in the sixties, I rented a “micro-condo” built in about 1905. It was about 250 sq ft with a tiny bathroom/shower and a built-in “Murphy” bed that folded into a closet. It had not been built for student accommodation as it was too far from the colleges that later became Western. I assume that in 1905 it was on the edge of what was then the downtown area but it was only a six block walk from city hall.

We are always hearing comments like “There is so much land in Canada, why are lots so expensive?” If you reframe the question as how long does it take you to get to work, you have your answer. In 1905 there were no cars or buses. If you couldn’t feasibly bicycle or walk to the urban centre, you couldn’t keep an urban job.

In ancient Italy there were relatively few people in relation to land surface but Rome became the urban magnet that London or New York are today. Up to a million people lived there and they only had feet for transport. That is why Rome had to develop apartment buildings up to seven storeys high.

The spread out geography of Los Angeles is legendary but it was originally built on urban transit, a concept that was declared obsolete in the fifties. The original LA freeways were built over the transit rights of way that used to whisk carloads of Angelenos back to their suburban hideaways every evening. I remember my batty Aunt Annie telling me stories of how she used to travel across Hamilton on “radio cars”. It was years later that I discovered that Hamilton used to have an efficient “radial” urban railway system until it was scrapped in the fifties rush to “modernity”.

Millennials have decided they don’t want to drive. Urban transit hasn’t really made it back yet. The result is micro-condos.

#84 Leo Trollstoy on 02.15.15 at 10:54 pm

The U.S. economy is like a runaway train. It’s incredible how fast it’s ramping up and leaving the rest of the world behind. It was a long time coming.

Once the U.S. Fed raises rates this year (even if symbolicly away from 0%) the Canadian dollar will fall to 75 cents USD. And if oil continues to bump around at this bottom, who knows where the Canadian dollar will go.

Gold continues to flatline or go lower as fiat money (specifically US dollars) increases in value.

#85 Leo Trollstoy on 02.15.15 at 10:59 pm

Garth, when should I sell my two, 16 unit Florida apartments? They have pretty much doubled in price (US dollars) since I bought them and if we take the gains back to Canadian dollars we get another ~20% boost.

Perhaps this is a good time to stock up some ‘dry powder’ and see what happens in Alberta…

#86 Andrew Woburn on 02.15.15 at 11:02 pm

“If you’re looking for a job, I have some good news. You have 5 million to choose from. That’s right. America currently has 5 million vacancies waiting to be filled. ”

Yes, but …

5 Million Job Openings, So Why Can’t You Get Hired?

http://www.thefiscaltimes.com/2015/02/05/5-Million-Job-Openings-So-Why-Can-t-You-Get-Hired

#87 HJD on 02.15.15 at 11:02 pm

To repeat a suggestion from a comment I submitted last year, the return of the US economy will prevent Canada from experiencing a serious or continued down-turn. And as the US housing market also goes through its recovery, their home prices will eventually catch up with ours. When that happens, pundits will no longer be telling us that Canadian houses are overpriced and should not be purchased.

#88 Tax Me I Am Canadian on 02.15.15 at 11:03 pm

It has always been about the taxes and fees. The higher the home prices are, the more $$ the gov’t rakes in.

#89 Cow Man on 02.15.15 at 11:11 pm

Sir Garth:

You are in top form with your responses this evening. A most enjoyable read. Dorothy must have hit the right Valentine’s Buttons yesterday! Thank you as always.

#90 wallflower on 02.15.15 at 11:14 pm

The Florida market sure has me flummoxed. The real estate agents are saying one thing… since my arrival November 7, most of the For Sale signs remain on the front lawns in this ‘hood, and every day, I get “Price Just Reduced” emails in just this ‘hood alone… and today I read this:

“For unsuspecting homeowners, the ruling by the 5th District Court of Appeals in Daytona Beach, and another by the state’s 3rd District appellate court, could ultimately prompt evictions — sometimes years after cases were thought to have been decided.

Attorneys fear the decisions could strip borrowers of their primary defense in foreclosures — and perhaps change how defaults are fought in Florida.

But the cases could have widespread repercussions for banks, too.”
http://www.heraldtribune.com/article/20150214/ARTICLE/150219802?p=1&tc=pg

#91 Tony on 02.15.15 at 11:15 pm

America had their “dead cat bounce” in real estate just like Japan did over 20 years ago. We see Than Merrill and Scott Yancey on infomercials today with “free seminars” just like we saw Ed Beckley at the peak of the real estate market in the past. Hopefully Canadians will learn when they see people buying real estate in America today filing for bankruptcy protection in the near future just like Kathy Rowe.

#92 Ed on 02.15.15 at 11:19 pm

Garth, you really need a service like this; without offensive comments there would be only a few dozen posts here…
http://o.canada.com/technology/how-news-organizations-are-battling-the-scourge-of-trolls-in-the-comment-section

#93 Smoking Man on 02.15.15 at 11:28 pm

#225 Cara from yesterday The comments here educate and entertain (except for Smoking Man; I can’t figure out what he thinks he’s adding to the conversation. He’s like the guy in the corner of the pub talking to himself, and the rest of the patrons ignore him as a polite gesture since he doesn’t realize how badly he’s embarrassing himself…)
……
Darling, there is no better place, a nervana of sorts being the loner in the corner of the pub, talking to himself, dreaming and screaming.. Some people like fishing.. As far as embarrassing.

I’m a writer beotch… It comes with the turf… So I’m not published yet, makes no difference..

Doing it again tonight… Heaven.. It is.

I hate talking to humans, 99% are dumber than a piece of wood..

Just me, my creativity and a wee shot of Jack Daniels..

#94 hohoho on 02.15.15 at 11:30 pm

gov debt is mostly 5-10-30 year fixed rate. it’s not a big variable rate LOC. once the budget is balanced rate increases has minor impact.

note in the last few years a bunch of 8-15% 30 year bonds just got re-financed (for 30 years) at 2-4%; and 6% 10 year bonds got re-financed at 3% …

#95 bdy sktrn on 02.15.15 at 11:31 pm

You shouldn’t be eating meat, anyway. — Garth
———————-
our bodies came from bodies that came from a million years of eating cooked meat.
why stop now?

#96 Smoking Man on 02.15.15 at 11:34 pm

To Mark from yesterday..

Seriously, give up drinking, then be the audience to your robotic, Gravey less French Fri you deliver multiple times a day.

Sobriety and reading you, I’d rather be dead.

#97 John on 02.15.15 at 11:44 pm

Central banks in various countries are axing their interest rates, such that Janet Yellen and the gang could sit still, tread water, or mark time doing zip and still look like they’re the leader of the pack on raising interest rates- by default. No matter, the “US begins to Hoover up the world’s cash” for sure. Canadians get deflated loonies, $5 buck lettuce, and $10 buck hamburger. If we tag along with the USA and raise interest rates, the velocity of money may freeze further, as any last little squeeze of family income gets hoovered by the debt holders (banks). But the 2016 US Prez election may require the “hoovering” to accelerate on cue. The catch is, who knows if things can be controlled…… hate to witness one of those hockey stick hoover events.

#98 hohoho on 02.15.15 at 11:44 pm

> … Sobriety and reading you, I’d rather be dead.

be nice people, plus aren’t you two in the same creative writing class?

#99 Tony on 02.15.15 at 11:46 pm

Re: #57 Kathy Rowe on 02.15.15 at 9:13 pm

If you buy a house in America today you’ll just lose it to the bank when prices collapse in the near future. Either way you’ll end up renting so why not rent now and avoid a pending disaster?

#100 Code Red on 02.15.15 at 11:47 pm

As long as there is a currency war going on, no way do the rates go up in the USA.

#101 Hard Times Ahead on 02.15.15 at 11:48 pm

I don’t think it will follow that Poloz will raise lock step with the US. He has been determined to drive the loon down to peso status from the day he arrived. The oil move was music to his ears. Poloz is an uneducated unprepared untrained bureaucrat with no background in finance or economics……that we all know. But what we all don’t know is that he rose from the back room of the ‘export council’ among a cabal of dinosaurs who’ll take us back to the 1940’s when exporting rocks and trees was what Canada stood for. Seniors in Canada are already starving…why not make them suffer a bit more with another tranche of Made in Canada inflation eh?

#102 Smoking Man on 02.15.15 at 11:58 pm

Got me some kind of kavork happening tonight, at the bar at Ceasars in Windsor. doing the loner lip yacking, sentence resighting.. Been hit on three times in the last 10 min.. Egnoring my wifes texts, “where the hell are you. ”

I reply working on my book.

Your wierd she says..

Do bastards not realize how being wierd makes you special.

God, give me my mojo back.. Just one more time..

God answered.. You’ve had a hundred men’s worth of mojo.. Stop being so greasy, see on the lake this summer..

Now you know why I hate God’s guts..

#103 John on 02.16.15 at 12:04 am

Despite the fact that Canadian households are some of the most indebted in the world, if still makes a lot of puzzlers sore wondering why it is that Polez lowered the rates in January in his first chess move in a while. It seems to fly in the face of any effort to contain all of the Canadians suffering from house nesting hormone syndrome. Did the guy just lower the rate so he could raise them the same amount later and look like he’s put in an all-nighter? Did the guy just lower the rate and push our loonie lower in an attempt to have folks think we’ve got ‘inflation’ instead of deflation? Strange. One thing which seems obvious is that every asset class priced in loonies just deflated by 20% against the greenback. Thus, every Canadian company being invoiced for stuff in US dollars has just been wacked and I can’t see how that will make for a barefoot walk through the spring housing market and inspire job security confidence…. Interesting post, Garth.

#104 Souvereigninternational on 02.16.15 at 12:05 am

@#63 a A box in the sky. When you are one step ahead of the crowd you’re a Garth. When you’re two steps ahead you’re a whack job. Then there is Smoking Man. Stay in your sleep zombie man. Unfortunately if you want to wake up you will have to consider all arguments even if they seem whacky at first. Of course it is easy to join the group think choir and follow the name calling and uneducated dismissal of all heretics. If you put small pixels of black next to white the whole picture is gray my friend. It takes some work to discern the colors.

#105 Angela on 02.16.15 at 12:12 am

People keep talking about interest rates going up and what will happen when. The biggest debtor right now is the US Fed. If rates go up, the US government’s debt-servicing costs go up. Governments, at times, can take the unusual step of capping the interest they will pay on debt, but that comes with a whole slew of other problems for debt servicing. So this talk about interest rates “normalizing,” the new normal is historically low interest rates over the foreseeable future. Look at the US Fed, the BoJ, the ECB; they’ve all announced massive stimulus packages (there is talk China and India are next), i.e they are buying debt. They want inflation and they’re not getting it. So what is the “new normal”? Canada’s current fed rate is .75% You can double that, but that still makes all those people who bought houses in 2006, 2008 relatively smart in Canada because their debt servicing costs might go up, but it’s not up to the point where it was even in the ’90s. No one is going to lose their house now. Canada’s housing market, because of CMHC, completely skews the models. The banks are protected; the taxpayers is not, but Harper will make good for the banks. People that are holding a “balanced portfolio” have done well, but if there is a bubble anywhere it’s in the bond market; in the balanced portfolio. You’ve got a double whammy if interest rates go up. Your bonds will go down and your dividend stocks get crushed. There are a couple of sayings in finance: Don’t fight the fed; and The trend is your friend till it bends. Those who have bought their houses followed the trend and they’re happy. If they stay in their houses 10 years, they’re still pretty, even if they went in with low equity. Those that followed the fundamentals are the losers because you’re fighting the fed. Like Clinton once said, “It’s the economy, stupid.” Everyone’s talking about house market, but it’s not the Canadian economy. Manufacturing is already kicking into gear in Ontario. Dollar goes down, commodities go down, manufacturing goes up in the east i.e. GM announcing new investment in Ontario. That’s how Canada works. We are looked at as a petro currency, but other areas compensate. Ontario and Quebec are still high tech manufacturing hubs that our population is well equipped to do.

#106 Ronaldo on 02.16.15 at 12:12 am

Charts on U.S. Mortgage rates since 1971. Interesting where we’ve come from since the leading edge of the boomers first got into the real estate market.

http://www.freddiemac.com/pmms/pmms30.htm

Will be interesting to see where this all goes from here. It will do no good for the central bank to raise interest rates as long as the lending institutions keep bucking every move the government makes like they’ve done all along. As the lending officer at one of the local banks said when I asked him what the banks would do if the BOC was to raise interest rates drastically. He replied, ”we’ll simply go back to prime minus rates as long as we can get our spread”.

#107 Smoking Man on 02.16.15 at 12:15 am

Observations from the corner of the pub..

The pre mating rituals of humans.. The guys pretend to be romantic gental men, who care about feelings.. We all know under the right circumstance, no animal is safe on the planet from these beasts.

The woman, they have there imperfection concealed with make up, perfume, boots.. Nice boots. All looking for a sugar boy, a dude that can provide, the ones that have that, well they seek, Thunder from down under.

Realy drunk, Garth, make this the last one tonight.

#108 B.O.B. on 02.16.15 at 12:20 am

To those that hold solace in the belief mortgage rates will never rise; I say it’s irrelevant. Demand has been slowly evaporating as the illusion of equity security and wealth creation through R/E fades. This reality hasn’t become apparent to many until the time to sell arrives. Confused by the absence of offers and or buyers, they wait like a bear on the river bank for their fish to jump… here fishy fishy fishy.

#109 Mark on 02.16.15 at 12:28 am

” Seniors in Canada are already starving…”

Are you kidding? Seniors in Canada are not only not starving, but they’ve never had it better. The price stability that low interest rates and low inflation has provided, along with the plethora of government benefits only enabled by low interest rates, has made Canadian seniors the wealthiest cohort of seniors ever to exist in Canada.

Additionally, seniors have had the opportunity to sell their assets, which have been propped up through the tailwind of low interest rates, at top dollar.

A higher interest rate environment, which would correspond to a higher inflation environment, would be profoundly bad for seniors. As government would have enter a period of austerity (and most government spending is on senior-focussed programming), and the asset classes that seniors are “heavy” on, such as cash, bonds, and real estate, would shed a lot of value.

#110 Mark on 02.16.15 at 12:38 am

“gov debt is mostly 5-10-30 year fixed rate. it’s not a big variable rate LOC. once the budget is balanced rate increases has minor impact.”

http://www.bankofcanada.ca/stats/goc/results/27274

Roughly 1/3rd matures in 1 year or less (like a variable rate LOC), another 1/3rd in under 5 years, and the rest over 5 years.

Sure looks fairly interest rate sensitive to me. Only 1/3rd of the GoC’s indebtedness is > 5 years.

#111 devore on 02.16.15 at 12:45 am

Today’s article is very confusing to me, because Mark tells us lower interest rates make for a stronger currency.

#112 Mark on 02.16.15 at 12:46 am

All the well read economic doomers get sucked in every time. Rates can’t go up, trillions in debt, real unemployment, no insurance on stocks, deflation; oh maybe a token raise….

None of that is investable.

Of course its ‘investible’. Just not in the way that most people alive today are conventionally used to. The generation of people who have been through a similar set of circumstances, going into the 1930s, are now all dead, so there’s nobody alive with first-hand experience in investing in such. But that’s not to say that we can’t look back in history and see what did well when the world economy, especially that of the US, lost its footing and collapsed into a cauldron of economic overcapacity.

Unfortunately, dogma gets in the way for many in terms of seeing what typically would work in such a situation. Really, its not ‘different’ this time. And those who get suckered into the “US is growing” meme are on track to lose out big-time.

#113 Ronaldo on 02.16.15 at 12:49 am

#101 Hard Times Ahead –

”Poloz is an uneducated unprepared untrained bureaucrat with no background in finance or economics……that we all know.”

Not sure that we all know that but we are pretty sure that it makes no difference since whoever is in that position would not be making the decisions anyway and would be told what to say or do. And we are pretty sure who calls the shots. Garth would know for sure.

#114 Andrew Woburn on 02.16.15 at 1:07 am

#65 john on 02.15.15 at 9:54 pm
Garth,
The US have kept domestic and offshore printing presses printing dollars for the last 6 years with an attempt to devalue the dollar and alleviate the burden of their 18 trillion dept without success. Last year the US government payed 430 million dollars interest on the dept at 2.5% rate. At 5%, the interest will be over a trillion, or about two thirds of US government total revenue, do you think they will be able to service the dept? I don’t think so.
===================

As far as I know US tax receipts were about $3T last year and the rate of increase in the national debt is declining. If interest rates double, the majority of US debt service payments will be to US taxpayers who will pay some of it back as taxes and spend a lot of the rest in ways that will stimulate the economy, generating more taxes.

Although $18 trillion is a staggering number it is about the size of the US GDP. By contrast, Japan owes nearly $15T but that is well over 200% of its GDP.

The US prints its own money and cannot become insolvent. I don’t think the US national debt is a shortor mid term problem. The real problem is the state and federal unfunded social liabilities over time which cannot be satisfied without major tax increases.

#115 Dark Trader on 02.16.15 at 1:14 am

Garth US rate rise can’t happen anytime soon. The parabolic strength in the US dollar VS other currencies will force the Fed to participate in the currency war or race to the bottom. The Federal Reserve above all, has made it clear that they need to hit their target inflation rate of 2%. We are at 0.8% right now according to the Bureau Of Labor Statistics. Further, if the Fed were to raise rates it would put pressure on the stock market and they will not let that happen..yet.

#116 james on 02.16.15 at 1:15 am

“The result has been an explosion in zero-interest and 84-month car loans, lines of credit and (above all) mortgages.”

I do not think this is true.

I checked out the mortgage origination statistics four months ago, and they were NOT headed upward. I wouldn’t characterize that as an ‘explosion’. In fact, there were articles here in the mortgage industry warning of FEWER mortgage originations.

Institutional buyers depart the US marketplace at least a year ago. Economists at various places (including the US Fed) were warning of a second housing bubble at least a year ago, if not more. Our own CEOs in Silicon Valley believe that there is a current bubble in technology companies. This appears to be another upcycle that is not indicative of long term sustainability.

Where it all ends, who knows. It would be best to nip it in the bud quickly, but this is not a command and control economy (and there are always those that have an interest in seeing such a bubble continue to expand).

#117 Robert Henry on 02.16.15 at 1:19 am

Limited congratulations. Your diagrams have been more legible recently, but today’s (the Case-Schiller Index) was useless because the legends on the axes were illegible. It looked as if they were light blue in colour. Light blue, green and yellow are often very hard to read on a screen. Black or red are the best colours.

#118 Spiltbongwater on 02.16.15 at 1:41 am

Garth, when a $22000 vehicle is financed at 0% for 3 years but sold for $19500 cash, do you actually believe that the financing is 0%? The financing is built into the price, but if you want to call that 0% financing then have at it.

#119 Rexx Rock on 02.16.15 at 1:48 am

Rising real estate in Toronto and Vancouver reflect the only two cities in Canada with a booming economy.I’m sorry Garth but interest rates will be exactly like Japan.I know we all want it to happen and try to stop this madness to get everbody in debt but its to late.Do you really think the US government wants to pay higher interest rates on 16,000,000,000,000.No way,not in our lifetime.

#120 Nagraj on 02.16.15 at 2:07 am

GT says that 90% of the time the BoC follows US rate increases, that this time will likely be no different.

BNN’s Frances Horodelski has said that in her opinion the next move by the BoC will be hike.

Assuming the Fed hikes, Turner’s and Horodelski’s assumptions are perfectly reasonable.

One might also safely assume that Mr. Turner’s “a prolongued bear mkt (in stocks) isn’t likely” is a reasonable statement. [That statement goes back a couple of blogposts.]

I myself just don’t trust LIKELY, and have no faith at all in common sense motivating governance, especially in Canada whose gov’t looks confused.

It’s perfectly possible that the US economy is not accelerating its (statistical) Recovery, and it may be likely Canada entered a Recession already in November.

#121 Millmech on 02.16.15 at 2:28 am

Yup, lots of people are armchair economists know the inner workings of banks&economies,just rebalance every quarter and spend time on things that really matter.Going back to my Nadurra for a visit then back to the grind for another week.Cheers

#122 applesauce on 02.16.15 at 3:04 am

Apple being worth 700 billion, and you think the world markets aren’t poised to crash and burn?

remember back in the 90s when microsoft loaned them 150 mil to stay afloat?
http://news.cnet.com/2100-1001-202143.html

the whole financial system is a scam. Did you see those 144t haxx0rs who stole 1 billion dollars?

money isnt real.

#123 TurnerNation on 02.16.15 at 3:16 am

Where are the maudlin iconoclasts?
Forget oil, hope you got long Nat Gas on Friday. Wait three days. In play – then take your pay.

#124 TurnerNation on 02.16.15 at 3:25 am

Smoking man, I hooked up with a real CSIS agent over two nights , female natch. No kidding. Went to school in London where they are recruited.
All Rhodes lead to Rome which I knew
Must be brilliant like me. Wouldn’t have it any other way.
Ixnay on the blog dogs of course.
Will not recommend 800k Long Branch bung.

#125 TurnerNation on 02.16.15 at 3:32 am

Funny thing is, they have nothing on me. In my younger days after a week-long battery of (admittedly ethnocentric) testing they declared me in the top x% of IQ (the best general predictor of success).
I eschewed all conventions and made my own path. They got nothing on me, am always one step ahead in my sleep. It’s a high stake lame as far as I’m concerned.

#126 Leo Trollstoy on 02.16.15 at 3:35 am

Happy family day!

And to my FL tenants: Happy Washington’s Birthday!

#127 Bucky on 02.16.15 at 4:00 am

I was in San Diego last week on business, last day I went over to Coronado Island before hitting the airport. Couldn’t help noticing a bunch of real estate for sale by a Berkshire Hathaway company, average 1950s/60s houses going for $1m+. Talk about smart money selling, wonder if they scooped that stuff up in 2009 for half price?

#128 John Smith on 02.16.15 at 7:01 am

Smoking Man is like Blondie from FWF

#129 Jackie Diamond on 02.16.15 at 8:32 am

You think Alberta has problems…..take a look in the fun house mirror of Norway. They do it even better. Housing costs at 300% of disposable income.

http://www.bloomberg.com/news/articles/2015-02-16/scandinavia-s-richest-millennials-might-be-in-trouble

#130 Scott on 02.16.15 at 8:55 am

Corporate “earnings” are not as they appear. Down here in the states we call them synthetic, subsidized, liar earnings.
http://www.zerohedge.com/news/2015-01-08/wsj-looks-non-gaap-earnings-horrified-what-it-finds

The “recovery” lives by QE and zero to negative bound interest rates and dies by it. No way with global debt having risen by 57 trillion can the US or any other nation long remain solvent with the increase in debt services that higher rates will bring.

No no Garth, the central banks can talk the talk but they know in such a leveraged world they can never walk the walk. Any experiment with higher rates will quickly be reversed as the world of debt and easy money they created implodes.

#131 TurnerNation on 02.16.15 at 9:28 am

Actually SM that’s just a storyline for your book if you need character development. I can only wish it was like that. Long branch is a tad more boring.

#132 };-) aka Devil's Advocate on 02.16.15 at 9:44 am

Draw a straight line through the first 25 year trend on that Case-Shiller index graph and you’ll note that today is not that far off that trend with that bubble of 2007/08 well behind with not so much a recession as a correction that followed.
SHIFT happens, learn to ride the tide.

#133 liquidincalgary on 02.16.15 at 10:04 am

TS on 02.15.15 at 7:21 pm

The real question is how is Kathy related to Smoking Man?

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

their parents were siblings

#134 };-) aka Devil's Advocate on 02.16.15 at 10:10 am

Having said that, there is little question something very concerning is playing havoc with the economic fundamentals as the amplitude of the gyrations is ever increasing maniac cry for help like Edvard Munch’s The Scream

#135 H on 02.16.15 at 10:14 am

Inflation returning? Globally?

Hmm…lets think about this. What if Oil continues to go from the lower left to the top right?

How?

Well, as we just witnessed the gruesome beheadings of 21 Christians, while watching Iraq plunge into the abyss, those who feel Oil will not be effected are either stupid or Goldman Sachs.

At least Goldman tries to make money on its rigged predictions.

Right now oil production is being shut down. Lybia oil output is very close to going to ZERO. Iraq, will soon follow as Obama has no interest in actually going to Iraq which basically guarantees Iraq will fall.

So there goes a few million barrels folks. Gone.

Then oil spikes, inflation returns, and bankers around the world get the inflation they need to raise rates.

Think this is pie in the sky? You need to really know the supply demand, well depletion rates etc etc. I happen to know them well. (pardon the pun)

Without the US shale coming on in the past few years, the world oil supply would be short by 2-3 million barrels.

There simply is not enough supply being found outside shale.

There was a report just released this weekend the new monster finds globally have just reached a 20 year low.

Meanwhile, year after year, we consume more and more. Guaranteed.

Unlike real estate demand for oil continues to go up EVERY SINGLE YEAR.

Look it up.

ps
WTI 52
Brent 61

On track to be back over 100 very soon.

#136 rosie "moving forward" in the knowledge that, "this won't end well" on 02.16.15 at 10:14 am

An interesting read.

http://www.marketwatch.com/story/watch-out-yuan-plunge-is-possible-warn-analysts-2015-02-15

#137 maxx on 02.16.15 at 10:28 am

#2 CPG on 02.15.15 at 4:38 pm

Very interesting read. In light of CB machinations over the past 7 years, I can’t help being reminded of the song “Is that all there is?”

At what point is the experiment deemed a failure?

#138 maxx on 02.16.15 at 10:46 am

#13 Nobody on 02.15.15 at 5:24 pm

I was pitched that million dollar “safety net” thing once or twice and came to the same conclusion. Pull the other one, I thought, and still do. At any rate, I can’t stand lawyers.

I have no doubt that huge money can be made riding all sorts of waves, re, preferreds, sub-prime garbage, etf’s and any flavour of the day investment you care to name.

Some of us don’t care for it. Seen too many burned. Badly.

I believe that there is room for all types of investors in the marketplace. Unfortunately, there is without a doubt, a major hate-on as regards savers now.

#139 DreamingInTechnicolour on 02.16.15 at 11:00 am

Watching world events…..

http://www.bloomberg.com/news/articles/2015-02-15/putin-fearing-russian-subservience-to-china-casts-wider-asia-net

#140 Daisy Mae on 02.16.15 at 11:02 am

#26 salonist: “respectful? bug off”

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

Posters are getting testy……

#141 Obvious Truth on 02.16.15 at 11:04 am

#122. Maybe consider the opposite from time to time.

Steve jobs and Tim cook are a big reason why my kids get to go to school.

The money is real. The cheques work.

#142 A box in the Sky on 02.16.15 at 11:48 am

#122 applesauce on 02.16.15 at 3:04 am

Apple being worth 700 billion, and you think the world markets aren’t poised to crash and burn?

remember back in the 90s when microsoft loaned them 150 mil to stay afloat?
http://news.cnet.com/2100-1001-202143.html

the whole financial system is a scam. Did you see those 144t haxx0rs who stole 1 billion dollars?

money isnt real.
—————————————–

If your argument that the markets are going to collapse is based on the valuation of AAPL, then I’m sorry you’re just another wackjob doomer.

AAPL is a beast of a company with a ridiculously clean balance sheet, a huge amount of cash, fat margins on all their products and expanding into new product lines (ie. Apple Pay)

Their valuation on a P/E is pretty equivalent to the general market they are not expensive at all ….. in fact 1-2 years ago when the stock was flat and going nowhere people were saying it was a value trap.

But lol @ thinking AAPL is some type of bubble.

#143 Catalyst on 02.16.15 at 11:52 am

Hormones 2, Garth 0?

Just kidding; we live in easy credit times. Sadly, I dont think this will change any time soon. The big 5 are predicting a move to 50 bps in April so the spring market will be as busy as ever. They are predicting rates to stay low and moving back up to 1% by Q4 2016 which would get us back to where we started 2 months ago. The people calling for rate increases will declare victory saying look rates have been increasing, but the realists see that we will be unchanged from our 1% 2 months ago.

I also agree with an oft stated comment, why do people care so much? 25 bips one way or another isn’t meaningful except for expressing sentiment.

I used to think that the catalyst would come from rising rates forcing people to pare back; that would seem like a slightly painful process but much better than the alternative which is waiting for massive unemployment shock and people need to sell fast.

So now I am thinking the only catalyst that will shake this thing up (and I only care about GTA) is an unemployment shock which is no fun for anyone. Even if you are lucky enough to keep your job, you will have friends and family who don’t so I guess lets keep this part rocking. (not gold)

#144 Bottoms_Up on 02.16.15 at 12:06 pm

#132 };-) aka Devil’s Advocate on 02.16.15 at 9:44 am
—————————————————
I would tend to agree with your chart analysis, that housing is only slightly deviated to the upside relative to the long-term trend. That is, assuming the Case-Shiller is adjusted for inflation (where inflation was much higher in the past than it is today). If not adjusted for inflation, there could be aways down yet to go.

#145 Bottoms_Up on 02.16.15 at 12:10 pm

#129 Jackie Diamond on 02.16.15 at 8:32 am
————————————————
That chart from Norway shows household debt vs. disposable income, which at 300% may actually be better than what Canadian 30-somethings are currently experiencing.

#146 Bottoms_Up on 02.16.15 at 12:19 pm

#118 Spiltbongwater on 02.16.15 at 1:41 am
————————————————
In your car buying scenario, the dealership/bank is attributing a $2500 value over three years to the $19500 up front. So that’s 12.8%. Or, 4.3% per year. Strip out inflation (2% per year = 6.1% over 3 yrs), and your financing charge is actually 12.8 – 6.1 = 6.7% (or roughly 2.2% per year).

So, financing a vehicle at 2.2% per year is not a bad deal after all.

#147 AfterTheHouseSold on 02.16.15 at 12:26 pm

#108 B.O.B.
“Demand has been slowly evaporating as the illusion of equity security and wealth creation through R/E fades. This reality hasn’t become apparent to many until the time to sell arrives.”

Even if oil were to stabilize and interest rates remain low, they’ve gotten the taste of bile in the esophagus. It’s a taste they won’t soon forget. Fear sets in. Alas, the epiphany has come too late.

#148 Bottoms_Up on 02.16.15 at 12:29 pm

#7 Vancouver Troy on 02.15.15 at 4:50 pm
———————————————–
It would appear that ‘100’ is based on the year 2000. So the index (national index of house prices in this case) shows the average house nationally costing $100,000 in the year 2000.

So the peak 175 would be equal to a national average of $175,000

This is also how the Teranet resale price charts work (there is always a ‘base’ year set at 100)

#149 Oot of the hoos on 02.16.15 at 12:38 pm

I checked that USA deficit improvement claim because I saw an argument about how to calculate it. There is a sizable improvement: 40% reduction using this method (comparing all the Feb 12, 20XXs).

http://www.treasurydirect.gov/NP/debt/search?startMonth=02&startDay=12&startYear=2008&endMonth=02&endDay=12&endYear=2015

Check this out:
http://market-ticker.org/akcs-www?post=229839

The gross amount of federal government debt outstanding in the US, for example, rose by more than $1 trillion last fiscal year, while the claimed federal deficit was ~$400 billion. The claimed deficit is a lie; the simplest and most-accurate means of determining how “in debt” you are is to subtract the amount outstanding at the end of the period from that at the beginning.

In this case that’s $17,824 billion less $16,738 billion, or $1,086 billion dollars — just over $1 trillion.
————-
And this next link is a USA Treasury Dept. lie, I think, because maybe interest expense is excluded (not social security counted as revenue, like K.Wynne will do with Ont-pension-2017-tax for 45 years before anybody collects, since USA intergovernmental did not grow enough at treasurydirect link):

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/10/15/nations-budget-deficit-falls-to-lowest-level-since-obama-took-office/

Omits a $517 billion interest expense(?) or something huge:

“… the federal budget deficit shrank to $483 billion last year, the lowest level as a share of the economy since 2007, before the Great Recession”.

(The borrowing grew by a trillion, not 483 billion).

#150 Jeff on 02.16.15 at 1:51 pm

Garth,

You recommended US Equities. However with the current PER ratio of stocks, if interest rates rise, there is gonna be a ugly correction.

Do you recommand to exit US Stock market by summer ?

No, I did not recommend US equities. I suggested a modest weighting in large caps, medium caps and small caps through index investing, no individual stocks. I also said only amateurs try to time the market. Never exit an asset class. BTW, why would there be an ‘ugly’ anything with the US in the midst of expansion? — Garth

#151 TurnerNation on 02.16.15 at 2:04 pm

This frigid weather might be making nat gas’s takeoff:

http://finviz.com/futures_charts.ashx?t=NG&p=h1

Maybe pundits are saying too that it’s going to $20. Or 200…

#152 Mark on 02.16.15 at 2:32 pm

“Today’s article is very confusing to me, because Mark tells us lower interest rates make for a stronger currency”

Short-term behaviour vs long-term behaviour. Low rates imply a money supply that is not growing quickly at all, and they also imply deflation in an economy (providing that rates aren’t being held artificially low). This is profoundly supportive of a currency.

However, in the case of economies like Canada, in the very short term, speculators can move the currency around quite significantly because Canada is such a small portion of the global FX marketplace. And that’s what appears to be happening. Besides, what we’re seeing isn’t really a “weak CAD$ story”, but rather a “very strong USD$ story”. As the CAD$ hasn’t gone down much, if any at all against other world currencies, and purchasing power in Canada is remaining perfectly stable, if not increasing on account of domestic deflation and now undeniably falling RE prices across Canada.

“He replied, ”we’ll simply go back to prime minus rates as long as we can get our spread”.”

Maybe “prime plus” rates, as credit-worthiness would be a massive issue in a rising rate environment, even moreso than it already is.

#153 Blacksheep on 02.16.15 at 2:35 pm

This Shiller graph shows US home prices going up.
A 80 cent loonie has Canadian home values going down. How long until the cost of homes, equalize?

We can’t pretend we live in a sealed border situation when it comes to trade.

The cost of housing labour, plays a significant role when corporations decide where to put their next plant. This valuation process will be based in US $, regardless of it’s final location. This is the reality.

Those expecting further significant devaluation in Canadian RE may be waiting a long time as the US has started to drag us along in their long overdue growth cycle. I see it already in local business. Certain skilled labour is simply not available and this is with the down turn in the patch. Check out want adds on Craig’s list.

Three homes have come up for sale lately in my Fraser valley hood and two sold in less than two weeks.

Your snow related pic today is too funny Garth as just yesterday, my wife and I took a cruse in her convertible to Harrison Hot Springs for ice cream cones.

Harley and sport bikes everywhere. I guess that’s why the west coast, costs more.

Crazy I know, but that’s just how it is.

#154 Bacon on 02.16.15 at 2:36 pm

http://finviz.com/futures_charts.ashx?t=LH&p=h1

#155 Blacksheep on 02.16.15 at 2:38 pm

Cruise, not cruse.

#156 Porsche on 02.16.15 at 2:41 pm

A Planet of Debt

http://www.marketoracle.co.uk/Article49444.html

#157 TurnerNation on 02.16.15 at 2:54 pm

Part a balanced Port.?

“The pricey booze isn’t just for wealthy gourmands. The distillery that produced the whiskies is promoting them as a sound financial investment.

“With instability in the stock markets worldwide, investors are looking for alternative sources of asset appreciation,” said David Robertson, director of rare whisky at the Dalmore Distillery.

“Whisky as an alternative investment has shown remarkable growth, driven by the limited releases of some of the world’s oldest and rarest stocks from distilleries with impeccable heritage, exceptional product quality and exclusivity.””

http://www.vancouversun.com/news/metro/single+malt+whisky+sale+Vancouver/10817736/story.html

#158 For those about to flop... on 02.16.15 at 2:56 pm

I have money invested in Australia ,Asia and North America but I don’t have any in Europe ,is this a mistake on my part or no big deal?

#159 john on 02.16.15 at 3:02 pm

#114 Andrew

Greenspan’s famous statement ” we can’t go insolvent, we print our own money” It is amazing that a person in that position can make such an outrageous statement. He is the moron who started the credit bubble. He is 95 years and all he cares is just to stay alive.
The US debt is growing at 1 trillion per year, in 10 years it will be 28 trillion or 200% of the GDP. It is not possible to borrow your way to prosperity by accumulating debt.
The Greeks tried it and it did not work. But you have to give them credit, they are quicker tan anybody else to catch onto trends. They were rescued. In 10 years they will be living within their means. But there is no financial institution on earth with the capacity to rescue the US. Yes they can print all the dollars they want, but if the rest of the world decides they won’t be able to honor their obligations, they will end up with a lat of worthless paper.

The US deficit is $468 billion, not a trillion. At 2.6% of the economy, it’s the best performance in eight years. The US$ will remain the globe’s world currency long after you are dust. Worry about something that matters, like your diet. — Garth

#160 A bit of star stuff on 02.16.15 at 3:47 pm

http://www.usgovernmentdebt.us/spending_chart_1900_2020USp_16s1li0181680_897cs_G0f_Annual_Federal_Deficit

#161 Freedom First on 02.16.15 at 3:55 pm

And to think That Kathy Rowe has a husband. Poor Ba$$tard. Oh well, Smoking Man is is right after all about Canadian Males buying $1,000,000 crack shacks on leverage for their “Kathy” so they can have a bi-annual roll in the hay. I think I too must be from another planet, people look crazy to me as I’m nuts, a renter, debt free, and have only liquid assets. And I am stre$$ free and happy. No live-in “Kathy” for me. 0 commitment. High risk for little or no gain.

#162 };-) aka Devil's Advocate on 02.16.15 at 4:18 pm

#144 Bottoms_Up on 02.16.15 at 12:06 pm

Oh there will be a down yet to come, of that you can be sure – SHIFT does happen, both ways, after all };-). While the historical trend is up it’s like a saw blade – we build steam with irrational exuberance only to inevitably correct but he correction never erodes nearly as much of the gain as preceded it hence a historical upward trend. Someday I suppose that will change but when that happens we’ll have a whole lot more to be worrying about that declining housing prices.

For now though, as much as a surprise as it will be to most on this blog coming from me, I do think we are nearing a tipping point. I can feel it just as I could in 2007. The SHIFTS happen every 7 to 10 years it seems and we ARE now 7 years out from the last.

#163 45north on 02.16.15 at 4:18 pm

Now do you see why US interest rates will start to rise in 2015?

the medium is the message – Marshall McLuhan

the example in my mind is the rapid and universal expansion of television in the US and Canada in the 1950’s. television itself was the message

it occurs to me, that the rapid and universal expansion of credit cards/ debit cards is the message, the flow of funds must be enormous

now everybody agrees that zero interest rates are dis-functional leading to mis-allocation of resources but nobody wants to bell the cat. But suppose that the US did? In a world of zero interest rates, wealth would flow into the US. The US would be unique in world with better allocation of resources – it would again be the driver of world prosperity. The medium is money and interest rates. The message is rational interest rates cause better allocation of resources.

#164 A bit of star stuff on 02.16.15 at 4:23 pm

#158

I suggest Drachmas…

http://www.theglobeandmail.com/report-on-business/international-business/european-business/talks-fail-between-greece-and-creditors-over-europes-absurd-demands/article23012522/

#165 maxx on 02.16.15 at 4:26 pm

#78 Observer on 02.15.15 at 10:25 pm

“Got sticker shock today in Vancouver for some USA product I was shopping for. Low dollar. My message to those responsible for the dollar’s fall….my wallet stays CLOSED for anything remotely discretionary until you smarten up.”

Bravo. I second that. At any rate, you can get nearly anything you want ex-retail. Second-hand is often of superior quality. Brand new pair of patent leather UGG moccasins, lined with sheepskin- best cold weather slippers I’ve ever had. Price: $6.00, no tax. Did I say brand new?

Shopping malls are suffering in many areas, whereas second-hand is doing a roaring trade.

#166 Unions destroying this country on 02.16.15 at 4:53 pm

CP rail just reached an agreement ….wtf????
An agreement with whom ….gime me more money..What a screwed up country that is.
Unions guys get it all while schmucks like get the bones from left-overs….i hate you canada.

#167 aL pacino on 02.16.15 at 5:33 pm

Canada can just go back to being the shitty frozen tundra that it is.

As quoted by authors of south park….Colorado.

#168 Blacksheep on 02.16.15 at 6:10 pm

John #159,

I know it’s a difficult concept to accept, but MMT will truly set you free.

You already understand a sovereign in control cannot be forced to default in debts owed it its own currency, so that’s half the battle. Now just add to that thinking, It doesn’t matter how big the bill is, “the US will pay in full”.

I keep hearing about Greece. This is pure theatre. The solution to Greece’s problem is exactly what your criticizing the US for.

Greece needs to stop paying interest, on borrowed money.

Greece needs to leave the Euro.

Greece needs to become a sovereign in control, once again.

Greece needs to be able to print or devalue in an attempt to control it’s economy.

Here is Dr. Stephanie Kelton on the subject:

https://www.youtube.com/watch?v=SlSBA6Pn-Hc

#169 young & foolish on 02.16.15 at 6:15 pm

Sooo many Macro-Economists on here …. wow! And sooo little faith in the sustainability of America!

Well, in the long run, even the Roman Empire collapsed, but it sure lasted a long time.

#170 young & foolish on 02.16.15 at 6:22 pm

“I’ve been sitting on the sidelines since 2009 here in Toronto thinking the prices for SFH’s were too high based on local wages and rents.”

Fair enough, but borrowing money has been very cheap for along time, and many people jumped in an bid up prices. Who said houses should be 3 times average earnings anyway? And does that metric apply to all cities?

#171 Oot of the hoos on 02.16.15 at 6:25 pm

I found a better explanation of USA’s $1 trillion borrowing compared to official $483 deficit.

http://wolfstreet.com/2014/10/16/if-the-us-deficit-is-only-483-billion-why-does-the-government-have-to-borrow-1-1-trillion-to-fill-the-hole/

$328 billion of the difference was Jack Lew doing cash tricks to avoid default April 2013 though Oct 2013 during the debt ceiling political show. You can see it in the graph too.

The rest of the difference I do not understand and neither does the writer. Kotlikoff NPV of promises is a separate issue.

Garth is right that some improvement appears to have happened since 2008, using either of those two ways of counting the deficit.

#172 john on 02.16.15 at 6:45 pm

Garth
There was a reason people were forced to retire at 65.
They decay intellectually and can’t make sound decisions that can benefit the whole society. They will keep repeating something over and over despite the evidence to the contrary.
From the beginning of civilization until now the greatest inventors, creators and entrepreneurs were/are people in their twenties and thirties. I don’t know of anyone that invented anything after 65. I guess just worrying about their diet consumes most of the their intellectual capacity at that age.

It’s also a proven fact the greatest volume of myopic, useless crap flows from the young. — Garth

#173 A bit of star stuff on 02.16.15 at 7:09 pm

#172
No wise elders in yer world John?

#174 jahn on 02.16.15 at 9:47 pm

Garth,
Don’t take it personally, I’m also 65, I’m only stating facts. And please don’t insult the young people, we all depend on them.
I’m an engineer by profession and retired at 62. I realized that I can’t uphold my calling and only stayed in a consulting capacity. But than, we gave oath to uphold the good of the society ahead of personal interests. If engineers designing airplanes are as successful as the economist predicting the next move of the BOC interest rate, all passengers will be fitted with parachutes before boarding the plane (the plane will fly or not fly). Economics is not a science when it takes three economists to predict the next move of the Canadian interest rate: 1. will rise, 2. will go down , 3. will stay the same (I trained my three kids to do that, they have been 100% accurate). Economists are good TV and internet entertainers, quoting one’s opinion to prove a point is meaningless. All it means that you agree with his opinion, there is no scientific base behind it.

#175 Fuzzy on 02.17.15 at 11:17 am

“Just a nice, steady, persistent deflate of the American penchant for excess.”

Do you really think the Fed or any central banker truly posses the capacity to do such? You put much too much faith in central bankers to be able to control things, especially when things like 700 trillion derivatives market exist.

This is exactly what will happen. There is no financial crash coming. — Garth