Well, it’s prediction time here on Greater Fool. But because forecasting is hard when it involves the future, this blog’s loaded up on E & O insurance, which was conveniently added onto the Harley’s coverage. So we’re good. Full collision.
Canadian rates will be higher by Thanksgiving.
Every indication from the Bank of Canada, including testimony before Parliament on Tuesday, is that central bankers think they overreacted in January. Of course they won’t admit it. But it’s out there. All that winter rate cut did was pour gas on the real estate fires in the GTA and YVR, increase consumer debt and borrow from the future.
Now banker boss Stephen Poloz is taking every chance he can get – like in New York last week and Ottawa this week – to claim the same thing: the oil crisis was front-end loaded into the first few months of 2015, and it all gets better from here. Economic growth will improve, along with the labour market, consumer spending and exports – he says.
So what? So no more rate cuts. It’s over. In fact, after the US Fed raises its benchmark level in a few months, our central bank will follow suit, restoring January’s decrease and embarking on a slow path to higher money costs. No, rates won’t spike. Yes, you have time to lock in. Six months. Govern yourself accordingly.
There is no real estate relief coming.
If you thought CMHC might tighten the rules again, that big lenders would be spanked for teaser mortgage rates or the feds would move to corral our burgeoning subprime mortgage business or the bank of Mom, forget it. We’re on our own. That means $1.1 million detached houses in 416 and 12-foot-wide houses in Van selling for $1.35 million are here for a while, until the days of reckoning.
Joe Owe did not even mention runaway property prices in the budget last week, and this week Poloz went further. “It would be very unusual to come through all of that and not have a degree of overvaluation,” he told MPs, referring to the sweet mess that emergency interest rates have made of housing affordability. So despite its own report saying real estate could be too expensive by 30%, the bank is retreating. Meanwhile Poloz’s deputy governor insists we’re headed for that “soft landing.”
What does this mean?
Just what I said above. They know mortgage rates have bottomed this spring, that the cost of money has only one direction in which to go, and the effect on real estate values will be palpable. They just can’t say it. At least not until October 20th.
Oil’s messing with your head. Lower prices soon.
While the price of crude has risen about 20% in the past month, moderating despair in the Calgary real estate market and raising hope it was all a big, temporary joke, don’t get too excited. Oil at $57 or so won’t last. There are a bunch of valid reasons for this. For example, the OPECers have not stopped pumping and continue to flood the market with black stuff. Second, oil storage facilities in the US are brimming. There hasn’t been this much of the stuff for at least 80 years. Third, there are literally thousands of wells drilled in major US fracking areas, ready to produce but temporarily capped. American production of the stuff has doubled in the past five years, and is ready to explode again.
Don’t believe me? Check futures prices. Traders are actually forcing prices lower. The bet now is for $60 oil in 2019. Yup, if you’re waiting for happy days again before selling that Cowtown McMansion, good luck. BTW, the dollar’s going to be whacked again, too.
Here’s what this tells us: whether you believe it or not, mortgage rates are as low as they’ll ever be. Conversely, real estate values – at least in the hot zones – are likely at their zenith. And the economy will stay stalled. It’s hard to imagine a worse time to buy. Three reasons for that:
(a) Rates can only go higher.
(b) Prices will only go lower
(c) Competition is extreme, because
(d) Nobody believes (a) or (b).
When it comes to houses, heed to best advice stock traders ever heard. Sell in May, and go away.
Postscript:
Yesterday I told you how blog dog Mike reacted when he saw Tarek & Christina’s flip-in-Van-for-profit seminars advertised on Facebook. Today he was banned by T&C for his post below. “Thanks for posting my screen shot. I’ve been banned from posting on their Facebook after my comment: (I don’t blame them, I guess! First rule of scamming stupid: keep the smart people away!)”
201 comments ↓
Oil inventory builds keep rising in spite of declining rig counts.
A lot of potentially insolvent oil producers out there in the near-term future.
It’s going to be interesting!
First we need to get rid of Stephen Harper, then we need to deal with our economic and environmental policy.
The buyer of that house in Point Grey paid with cash.. It doesnt matter if interest rates increase before Thanksgiving… BC stands for “Bring Cash”!!!
“Canadian rates will be higher by Thanksgiving.”
Seriously?? Good luck with that, especially with increasing deflation setting into the Canadian economy, the CAD$ rising, and house prices falling.
It won’t be too long before the EI cheques run out, layoffs in secondary industries get underway in earnest, and another batch of college graduates are introduced to the unemployment rolls. Rate hikes in that environment? Craziness for even suggesting such.
Deflation is no longer the risk, nor is there any evidence that the economy is falling into it. The BoC will follow the Fed, as always. The path will be gentle, but it will be up. — Garth
1. BoC does not raise rates this year, Fed raises quarter point in Q3-Q4
2. Inflation in consumer prices in Canada for H2, foreign companies respond to the weaker loonies
3. Oil ends the year between $60-$65. US production peaks May-June. 24 month U shaped recovery.
4. Real estate continues to bubble in Toronto and Vancouver through 2015.
House flipping in the country’s most expensive real estate market? Without using your own money? Are T&C giving away unicorns with each ticket to their seminar?
Garthian belief:
No HAM in Vancouver, just leverage.
Unanswered question: If Vancouver is 22nd in Canada for median income at 70k, how can leverage explain house prices?
Milevsky evidence from April 26 Greater fool post:
Now, 1.8 million families have CMHC-insured, high-ratio mortgages and spend an average of more than 43% affording their homes (not counting property taxes, maintenance etc.), while saving nothing. In fact, they have a negative savings rate of 13%, meaning they’re going backwards financially. (Recall that the average savings rate in all of BC, were the silly people live, is negative 8%.)
So, Vancouver is the most leveraged housing market in Canada according to Garth although he provides none of the evidence he demands from the HAM theorists, yet B.C. has a lower negative savings rate than the Canadian average. How can this be?
B.C. doesn’t just have magic mushrooms, we have magic money, leverageable to a higher level than anywhere else in Canada, on a lower median family income than any other major city, yet with less negative savings than the Canadian average. Truly this is the best place on earth.
And yet, MSM continues to cheerlead for the realty cartel. I’m surprised at these stories from Cowtown:
http://www.theglobeandmail.com/life/home-and-garden/real-estate/calgary-condo-drew-an-offer-on-its-first-showing/article23677826/
http://www.theglobeandmail.com/life/home-and-garden/real-estate/calgary-townhouse-doesnt-stay-on-market-long/article24012689/
That townhouse is my favorite. My jaw dropped. $468k on a townhouse located in SW calgary, that you’ll need to commute for 30 mins minimum to get into downtown, and then proceed to pay for parking?!? Insanity. I can’t fathom why anybody in their right minds would be paying these prices. Now’s the time to sit tight.
As Garth alludes to in his post today…we have interesting times ahead! I’ll stick with my balanced, diversified portfolio and lack of debt.
forget it. We’re on our own.
As it should be. Let the whole soggy mess crash under its own overpriced weight. The housing problem anyway is only an indicator of a far worse social problem – a sick fascination with domestic crap.
As long as that exists, overconsumption of plastic junk, obesity, general stupidity, twisted tax loopholes, overpopulation, married [suburban] isolation, and stupid house prices will continue.
There’s no difference anymore between the domestic-married consumerists, and rioting black teenagers of Baltimore throwing rocks and looting potato chips.
For example, the OPECers have not stopped pumping and continue to flood the market with black stuff. Second, oil storage facilities in the US are brimming. There hasn’t been this much of the stuff for at least 80 years. Third, there are literally thousands of wells drilled in major US fracking areas, ready to produce but temporarily capped. American production of the stuff has doubled in the past five years, and is ready to explode again.
Uh huh. ‘Cept we’re dealing with a finite and very critical resource here. So the price will eventually hit the wall and go parabolic. This time for real, not like the artificial shortages of the 1980’s.
Investment potential in integrated oil companies and minimally-leveraged producers gets better by the month.
Kanadians are living for their houses.
8-10hrs working in the glare of florescence; 2 hours daily commuting in rank, crowded slow trains. Or on furrowed roads, with their brows knitting in contention.
For a soulless suburb prefecture with its approved corporate profit making enterprises (aka Smart (for whom?) Centres).
What about living the good life? Private schools fort he kids, with small classes and accountable staff.
Or the best in private medical care like http://www.medcan.com/comprehensive/ ?
Face it we are a 2nd world Corporate tax slave camp. We must yield the tools of capitalism.
We never won the war fyi. They only let us stop dying. Just ask Albert Speer.
Feisty today, I like it
Thanks Garth.
I’ve been reading the blog a few months now and while it’s easy to read the rant posts and agree it does nothing. It takes guts to make a prediction (well I guess you’re not risking too much) so I appreciate it.
Can’t argue with anything except maybe oil. North American producers have held back. Rig activity is down 70%. This will keep the price stable pending an international event (Iranian sanctions lift etc) but obviously eviscerate the industry. Big oil earning are this week, I suspect we see the beginning of that.
Sticking with the balanced portfolio from a year ago? Any changes in this environment?
Thanks Stephen – I feel so much better – guess I’ll coast for a while … NOT!
I saw lots of comments about the fact that we will be the ones “paying” for CMHC stupidity
Could someone please explain how ? would takes be increased ?
Cover of latest BC Business Magazine:
Bye-bye Alberta.
http://www.bcbusiness.ca/may-2015
#Finnished
#3 Nort Burnaby on 04.28.15 at 6:44 pm
The buyer of that house in Point Grey paid with cash.. It doesnt matter if interest rates increase before Thanksgiving… BC stands for “Bring Cash”!!!
That can’t be a house. It’s the filtration shed for somebody’s swimming pool.
I lived in Point Grey. Our guest coach-house was three times that size. Can’t believe they’d allow infills like that even now.
Rates will only raise when our trade balance is in the in the big plus , or supper strong growth on job numbers.
But if you listened to Poloz carefully, he’s going to let it ride for awhile he wants wages to climb a bit. And expects it. Not a good sign for rate hikes.
Now USA had great house numbers today, more amo for a spike down there. But the high usd is hurting their recovery, lots of back room chat leaning toward doing nothing.
My bet, BOC does nothing in 2015 the FED does nothing in 2015.
Houses are flying off the shelf as I write this, bidding wars in the Simcoe county region for god sakes, anyone looking to buy best get in now or seriously be left out, low rates will be here for decades, maybe not this low but in 10 years a five year mortgage will still be in the mid to high 3’s. Don’t say you weren’t warned.
For those students of the oil industry and the oil market, I provide below a link to an April 11 article by Deborah Yedlin about a presentation given by the analyst Peter Tertzakian at a CAPP sponsored gathering in Hogtown earlier this month. He is a good analyst in my humble and modestly informed opinion.
It is rare that I would recommend an article by the head cheerleader for CAPP but I thought this one was good because it merely reports that which Tertzakian said rather than her own ideas.
Two points resonated with me.
The first is that tight oil productions is the equivalent to the just-in-time manufacture of oil hence much more responsive to the market than the older legacy (expensive) oil developments.
The second is one that even a type like me with no economic education or background should have known, is that electric vehicles to not have to replace a significant portion of the demand for oil, they only have to dent it to have an effect on price.
I would be delighted to hear the views of the dogs on the article.
It is supportive of what Garth had to say.
http://calgaryherald.com/business/energy/yedlin-low-oil-price-is-just-the-beginning-of-a-disruptive-future-for-energy-sector
Good timing. We managed to lock in for 5 years fixed at 2.49% last week.
I know we could have done a bit better but I am satisfied…I doubt we will ever see 2.49% again.
(BMO did offer us 2.2% on a variable 5 year but we chose not to go with a variable.)
#13 stef97 on 04.28.15 at 7:09 pm
I saw lots of comments about the fact that we will be the ones “paying” for CMHC stupidity
Could someone please explain how ? would takes be increased ?
The CMHC has certain reserves it must maintain to pay out defaults on mortgages. CMHC’s reserves are a tiny fraction of the hundreds of billions of mortgages it has on its books. It’s built on the assumption that we will not see major levels of mortgage default. In the event of a major market correction and higher interest rates, we could see default rates climb beyond what the reserve ratio envisioned was adequate.
In the event these reserves are not sufficient, the CMHC is backed by the Government of Canada aka the taxpayer.
Bell Helicopter to lay off 300 in Quebec after winning coast guard contract
CBC.ca – 2 hours ago
Bell Helicopter is planning about 300 layoffs at its plant in Mirabel, Que., as part of a global downsizing that will see 1,100 jobs lost.
Garth, I got a .23 cent increase in pay! Do you think this means i can afford a million dollar home in east Van now?
“Economic growth will improve, along with the labour market, consumer spending and exports – he says.”
*********************
When Walmart pulls back by reducing staff, hours, and actually closing some branches, you know it’s not all good…..
“Now banker boss Stephen Poloz is taking every chance he can get – like in New York last week and Ottawa this week – to claim the same thing: the oil crisis was front-end loaded into the first few months of 2015, and it all gets better from here. Economic growth will improve, along with the labour market, consumer spending and exports – he says.”
he says…..but how, why, when, what does he know?
Poloz the Puppet
So done with the BS!
Bad Manners?
Linda Pearson on 04.28.15 at 5:00 pm
Actually, you’re (note the correct use of that word too) both wrong. The correct phrase is “beyond the Pale”, capital on pale. The Pale was once an area of Ireland under English law beyond which were presumably lower class people who didn’t know good manners.
***********************************
Actually, you’re not only smug and apparently anal but also wrong. Look it up at dictionary.com. Your response is beyond the pale.
And yes, I am sure that the people who thought that everyone in a certain geographic area had poor manners were well-bred. But not well enough to recognize their own poor manners and discriminatory thoughts.
Canada’s Magnificent Housing Bubble Goes Nuts, Cracks Even “Second-Time Buyers” need help from mom & dad
http://totalinvestor.blogspot.ca/2015/04/canadas-magnificent-housing-bubble-goes.html
The theft that Walmart experiences is unbelievable. If the greeter isn’t present due to reduced hours, people
rush thru the doors with electronics, baskets of food….
They generally get caught, having been observed by bystanders or caught on camera….but they try.
There have been numerous incidents with other ‘superstores’, as well.
I start to see the T&C ads all over in MSM.
I just realize zoocasa – an RE agency, is owned by Rogers. No wonder they are hyping RE hard. anybody else know that?
Anyone here remember 1985-1992? Poloz is delusional. No bubble? WTF?
#13 stef97
Federal budget will cover the losses at the cost of less services or more debt/bonds.
Taxpayer always pays the bill.
Who ever said Americans were the dumbest on the planet, hasn’t looked at the northern neighbor.
We are overly indebted, because we have elected officials who WANTED, and LET us become over-indebted. 535 people, from the President, VP, house, senate, and supreme court. All sucking at the public trough, I should add.
This situation CAN be solved. Tighter money can kill the advancing home prices, and 2008 shows Amerikans don’t give a dam if their debts are paid. We could re-elect new idiots to replace the current spent thrift lot. That might help, but for now, all we know is another election looms in 2016.
Wish us luck, we’ll need it. You, our trusted neighbor will need it as well, for the crop of idiots you choose shortly…
you are in worse debt than we were, the fall could be, well…stunning. I hope not, but the choices were ALL made by government policy, and your individual choices.
Hope you chose wisely.
#6 Keith on 04.28.15 at 7:01 pm
—————
There’s a bit more to Milevsky’s point than what Garth covered. Have a look at the original article: http://business.financialpost.com/personal-finance/mortgages-real-estate/heres-whats-really-scary-about-high-ratio-mortgages-in-canada
Fed funds futures now pricing in a December, not a September hike, so a rate hike in Canada by Thanksgiving seems unlikely. However we are most likely at the bottom of the interest rate cycle with inflation cropping up again. Keep an eye on the CPI numbers.
#2 Bob on 04.28.15 at 6:43 pm
_________________________
Having been deluged again today by another cesspool of MSM B.S., it’s always refreshing to come home to a blog full of common sense once again.
Too bad the Two Stephens just don’t get it (or, perhaps, they have just over-prostituted themselves to their lobbyists a little too much this time around).
My own prediction: Harper goes into full cardiac arrest when Alberta gets flipped with a reno coat of orange paint in a week.
> … Oil inventory builds keep rising in spite of declining rig counts.
isn’t that drilling rig count? meanwhile “thousands of wells drilled in major US fracking areas, ready to produce but temporarily capped”, which may well prevent “the price will eventually hit the wall and go parabolic.”
Deflation is no longer the risk, nor is there any evidence that the economy is falling into it. The BoC will follow the Fed, as always. The path will be gentle, but it will be up. — Garth
How many posts did we read about the far reaching recession coming to canada and the implications on housing prices, now today’s summary is everything is okay and house prices may start to dip back towards the stratosphere in 2020…..maybe , This blogs tone changes more often then a wind sock at yvr. Hang it up it’s over
So in the past few days I was about to take the plunge from cash into a balanced portfolio–when I first heard the expression (repeated in today’s post)–Sell in May and stay away. Is this not the time to buy ETFs? Or is the right plan to buy when everyone’s selling
Are you investing for four months or a few decades? If the latter, it makes zero difference. — Garth
Deflation is no longer the risk, nor is there any evidence that the economy is falling into it. The BoC will follow the Fed, as always. The path will be gentle, but it will be up. — Garth
Garth is being nice.
Translation: Mark, you’re wrong. Again.
Wait a minute, wait a minute…this is the same Poloz who just today hit the headlines saying “Canadian housing is not in a bubble”…
He’s a central planner, an absolutely unrepentant, unreconstructed Keynesian. Admitting the existence of bubbles would amount to confessing the existence of ‘misallocations of capital’. But to a Keynesian ALL spending is ‘aggregate’ and GOOD…
Rate rises? Not in the cards. Out of maneuvering room.
They’ve reached PEAK INSANITY because their models tell them so.
#6 Keith
B.C. doesn’t just have magic mushrooms, we have magic money, leverageable to a higher level than anywhere else in Canada, on a lower median family income than any other major city, yet with less negative savings than the Canadian average. Truly this is the best place on earth.
“Sorry , but you are starting to sound like Jimmy Jones in Jonestown!”
Please ………DO NOT DRINK THE KOOL-AID!
@15 Washed up Lawyer
Thanks for the link to the article, the points mentioned are quite obvious actually. The question is, how many actually believe it TODAY?
There’s no news in the truth, and no truth in the news. No matter what the issue is, wherever money is involved, there will always be media bias one way or another.
Always start from the fundamental facts, concepts, and work to your own conclusion. This type of critical thinking will help in avoiding catastrophic mistakes in life, but best of all well the fun money portion of your portfolio can do quite well.
#16 Smoking Man on 04.28.15 at 7:15 pm
My bet, BOC does nothing in 2015 the FED does nothing in 2015.
————————-
I give it 80 % probability.
Things will just look ‘fine’ for a while until the currency collapses.
Loss of confidence and inflation would be the triggers hence the endless lies about the real inflation and the ‘normal house prices’.
I putty those considering the Ca dollar as money,
It is simply useless confetti with worth 1/1.2 millionth of a cardboard and decorative bricks house in To/Van. That’s it folks. nothing more.
Ahh, poor Mike. Borked from a Facebook page. What is the world coming to?
Hmm, Facebook… What is that again?
pity damn it
@realtor007
What’s your point bud?
Interest rates higher and prices lower, so why buy now? come again.
You can do better then that. Bond would be baffled.
Cheers.
“(d) Nobody believes (a) or (b).” – Garth
————————————————-
Nobody believes for the obvious reason that the same premature calls have been made for the last five years and have not transpired. I would like to believe, though.
A combination of lower oil and higher Canadian interest rates?
Good one Garth.
Actually lower oil begets a lower dollar which begets higher inflation which spawns rate pressure at a time when our major trading partner is tightening monetary policy. — Garth
77 Reasons You’re Awful at Managing Money
http://www.fool.com/investing/general/2014/02/10/77-reasons-youre-awful-at-managing-money.aspx
RE #6
It is simple Keith. The Vancouver market has become a place for HAM to park their cash. The media doesn’t report on it, Garth denies it, yet most people you talk to agree that this market has been driven by HAM
What most people believe, and reality, are often wildly divergent. This is a prime example. — Garth
What if the political unrest in the Middle East spreads to Saudi Arabia? There are conflicts presently in Syria, Iraq, Yemen and Libya. That would sure spike the price of oil in a hurry!
There is a big difference between event-driven pricing and that which is determined by supply and demand. — Garth
I hope people understand how little is paid on a chmc mtg over the first five years and what this means to monthly payments on renewal. In the first five years you are lucky to pay down ten percent of principal. This means on a typical $800,000 chmc mtg at 2.7 percent you are paying about $400 a month per $100,000 of principal or about $4,000 per month monthly payments. Given the chmc premium is tacked onto the mortgage you will pay down the mortgage to no lower than $700,000 after five years. If rates are even 2.0 per cent higher, that would mean about $700 a month per $100,000 of principal or monthly payments of about $4,900 a month with higher taxes and utilities. Five years later it will not be much better if rates inch higher which means for 15 years you’ll be stuck with crippling mortgage payments. Why is chmc doing this to people? Even if property values go up, how does this help you make ends meet? Dire for anyone who bought in the last two years.
I respectfully disagree. My “tea leaves” are telling me that the Fed will be raising rates starting in September and much faster than “anyone” believed (cough, cough) and they will be forced to catch up with a global demand for higher yields.
Since when has the Fed ever cared about debtors or the American economy? The Fed’s mandate is first and foremost to preserve the integrity of the Dollar and that is exactly what the Fed will do. The Chinese are pegged to the Dollar for that reason. Wealth and trade are measured in Dollars.
The Fed has given ample warnings and hints about their direction.
Poloz is helping Harper until election time and then the BoC has more room….
#33 MSM-free Zone on 04.28.15 at 8:00 pm
“My own prediction: Harper goes into full cardiac arrest when Alberta gets flipped with a reno coat of orange paint in a week.”
In addition to the Orange Guys Shorts
we’ll have the Orange Ladies Skirt …..sweet
Here is a great alternative to renting if you live in Vancouver and you don’t want to buy a $1-Million-dollar phonebooth house, or you don’t want to be homeless and wandering the streets at night:
“Thousand Crow tiny house sidesteps the Vancouver housing market.”
http://www.gizmag.com/thousand-crow-tiny-house-isabella-legosi-camera-buildings/36962/
Yes, the house is really just a small box on wheels (a small utility trailer), but it meets all local zoning bylaws so that would be livable in Toronto or practically anywhere else also. All you have to do if find a friend where you can park this trailer behind their house (or in front) and then you’ve got a place you can live in.
You know, in normal countries where jobs are plentiful and houses are affordable, places like GERMANY, you don’t find these ‘tiny houses’ sort of crap.
The only reason the bank is yapping about rising rates, is because they want to scare you into borrowing right now.
They fooled you once, Garth. They’ll fool you again.
Are you 12? — Garth
Canadian rates will be higher by Thanksgiving….
There is no real estate relief coming….
Oil’s messing with your head. Lower prices soon….
_________________________________
Garth, you must be a real Gypsy to be able to predict the future out as far as 2019…
“Translation: Mark, you’re wrong. Again.”
When have I been wrong previously? Or are you just a troll?
As for being wrong this time, well, we’ll let the markets be the judge of that. I’m proud of my record, but I’m not sure you should be proud of your trolling and unwarranted personal attacks.
Nothing, and I repeat, nothing has changed in the past few months that invalidates the deflationary thesis in Canada.
“It is simply useless confetti with worth 1/1.2 millionth of a cardboard and decorative bricks house in To/Van.”
And its actually worth more this year than it was last year or the year before in terms of Toronto or Vancouver houses. And will continue to strengthen as housing continues to fall, and significant demand exists to repay CAD$-debt.
The Fed Can’t Raise Rates, everyone is in so much in debt.
————————
Are you kidding.
The past 5 years have been a huge opportunities for corporations and government to roll over debt, and take on new debt, at rates that will look ridiculously low 5 years from now.
For corporations and countries that have locked in at the these rates there will be decades long benefits…..
…..sell long-term bonds at 2-4% and make 6 to 7% IRR for the next two decades – pretty much a no brainer.
Now for retail suckers that are on variable or short-term money the story will be much different.
all these bubbles will blow at the sametime. after all the U.S our largest trading partner cannot afford higher rates. ask goldman sacs .
House Flipping in Victoria
I flipped a few houses in the 1990s and early 2000s in Victoria.
The transaction costs kill you (RE fees, property purchase tax, interest) – you got to make $50K just to cover off those. Basically if you cannot buy the house significantly below market there is not much money to be made and a whole lot of risk.
I stopped when the real estate agent I was partnering with, who was real good at sniffing out below market deals, moved to the the US.
Sorry, Garth.
While I agree with everything else you said, I think that you’re wrong about a rate increase of any kind in 2015 by either the Fed or the BOC.
I’m even willing to bet on it.
If you’re right, in 2016, I will immediately buy a copy of your next book.
If I’m right, then you can send me a free copy. You can even call me a “Dink” when you personalize it!
The latest survey of US economists: 73% expect a rate increase in September. Better give me your last name, too. — Garth
Hmm, Facebook… What is that again?
A stock that has quadrupled in price in my TFSA. ;)
“For corporations and countries that have locked in at the these rates there will be decades long benefits…..”
Very true. However, many countries/corporations have not taken advantage. Especially Canada:
http://www.bankofcanada.ca/stats/goc/results/27326
Throw those numbers in your calculator — only ~$119B of Canada’s $613B debt has a term to maturity of over 10 years.
[…] Source: http://www.greaterfool.ca/2015/04/28/go-away/ […]
Lala the prophet….
Dollar going up even after rate cut and low oil prices is fakt up, is out of control, one small rate increase by US and people will panic. Kukla face Harper is going to lose next elections but lala don’t care much as I’m a visitor in Canada.
http://www.theglobeandmail.com/report-on-business/economy/economic-strengths-to-overtake-oil-gloom-poloz-says/article24149175/
Mr. Poloz also defended the Bank of Canada’s surprise cut of its key interest rate in January, which critics fear may exacerbate Canadian households’ already hyperextended mortgage and debt loads.
“On the surface, lower interest rates would be expected to promote more borrowing, which would increase this vulnerability,” he said in his opening statement to the committee. “However, in the near term, lower borrowing rates will actually mitigate this risk, by reducing payments for mortgage holders and giving us more economic growth and employment gains.”
Mr. Poloz added that he believes the January rate cut, which reduced the bank’s key rate to 0.75 per cent from 1 per cent, is doing its job in helping the Canadian economy weather the effects of the oil shock – although he admitted that the evidence of the cut’s impact “is thin at this stage.”
The FED will not raise rates. Again.
I’m proud of my record, but I’m not sure you should be proud of your trolling and unwarranted personal attacks.
You should focus more on being proud of your employment history and ability to actually make $
As for myself, I’m proud to provide a service to blog dogs by identifying all the completely incorrect and fabricated information that you vomit on here.
Oh and I also like reading SM and a couple others on here.
#45 Marco on 04.28.15 at 8:22 pm
@realtor007
What’s your point bud?
Interest rates higher and prices lower, so why buy now? come again.
You can do better then that. Bond would be baffled.
Cheers.
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If you think 1% rate increase is going to make a difference then you have another thing coming, 5 year rates were at around 3.5% not too long ago yet the market kept climbing, anyway, keep waiting till the cows come home cause at this rate the cow will have his own digs before you will.
The other point is that bidding wars are on again and not just in hot areas like Toronto or Van, this info is coming from the level ground not from some media source, dismiss it at your own peril.
Great timing on this blog. My bank notified me today that my variable mortgage rate will be knocked down 0.5% effective June 1.
Let the good times roll.
What bank and what term? — Garth
@Roy
Some HAM exists at the high end, and low interest rates for locals exist.
Boomers cashing out and selling to one another at high prices exists.
Mom/Dad paying for down payments exist.
When interest rates rise and locals cannot afford minimal down payments then prices will still stay afloat because of HAM in Van – No way.
Unless boomers create a boomer guild of house price guide (haha) along with realtors and sell to one another at said agreed upon prices, until they decide to stay put,
doubtful prices can stay afloat in a rising interest rate environment.
Cheers.
For globally diversified investors with a time horizon longer than ten minutes, the changes in commodity prices or interest rates are insignificant. What’s the problem?
Hey Mark, any information on what (sub-prime) rates are offered to individuals who qualify for CMHC mortgage insurance?
Google doesn’t seem to be working, but I’m sure you should know…
“Oil’s messing with your head. Lower prices soon.
Well since its prediction day on the Greater Fool, I have a very different outlook on oil prices. You might be right about oil prices in the short term – a quarter or so, but after that I fully expect oil prices to firm up and trend higher. In fact, I predict by next year they will be north of $70. I will respond to all 3 of your points and make a case for my prediction.
“For example, the OPECers have not stopped pumping and continue to flood the market with black stuff”
Nothing has really changed with OPEC. They have pumped around 30 million barrels/d – give or take for years and continue to do so. Yes Saudi has increased production materially during March, but let’s see how long that continues. Until there is confirmation of a material change in their long term strategy, I assume they will continue to produce at historical levels.
Many wanted OPEC to reduce production last year to support prices, but why should they when they are the low cost producer. The primary reason prices collapsed was increasing production from around the world due to $100+ prices (and in large part due to US Shale oil production almost doubling as you point out) most of which is much more expensive than middle east oil.
The Achilles heel of US shale oil is the very high decline rates: 50-75% in the first year alone. With that kind of decline rate you are going to need thousands of wells coming on just to keep production flat. But as many know, the number of rigs drilling for OIL (not natural gas) has collapsed from 1,600 to 700 in only 6 months. My expectation is that production from the US will start to decline later this year.
“Second, oil storage facilities in the US are brimming. There hasn’t been this much of the stuff for at least 80 years.”
True enough, inventories are at record highs, but this will only put a damper on increasing oil prices once the supply demand balance flips.
“Third, there are literally thousands of wells drilled in major US fracking areas, ready to produce but temporarily capped. American production of the stuff has doubled in the past five years, and is ready to explode again.”
True enough there are many wells drilled that have yet to be fracked. As with inventories this will only put a damper on increasing oil prices. As I pointed out earlier, shale oil wells have very high decline rates of 50-75% in the first year alone, so you are going to need thousands of those wells just to replace production from decline.
Oil wells that are not restricted have a natural decline rate. This can range from as low as single digits to as high as 75% or more. Producing from on oil reservoir is akin to trying to run up the escalator backwards.
As a result of the collapsed prices, capex budgets for oil fields around the world have been cut substantially. Most would agree that supply is currently exceeding demand by around 1-2 million bll/d. Worldwide oil production is around 93/94 million barrels/d – but once the natural decline rates of these oil reservoirs/fields starts to kick in (due to lack of capex spending) – WATCH OUT!
We are talking loss of supply in the 3-5 million barrels/d day range by late this year/early next. Once this happens and prices move higher, it’s going to take time to re-staff and retrain people since many of those working in the industry will have moved on. It will not be as simple as flipping a switch.
I would add that low oil prices are going to drive demand higher than it otherwise would have. That’s what happened in 86/87 and many expect the same this time around. Add an additional 1 million barrels/d to demand by year end.
My expectation is that we are going to go from a supply/demand surplus of 1-2 million barrels/d to a shortfall of around 2-3 million barrels/d – give or take by year end. There are a lot of variables and no one knows for sure, but that is my prediction. Yes those record inventories and wells waiting to be fracked will put a damper on prices, but once the natural decline of the oil reservoirs throughout the world begin to really bite, oil prices will be materially this time next year.
I predict north of $70 and likely higher.
Excellent post Garth.
You have outdone yourself.
#8
“Uh huh. ‘Cept we’re dealing with a finite and very critical resource here. So the price will eventually hit the wall and go parabolic. ”
Eventually. A loaded term.
Major oilfields in the USA are idled, ready to go as Garth says. They haven’t even begun to develop fields in states like California. Thanks to new technology (no matter what you think of the side effects), previously inaccessible reserves are now up for grabs.
I think the probability is VERY low that oil will become scarce before Alberta’s economy takes a thrashing.
@realtor007
“… dismiss it at your own peril”.
Keep selling this crap rhetoric but I’m not buying it.
And by the way Canadian consumer debt keeps climbing within this timeline, go figure.
Cheers.
#68 Leo Trollstoy
I’m proud of my record, but I’m not sure you should be proud of your trolling and unwarranted personal attacks.
———————-
Am I the only one who finds Leo’s obsession with Mark strange?
#18 Washed Up Lawyer on 04.28.15 at 7:23 pm
For those students of the oil industry and the oil market, I provide below a link to an April 11 article by Deborah Yedlin about a presentation given by the analyst Peter Tertzakian at a CAPP sponsored gathering in Hogtown earlier this month. He is a good analyst in my humble and modestly informed opinion.
It is rare that I would recommend an article by the head cheerleader for CAPP but I thought this one was good because it merely reports that which Tertzakian said rather than her own ideas.
Two points resonated with me.
The first is that tight oil productions is the equivalent to the just-in-time manufacture of oil hence much more responsive to the market than the older legacy (expensive) oil developments.
The second is one that even a type like me with no economic education or background should have known, is that electric vehicles to not have to replace a significant portion of the demand for oil, they only have to dent it to have an effect on price.
I would be delighted to hear the views of the dogs on the article.
Well, as no dogs will step forward, I’ll offer a retort.
Firstly, this ‘analyst’ neatly sidesteps the incredibly fast depletion rates of wells in tight formations. As does he the fact that you don’t just punch a hole in the ground and ‘up comes a-bubblin’ crude’. Substantial multi-year seismic, analysis, and planning is needed before anyone lifts a phone to send in a rig. So, it’s not as real-time as he makes it out to be. The article implicitly compares oil sands with shale oil & condensates using one oversimplified criterion – time to production.
Furthermore, the [w]hole fracking phenomenon has developed more as an effect of incredibly cheap interest rates than recent technology or new discoveries of unknown fields. Cheap debt is the real driver for it. Once that’s gone, it’s a whole new game again. Lower-cost (i.e. state-sanctioned) producers are really biding time against global interest rates. But even for them, financial markets can remain massively supplied with savings, liquidity and other QE debris longer than their (artificially pressured) formations can remain cheaply productive. So, we’ll run into collective physical shortages at about the same time bond rates get some serious traction.
The analogy of production lines with infinite supplies of input parts and labor, and some varying but infinite consuming market, to oil production is a dangerous and brittle one. That’s because oil is, and has been for millions of years, an absolutely limited finite resource.
Accordingly, oil should really not be used for pushing vehicles around. Nor should lithium and other rare earths used in batteries and electronics be consumed by the thousands of tons for the same purpose. Unfortunately, unless some wise government entity coordinates with similar counterparts around the world to prohibit either of those, market forces will have to do it. Unfortunately the financial feedback loop is far too slack to have much effect until it is too late to avoid structural shocks.
I happen to like electric motors, especially for propulsion. The smooth, efficient and quiet heavy torque is a thrill. However, it’s simply a dumb idea to schlep around several hundred pounds of batteries all over the place for that. Better to use embedded power ‘antenna’ grids to draw your motive power from, as you drive daily to and fro over the same routes 90% of the time.
http://en.wikipedia.org/wiki/Online_Electric_Vehicle
That is based on the principle of resonant induction, which extends inductive power transfer up to a couple of meters. It was first developed as a mathematical proof a few years ago. Immediately I thought I could patent it for transportation, but found Nick Tesla had already done that back in 1894.
Grids can be laid under the pavement over most commuting routes much cheaper than rail beds and overhead catenary lines can be set up for trains. When you want to go ‘off-piste’ you can depend on a very small manoevering battery and diesel/generator trailer connected to your vehicle, or a slide-in battery pack.
But that requires far too much social & political coordination in most of the world. If North American can’t even set up electric trains on heavily-travelled corridors because it requires political intervention with private rail companies, then use of anything but internal combustion engines for 99% of vehicles won’t happen until fuel prices get jacked up to last years French levels.
So those houses selling for over a million in the GTA or Vancouver area will be here for a while yet? GOOD NEWS for those of you who own one. The Lottery and Gaming Corporation has given you an extension on the deadline to cash in your winning tickets!!!!!!!
Oil
WTI will be $75 by July
Brent will be $83 by July
Tomorrow US Fed will say “woops” doesn’t look like we will be raising rates this year. Cue the morons on CNBC to revise there forecasts dropping June, September and diving all over each other to predict Jan 2016.
USDX (which just broke key technical support) will drop over the next 6 months. Big time.
Euro will be heading up as its economic numbers prove it.
US economy will hit a wall and drop, as it becomes clear “weather” was not the reason for the recent slew of completely crap data. The impact of the USdollar will dig in.
The seven straight months of declining business investment is a clue. And the financial engineering of “share buy back” is the other. Translation. “We have zero confidence in our businesses and factories so we will simply take our cash and buy shares back to engineer a bonus visa vi wonderful EPS numbers”
With the lower dollar, inflation is rampant. Saw cauliflower hitting $5.99 each the other day. Everything at Costco is going up. Don’t feel that good about Costco anymore. But I guess that real culprit is BOC. What good does devaluing CDN do to any Canadians? Nothing, zip. The only one that benefits is the oil exporter. The ordinary Canadians suffer from all angles. It inflates housing prices and inflates the price of everything. Wages and salaries are still priced in CDN and going up in glacial pace as ever. If you made 70,000 CDN in 2011 that is about 70,000 USD or even a bit more. And say you got a 15,000 CDN raise and now you make 85,000 CDN. Should feel pretty good, right. Well, it is equal to USD 68,000 today. Talking about going backwards. And what percentage of the workforce got a 15,000 raise in the last 4 years?
Leo Trollstoy:
You seem have an insecurity with Mark. At least Mark comments on what he thinks will happen in the future. Any fool can fabricate they bought US properties and Facebook at the bottom and made a killing after it happens. I have yet to see you forecast something. People who are successful investing don’t brag about past returns but have the confidence make future predictions. Not sure who you are trying to impress but you act like a fool and are impressing no one.
#81 H on 04.28.15 at 10:10 pm
Oil
WTI will be $75 by July
Brent will be $83 by July
—-
This is how fortunes are lost. By people ignoring fundamentals and pulling stuff out of their hat on a whim.
Maybe you need a visit to the tankers anchored offshore who are brimming with crude and the worlds largest tank farm at Cushing, OK busting at the seams. Oil will be $35 long before it is ever $75.
#76 james on 04.28.15 at 9:45 pm
[…]
I think the probability is VERY low that oil will become scarce before Alberta’s economy takes a thrashing.
Certainly agree with you on that one. Although it’s not all about oil.
There’s lot of other stuff going on which is necessary to support a population in the millions. Life will go on as it has the last dozen or so times the economy has ballooned since Leduc #1 in ’47.
If the housing addicts get creamed, so much the better. We can look forward to a nice little price reset.
Dear God, the bestest Movie Ever.
The Gambler, with Mark Wallburg.
I can so relate….
We all strive to get to a place…. The place is called,
FU.
It’s a beautiful place, a spiritual mountain top… It can’t be found in the middle.
Only those on the bottom, or those at top can eloquently say with heart to the world, FU.
Thats was my take from the flick.
#74 Rainmaker
You make many very good points. I think a lot of people don’t realize that frac’ing is not all that it is cracked up to be. And yes the side effects are brutal, sadly it might be more about polluting water, driving people off the land and agenda 21. However, that is an entire other subject in itself and mostly gas wells.
I am still working at one of the big sites north of Fort Mac and the construction here is still going full blast. They certainally are cutting costs but they do not see all the billions of barrels of oil here as worthless or too expensive to extract. The big money still sees profit in this dirt
#6 Keith: B.C. doesn’t just have magic mushrooms, we have magic money, leverageable to a higher level than anywhere else in Canada, on a lower median family income than any other major city, yet with less negative savings than the Canadian average. Truly this is the best place on earth.
___________________
Keith, I was born and raised here in Vancouver and unfortunately this beautiful city has changed for the worse in the past 10 years and I believe it’s in part due to greed, debt & egotism. You may have missed the story that Vancouver was rated the most unhappy city in Canada to live. I used to call it the best place, but I question that now. Even with a great income & a house that doubled in value, I don’t think it’s a place where I want to stay long term. Stress = misery. Too many people are working long hours just to be able to pay for their highly mortgaged home and expensive car. I spoke recently with a young woman who is moving back to Mexico because the quality of life was better there as she needs to hold down 3 minimum wage part time jobs just to pay her rent. Does this sound like a great place to live? Quality of life better in Mexico?? Those were her exact words. There are so many young people leaving this city, they’ll be no pulse left in 10 more years. A city with no pulse is a dead one. We need a housing correction to make it liveable again and bring this previously fun, amazing city back to smiles! Until then…..it’s a snoozer!
#79 Republic_of_Western_Canada on 04.28.15 at 10:07 pm
Grids can be laid under the pavement over most commuting routes much cheaper than rail beds and overhead catenary lines can be set up for trains. When you want to go ‘off-piste’ you can depend on a very small manoevering battery and diesel/generator trailer connected to your vehicle, or a slide-in battery pack.
——————————————————–
Cool stuff for sure.. but yeah would never happen. Heck people go nuts about water smart meters.
#52 No spike?
“I respectfully disagree. My “tea leaves” are telling me that the Fed will be raising rates starting in September and much faster than “anyone” believed (cough, cough) and they will be forced to catch up with a global demand for higher yields.”
I tend to agree, believe US rate may rise sooner than later. Their manufacturing / export industries are being negatively impacted by the strong USD. I imagine there’s likely mounting pressure from within to get the rate train moving.
They have their own priorities / agenda. We’re just a bunch of largely irrelevant backwater hicks (to the US Fed) up here. As far as how the BOC may react, I expect the unexpected, especially after the election.
Also agree, the Fed’s “cryptic” forward guidance hasn’t been as mysterious as some might believe… But really who the hell knows, we’re in uncharted waters.
#86 Smoking Man on 04.28.15 at 10:32 pm
Dear God, the bestest Movie Ever.
The Gambler, with Mark Wallburg.
I can so relate….
We all strive to get to a place…. The place is called,
FU.
It’s a beautiful place, a spiritual mountain top… It can’t be found in the middle.
Only those on the bottom, or those at top can eloquently say with heart to the world, FU.
Thats was my take from the flick.
————-
I haven’t seen it yet… But from what you describe
I get it
#74 Rainmaker on 04.28.15 at 9:43 pm
#79 Republic_of_Western_Canada on 04.28.15 at 10:07 pm
Noted and thanks to both of you for your expenditures of time and your viewpoints. I continue to try to learn.
Ultimately, with my career experience, I should probably stick with acting in lawsuits on behalf of top leasers. Maybe that is where the money remains to be made in the oil biz.
After all, it is real estate.
You guys are really confusing me with all these different ideas. What is the price of oil going to be in 6 months? I really need to know. Thx.
We all strive to get to a place…. The place is called,
FU.
It’s a beautiful place, a spiritual mountain top… It can’t be found in the middle.
Only those on the bottom, or those at top can eloquently say with
Love it. So true.
#84 not 1st on 04.28.15 at 10:29 pm
[…]
Maybe you need a visit to the tankers anchored offshore who are brimming with crude and the worlds largest tank farm at Cushing, OK busting at the seams. Oil will be $35 long before it is ever $75.
Those tanks are actually more like buffers in a pipeline system, rather than some storage yard full of parts.
Tank levels are supposed to swing wildly to maintain a relatively constant flow downstream. As long as price points/contango makes it profitable to produce today for higher prices tomorrow, then industry will keep doing it, regardless of the volumes involved.
If anyone starts to feel apprehensive about storage space, then they’ll just pay money to make new storage whether its steel tanks or flushing out new salt caverns to store it all in. Same with tankers. If owners of run-down tankers can get more for sitting at anchor than fueling engines, paying crews, and performing mechanical maintenance and refittings, then they’ll happily add to global storage capacity.
It might make more sense just to leave it in the ground where it’s been the last 50 million years, but hey this is economics.
The Power to say FU
Smoking Man got from the movie the Gambler, the lesson that “Only those on the bottom, or those at top can eloquently say with heart to the world, FU.”
****************************************
The idea to have a paid for house, no debt and $2.5 million invested in safe bonds spitting out a reliable income which John Goodman’s Character said was what was needed for FU money, also resonated with me.
I didn’t see anything about the bottom people being able to say it.
Overall the movie had no beginning and no end and overall weak story development, but that advice about getting to the land of FU will stay with me.
John Goodman sans shirt was also a memorable warning about not letting your weight get out of control. It can happen a few ounces at a time…
I kinda think if John had FU money he wouldn’t have appeared without a shirt.
Irony
Not First above responding to someone said:
This is how fortunes are lost. By people ignoring fundamentals and pulling stuff out of their hat on a whim.
Maybe you need a visit to the tankers anchored offshore who are brimming with crude and the worlds largest tank farm at Cushing, OK busting at the seams. Oil will be $35 long before it is ever $75.
*************************
Speaking of pulling figures out of a hat.
Oil will go where it goes in the short term. All predictions are guesses. Long term the price will rise.
“Hey Mark, any information on what (sub-prime) rates are offered to individuals who qualify for CMHC mortgage insurance?”
Subprime refers to loan quality (“Prime” being loans that banks accept on their balance sheets). Without CMHC subprime insurance as a credit enhancement, borrowers would pay significantly higher rates. CMHC even uses this fact as part of their marketing — that buyers of CMHC subprime mortgage insurance will, on account of the insurance, pay lower rates than they ordinarily would.
“What is the price of oil going to be in 6 months?”
The “markets” current best information on this topic is contained in the futures price of oil in 6 months. The November NYMEX WTI Crude Oil (CL) contract is trading at approximately $61/barrel.
#88 Outofhere
Agree with your whole post, naiiiiled it. Saw a tv news piece on the “unhappiest place in Canada” survey results, and when asked WHY people thought Van rated so poorly every single random person they cornered on the street answered the same: “high cost of living, low wages, lack of opportunity” or a combo thereof.
I also have encountered highly trained / skilled people in my work, who came here from other parts of Canada, and abroad (Europe, Mexico City), intending to build a career here, but eventually gave up & left either to go back home, or for other North American jurisdictions. Reasons? Same as above.
Isn’t it a lot harder to get diversification these days….seems whenever there is talk of a rate increase, stocks tank, international stocks tank, emerging markets tank, and the so-called safe stuff tanks…with all of the instantaneous data, interconnectivity, and programmed trading, it seems that the couch potato approach may be like general fighting the last war…i.e. outdated strategies…….seems the best way to make cash these days is to become a boxer!
“Wages and salaries are still priced in CDN and going up in glacial pace as ever.”
Because CPI is only going up at a glacial pace. So what’s the issue? The economy is only undergoing minimal real growth (if even), so the capacity for real wage increases largely doesn’t exist.
Given that the wheels are very clearly falling off of the RE bubble and the oil industry, it will take years of extraordinarily accommodative BoC policy to get the economy back on track. Especially as deflationary trends accelerate.
Mr Poloz is clearly confused, stimulating borrowing and consumption is not helping the economy in long run, instead backed by the stupid CHMC it is distorting markets and stimulating malinvestment and missallocation of capital which will hurt the Canadian economy in long run.
This is why Mr Poloz is head of BOC which is political position and is not making much more money as a professional on Bay Streat or Wall street, simply nobody will employ him there,
Not sure who you are trying to impress but you act like a fool and are impressing no one.
I feel blessed that my posts are able to encourage discussion about me. My name encapsulates this so well, don’t you think? XD
Who needs to impress when one can incite? :D
I expect a 0.25% rate hike in Canada before 2016 to get back to “normal”. I don’t expect any more rate hikes from the BoC afterwards especially given Canada’s weakening economy. Oil price rebound is temporary and will be short lived due to the simple key fact that supply > demand for years to come thanks to OPEC’s unrelenting will to continuously produce as much oil as possible and weakening global growth.
I expect the U.S. Fed will not raise their interest rate in 2015 given its much overhyped and anticipated economic recovery. In the highly unlikely event of a 0.25% rate hike by the Fed, it will be reversed shortly (6 months) after the stock market and real estate over-reaction.
Again 2015 will be a wild ride full of central bank surprises. 2016 will be a completely different and shocking economic story for everyone.
Best be diversified, balanced, and liquid. Enjoy each day and don’t worry about tomorrow.
Not sure my comment is relevant except in a funny, hahaha, kind of way.
Heard an Obama sound bite from the recent annual White House Correspondent dinner.
Deadpan, Obama says an aide asked if he has a “bucket list”. His response went something like this:
“I don’t have a bucket list. But I do have something that rhymes with it.”
Kind of sums up where my mindset overall is these days — even after bailing out of 604.
And, after reading GT’s daily blog & comments, kind of a mindset where we might ALL soon find ourselves.
Peace.
Leo Trollstoy on 04.28.15 at 9:29 pm
Hmm, Facebook… What is that again?
A stock that has quadrupled in price in my TFSA. ;)
—————————————————–
Why would you buy a US stock in your TFSA?
same trick different country
must watch 7min
http://www.nytimes.com/2015/04/28/opinion/rent-a-foreigner-in-china.html?_r=1
Well Garth,
Been a long time since we chatted but I just thought I would drop in to remind you of what I said at least a year ago – I said no raise in interest rates because the Canadian ” Economy” is on its last legs.
A year later on the Canadian “Economy” is now on its LAST leg and ANY rate increase will kill it dead…
Wait and watch – you will see I am right again…
When this run up in house prices finally ends and the consequences set in for society at large, I’m sure someone is going to make one heck of a documentary. This party has been kept going for well over a decade now. It just amazes me at how many greater fools are really out there.
Technical analysis is a must have skill.
Oil, RSI & TRIX are saying oil is losing the uptrend. This may be a dead-cat bounce, who knows. Looks a lot like one.
Real estate prices are a by-product of ZIRP, interesting. This fall should be interesting. Interest rates haven’t gone up in many years, this will be a shock to many. I’m always weary of breaking trends, and rates going up will break the downtrend in rates.
Is Smoking Man in rehab? His #16 is grounded in reason.
Garth is right on the the RE direction but not on rates.
Asset deflation doesn’t equate to rising rates with a debt bomb.
I’d like to partake in Rich from Calgary’s #63 bet.
Garth has been warbelling on the June hike and deferring to Sept.
Rich said his last name is Short. Mine is Large. Please sign books accordingly.
“Hey Mark, any information on what (sub-prime) rates are offered to individuals who qualify for CMHC mortgage insurance?”
Subprime refers to loan quality (“Prime” being loans that banks accept on their balance sheets). Without CMHC subprime insurance as a credit enhancement, borrowers would pay significantly higher rates. CMHC even uses this fact as part of their marketing — that buyers of CMHC subprime mortgage insurance will, on account of the insurance, pay lower rates than they ordinarily would.
===
Didn’t really ask for your personal definitions. Reading comprehension. Just sayin.
Was asking what (sub-prime) rate is offered to an individual who qualifies for CMHC mortgage insurance.
So if you’re saying that you don’t know, I can understand that.
So a while back the businessnooze was all excited about the big whack of June $20 puts that somebody bought on oil. They said that surely this was a bearish bet that oil would tank below $20, and I was all like, “really? What if somebody was selling the puts, betting that oil would stay above $20, and the counterparty to that trade was taking it up the you-know-where for sake of earning commissions?”
No wonder Prentice called an election. Regardless of who wins it will get ugly for those directly or indirectly dependent on non-renewable resource revenues (pretty much everyone in this province). We’ll be the Greece of Canada in short order.
Now we get to choose between:
A. Prentice’s austerity budget (corporate welfare for the megacorps who export wealth while underwriting the PCs and the WildRose, public service cutbacks and all kinds of new income taxes and user fees)
B. WildRose austerity (corporate welfare for the megacorps who export wealth while underwriting both the PCs and the WildRose, even bigger public service cutbacks, but no new taxes or user fees)
C. Peter Lougheed-inspired dippers (increased corporate taxes for the megacorps, higher income taxes for those making over $125k, and maybe some resource royalty rates comparable to other jurisdictions, and protection of, possibly even expansion of, public services and bureaucracies).
Most people say they are fed up with the PCs, who are neither progressive nor conservative, but are plenty corrupt.
No one likes their austerity budget.
Some will vote WildRose instead, some may vote NDP (highly doubtful outside rEdmonton – this is Alberta, the Texas of Canada), some may just not vote at all.
Most likely the PCs will win yet again somehow (after 44 years of PC rule, democracy at the provincial level in Alberta is a fantasy).
If people actually do decide to turf the PCs (unthinkable! – the PC machine will not allow it) there will be a WildRose government and an NDP opposition. The NDP does not have enough strength outside rEdmonton and this is not Quebec.
Translation: Mark, you’re wrong. Again.
Not until rates go up he’s not.
“I kinda think if John had FU money he wouldn’t have appeared without a shirt.”
______________________________________________
I kinda think that because John has FU money, he has no issue appearing without a shirt. It’s a matter of perspective.
I’m still predicting the price of oil is going up.
A month ago, everyone was predicting $20 oil (including the so-called experts on Wall Street). Now oil’s been steady at $57 for a couple weeks. Sure, there’s more pain to come in Calgary, but oil will never go to $20 again, ever.
The oil market is cyclical. There’s a “surplus” of oil now, because oil was $100/barrel for a couple of years. So the oil being produced now is $100 oil. But when prices hit $42 earlier this year, companies halted exploration and expansion plans, stopped drilling, idled wells, layed off workers in droves across the world. It’s still ongoing. It will take a few months for these shutdowns to really slow the flow of crude.
Meanwhile, consumption continues to rise worldwide. Around 92 million barrels/day, 644 million barrels/week, 2.5 billion barrels/month global consumption. And much of the world’s oil production is not exported but kept for local consumption. And much of the world’s exported oil comes from the unstable Middle-East. And there’s a battle ongoing between Saudi Arabia and it’s next-door neighbour Yemen, between two or more factions. And it’s right next to one of the busiest oil shipping lanes in the world. And 93 terror suspects were just arrested in Saudi Arabia.
So the price of oil’s going to go up much higher by the end of this year. Not down.
#80
Am I the only one who finds Leo’s obsession with Mark strange?
================================================
isn’t it funny that you and leo have the same writing styles as SM?
#90 Outofhere on 04.28.15 at 10:39 pm
Keith, I was born and raised here in Vancouver and unfortunately this beautiful city has changed for the worse in the past 10 years and I believe it’s in part due to greed, debt & egotism.
===================
Sadly, I agree. When I first moved to Vancouver around Expo 86, I was enchanted. I thought it was what San Francisco must have been like before it grew too big. Now the downtown feels like just a soulless shopping mall/resort for the world’s wealthy. The corroding effect of high real estate prices has increasingly driven out the quirky and unexpected affordable little shops and cafes. The stress of trying to pay for the lifestyle show up in tense faces and aggressive driving that wasn’t there before and traffic congestion is unbelievable (at least, to anyone who doesn’t live in the GTA).
Shawn # 98,
“I didn’t see anything about the bottom people being able to say it.”
———————————————-
Have not seen the movie but assume SM was referring to:
The top say, “FU” based on extreme wealth, providing independence.
The bottom say, “FU” based on extreme poverty, they’ve got nothing to lose.
The middle class say, “sure boss, I can work this weekend”, because being debt slaves, they must keep their shitty jobs, protect their modest equity, all in the hopes of one day retiring before they drop dead.
“Canadian rates will be higher by Thanksgiving.”
You’ve made similar predictions before (e.g. rates will be higher by this time next year, mortgages won’t be this cheap again, etc.).
The truth is, you won’t know when rates will rise until you are closer to the event. For the BoC, here’s the mantra:
– Current account balance
– Employment
– Retail Sales
– GDP
Get those in the right direction and you will know when the rate hike is coming. Until then the BoC will let consumer debt balloon and CPI rise. That’s not the type of inflation they want – it’s wage gains.
Similarly for the US Fed. By the numbers, they’ve already lost June. Will it be the same for Sept? Time, and the numbers, will tell.
In the mean time if you did some basic economic analysis you would have some better predictions. But I suppose that’s not really the point of this blog.
Garth,
US Q1 2015 GDP number out this morning at 8:30am. Are you excited?
Predictions and consensus of economists.
Ben Bernanke, before the US Congress in March, 2007:
‘At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.’
Referencing what economists think… Hmm. They never get it wrong, I mean, truly in an epic way.
One person’s view, especially a guy with such a chequered record, is not a consensus. — Garth
Predicting interest rates is a hazardous business! I would never invest a penny on that kind of speculation.
Sure Canada is in a rough spot. Contrary to Sweden which has to lower its rates to counter deflation caused (in part) by a falling Euro, Canada is in the reverse situation where it might have to fight inflation caused by a rising USD. If it does not (fight inflation by raising rates) the CAD will tank even more and inflation will be worse, squeezing even more our consumer economy. At the same time economic weakness in Canada might cause deflation is some areas, such as the service sectors. BTW all of that is bad for jobs & incomes. But a weaker dollar will help some exports and tourism (the big ? is how much help will this be, I suspect less than it has been in the past). Then there is the price of oil, commodities, provincial finances, Greece, etc…
So the big picture is not good for Canada but things are complicated and it will take time, or not…
#119 westcanguy on 04.29.15 at 2:07 am
“I kinda think if John had FU money he wouldn’t have appeared without a shirt.”
______________________________________________
I kinda think that because John has FU money, he has no issue appearing without a shirt. It’s a matter of perspective.
——-
He’s got $65 million according to the interweb…
#40 Kreditanstalt — “[Poloz is] a central planner, an absolutely unrepentant, unreconstructed Keynesian. Admitting the existence of bubbles would amount to confessing the existence of ‘misallocations of capital’.”
His master’s voice:
“Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.” — J.M. Keynes
‘Animal spirits,’ crowds of people being in turn over- and underoptimistic, is one of Keynes most famous constructions, and he was one of the world’s most important economists. So how can you think Keynesians think markets are rational allocators of capital? Poloz himself has stated on several occasions that housing may in places be ‘overvalued,’ which certainly doesn’t suggest a slavish adherence to a doctrine of rational and efficient markets.
Get your head out of your Austrians and read some real economists!
Tax farm update. Work till you die in this work/re-education camp. Including JK and Gr 13 and my grad work I’ve spent 50% of my life so far under control of government-sponsored “education”!
It’s not enough the elites get 40% of our gross wages in tax. No the need more and more through 1001 other taxes. Meanwhile the top of the pyramid (war machine) and the likes of Party faithful and public unions carve the remainder. Wanna bet the new transit lines announced in GTA will become massively overbudget (see Pan-am Games budget). The graft must be paid. Get to work.
“By Canadian Press | April 29, 2015 07:45
Source: The Canadian Press
A new survey suggests more than half of Canadians either plan to ease into retirement by working reduced hours before hanging it up for good or have no plans to ever quit.
The report by HSBC found that 45% of working-age Canadians expect some period of semi-retirement before fully packing it in, while another 15% expect to never be able to fully retire.
That’s compared with 17% of current retirees surveyed who said they semi-retired before fully retiring.”
I tend to agree, believe US rate may rise sooner than later. Their manufacturing / export industries are being negatively impacted by the strong USD.
You’ve lost me, how will higher interest rates weaken the dollar and stimulate exports?
Interesting article in the Globe & Mail on the different predictions of how much housing is overvalued in Canada.
http://www.theglobeandmail.com/report-on-business/economy/housing/house-of-cards-deciphering-canadas-housing-market-numbers/article24152245/
.1 % First quarter US GDP Nice.
Amazing stuff. For sure this massive awesome number will lift Canadian Economy and force the fed and Canada to raise rates!
In fact they probably will have to call an emergency meeting to raise before June.
Will say it again.
USD will begin to tank. It always does PRIOR to us signalling raising rates. READ THE DATA.
As the Dollar drops, commodities go inverse. READ THE DATA.
Europe is just beginning the QE. Money flow will continue to shift that way as it becomes evident the US pooched.
Q1 = winter. Relax. It was negative growth in Q1 of 2014, and the year turned out to be a glorious one for investors. — Garth
I think one other thing about fracking that not everybody appreciates is how much more efficient it’s gotten. The boom touched off a race of American ingenuity and experimentation. Drilling has gotten more efficient (2x the speed of two years ago, I’ve read), drilling multiple wells from the same pad is now standard, the optimal qualities of the injected sand and fluid are better known, and I suppose there must have been advances in seismics and down hole logging as well. It’s not the same industry it was four years ago when the critics were focusing on energy returned on energy invested, and calling the whole thing a ponzi scheme.
The number of active rigs drilling for oil in the US has collapsed to roughly half the count at peak. Not to zero, and not to an insignificant number, but only in half. And those rigs and crews are more efficient.
Another thing I don’t often see discussed in O&G circles is the stunning drop in costs for solar cell modules, driven in part by the recent high prices of carbon fuels. Solar module costs have gone from $1.29 in 2009 to an estimated $0.42 in 4Q2015. Solar’s impact on fossil fuel consumption isn’t going to be direct or immediate, but it wlll be relentless and growing.
Q1 2015 GDP Growth: 0.2%
It was negative for Q1 last year. Vast improvement. — Garth
Q1 = winter. Relax. It was negative growth in Q1 of 2014, and the year turned out to be a glorious one for investors. — Garth
Than if this was so great why was the forecast 1%. Meaning equities, bonds, etc were priced to see a 1% number.
This would also mean the 1% number was baked into the reason for an interest rate increase.
Garth, this number was terrible. At the effects of winter only partially explain how this number was off 80% from forecast.
The effects of the USD and Oil are starting to feed into the numbers. I tried explaining this months ago. When it was stated “oil is not much of the economy”. Really? That where does US Steel fit into that equation? Or engineers, lawyers, etc all tied to the industry. Of even the ones who are still employed who are no longer spending for fear of deeper cuts.
The problem with many forecasters is they don’t really understand the business they are writing about. The dot grasp the most basic numbers like the typical Oil industry employee having multiple times the earnings (and spending power) over someone in a similar industry.
Garth, mark my word. If you are banking on a second quarter rebound, you might want to go back and take a second look.
Wont matter though, the Fed will soon explain this in detail in a few hours.
“considerable slack”
“disappointing business investment”
“effects on the us dollar”
“greater impact from oil related services”
All of the above will be mentioned and have piss all to do with weather.
One person’s view, especially a guy with such a chequered record, is not a consensus. — Garth
With all due respect, he was speaking for the FOMC, which came to a consensus. The FOMC is made up of, wait for it, ECONOMISTS.
The market will continue upwards, however.
“Technical” Analysis is neither technical nor analysis
Fuzzy Camel on 04.29.15 at 12:28 am
Technical analysis is a must have skill.
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Sure and so is astrology.
Strangely Warren Buffett did okay without it.
Just who are the really rich practitioners of this practice of trying to beat the market by following the herd (Buy high, sell low)?
There is decidedly a role for TA as it measures investor emotion. That, as much as anything, moves markets. — Garth
Wow
Wooba on 04.29.15 at 12:04 am
Leo Trollstoy on 04.28.15 at 9:29 pm
Hmm, Facebook… What is that again?
A stock that has quadrupled in price in my TFSA. ;)
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Why would you buy a US stock in your TFSA?
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For the return perhaps? What consequence is a 15% withholding tax on dividends when it comes to capital gains?
Canadian Economy rolls on
The volume of rail freight carried in Canada totalled 25.7 million tonnes in February, up 7.2% from the same month last year.
http://www.statcan.gc.ca/daily-quotidien/150429/dq150429e-eng.htm?cmp=mstatcan
Recovery forecast for US economy…..is zero ex oil…..don’t expect the Obama attack on oil to last a minute after his welcome exit. GDP numbers show a stark reality. 90% of global economies relie solely on petroleum revenue….so don’t expect the sultry Ban Ke Moon to enjoy the luxury of pushing blue sky windmill projects without Obama’s financial underpinning…..which is pumping aid into the third world at record rates…to stall the mass starvation of 5 billion people and political conflagration that is underway.
I agree with the Twitter guy…hahahahahahahahahaha
All the doomer sites must be full today. The debris is floating here. Yuck. Detox. — Garth
#83 H — “US economy will hit a wall and drop, as it becomes clear “weather” was not the reason for the recent slew of completely crap data. The impact of the USdollar will dig in. The seven straight months of declining business investment is a clue. And the financial engineering of “share buy back” is the other. Translation. “We have zero confidence in our businesses and factories so we will simply take our cash and buy shares back to engineer a bonus visa vi wonderful EPS numbers”
If you were a corporate treasurer, what would you do?
Let’s look at Apple, the largest company by market cap in the world. Is it not confident of demand? It launches new products in new market segments, reports in US dollars, sells about 2/3 outside the US, manages to beat in spite of US dollar strength… and?
It can borrow for 8 years at 2.5%, 30 years at 3.7%:
http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=aapl&country=arg
…And the equity trades at a P/E of 16.
You’re the treasurer. What do you do?
– pay off debt by buying back bonds?
– issue bonds because rates are so low?
– buy back shares?
– sell more shares?
– build a new factory, or buy suppliers, because you could sell more if only you could make it fast enough or reduce costs?
– sell divisions and get smaller because of the coming apocalypse?
Corporate treasurers don’t control the interest rates they pay, or the P/Es their shares trade at. Investors decide what companies have to pay for debt and for equity.
If interest rates rise, it isn’t inconceivable that many companies will use profits to buy back their bonds in the market below par and reward shareholders yet again. Snap!
It isn’t just Apple. Check out IBM, Intel and many more large companies. Remember when tech was risky/high growth, and commanded high P/E multiples and bond rates? Me neither, almost.
For your review Garth:
http://business.financialpost.com/personal-finance/mortgages-real-estate/non-permanent-residents-might-be-the-secret-ingredient-in-canadian-housing-market
It seems to me that:
1) her Majesty’s loyal opposition’s foremost objection to her Majesty’s gov’t in Ottawa is that the PMO’s foremost interest is NOT the health and welfare of the nation but the PM’s image&career.
2) whereas conservative financial analysts who’ve been calling for tighter monetary policy in Canada enjoy considerable respect on Bay Street, that respect is only nominal; there’s a mess of desperate twerps really cheering for cheaper money.
3) for all the talk about the merits of balanced budgets, fiscal stimulus to the max is what’s wanted on the street.
If I’ve got this right, it follows there’s a whole lotta polite LYING happnin. The Cons who failed to persuade Harper not to run again must be mad as hell. Analysts like Mr. Turner have a note pinned onto their back, Kick Me. And the foreign credit raters are not at all welcome in provincial capitals, rhetoric to the contrary notwithstanding.
#142 Ralph Cramdown.
“if you were a treasurer what would you do”
That was not my point.
The point is nearly 1 trillion is going to share buy back. The share price (stock market) has been going up based on this. Reality is corporate profits are shrinking. Have been and continue to do so.
The people at the top of the corporations are compensated when the shares go up.
So as you point out what are they going to do?
the reality is the US business are doing Terrible. Dont believe me? In 2013 Caterpillar was gearing up to make 2100 giant mining trucks a year. Hiring, buying parts etc. This is massive money. For example each truck needs 6 tires. One tire costs $80,000 and is shipped on ONE truck.
Today they are making 60 trucks a year. 60.
Yet you would think the share price would reflect this right? Wrong. Shares are not off that far, and the CEO just got a raise to $17 million a year.
The market is not reflecting reality. No different than the argument on housing.
Time will come though. Share buyback is a zero sum game.
canadian dollar $.83 and climbing. No rate hike
Of course not. That would happen at the end of 2015, as stated. — Garth
Hmmnmm…if the US economy is dragging bottom due to the collapse of the ‘real economy….ie …petroleum…there will be no raising of rates……”Caution”, Yellen has repeatedly stated. Obama’s windmill economy is a pure play on subsidies…none of the projects is profitable…..ask Warren Buffet.
*Second, oil storage facilities in the US are brimming. There hasn’t been this much of the stuff for at least 80 years.
– something a majority of oil newbies don’t realize is that storage facilities and tankers are full due to speculators holding oil for better prices….not because production has forced a ‘glut’ into farms. Huge profits are already being booked from the stock held back from delivery. In fact there is a boom in storage builds across N America …because more people want to store oil than sell it.
PS…Calling the Calgary Herald a ‘doomer site’ is a stretch….don’t you think?
interest and swaps
SLOAN: The banks pitch interest rate swaps as a way for cities, municipalities, to issue cheaper–basically to get cheaper loans. So if the water department or the city itself wants to raise money for an infrastructure project and they issue bonds, they can issue bonds at a fixed rate or a variable rate. The variable rates that are available are usually lower, but they’re risky. And so the banks pitch an interest rate swap as a way to, to create what they call a synthetic fixed rate. So it’s sold as a way to get the variable rate, that lower variable rate, while reducing the risk of the variable rate.
And so what you have is, the city is paying the variable rate on the bond. They’re getting a variable rate from the bank, and they’re giving the bank a fixed rate. So it’s this sort of side bet, it’s called a hedge. It’s a derivative. And again, the banks pitch it to the city saying, this is going to save you money. This is going to, over the long run you will save money over what you would have spent if you had issued a fixed-rate bond at whatever rate you could have gotten at the time.
But what we’ve seen over and over again nationally is that it didn’t work out this way for cities who have these interest rate swap deals. They were designed in such a way that they were filled with risks, most of which were not adequately disclosed to cities like Baltimore when they were issuing the bonds and attaching the swaps to them. And in late 2008 after the banks basically crashed the economy and the Fed was bailing out the banks, the Fed drastically lowered interest rates. And what you saw then is that the money that the city was getting from the banks on these interest rate swap deals really fell, but the money that they were giving the banks stayed the same. So they’re giving the banks lots of money, they’re getting very little in return from the banks.”
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=13700
April 23, 2015
-a particular provision that applies to municipalities specifically which says that banks–it’s called the Fair Dealing [rule] of the Municipal Securities Rulemaking Board.
so what would happpen to this with TPP rules?
There is no real estate relief coming.
If you thought CMHC might tighten the rules again, that big lenders would be spanked for teaser mortgage rates or the feds would move to corral our burgeoning subprime mortgage business or the bank of Mom, forget it. We’re on our own. That means $1.1 million detached houses in 416 and 12-foot-wide houses in Van selling for $1.35 million are here for a while, until the days of reckoning.
you mean on the way up there is no real estate relief. I certainly agree, I don’t see any political figures saying ” we will move to reduce house prices”
on the way down there won’t be any real estate relief either
PM: Translation: Mark, you’re wrong. Again.
Not until rates go up he’s not.
pretty funny
“BTW, the dollar’s going to be whacked again, too.”
Just one short sentence as a side note on the value of the Loonie, what gives Garth? Afraid to publicly state your forecast on its value? Nah, surely that can’t be it!
FWIW, I believe it will drop to 60 US dollar cents in early 2016.
@#4 Mark, are you the same Mark who is on the G & M and National Post comments sections always warning us of the coming deflation and how rates need to be even lower? You might want to give that up. Rates have been plenty low for plenty long enough, and most of us have seen that more of the same is precisely NOT what the economy needs. We aren’t going to be convinced otherwise. Your “medicine” didn’t work in Japan and won’t work anywhere else.
Rainmaker
Republic_of_Western_Canada
Ralph Cramdown
You three: your comments on the oil industry are first rate. Thank you
OutofHere: I was born and raised here in Vancouver and unfortunately this beautiful city has changed for the worse in the past 10 years
that’s pretty strong. That got my attention
Julie K : “I don’t have a bucket list. But I do have something that rhymes with it.”
pretty funny
…”… forecasting is hard when it involves the future.” – HonGT
#YouCanSayThatAgain… #Personally,MyMoney’sOn… #MadameLaZonga[4:47]…
https://youtu.be/3b5ntBV8iZc
#145 H — “That was not my point. The point is nearly 1 trillion is going to share buy back. The share price (stock market) has been going up based on this. Reality is corporate profits are shrinking. Have been and continue to do so.”
So we look at it from the investor’s point of view. Companies have been issuing a lot of debt. All other things being equal, this should depress bond prices. They’ve been buying back stock. This should increase stock prices, and earnings per share. Central banks have been printing money. Some say this should increase the prices of everything.
You say that corporate profits are shrinking, but US GDP is growing (-ish, unless Q1 is the start of a bad trend), and the increased GDP isn’t going to labour, much.
So does an investor buy stocks, bonds, gold, foreign assets, or stay in cash?
As an investor, I care more about whether my earnings per share are going up than if the company’s overall earnings are going up. Assuming the long term trend for the company is good, fluctuations aren’t too much of a worry. If the long term trend is bad, why own it? If management is diluting my share by selling stock cheap, that’s bad. If they’re increasing my ownership stake by buying back stock at not-crazy prices, that’s good, and if the stock price is crazy, I should sell.
As an investor, what should I do?
Garth you advised us to find a “Financial Advisor” that didn’t sell anything. I have been phoning around and cannot find one that doesn’t sell something. How does one find one of these rare birds. I really need one. I live in Victoria…. one of those silly people
Another punchline: in Q1 2015, the US economy rose by a paltry $6.3 billion in nominal terms to $17.710 trillion.
Here is how the total GDP growth compares to just the increase in inventories, which as we wrote earlier this week, is the primary reason why the world is now gripped in a global deflationary wave.
In other words, if US inventories, already at record high levels, and with the inventory to sales rising to great financial crisis levels, had not grown by $121.9 billion and merely remained flat, US Q1 GDP would not be 0.2%, but would be -2.6%.
Even as the rest of the US economy was a major disaster with the clear exception of inventory accumulation, which at some point will have to be sold unleashing the next deflationary wave and forcing the Fed’s helicopter to finally take off, another question is what happened to the US consumer: after all, in the US one can use Amazon in the comfort of one’s snowed in home, and while the crash in oil turned out to be unambiguously bad (just as we warned) for CapEx, some 70% of the US economy was and is in the hands of the relentless spending habits of Joe Sixpack.
Which is why a quick look at what said Joe spent in the harsh winter reveals something stunning: no, not that the most consumed “service” was again healthcare – mandatory spending on Obamacare will be with us for a long, long time, “boosting” the US economy by this mandatory spending item.
No, what surprised even us is that far from subtracting from GDP growth, the harsh winter actually boosted consumption, in the form of Utility (i.e., heating) spending, which made up the second largest increase in personal consumption in the first quarter. Because, to every economist’s cries of horror, freezing weather while perhaps reducing discretionary spending actually boosts spending on such mundane, if very expensive, tasks as utilities which, to the same economists, also translates into growth.
#97 Republic_of_Western_Canada on 04.28.15 at 11:05 pm
Those tanks are actually more like buffers in a pipeline system, rather than some storage yard full of parts.
Tank levels are supposed to swing wildly to maintain a relatively constant flow downstream. As long as price points/contango makes it profitable to produce today for higher prices tomorrow, then industry will keep doing it, regardless of the volumes involved.
The increases in production have more to do with generating cash flow than they do booking profit. Servicing debt, fixed costs, etc don’t go away just because the price per barrel drops, so producers that were scraping by at higher prices are going to pump to maximum capacity to meet their financial obligations.
If anyone starts to feel apprehensive about storage space, then they’ll just pay money to make new storage whether its steel tanks or flushing out new salt caverns to store it all in. Same with tankers. If owners of run-down tankers can get more for sitting at anchor than fueling engines, paying crews, and performing mechanical maintenance and refittings, then they’ll happily add to global storage capacity.
You say this like oil storage connected to the pipeline network can be built on short notice. It can’t. Storing oil in secondary sources like offshore tankers is more expensive than in traditional sources. Somebody is paying someone else rent to store their oil. As long as the oil is in the hands of a speculator and not a consumer, the owner of the oil will potentially discount to sell or watch their capital continuously erode due to storage fees.
It might make more sense just to leave it in the ground where it’s been the last 50 million years, but hey this is economics.
Yes. Except you seem to think everybody is pumping record amounts of oil because it’s still profitable. In reality, they’re pumping record amounts of oil to stave off insolvency.
#TheBestFortuneTellers… #AreAlwaysLookingOverTheirShoulders,Or… #Let’sTakeTheWayBackMachine… #To1975.04.29…
https://youtu.be/hz276uryS4s
Great article on the effect of “shiny”.
Just like watching too many crime shows skews your perception of danger, renovation shows are pushing the shiny and burying the underwater effect.
http://www.winnipegfreepress.com/business/home-renovation-shows-are-having-a-profound-impact-on-home-buyers-realtors-say-301072221.html
#Oooops… #NoMoreKaChingForCheng,Or… #IsThatARedNoticeOnYourFile?…
[SCMP] – Major Vancouver property developer is a Chinese corruption suspect wanted by Interpol: Michael Ching Mo Yeung is wanted for alleged graft and concealing and transferring illegal gains
…”Cheng Muyang, a permanent Hong Kong resident, fled from the mainland to the city in 2000. He left Hong Kong for Canada in the same year, according to the CCDI.
China only made a formal request to Interpol on August 27 last year to put Cheng on its wanted list, 14 years after he fled the country.
Cheng was last week included among the 100 international financial fugitives whose photos and details were released by the CCDI as part of the graft-busting Operation Skynet.
Reports emerged last week that Ching and Cheng were the same person.”…
http://www.scmp.com/news/china/society/article/1780152/major-vancouver-property-developer-chinese-corruption-suspect
Wow. Who’s getting blown up on currency today. It’s awesome. They’re selling everything.
Hedge fund children have been running amuck. Grandma Janet needs to restore calm.
RE: #80 SWL1976
#68 Leo Trollstoy
I’m proud of my record, but I’m not sure you should be proud of your trolling and unwarranted personal attacks.
———————-
Am I the only one who finds Leo’s obsession with Mark strange?
__________________
No, you’re not the only one.
Personnally, I try to restrain myself with my obsession with Freedom First. No exception. (It’s a joke)
#63 Rich in Calgary
“If I’m right, then you can send me a free copy. You can even call me a “Dink” when you personalize it!”
‘The latest survey of US economists: 73% expect a rate increase in September. Better give me your last name, too. — Garth’
I think he already did give you his last name – he’d be “Rich Dink”.
Technical Analysis
There is decidedly a role for TA as it measures investor emotion. That, as much as anything, moves markets. — Garth
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Absolutely true, for those who wish to trade by predicting what others will pay for a stock.
Value analysts invest based on comparing what a stock should be worth versus what it is trading at. In this approach trying to guess whether emotions will push a stock up or down is irrelevant. The simple point is buying a stock at a price significantly lower than it seems to be worth tends to work out well.
Value will “out” in the end.
Value investors look at their own perception of value. Technical Analysts look at what others are doing.
You can’t beat the herd by following the herd. If you want to follow the herd buy an index fund.
the trend is pretty obvious though…
Been buying USD since par and adding ever since. Garth had a piece here a little over a year ago about some fund managers who talked about shorting the C$ back then. They’re in the money now.
It’s possible that some of the US$ holders are unwinding the trade and going into C$ and AU$ again but not long term – now way. Fundamentals are crap for either of those two commodity currencies. Huge private and public debt loads in both Canada and Australia.
Looks like market is responding to Fed calling for higher rates and at the same time putting pressure on the Fed to follow through.
Short term US t-bills is a good place to be for the time being until AFTER the dust settles….
Are you investing for four months or a few decades? If the latter, it makes zero difference. — Garth
same applies to RE as long as you can comfortably carry the debt. + it is an investment you can live in rather than live for.
life is short, but if you prefer to wait for a potential “crash” in 5 more years… by then prices would be up 60% in a decade so when it crashes 40% you are still worse off than the person who didn’t listen 10 years ago and went in head first. + you then have a decade of lost enjoyment.
of course, unless dying on a bed of money is your goal. then sock it away to grow
Keep talking Ralphie and others. Oil’s broken out.
“Trade what you see not what you think. “
Poor US growth numbers today. Pretty much no US rate hike and therefore no Canada one.
Predictions lasted less than 24 hours.
Real Estate will still stall everywhere but GTA/GVR.
Last night there was someone who questioned my comments on oil. I believe he commented “oil was in storage at sea”
Well I have news for you. Perhaps you should look at the contango spread.
Delivery of crude for next June is just $4.86 more and dropping like a stone.
Meaning the market is pricing is more use for the Oil (demand) NOW vs 12 months from now.
It costs $1.20 a month per barrel to store oil bud. Meaning if you locked into oil being delivered 12 months from now you will be paying $14.40 per barrel to store it at sea for a loss of around $10 a barrel.
You see in 2009 with the crisis hit the contango was massive. Spreads were $18 for 12 months out. There was 120 million barrels floating at sea and OPEC shut off 4 million barrels a day. Yes “shut off”. Meaning even after the oil at sea was used up, there was still the problem of 4 million surplus being ready to go.
Today we have absolutely nothing close to that. ZERO. There is no “4 million barrels of spare capacity”. In fact most are pumping flat out.
If you look at the inventory numbers today you will see cushings is NOT going to reach capacity. As was priced in. If fact its dropping now a full MONTH prior to when oil inventories typically drop.
In the next few days you will see the headline news catch what is going on. Then the little guy will see it at the pump.
Its not all bad news.Homeowners in Toronto and Vancouver area will still be giddy if houses go down 5% or 10%If they bought in even a few years ago they will still be millionaires when they retire.The dream of a wonderful retirement thanks to their crappy house.I know Canadians are so jealous that they didn’t invest in these 2 cities but you have to have great insight and knowledge.
As for rates going up,forget about it.You will never see 5 year fixed rates over 3.5% again.Prime rate will be under 1.5%.Canada will follow Japan’s playbook.Our central banks goal is to make Canadians indentured slaves.
#33 Alex G.
There’s a bit more to Milevsky’s point than what Garth covered. Have a look at the original article: http://business.financialpost.com/personal-finance/mortgages-real-estate/heres-whats-really-scary-about-high-ratio-mortgages-in-canada
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Stats Can says that in 2011, there were 13.3 households in Canada. Milevsky’s table only accounts for 10.4 million of those. So, does that mean that the rest (2.9 million) are renters?
60 bucks today?
60 bucks tomorrow?
Airbnb nightmare renters leave Calgary home trashed
Family finds condoms plugging toilets and chicken drumsticks in shoes – cbc
so what does insurance say about that?
#158 JM on 04.29.15 at 12:15 pm
People are busy with their colouring books, leave the alone.
Adult Colouring Books: Is This The Apocalypse? Russell Brand The Trews (E295)
https://www.youtube.com/watch?v=X0D-MCfELAc&list=PL5BY9veyhGt46KMmgAJYi1LF0EUkpqcrX&index=19
Looking for lower RE prices?
You only have mother nature on your side now – like the kind itjust offered Nepal. Would never pray for such. but the reality is all the economic levers will continue to work to prop or stabilize/maintain RE prices and consumer spending. Sure some places have ridiculous RE prices like godless Toronto, but they keep voting liars so it all evens out.
We live in K-W area and just bought a bigger place – to be built. Caught a $5k savings in upgrades and they raise prices $6k in May. We win. Even if the BofC raising rates 2-3%, it will not hurt us. I hope they do raise rates, bring it on. It will only reset the equilibrium for most hoods – easy way to shake out the chaff (overextended) on your street.
Good luck to all who will continue to sit around waiting. Hope you don’t die waiting. cheers.
#169 TurnerNation — “Oil’s broken out. “Trade what you see not what you think. “
I can hardly argue wih the chart, though I think celebration might be premature for those with longer time horizons. The weekly chart doesn’t scream “Victory!”
My bigger point isn’t so much about oil as a whole, but about the unconventional plays in Western Canada. The big theory underlying commodity markets in general is that we’ve already discovered most of the biggest and cheapest plays. Markets may fluctuate, but most large new finds are going to be more expensive than current reserves. Fracking upends that completely. It turns out that the US is NOT past peak oil, that it has significant, previously unknown reserves that are economical at, say, $50. Ditto for elsewhere, as witnessed by the recent light tight discovery in England’s Jurassic region.
Alberta’s tar sands run the very real (IMHO) risk of becoming stranded assets. Canada is an energy superpower at $100. At $60, not so much.
“Mark, are you the same Mark who is on the G & M and National Post comments sections always warning us of the coming deflation and how rates need to be even lower? You might want to give that up. Rates have been plenty low for plenty long enough, and most of us have seen that more of the same is precisely NOT what the economy needs.”
Well current economic “theory” is that rates are lowered to stimulate the economy, rates are hiked to slow the economy. On a small-signal basis, this seems to have worked, at least over the bandwidth that such has been applied. There is, however, the issue of saturation (to use an engineering term) or ‘authority’ (to use an aviation term) at the extremities of either low rates, or high rates. In which monetary policy is destined to failure and that “other” fundamental reforms to the system must be implemented.
I believe, at least in the context of the USA, that growth won’t be sustainably restored until they tackle some of the big ticket items including the excessive size of government, the role of conspiracy in the health care system, and various other policies that impede investment and growth. Mostly stuff that is outside of the purview of the FOMC. A similar deal in Canada.
But central bankers can only use the tools available to them, and those are primarily related to policy rate manipulation. People on the ground, whether it be seniors eating cat food from low rates, or others who may find the monetary system not to their pleasure, need to agitate for change at levels far beyond just that of monetary policy and central banking.
http://www.cbc.ca/m/news/business/topstories/is-u-s-fed-chair-janet-yellen-creating-a-zombie-economy-1.3050229
Zerohedge is making it on the cbc now?
#84 Chris on 04.28.15 at 10:23 pm
With the lower dollar, inflation is rampant. Saw cauliflower hitting $5.99 each the other day.
——————
My wife just bought cauliflower (product of the USA) in Kingsville, ON for $2.49. Perhaps like housing, cauliflower is grossly overpriced depending on where you live.
#170 PM on 04.29.15 at 1:18 pm
Poor US growth numbers today. Pretty much no US rate hike and therefore no Canada one.
Predictions lasted less than 24 hours.
Real Estate will still stall everywhere but GTA/GVR.
+++++++++++++++++++++++++++++++++++
ditto
This blog is so amusing some days. — Garth
#131 David
Merely observing that international sales & revenue are trending down (for US Co’s) across industries, in lockstep with the strengthening USD, as a result of reduced international demand due to strong USD.
With USD as the global go-to currency, am wondering that once US rates start their ascent, would it not compel other countries to start increasing their rates accordingly as well, (in effect halting some currency wars) in an effort to attract/retain global capital flows attracted to the rising rate environment in the US? Thereby reducing the price of USD denominated goods purchased in foreign markets. (In theory). One could argue when this happens those with debt will get spanked by the rate rise, reduce consumption, and the the US co. selling the goods still suffers flagging sales & revenue. So maybe it’s a wash.
I’m no economist, but this variable often seems to be overlooked in the discussion of rate prognostications, it seems quite relevant to interest rate policy, so am curious how this scenario may play out.
BNN has Natural Gas up 65% for June delivery. $4.13. WTF?
Must be a typo. Can anyone confirm? Stockscores shows little change in the spot price.
I don’t see a rate hike in Canada this year. The probability of US rate hike is not much higher either. All Canadian banks are increasing their service fees, simply because their revenues are squeezed by ultra-low rates. On a brighter note if you are fed up with your bank’s fees you have better alternatives
False alarm on the Nat Gas price. TV shows price up $1.62.
Web site shows up $ .06. This agrees with Stockscores.
#105 Leo Trollstoy
A good troll would be able to incite discussions about the topic, not himself, which any idiot can do. Even DA got people talking about things, and not him. As a troll, I give you 3/10.
Hint: people are talking about you, because you’re not actually saying or contributing anything.
#177 fancy_pants — “We live in K-W area and just bought a bigger place – to be built. Caught a $5k savings in upgrades and they raise prices $6k in May.”
Congratulations, but…
What economic theory are you operating under that explains how they’d rather sell you a new build home today than wait a month or two for an extra $6k, minus carrying costs, which aren’t too large for serviced land. Or raise the price by $6k immediately, if the market supported that price? What rational seller would do business that way?
Never confuse sticker price with realized price for big ticket, negotiable goods, nor predictions of future price increases with actual fact.
If you’re still within your recission period, and you didn’t negotiate too hard before you signed (e.g. took agent’s offered concessions, but didn’t counter with and receive any greater concessions of your own), try cancelling and offering $6k less. Unless demand is strong, it’s an amount so small that even the agent ought to be willing to eat it to save the deal.
#181 cramar —
> With the lower dollar, inflation is rampant. Saw
> cauliflower hitting $5.99 each the other day.
My wife just bought cauliflower (product of the USA) in Kingsville, ON for $2.49.”
It does amaze me that people keep quoting high prices for meats and green vegetables as dispositive signs of inflation. Anyone who actually shops regularly knows that they fluctuate wildly, and that people who go to market planning to buy what’s well priced spend far less than people who buy whatever they want, regardless.
Also, cauliflower head sizes vary.
Signed, inadvertent but happy major grocery shareholder.
#84 With the lower dollar, inflation is rampant. Saw cauliflower hitting $5.99 each the other day.
——————
#181 My wife just bought cauliflower (product of the USA) in Kingsville, ON for $2.49. Perhaps like housing, cauliflower is grossly overpriced depending on where you live.
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Assuming the #84’s price is per kg, and #181’s per pound, it is pretty much the same
On Predictions
The Bank of Canada has spoken!
We are now past “atrocious” and on to unicorns and rainbows!
Yay. I think.
#159 Yogi Bear on 04.29.15 at 12:15 pm
[…]
Except you seem to think everybody is pumping record amounts of oil because it’s still profitable. In reality, they’re pumping record amounts of oil to stave off insolvency.
Well, you see it’s not just about the immediate pumpers/producers. Of course many of them have their backs to the wall and are trying to keep the creditors at bay with whatever cash flow can be mustered at current prices and bond rates.
But the industry also includes the market intermediaries and speculators who buy from them. Those are the ones who do so with the expectation that the price next month will be greater than today plus storage plus admin etc; i.e. they expect to book a profit. Their time horizon varies, and is whatever their business plan aims for. Some profit-motivated market, either traders or refiners, have to buy from the producers. Otherwise physical production is shut in and cash flow has to stop.
Those intermediaries are the ones who are the largest direct consumers of produced crude. That assumes most oil is trading through futures markets rather than direct OTC contracts between producers and refineries. The traders are the ones who will have to make delivery or lease storage arrangements for product until planned profitable future sales of it can be made.
At buyer’s option, delivery shall be made by any of the following methods: (1) by interfacility transfer (“pumpover”) into a designated pipeline or storage facility with access to seller’s incoming pipeline or storage facility; (2) by in-line (or in-system) transfer, or book-out of title to the buyer; or (3) if the seller agrees to such transfer and if the facility used by the seller allows for such transfer, without physical movement of product, by in-tank transfer of title to the buyer. – CME
“There is a cost of storage, which includes capital costs and operating costs. For a trader this cost is paid as a leasing fee, which can range from a monthly charge of a few cents to more than a dollar per barrel, depending on tankage availability. The cost of storage is reflected in a discount for the prompt-month contract relative to future months” – Jim Feaster.
My point is that if fill rates threaten to exceed storage and refining capacity, preparations for expansion of storage and processing will take place far enough in advance to avoid a sudden choke and shutdown of pumping from the primary producers. Expansion costs will probably be shared by intermediaries (space consumers/lessors) and tank farm operators (space suppliers) in some arrangement beneficial to both.
But as long as contango exists, the midstream industry expects to profit between now and the future and will keep buying near-term for future sale and store the stuff.
Oil seems to be recovering quite well from the bottom.Will see oil between $65 and $75 by mid summer.Buy on the pullback of your favourite oil stocks.Nat gas stocks look cheap now also.
Expect BOC to pull a fast one again this summer,rate cut 0.25 % by the end of summer.
Sucker. — Garth
How to Make Money Being Wrong
Bill Bonner head of Agora admits:
Our message has been unchanged for 30 years: You can’t build a healthy economy on debt. And when things go wrong, you can’t fix it with more debt.
That is what we’ve been saying for three decades. And for three decades, we have looked like a fool.
But to a growing readership, the analysis made sense and the advice made money.
**************************************
Interesting admission, 30 years of being wrong but made a fortune from it.
Lesson: Tell people what they want to hear. Or tell your story to people who want to hear it. They may pay you to reinforce their thinking even if its delusional.
“But as long as contango exists, the midstream industry expects to profit between now and the future and will keep buying near-term for future sale and store the stuff.”
Contango is vanishing before your eyes. See BPs unwinding.
http://www.hellenicshippingnews.com/bp-unwinding-oil-storage-play-as-contango-narrows/
We are down to a $4.80 spread on WTI 12 months from now.
At Christmas this was $14.75 and VLCC (Very Large Cargo Containers) were being snapped up.
With Contango going Backwardisation is next.
#192 Republic_of_Western_Canada on 04.29.15 at 4:09 pm
But the industry also includes the market intermediaries and speculators who buy from them. Those are the ones who do so with the expectation that the price next month will be greater than today plus storage plus admin etc; i.e. they expect to book a profit. Their time horizon varies, and is whatever their business plan aims for. Some profit-motivated market, either traders or refiners, have to buy from the producers. Otherwise physical production is shut in and cash flow has to stop.
Those intermediaries are the ones who are the largest direct consumers of produced crude. That assumes most oil is trading through futures markets rather than direct OTC contracts between producers and refineries. The traders are the ones who will have to make delivery or lease storage arrangements for product until planned profitable future sales of it can be made.
Let me summarize what you just said:
– there will always be consumers for oil because there are intermediaries in the futures market
– the intermediaries are expecting a profit based on futures they are buying today
These are both true statements. Neither actually contributes any value to the narrative that oil prices will rise in the future. Intermediaries who have no actual interest in end-use have short-term horizons. When speculation meets reality they will be the first to dump since they have no actual need for physical delivery.
“My point is that if fill rates threaten to exceed storage and refining capacity, preparations for expansion of storage and processing will take place far enough in advance to avoid a sudden choke and shutdown of pumping from the primary producers.”
Based on what? Your imagination? Secondary storage options are already being used (locally). Where was this mysterious forward looking, primary storage expansion then? Or, more realistically, building new storage is not nearly as quick as you think it is and it’s a major risk factor in the oil market.
But as long as contango exists, the midstream industry expects to profit between now and the future and will keep buying near-term for future sale and store the stuff.
True. But expectation of profit by the greatest fool does not mean there will be profit. Every market top is populated by buyers and markets expecting ever higher prices.
The basic fundamentals are as follows:
– supply exceeds demand in a very significant way
– production has increased every single week for many months
– oil inventories in the US has broken records and all of that inventory is incurring storage fees
Until demand exceeds supply (either via increased demand or cuts to production) oil inventories will not be drawn down. Until oil inventories are drawn down, long-term oil rice recovery is a pipe dream.
The extreme leverage of US shale plays demands that they generate cash flow by increasing production in the face of falling prices. In the most forgiving debt market in our entire collective history, they can’t get anyone to loan them more money. That’s why they’re ramping up production – since they can’t mortgage their future earnings through more debt, they’re doing it by depleting their capital investments pumping oil at prices that are not profitable. It’s not sustainable.
Everybody is trying to “ride it out” until prices recover. If nobody cuts production, they’re not going to be able to ride it out. Either we’ll see a wave of bankruptcies at present prices which will start shifting supply/demand fundamentals or reality will smash the speculators and prices will significantly decline. Neither scenario is positive for investing in oil, which was your recommendation.
The extremely low (but still possible) outcome of a price recovery from here is based entirely on some type of Black Swan outlier.
http://www.theglobeandmail.com/news/catch-up-canadas-wild-housing-market-valuations-and-other-stories-you-may-have-missed-today/article24170183/?click=sf_globe&service=mobile
RE is vastly undervalued and correctly so. See above.
#177
Which economic levers?
“What economic theory are you operating under that explains how they’d rather sell you a new build home today than wait a month or two for an extra $6k, minus carrying costs, which aren’t too large for serviced land. Or raise the price by $6k immediately, if the market supported that price? What rational seller would do business that way?”
Probably the theory that house prices, already having declined for the past 2 years, will continue declining? Better to close a deal today than watch the market continue to fall. Even if it means perhaps discounting by a few thousand dollars to make the sale go through. A $6k concession today is cheaper than a $10k loss in a few months time!
If commissioned salespeople are involved, which often they are, there’s enormous pressure to get deals done simply so there’s some food on the table and BMW payments made. Vendors themselves are also highly leveraged with lenders who probably are threatening, either implicitly or explicitly, significant increases in the cost of borrowed money on account of decreasing equity and overall systemic credit-worthiness.
The world is preparing to pull the plug on the US dollar as the world’s reserve currency.
Were not there yet, but its coming to the streets near you!
Not even close. — Garth
#196 Yogi Bear on 04.29.15 at 5:37 pm …
Not quite.
-Producers are able to sell to maintain some sort of cash flow because market intermediaries buy it from them. No traders, no market, no sales, no cash flow.
-Traders are buying near and selling far, because they are motivated by an available profit opportunity. Not because producers got themselves into a bind. As part of that trading, intermediaries have to arrange for storage.
-As Enbridge gets paid lease money for tank space from traders, they are motivated to key an eye on storage and try to expand capacity a little if needed.
That’s to ensure they can comply with contractual requirements and to not turn away business. In fact they have expanded capacity recently for one client for that purpose. (And there actually was a net drawdown announced today, BTW. That caused the respectable WTI pop up to near 60.- )
That means producers will not all choke from one day to the next and have to shut in because all traders stopped buying because they suddenly ran out of closet space. That publicized threat is overblown.
Any price increases by Enbridge for space will be passed on to the producer, in the form of discounts producers have to pay on near-term sales. But that won’t stop the traders motivation to buy and store. That will only dissipate when the profit opportunity goes away.
True. But expectation of profit by the greatest fool does not mean there will be profit.
That’s not how the futures market works. You don’t buy something and sit on it indefinitely until you think it’s time to sell. It’s not a house. You make a short-term [spot] contract to buy and a long-term one to sell at the same time. Costs are all calculated in and profit is known when you pull the trigger on the deal.