The deceivers

GIRLS modified

Dan’s confused. Anxious. Hard to blame him, really. He reads the news then has to go looking for the Tums.

“It makes me want tangible forms of investment,” he says, “plus we didn’t want to have all that cash, all our assets, inside of a big bank.” So he and his family have been converting a portion of his income every month into an ounce or two of gold. Since starting, the metal has lost 40% of its value. “But what I read makes me believe the world is scary, so this is insurance.

“It seems that gold has hit its low but at the same time I can’t get away from the thought that it may have not and might be headed lower still sub the 1K mark. I realize that one should look at the long term here but I’d really like to know YOUR view as to whether or not today is the time to invest a part of one’s salary into gold (or silver).”

That’s easy. No.

Gold pays no dividends or interest. It falls when the US$ rises, which is certain to be the case as American interest rates start their long ascent this autumn. Gold thrives on inflation, and there’s little. Bullion is a haven when faith in financial assets is lost, yet central banks are ensuring there’ll always be liquidity and backstops. And metals ebb and flow with commodity values, which are in disfavour and likely to stay that way for a lengthy time.

In short, people buy metals because they think in extremes. They invest in emotion. They read crap web sites like theeconomiccollapseblog.com, which details the imminent Apocalypse in 2015 (formerly the Apocalypse of 2008), then dwell on the worst case scenario. Lately the doomers have had a lot of fun with the Greek mess, cyber-attacks on governments, climate change, terrorism, desperate migrants, ISIS, economic disruption, structural unemployment, historic wealth disparity and, of course, Rachel Notley.

Even reasonable people are vexed over what tighter interest rates will mean, or where record-high stock markets will end up. It’s a quandary. Gold pays nothing, is volatile and capricious. Interest-bearing investments are hardly ‘safe’ when they yield less than inflation. And equity markets may be inflated the same way real estate is. By the way, there hasn’t been a meaningful market correction since way back in 2011, so maybe we’re due for one now?

Paralysis by analysis. That’s the thing keeping so many people on the sidelines, in cash or buying houses just because everyone else does. The trouble with letting your pants do the thinking, however, is twofold: first, focusing on short-term risk often means you never invest and never gain; second, the temptation is strong to buy what’s rising (popular) and sell what’s falling (scary). That never ends well.

But there are solutions to this never-ending cycle. Simple. Don’t be extremist – there’s no collapse coming, no reason to hide money. Actively minimize your taxes (use tax-free accounts, income-split, collect dividends and capital gains instead of rent, for example). Invest in the economy, not rocks. And follow these two basic rules: (a) be defensive and offensive at the same time, (b) don’t put all your acorns in one hole.

This is why a balanced and globally-diversified portfolio works. It worked in 2008 when they lights went out. It worked last year. It works now.

As I have detailed here, the best mix for most people is 40% safe stuff and 60% in growth assets. The fixed-income portion provides a flow on interest and dividends while the other part yields distributions and capital gains. This means you have various ways to make money with different tax treatments. It’s smart to do this over several accounts – RRSPs to shelter bonds (interest is taxed more), non-registered accounts for dividends and capital gains, and TFSAs for assets with more growth potential. No individual stocks – too volatile. No mutual funds – too expensive. Lots of low-cost ETFs.

The number of assets depends on the amount you have to invest. Ideally the safe stuff would include government bonds (7%), corporate bonds (4%), inflation-linked bonds (3%), high-yield bonds (3%) and preferred shares (18%). Canadian growth assets would equal 17% (5% REITS, 12% equities), with the US at 21% and International, 18%. Ensure you have 20% or so of the total in US$, and there’s no issue holding a little cash (5%) and a completion ETF for alternative asset exposure (4%). So, the total weighting in the Dow and S&P, for example, would be 13% or less.

What does this mean?

Well, if you experienced no growth at all, the fixed-income would still pump out the equivalent of 3% a year on the total – more than a GIC, and totally liquid. If the portfolio performs in the future as it has over the past few decades, it should give you something north of 7%. If the stock market drops 10%, this might dip 2% and recover more quickly. If we experienced another 2008-9, when equity markets collapsed 55%, this might react now as then – falling 20% then rebounding within a year. If it repeats last year, it would yield 8.5%. If it replicates the last five years, the return would be 7.8%.

And what about rising rates? Good question. Preferreds will do well. Bonds will drop in value but still pay you to own them, reduce volatility and rise when equities correct. REITs will continue their fat distributions. Stocks will bounce during the transition, but are expected to continue their advance since swelling rates mean an expanding economy. Real estate, on the other hand, has only one direction in which to travel as the cost of money rises.

So, gold is extreme. Putting everything in a house is extreme. Staying in cash is extreme. And fearing the future is just sad.

Never waste a day worrying about the day to come. One day tomorrow won’t matter much.

192 comments ↓

#1 nubbers on 06.21.15 at 1:25 pm

‘Staying in cash is extreme.’

Mmmm… I really need to sort myself out.

#2 The Big Dirty on 06.21.15 at 1:35 pm

A tale:
Open Listing – $749,000
Drop 1 – $729,000
Drop 2 – $719,000
Drop 3 – $709,000
Drop 4 – $699,000

Commentary – “We get lots of showings, but nobody seems to be interested in actually making an offer. Our realtor is telling us to reduce.”

Author – A Calgary co-worker who already bought their relocation shanty in Edmonton.

List is down 6.7% from open, but will a sale compare only to the most recent list price?

#3 Babblemaster on 06.21.15 at 1:37 pm

“As I have detailed here, the best mix for most people is 40% safe stuff and 60% in growth assets.” – Garth

——————————————————-

I don’t have a crystal ball, but I just feel safer holding a much smaller percentage in growth assets for now.

#4 JRH on 06.21.15 at 1:41 pm

I still think holding some gold is a good idea !

#5 North Burnaby on 06.21.15 at 1:46 pm

Vancouver will always be pricey, it’s the true gateway to Asia Pacific. Americans are poor, Asia is producing more millionaires every day more than any other regions combined. Rising interest rates will not have a significant impact on the Vancouver RE market. Toronto will be screwed though coz most buyers are locals.

Most YVR buyers are locals, too. Don’t believe everything you read. — Garth

#6 Malik on 06.21.15 at 1:53 pm

Garth sire.
I have lot of respect for your opinions and I follow most of your advices. So far we have been on a wtong side for past 7 years. I agree prices of real estate will only fall when interest rate rises but I can almost gurantee that rates are not rising till the US election. Yellen or BoC will be only warning people just to keep the prices in little bit in check, that is it.
Dems will never take a chance to lose the election in 2016 do please stop acting fortune teller and try to time the interest rate rise.
rates will only rise after the election. Your service to give right advice to people is greatly appreciated but at the other end people who have followed your advices are at the losing end, at least so far.But prudent thing to do is saw away from real estate.

#7 JRH on 06.21.15 at 1:57 pm

Mind you I’ve been holding ABX @ $17.30 for months, just a 1.5% Dividend. Still beats the bank savings rate.

#8 Trading Naked on 06.21.15 at 2:01 pm

I took a quick trip to the Royal BC Museum to lay my eyes on this:

http://www.mint.ca/store/mint/about-the-mint/million-dollar-coin-1600006

“Why did the Royal Canadian Mint make the world’s purest and largest gold bullion coin? Because we can.”

Somewhere in a world is a rich person showing this off to friends saying, “and THIS is my hedge against inflation!”

#9 sideline sitter on 06.21.15 at 2:01 pm

The only gold I like to buy is in a watch!

#10 North Burnaby on 06.21.15 at 2:03 pm

DELETED

#11 ben on 06.21.15 at 2:10 pm

Staying in cash has become extreme because money is not a store of value. Too much credit is printed which goes into land.

What we have now has crept up on us over 3 decades, but if you look back that far to now then you have to admit that what we have now is extreme.

Really seems crazy to me now. Work is a side-show. Hard work doesn’t make or break your world it’s what you happen to invest in that does it. And that won’t go on.

#12 JimH on 06.21.15 at 2:10 pm

Great post, Garth !
You could also add that storing physical gold (assuming an absolute and total distrust of all banks and the banking system coupled with a deep sense of paranoia directed at safety deposit boxes) has always been and is, problematic.
As Dan appears to be squirrelling away about a pound of gold or more a year, storage can be vexing and nerve-wracking; not good for your peace of mind, especially for something supposed to be providing ‘insurance’.
What are you going to do? Bury it in the back yard and pray none of the neighbors see? Stash it in the attic and pray you never have a fire?
But these are minor issues. The biggest issue lies in converting the stuff into something you can actually eat or use in case the whole financial system disintegrates.
There will always be scavengers with far less scruples and much bigger guns than you have!
But just suppose you manage to fight off all comers and can thankfully manage to convert your piles of yellow stuff into the going medium of exchange; beef jerky and dried pinto beans.

Wouldn’t it make more sense to start hoarding pinto beans and beef jerky now, while they’re cheap? After all, after the apocalypse, your could trade them for as much of the yellow stuff as you want!

#13 Forzudo on 06.21.15 at 2:18 pm

Happy Father’s Day to all the dads, and defacto fathers, out there.

Diversity’s always a good thing, especially in long-term investing.

#14 Income Investor on 06.21.15 at 2:29 pm

I am diversifying myself by investing in dividend-growth stocks and renting out high-end condos

#15 4 AM Sunrise on 06.21.15 at 2:34 pm

Thank you TV5 for being a huge downer this Father’s Day. I wake up and find myself watching a documentary about divorced Swiss fathers fighting uphill battles to see their kids while a representative of child protection services stammers, “well, if she takes the child abroad, we…umm…er…there’s…not much we can, like, do about that.”

http://www.rts.ch/emissions/temps-present/justice-criminalite/6703623-divorce-le-cri-des-peres.html

#16 Randy Randerson on 06.21.15 at 2:41 pm

If you’re scare the world will go down in flame, start hoarding toilet paper, guns and ammo, and dried beans.

When SHTF, your gold coins/bars/bullion aren’t going to feed your family or protect you from others.

#17 Ray Vasquez on 06.21.15 at 2:42 pm

The bottom line is everyone is going to get used to much lower returns going forward.

A 7% annual return over 5 maybe 7, 8 years is doable but over 20, 30 years, as this stage of the game, seems difficult.

Now, if government bonds and other high yield paying investments get back to 4.5% to 5% like back in 2007 to 2010, then 7% is achievable for sure.

No so. The contribution of bonds to the portfolio’s yield is quite low at present, and is destined to increase. — Garth

#18 When will they raise rates? on 06.21.15 at 2:48 pm

Thanks for this Garth!

Bookmarking this post.

#19 Unhinged Loon on 06.21.15 at 2:55 pm

Hey Garth, I’ve only followed you for a month now, but what are your thoughts on TD’s E-series mutual funds?

They are nearly as cheap some ETFs.

What’s the best way to own bonds? The US Treasury Dept. obviously doesn’t sell directly to retail investors, so what’s the ideal way to access them as a Canadian?

#20 Nemesis on 06.21.15 at 2:59 pm

#WelcomeTo1975,Or… #TheUpsideOf… #UnfortunateSmeltingAccidents…

http://youtu.be/HnzH15hwt48

#21 Freedom First on 06.21.15 at 3:00 pm

Diversity and income streams are good. Staying away from debt or any other money draining/dead weight scenarios including monkey on your back type business/personal relationships is also key. Our court system shows no mercy to men.

Happy Fathers day to all the Dad’s who can still see their kids.

#22 Linda on 06.21.15 at 3:13 pm

Regarding the stock markets – could it be that some of the stellar growth is due to Boomers finally trying to get some cash flow for their retirement years? Others too of course, but if literally millions of Boomers are about to retire over the next 5/10/15 years & they finally have some cash to invest due to 1) mortgages being paid off & 2) children grown up & leaving the nest then maybe the market is going to keep going for a while yet…..

Boomers have vastly more money in real estate than equities. Worry about that. — Garth

#23 Leo Trollstoy on 06.21.15 at 3:14 pm

Gold is garbage.

A gold bug and their money is soon parted.

As it should be.

#24 Millenial on 06.21.15 at 3:53 pm

“It [gold] falls when the US$ rises… ”

Dan, the price of gold may very well fall below $1000 US dollars, especially if the Federal Reserve raises interest rates a token 0.25% in the fall or winter or whatever. I’m emotionally prepared for this. Long-term, you and I both know what’s going to happen with gold. The foot is off the accelerator, the car is in neutral coasting, the only thing moving the world economy forward right now is debt.

Garth endorses diversification, this is good. Among other things he encourages diversification amongst currencies: mostly having some of your investments in US dollars. Gold IS money. Be diversified, follow his advice.

When gold buys gas at Petro-Canada or groceries at Loblaws, it will be money. It isn’t, and never will be. — Garth

#25 Obvious Truth on 06.21.15 at 3:54 pm

I like gold as a collectible. It’s shiny and weighty. I think gold stocks are cheap but of course they could get cheaper.

Dan. This is a bit extreme. You gotta live.

I’d worry more about the economic problems facing Canada than anything. They have been well documented here.

And the price of oil stocks compared to the price of oil. To me that’s scary.

Happy Father’s Day Garth, Dan and all the dads out there!

#26 sixtyfourk on 06.21.15 at 3:57 pm

“If we experienced another 2008-9, when equity markets collapsed 55%, this might react now as then – falling 20% then rebounding within a year.”

The reason we saw such a quick recovery was because the FED dropped the interest rates from 5% to 0%.

What are they going to do now? Go from 0% to -5%?

Past performance does not predict future returns. If we have another 55% drop in the stock market, it won’t be bouncing back in a year.

Wrong. The main reason was that a balanced portfolio declined far less than equity markets and consequently had far less ground to recover. — Garth

#27 Bonds on 06.21.15 at 4:07 pm

As interest rates rise, bonds will be decimated. As a retail investor, there is absolutely no reason to hold them at this point in time, unless you believe the Fed is fibbing about raising rates later this year.

Both the equity markets and bond markets have shot up over the last 6 years, largely in part to low lending rates. There is no reason to think that they’re not going to be negatively impacted, when rates start moving the other way. You can’t have it both ways.

To hold something in your portfolio (bonds at this point in time), that has limited upside and almost certain downside, isn’t ‘balanced investing’. It’s lack of investment knowledge.

Review the bond weighting I mentioned, and keep things in perspective. Bonds dampen volatility and increase in value when equity markets decline. There is absolutely a valid reason to hold an appropriate weighting. Yours is a mistake most amateurs make – chasing returns. — Garth

#28 tccontrarian on 06.21.15 at 4:09 pm

“Gold pays no dividends or interest. It falls when the US$ rises, which is certain to be the case as American interest rates start their long ascent this autumn. Gold thrives on inflation, and there’s little. Bullion is a haven when faith in financial assets is lost, yet central banks are ensuring there’ll always be liquidity and backstops. And metals ebb and flow with commodity values, which are in disfavour and likely to stay that way for a lengthy time.”

No inflation? I guess you haven’t been paying attention. I’m in the printer supplies business and all suppliers have raised prices by 15-18% over the past 6 months! My favourite items at our local meat-shop/deli UP by 25-30%; even OIL is now on an uptrend after having bottomed @ ~$45/bbl.
Why do you (and many others) think QEx1,2,3,… isn’t going to have the desired effect (ie. inflation)? Every CB is openly aiming for it – so why are they not going to succeed?
I’m loaded up with precious metals, energy (coal, nat. gas, uranium), as these tend to perform well in inflationary environments. Gotta buy when they’re hated, as you say, and they sure are hated now. I may be early, but when things are ‘confirmed’, it will be too late to profit.
That’s how I see it, and I could be wrong – but I’m betting for higher inflation going forward. No-one likes to buy at the bottom of bear markets – it’s too ‘uncomfortable’!

#29 Dwilly on 06.21.15 at 4:26 pm

I guess I’m not sold that a small gold allocation is without merit. The big point of modern portfolio theory and all those other asset classes listed is that you want to hold uncorrelated things. If you were to plot correlations of all the asset classes listed, going back as far as you can (CA equity, US equity, corp bonds, govt bonds, etc) you would find that gold would be the least correlated with most of the others. On that alone, I think a smallish allocation (5%?) has merit. Especially now that you can have exposure in a cost efficient manner (ETF).

Is it a little more speculative and based on emotion? Sure (as if stock prices aren’t at times!). Doesn’t pay a dividend? Nope. And do you need to be a bit more careful about how you own it? Yep (don’t actually buy sell the coins as transaction costs will kill the benefit). But it’s been that way for hundreds of years and probably always will. I think for the sheer lack of correlation alone, a 5-10% exposure via a cost-efficient ETF is not at all a crazy thing.

If the argument is that corp bonds vs. govt bonds, or CA equity vs. REITs, are worth holding separately because they are sufficiently uncorrelated, then since gold is MUCH less correlated than either of those, I think it’s got merit.

(For the record I do not have any gold allocation myself. But I’d never try to talk anyone down from a 5-10% allocation.)

Lack of correlation is hardly a reason to invest in a non-producing asset. — Garth

#30 H on 06.21.15 at 4:32 pm

Was certainly interesting to read your opinion on the US fed direction yesterday Garth.

Unfortunately your prediction (wish) is just that. While you were very diligent in pointing out all the talking points the folks on CNBC use, the truth is the data the Fed is following HAS NOT satisfied their criteria.

And while money managers and arm chair investors cling to the hope of rising rates to somehow right the wrong that has given the buying power to the “kids” the facts are facts.

Right now the FED has more issues than what the average public comprehends.

1) Dollar. The USD is sitting at several decade high. Choking off the exports.
2) The dollar is putting pressure on inflation. As dollar goes up, stuff gets cheaper and inflation drops further below the target.
3) Oil. 200 billion has been removed in projects. These cut high wages. In the USA. Which was a tail wind. The talking heads thinking saving 20 bucks on a tank of gas, would somehow offset this loss was…wrong.
4) My favorite. If they raise and screw up the nascent growth they are screwed. Period.

And #4 is well known.

So we close in on our 10th anniversary of “economists” (paid by a banks who is praying for higher rates) get it wrong…yet again, we continue on the path.

Don’t believe me? Look at the bond market.

Nuff said.

Rates will rise this autumn. — Garth

#31 Andrew Woburn on 06.21.15 at 4:33 pm

Ralph Waldo Emerson claimed, “A foolish consistency is the hobgoblin of little minds. ” He must have foreseen the energy policy of the ruling “People’s Party” of Spain. After spending a fortune to encourage solar power, now:

“Spanish government plans to tax sunlight”

http://www.euroweeklynews.com/3.0.15/news/on-euro-weekly-news/spain-news-in-english/129698-spanish-government-plans-to-tax-sunlight

#32 Gulf Breeze on 06.21.15 at 4:53 pm

The time to buy is when an asset is loathed, not during a peak. As gold is loathed, at the moment, it might not be the worst time to buy some.

It has lost 40% in American funds since its 2011 peak. In Canadian funds it has almost doubled in price in 10 years. Garth will correct me if I am wrong here.

At its peak it was in the upper 1800.00’s in 2011 in Canadian funds. Presently it is in the upper 1400’s. So down about 23% in CANADIAN funds from its peak but price has nearly doubled, from its lows, in Canadian funds, in ten years.

Call me crazy, but my original allocation was worth 111,000 and now it’s worth around 210,000.00?

That’s just under 10% a year in gains. How is this a stupid idea? Is it stupid to insure against the very real prospect of a potential partial failure of the multi-tiered overly abstract derivative cluster**** of a financial system, complete with out of control real estate prices?

Own a bit of the TSX and get all the gold exposure you should have. Any more than that is gambling and emotionalism. — Garth

#33 Brian Ripley on 06.21.15 at 5:02 pm

“Ensure you have 20% or so of the total in US$” Garth

As Mohammed El-Erian (ex Pimco head) said recently “Liquidity is the most under appreciated risk factor out there… At some point down the road, fundamentals have to validate these high prices.”

My post with charts where I have highlighted the Government 10 year yields for Canada, the U.S. and the Euro area as well as an overlay of the USD/CAD ratio: http://www.chpc.biz/history-readings/liquidity

A rising USD is a decent bet if history is an argument; the USD peaked in the mid-80’s and early 90’s (depressed Canadian housing and equity prices).

Although the USD is currently correcting from the recent highs, a bond market correction (rising yields forcing asset values to reprice) would force demand for the USD on bonds that have been created in USD.

#34 Love my Kia on 06.21.15 at 5:15 pm

I wholeheartedly accept your diversified portfolio approach Garth, but with that being said, where are the gains being made these days….shares in Monsanto?

#35 ShawnG in TO on 06.21.15 at 5:35 pm

Titanium is the only precious metal MrT believes in

#36 sockeye sam on 06.21.15 at 5:38 pm

QE4 is just around the corner and the U.S. dollar will sink. Don’t believe the fed they are playing with your mind. Have some silver coins for buying things like groceries and gasoline and stuff some gold away. Great recession #2 is coming and it will be worse than the last. We are bubbled up everywhere. When these property values crash your gold and silver will be worth more than that paper with a picture on it. Then start scooping.

No QE is coming. And no recession. But I hear the weather’s good this time of year on your planet. — Garth

#37 Mark on 06.21.15 at 5:50 pm

“Gold pays no dividends or interest. It falls when the US$ rises, which is certain to be the case as American interest rates start their long ascent this autumn. “

Disagree here strongly. Rising interest rates imply rising inflation, and rising inflation implies a weaker dollar. Higher interest rates are great for gold, while lower interest rates and low inflation tends to be poor for gold.

The 1970s are a quintessential example. Interest rates, particularly long-term interest rates, rose throughout the decade. Yet gold exploded from $32 all the way up to $800. Hardly the sort of outcome as would be predicted by a “rising interest rates are great for the USD$ and bad for gold” algorithm.

Additionally, while gold doesn’t pay explicit interest, its long-term return is similar to bonds. Bonds only pay interest in more bonds — and when bonds mature, they repay you in more bonds. So claiming that bonds pay interest and gold doesn’t is really a sort of red herring in practice.

The fact that gold and gold miners are so universally hated, and the extremely small market capitalization of the gold mining industry (~$100-$150B for the global gold mining industry, or not even the market cap of Google or Facebook!) tells me that its likely to be an investment which outperforms in the future. The people quoted in the article, dollar cost averaging into an investment to diversify away from bonds and fixed income are doing something completely rational, as opposed to the masses who will probably buy gold when it is dramatically overpriced, feed a larger bubble, and then ultimately suffer the consequences of having invested at overly elevated prices. Much like the people who have been chasing real estate for the past few years.

You said: “Rising interest rates imply rising inflation, and rising inflation implies a weaker dollar.” Wrong. Higher rates strengthen the currency, as they will do to the US dollar, crashing gold. More interesting, you now tell us gold will rise because there are inflationary pressures. The last 4,712 posts you argued that we are in deflation. Your creds are zero. — Garth

#38 Victoria Real Estate Update on 06.21.15 at 6:06 pm

For many it has been a long wait, but interest rates will finally be rising back toward long-term (normal) levels.

House prices in every major Canadian city will fall as a result (fact: prices fall as rates rise).

It’s likely that many recent first-time home buyers in Canada bought thinking that today’s low rates are normal. They probably didn’t know that today’s emergency rates are the lowest in history after falling for over 30 years.

They are in for a shocking surprise.

This widespread delusional thinking made buying a property seem like a no-brainer to them. Their logic was that house prices can’t fall because rates will never rise.

They happily and eagerly drank that poisonous industry Kool-Aid.

It’s also likely that few of Canada’s recent first-time buyers were aware that Canada’s housing bubble is one of the biggest the world has ever seen. They certainly wouldn’t have been told that by anyone involved in the buying process.

Rising rates will change many things for many years in Canada. As the abnormal years of abnormally low rates come to an end, the household finances of many Canadian families will be negatively affected. Those worse affected will probably be recent first-time home buyers who bought with (or borrowed) a minimum down payment and financed to the max.

Many delusional mortgage holders in Canada are in for years of disappointment as rates rise.

This delusional thinking will gradually disappear as many Canadians learn what it is like to live with normal rates and without the extreme stimulus of emergency interest rates.

#39 sixtyfourk on 06.21.15 at 6:08 pm

“Wrong. The main reason was that a balanced portfolio declined far less than equity markets and consequently had far less ground to recover. — Garth”

I think you missed my point.

The reason the diversified portfolio recovered is because the equity markets recovered due to QE and lowering interest rates.

If stocks drop 55% again, your diversified portfolio is going to drop 20% again. Only this time, the FED can’t drop interest rates 5% to hasten the recovery.

To imply that it will recover like it did in 2009 if we have a similar event with interest rates at 0 is wishful thinking at best.

If it happens after the FED has raised rates to 5% then maybe. But now? No way.

#40 45north on 06.21.15 at 6:10 pm

The Big Dirty: Open Listing – $749,000
Drop 1 – $729,000
Drop 2 – $719,000
Drop 3 – $709,000
Drop 4 – $699,000

List is down 6.7% from open

50,000 / 749,000 = 0.07

where did you get 6.7% ?

4 AM Sunrise: Divorce, le cri des pères

no it isn’t fair

Freedom First: Our court system shows no mercy to men.

you are hereby sentenced to 12 hours in Family Court

#41 gladiator on 06.21.15 at 6:21 pm

Garth, saying that inflation (the official numbers) is low is to fool yourself.
Say beef if 6$ a pound and chicken is 2$. People consume certain amounts of both. If beef goes to 18$ a pound and chicken goes to 6$ (all hypothetical numbers), then the bozos in charge of calculating official inflation numbers just ASSUME that people who can no longer afford beef will switch to chicken so they will spend the same amount of money as before to get their proteins, hence, no inflation.
This very deeply “scientific” method of inflation calculation is described in official government documents, so I am not writing about conspiracy theories here. And those who believe that this very misleading way of calculating inflation is correct/acceptable/fair better give their heads a very good and thorough shake. Or go food shopping.

#42 Mark on 06.21.15 at 6:24 pm

“More interesting, you now tell us gold will rise because there are inflationary pressures. The last 4,712 posts you argued that we are in deflation. Your creds are zero. — Garth “

Gold does well during periods of monetary instability. Which can be either deflation or inflation.

In the 1970s, it was inflation. In the 1930s it was deflation. This time around, its looking like it will be deflation and debt defaults that will drive the next leg of the gold cycle higher.

Policy rates are 0% in the US (not going higher), and 0.75% in Canada. Yet the US is in explicit deflation according to CPI, and Canada is trending the same direction. Monetary instability, namely the inability to keep inflation positive and at the 2% target, is upon us (or soon to be in Canada). Sooner or later investor enthusiasm for asset classes that perform well in periods of monetary instability will be upon us.

Last but not least, rising rates are not good for a currency. Rates rise because of currency depreciation — the marketplace demanding more interest to make up for the loss of a currency’s purchasing power. With the USD$ so high and deflation in the US — not a chance of policy rates going up meaningfully anytime soon as there is no shortage of demand for the USD$ at current (low) interest rates. As another poster suggested, with how badly things has been doing recently with no meaningful broad-based recovery from the 2008/2009 disaster or even the crash that preceded such in 2001-2002, QE4 is far more likely.

Stop digging. You’re in deep enough. — Garth

#43 Goldie on 06.21.15 at 6:35 pm

I am Goldie, and thus, love gold, but Garth is “SPOT” on with his advice not to buy at this time, unless you’re a quick trading high volume gambler, and even then there are better things.

Garth: “Mark” has a special ability to get under your skin. It makes for some funny responses by you to his comments.

#44 Steve French on 06.21.15 at 6:46 pm

Never thought i would be called an extremist.

But yet with all my assets in cash ($70 K, renter, no debt, saving $3,000 per month to that pile)– but GT says i am one.

I personally think an extremist would be someone heading straight to Vegas with that cash and blow it all on a wild month getting hammered with Smoking Man.

How about i just wait a couple more months for Janet to raise rates– see what happens. Surely the stock market is not going to do much in the summer. Then, when it corrects in Sep-Oct, I’ll be liquid and ready to pounce like a coiled tiger cat.

#45 james on 06.21.15 at 7:10 pm

Face palm time.

Just talked to a friend who lives in Vancouver. He sold his townhome and bought a place on the west side.

I shuddered. Price, I asked.

1.9 million. But don’t worry, he said, they will rent the basement out to make extra mortgage payments. It is an investment and income at the same time, he said.

This guy’s household makes less money than I do on my own, by far. Fairly typical white collar professionals pulling in 160k.

By traditional ratios, he should be able to afford a 480k home. 1,900k??

Insane. 1.9 million, an investment at the height of an asset bubble. I just hope he vets the renters well, because he has a 3 year old daughter.

#46 Gulf Breeze on 06.21.15 at 7:19 pm

Garth,

If higher rates indicate a much higher yield must be offered for a currency to offset a much higher risk, gold will rise relative to the currency.

What seems to matter is the how, the why and the what kind of risk. In a relatively sane system I agree with you. If rates rise appreciably gold will drop in nominal terms. However, gold should retain its purchasing power.

I have hedged against every possible scenario because I can’t work. I can’t afford to put all of my eggs in the bond and stock basket. It would be foolhardy.

Gold represents about 8% of my net worth and allows me to sleep at night.

I agree with you that holding just gold is unwise. Also, think the burying in backyard thing is paranoid. Safety deposit boxes at bank are the best idea. Those who figure they are more likely to avoid capital gains are mistaken and breaking the law. Pay your damned taxes.

#47 Sheane Wallace on 06.21.15 at 7:25 pm

Garth,

You opinion on gold conveniently avoids mentioning jewellery usage of precious metals.

We understand that the mainstream media hates the monetary aspects of it, despite the beautiful coins sold by the mints worldwide, some with significant collector’s value and despite the facts that central banks hoard it for no apparent reason with very few exception (like the stupids at BOC selling our gold reserves, Bill 51, treason, treason…)

But let’s avoid extremism and cherry picking, gold has had it’s ups and downs, it went from 400 to 1900 then to 1200 where it has been remarkable stable lately despite all the talks about rate increases, which looks very strange for independent observers.

Ben Bernanke (yes, that is the recent Fed chairman) said that gold is an asset and he pays attention to the price of gold. he also stated that hoarding gold is central banks tradition, but most importantly: he never said gold is useless as you do.

Alan Greenspan’s latest view on the topic is also very interesting.

For the sake of the blog’s longevity and reputation in long run we could be a little more modest.

The pure industrial and jewellery application of precious metals is undisputed, let’s stay with bashing the monetary use, for now.

I would gladly collect the useless ‘used’ gold of all blog readers saving garbage fees.

#48 observer on 06.21.15 at 7:28 pm

‘It’s time to hold physical cash,’ says one of Britain’s most senior fund managers

His concern is that global debt – particularly mortgage debt – has been pumped up to record levels, made possible by exceptionally low interest rates that could soon end, and he is unsure how well banks could cope with the shocks that may await.
http://www.telegraph.co.uk/finance/personalfinance/investing/11686199/Its-time-to-hold-physical-cash-says-one-of-Britains-most-senior-fund-managers.html

#49 Bonds on 06.21.15 at 7:29 pm

“Bonds dampen volatility and increase in value when equity markets decline.” -GT

Bonds may dampen volatility, but for medium to long term investors – who cares, when their overall direction is down? The only reason one might want to try to dampen volatility, is to provide a defensive position on a short term portfolio. In which case, I say: sure, go add a short term bond.

As far as bonds increasing in value as equity markets decline, this is a loose correlation. As I mentioned in my original post, both bonds and equity markets have been going the same direction (up) for the last few years. If rising and falling equity markets both caused bonds to increase in price, you would have the golden goose of investing. Bond price depreciation is directly related to increasing interest rates, not (directly) what equity markets are doing. Although, money fleeing a downward equity environment may flow into bonds, pushing bonds higher. However, that fleeing money could just as easily flee into defensive cash positions.

#50 Daisy Mae on 06.21.15 at 7:29 pm

#28 Tccontrarain: “No inflation? I guess you haven’t been paying attention. I’m in the printer supplies business and all suppliers have raised prices by 15-18% over the past 6 months!”

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

Good luck with that. If consumers dig in their heels and don’t buy, where does that leave the desperate, greedy suppliers?

#51 SkyFall on 06.21.15 at 7:31 pm

Garth, could you give some examples of what you mean by alternative assets and completion ETF’s?
Thanks!

#52 Sheane Wallace on 06.21.15 at 7:34 pm

When gold buys gas at Petro-Canada or groceries at Loblaws, it will be money. It isn’t, and never will be. — Garth
——————
I have few silver coins (collectables) and remarkably all of them have monetary value engraved, for example 5 $, and yes that silver coin actually can buy me something at Lablaws and Petro Canada.

The argument is pretty lame, diamonds and fine art are worth millions and surely you can’t buy groceries at Lablaws with a Picasso painting or with a 20 carat diamond.

Mark while deadly wrong on deflation and currencies might have some valid point on gold in long run,

Let’s again forget the monetary aspect and focus on the jewellery application of precious metals, it is quite solid investment case I think.

Gold is not money. — Garth

#53 Daisy Mae on 06.21.15 at 7:40 pm

#38 Shawn: “Titanium is the only precious metal MrT believes in…”

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

Yes! It IS holding Garth together! LOL

#54 Sheane Wallace on 06.21.15 at 7:41 pm

You said: “Rising interest rates imply rising inflation, and rising inflation implies a weaker dollar.” Wrong. Higher rates strengthen the currency, as they will do to the US dollar, crashing gold. More interesting, you now tell us gold will rise because there are inflationary pressures. The last 4,712 posts you argued that we are in deflation. Your creds are zero. — Garth

——————————

What matters is the real rates, when they are negative, gold thrives.

We can have 15 % interest rates with 20 % inflation, so the total rate is negative.

With the current debt saturation there is no way we would have positive rates in the next 20 years so gold could go up to some extent, with minings stocks potentially exploding big time.

Looking how they are undervalues at the moment implies potential buying opportunity. Can they go further down? Sure, but not very likely in long run.

#55 Blobby on 06.21.15 at 7:43 pm

I’ve been watching gold, for no other reason than all my friends tell me to buy it (never a good sign). Looks to me like it’ll keep dropping until it hits at least $600, which seems to be its “natural” price (taking in account inflation, etc).

But I think it’ll probably drop further than that as people will panic as it drops that low. If it goes low enough, say 400 mark,.. i might personally buy in – and cash out when it gets back up to 600 mark.

But other than that, it seems risky as hell to me.

#56 Daisy Mae on 06.21.15 at 7:47 pm

#43 Goldie: “Garth: “Mark” has a special ability to get under your skin. It makes for some funny responses by you to his comments.”

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

Garth probably finds him tiresome. And we need Garth to expose Mark…because we don’t come to this blog to be misled.

#57 Retired Boomer - WI on 06.21.15 at 7:53 pm

Uh Huh. Another wild assortment of opinions here tonight.

I will stick with my game plan. Close to that 60/40% thing, but not quite. How has it worked?

Total return over 3 years $146,518. That works for me.
Since I am looking to add about 4% of the portfolio balance to my spending every year figure this is is roughly 6 years of ‘spending’ the investment has returned in merely three years.

So, at this rate, I probably will not run out of money before I run out of time. So it goes. Your mileage may vary.

#58 Sheane Wallace on 06.21.15 at 7:56 pm

Gold is not money. — Garth

Agree

#59 Godth on 06.21.15 at 8:00 pm

Two different research teams, two different models and check out who’s funding this. Woops we’re 40 years too late. I’ll take a McMansion and a Hummer to go please!

UK Government-backed scientific model flags risk of civilisation’s collapse by 2040
https://medium.com/insurge-intelligence/uk-government-backed-scientific-model-flags-risk-of-civilisation-s-collapse-by-2040-4d121e455997

“The financial and economic system is exposed to catastrophic short-term risks that the system cannot address in its current form,” Dr. Jones told us.

further…

“… the general onset of collapse first appears at about 2015 when per capita industrial output begins a sharp decline. Given this imminent timing, a further issue this paper raises is whether the current economic difficulties of the global financial crisis are potentially related to mechanisms of breakdown in the Limits to Growth BAU [business-as-usual] scenario.”

For the first time, then, we know that in private, British and US government agencies are taking seriously longstanding scientific data showing that a business-as-usual trajectory will likely lead to civilisational collapse within a few decades — generating multiple near-term global disruptions along the way.

The question that remains is: what we are going to do about it?

I’m going to work really hard and save for my retirement because this decadent, narcissistic cornucopia of denial goes on foevvva. Kind of like the Grand Banks…

#60 nonplused on 06.21.15 at 8:04 pm

What happened to 10% gold? I thought a certain allocation was still ok if it wasn’t a crazy amount.

As I stated, owning the TSX index gives you more than enough PM exposure. — Garth

#61 csarichardo on 06.21.15 at 8:04 pm

Gold is just another form of cash …. do you hold Canadian cash, US cash, euro cash or gold ? It’s all just cash.

Not really. Gold is a commodity, volatile, expensive to store and convert, with taxable gains. Plus, the bank won’t pay you interest in returning for holding your gold. — Garth

#62 TurnerNation on 06.21.15 at 8:07 pm

Gotta like public sector job creators.

Following Toronto graft/make work/infrastructure projects are massively over-budget:

Pan am games (mini Owelimpics – a favorite trojan hobby horse of elites).
Subway extension.
Queens Quay revitalization.
New Streetcar barns.

The next one? Wanna bet.

#63 Joseph R. on 06.21.15 at 8:15 pm

A better example of “deceivers” are the Southern Pride folks brandishing the Confederate flag as a symbol os State rights against the Federal government instead of its obvious meaning: Oppressing and enslavement of a fellow man based on his skin colour.

It’s disgusting to think that in South Carolina, the Confederates flag still flag at full mast while every american flag is flying half-mast.

#64 nonplused on 06.21.15 at 8:19 pm

To Garth on #61 –

The banks won’t pay you to hold your cash either. It’s looking like there is a storage fee there too, inflation considered.

Still beats gold storage, which was the point. Gold is not currency. — Garth

#65 Chickenlittle on 06.21.15 at 8:24 pm

Hi guys! I havnt been here in a while. The doomers had me checking under my bed for Putin and his merry band of spies so I quit for a while.

Long story short, I have enough money saved to start investing as Garth says to. The only problem is where to go and how to start.

Canadian Couchpotato recommends the Orange Guy’s Investment Index for people with less than a certain amount. Does anyone know anything about that and if so is it good or is there a better option?

Thanks for any advice you may have!

#66 Henry on 06.21.15 at 8:24 pm

It’s true that as the US dollar rises, the price of gold falls in US dollars. However as the US dollar rises the Canadian dollar falls and the price of gold has done very well in Canadian dollars. One should always some gold in a diversified portfolio. About 10%.

That’s an excessive amount. 0% is about right. — Garth

#67 Realtor007 on 06.21.15 at 8:26 pm

Holding a tangible assets like RE is a must for everyone, having all your hopes and dreams in paper assets you have no control over is irresponsible, many countries have seen their currency decimated and their paper investments and cash become worthless. I guess that’s why many immigrants gravitate towards RE, they know what the real world is about not the fantasy many live in Canada.

What is irresponsible is for a person with a career in helping people make large financial decisions (you) to suggest our currency could become worthless. Shame on you. No wonder people hold realtors in such low regard. — Garth

#68 robert james on 06.21.15 at 8:27 pm

I believe it was Warren Buffet that said ,” you pay people to dig the gold up and then you pay people to guard it”. If I want gold ,which I don`t right now, I would go with gold mining stocks..

#69 csarichardo on 06.21.15 at 8:28 pm

Last time I checked gold is a currency ! I think it goes by XAU if you are a banker ! It’s like CAD if you trade the Canadian currency.

https://en.wikipedia.org/wiki/ISO_4217

Of course its all about floating currencies and that means foreign exchange risk !? Right !

XAU is an index fund of precious metal mining companies. — Garth

#70 Nwo on 06.21.15 at 8:39 pm

Years ago it was all about “how can the government pay all that interest on that debt?”
Is this not a concern anymore if interest rates rise?

#71 Leo Trollstoy on 06.21.15 at 8:43 pm

Stop digging. You’re in deep enough. — Garth

Lol

Garth is slowly realizing what other savvy investors have realized about Mark already: that he’s a self-deluded fraud.

#72 csarichardo on 06.21.15 at 8:43 pm

XAU is “also” an index fund ! Agreed. I was talking about the “currency” code not the “stock index” code. Just another reason why this financial stuff needs better standardization ? Is that called regulation ?!

#73 Leo Trollstoy on 06.21.15 at 8:45 pm

If a poster followed Mark’s advice over the last year, they would have done better playing craps in Vegas.

Lol

#74 eddy on 06.21.15 at 8:48 pm

‘fearing the future is just sad’

people trust paranoids with their money

#75 Balmuto on 06.21.15 at 8:49 pm

Gold may have its day again if inflation picks up significantly, or if there is a flight to safety due to some international crisis. I don’t buy the notion that it will perform well in a deflationary environment, as many gold bugs fancy. Deflation means cash is gaining in purchasing power all the time, so why not just sit on cash? Why buy another non-performing asset that’s a lot more volatile and tends to be inversely correlated with the world’s currency of choice? These references the gold bugs bring up to the 1930s, 1870s, etc. – totally non-applicable to the modern era of free-floating currencies not pegged to any kind of gold standard. And you had price controls and gold confiscation in the 1930s. Will we see that again? I really, really doubt it. It’s a pure fiat system now, based on ones and zeroes, not shiny rocks. Far more likely that gold will follow all the other commodities down as the USD, the cash king of kings, continues to strengthen.

#76 Popeye the Sailor Man on 06.21.15 at 8:53 pm

If you have a large lump sum say around 300-600K would it be wise to put it all in the portfolio as Garth described immediately when the funds become available?

Or dollar cost average into the same portfolio over say 6-8 months expecting one of the months to contain the correction that maybe over due?

Dollar-cost averaging was a losing strategy over the last year, and will likely be so again. If the funds are being invested for the long-term (a decade or more), history shows that trying to time the market to reduce immediate risk has yielded no advantage. In fact, market-timers have done less well than those who simply invested. — Garth

#77 Steve French on 06.21.15 at 9:16 pm

Screw long term investing.

Let’s forget about tomorrow, cos tomorrow never comes.

Why not live a little for dog’s sake.

Smokey: how much trouble can i get into in Vegas with $70 K burning a hole in my pocket?

#78 JP Morgan Quote on 06.21.15 at 9:22 pm

“Gold Is Money, Everything Else Is Credit” is attributed to JP Morgan himself while testifying in front of Congress back in 1912 shortly before his death.

If gold is not Money why do central bankers hold it? For fun? Why don’t they just sell it all away?

This will tell you how much they value gold. — Garth

#79 Not a gold bug, but..... on 06.21.15 at 9:24 pm

Gold is not money. — Garth

Not so sure of that, Garth. I have done very nicely with gold as my currency exchange since 2000, with gold I collected slowly and steadily since 1985. There are lots of shops in Calgary, Toronto and Vancouver where you can walk in, convert it to cash, no questions asked, no capital gains paper trail. I have made about five years salary, tax free, over the last decade doing this.

Sure seemed like money to me!

You’re a tax evader. Sure you want to be scattering your IP address around? — Garth

#80 Mark on 06.21.15 at 9:25 pm

If a poster followed Mark’s advice over the last year, they would have done better playing craps in Vegas.

Making it up as you go along I see. Care to tell us what ‘advice’ I’ve given over the past year that was so defective?

Not that I give advice, but I was able to predict the fall of BoC policy rates on account of the weakening Canadian economy. The “surprise” interest rate cut really was no “surprise” to anyone who followed my comments. I also cautioned that such might not actually translate to significantly reduced retail mortgage rates, on account of the residential RE market being riskier from a lending perspective than it was in the past. On both counts, the data is quite clear and I was proven to be quite correct.

The US stock, RE, and USD$ bubble has taken a bit longer than I had anticipated to roll over. That’s about the only place I got things wrong with any level of significance. And even so, that’s more a matter of timing, rather than being ‘wrong’.

#81 Bassrage on 06.21.15 at 9:25 pm

Michael Synder and the Economic Collapse are “crap”, why? Because they dare to use credible, empirical data, backed up by indisputable facts and trends which are occurring presently, but are too contrarian to embrace with warm fuzzies? Garth, I have said this before, and I’ll say it again. You are to the macro economic system, what the realtors are to Canadian real estate. It ain’t all sunshine and roses my friend. I wish you were right, but clearly you aren’t. The seven year cycle is in effect and proceeding accordingly. I don’t think you will really be surprised to be proven wrong in a few short months.

There is no seven-year cycle. Don’t fall for that. — Garth

#82 Millenial on 06.21.15 at 9:27 pm

Still beats gold storage, which was the point. Gold is not currency. — Garth

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

I didn’t see anyone here suggest gold was currency. Gold is money, not currency.

Money is currency. Gold is not money. — Garth

#83 omg the original on 06.21.15 at 9:33 pm

“But what I read makes me believe the world is scary, so this is insurance.
——————————-

So sad that people get suckered into this DOOMER crap.

Do people really believe the world is that bad off and headed for a time when you will slice off a chunk of gold for the weekly groceries.

Just look at history, do you really believe we are worse off than in:

– WW2 when Hitler had overun all of Europe but for a small island nation?

– the early 1960s when we were on the brink of nuclear war?

– in the 1970s when OPEC had quadrupled oil prices?

– the last 1970s when we faced double digit inflation and interest rates?

– in the 1930s when the world was in depression and the US and Canada prairies were a dustbowl?

– the late 1990s when the Asian financial system was in ruins?

As it has always done for the past 120 years – the world economy will muddle through and come out the other end of this stronger.

And those sitting in gold or cash will miss out again.

Really sad.

#84 Leo Trollstoy on 06.21.15 at 9:38 pm

Deflation means cash is gaining in purchasing power all the time, so why not just sit on cash? Why buy another non-performing asset that’s a lot more volatile and tends to be inversely correlated with the world’s currency of choice?

Exactly.

Well said.

#85 Victoria Real Estate Truth on 06.21.15 at 9:45 pm

More simple-minded one-dimensional thinking from Victoria Real Estate Update.

“House prices in every major Canadian city will fall as a result (fact: prices fall as rates rise).”

Well maybe, unless they don’t. House prices cannot be computed as a function of interest rates alone. There are a myriad of factors contributing to price.

“It’s likely that many recent first-time home buyers in Canada bought thinking that today’s low rates are normal. They probably didn’t know that today’s emergency rates are the lowest in history after falling for over 30 years.”

I realize that Victoria Real Estate Update considers himself (herself?) to be of supreme intelligence, but that doesn’t mean everyone else is a dunce. I’m sure most recent buyers realized they were benefiting from historically low interest rates.

“This widespread delusional thinking made buying a property seem like a no-brainer to them. Their logic was that house prices can’t fall because rates will never rise.”

Again, a preposterous, pompous and condescending assertion. Most people buy properties to live in and do so because they are comfortable with the cost. They most likely believe their own financial means will rise over time and enable them to absorb increases in housing costs (along with just about every other cost) which will be inevitably subject to inflation.

“They happily and eagerly drank that poisonous industry Kool-Aid.”

Blah, blah, blah.

“It’s also likely that few of Canada’s recent first-time buyers were aware that Canada’s housing bubble is one of the biggest the world has ever seen.”

Well, that’s been a subject of debate and disagreement amongst some very well respected economists, which you would know since you are so smart.

“Rising rates will change many things for many years in Canada. As the abnormal years of abnormally low rates come to an end, the household finances of many Canadian families will be negatively affected.”

And a plague of locusts will descend upon the land.

“Many delusional mortgage holders in Canada are in for years of disappointment as rates rise.”

Unless their incomes rise as well, in which case it’s OK.

“This delusional thinking will gradually disappear as many Canadians learn what it is like to live with normal rates and without the extreme stimulus of emergency interest rates.”

And we’ll all live happily every after. Amen.

By the way, your bafflegab last week about double digit declines in Victoria and Oak Bay SFH prices since 2010 are utter nonsense. The annual stats from VREB show small increases (2% and 0.8%).

#86 Llewelyn on 06.21.15 at 9:45 pm

Gold may not be money but what is money other than an expression of confidence in an economy.

We have all seen what happens when confidence fades, Eg Argentina. The government of the USA is working overtime to ‘Con’vince the world that their economy is recovering and that America is the best place to invest.

This may be true but the events leading up to the crash of 2009 actually occured and my recollection is that 100% of the cheerleaders were too busy waving their pom poms to bother with due dilligence.

The Federal Reserve may have convinced the world that the USA is a safe haven for investment but Canada needs to see the demand for commodities improve to avoid having to increase the value of their bonds.

An increase in the price of gold would certainly not hurt the Canadian economy so it might be in our best interest curb negative thoughts and hope for increased demand.

Most of the advice offered by Garth in this blog seems very sound and I respect the rational he shares in good faith.

However in my 68 years in Canada I have seen interest rates climb to 20% so fast no one with a fixed mortgage could see it coming. It may never happen again but I am sure there are folks in Argentina that are still scratching their heads in disbelief.

In a world full of currency speculators like George Soros I would not put too much faith in any crystal ball.

The extreme rise in mortgage rates took years, and came well after inflation had hit double-digit levels. There is no parallel now. — Garth

#87 omg the original on 06.21.15 at 9:45 pm

Realtor007 on 06.21.15 at 8:26 pm

Holding a tangible assets like RE is a must for everyone, having all your hopes and dreams in paper assets you have no control over is irresponsible, many countries have seen their currency decimated and their paper investments and cash become worthless.
————————————

What an ignorant, uninformed statement.

Firstly, the US dollar, of which the Canadian dollar is a subset, is and will continue to be the most secure currency in the world.

Secondly, if you had a clue regarding the history of extreme currency devaluation – in countries that the currency went to near worthless real estate was one of the more risky assets. Have you checked Greek RE prices lately?

Thirdly, how does the individual property owner have any control over the macro value of real estate.

Still to flogging houses and not pretending to be advising people on how to manage their money.

#88 weedeater on 06.21.15 at 9:50 pm

Even a capuchin monkey knows more than Dan.

#89 lee on 06.21.15 at 9:56 pm

When you say some should be in U.S.$ do you mean you should use Canadian dollars to buy etfs in U.S.$ as opposed to Canadian dollar hedged etfs?

Both, if the portfolio is large enough. — Garth

#90 omg the original on 06.21.15 at 9:57 pm

in countries that the currency went to near worthless real estate was one of the more risky assets. Have you checked Greek RE prices lately?
—————-

OK let me pre-empt those that will state the obvious – yes Greek is under the Euro – for now

But it is an example of a developed country whose currency would be significantly devalued it still had its own currency.

But even with a stable currency Greek real estate values have been significantly devalued. If Greece leaves the EU (abnd Euro) and adopts its own currency you a buy waterfront condo for the price of a new Lexus.

There are two main reasons why a developed country’s currecny devalues significantly – overwhelming government debt or war. Canada will have neither.

#91 Smoking Man on 06.21.15 at 10:13 pm

#77 Steve French on 06.21.15 at 9:16 pm
Screw long term investing.

Let’s forget about tomorrow, cos tomorrow never comes.

Why not live a little for dog’s sake.

Smokey: how much trouble can i get into in Vegas with $70 K burning a hole in my pocket?

Depends on the size of you Manhood.

You will like this one Steve. Via my amazing drunken social skills in Vegas, was just sent by email a monologue for a big part in a Hollywood flick…I’m to take a video reading it, and send it in…then get on all fours and beg to be a monkey.

Ha , I’m not a monkey, I’m a writer.

The writing is so bad….

I’m going to do it, but I’m changing the words.
This is it… Just horrendous.
……..
Detective Roy

Det. Roy is a veteran detective that thought he had seen it all, until this case. Married to the job, since being divorced, Det. Roy is always sporting cheap suits and never smiles. As they events of the film escalate, so does his frustration and temper.

I don’t have to tell you things are bad.
Everybody knows things are bad. Shopkeepers
keep a gun under the counter; punks are
running wild in the street and there’s no
end to it. 

We know the air is unfit to breathe and our
food is unfit to eat. Yet we sit watching
our TVs while some local newscaster tells
us that today we had fifteen homicides and
sixty-three violent crimes, as if that’s
the way it’s supposed to be! 

We all know things are bad, worse than bad.
It’s like everything everywhere is going
crazy, so you don’t go out any more.

You sit in the house with your social media
and Wifi, watching reality T.V. because it’s
safe. When the world shows you something you
don’t like, you can just change the channel
or look away.

It’s a lot harder to look away when your
standing over some kids body in an alley.
A life ended and for what? A quick fix and
a pair of shoes?

Ya, you sit there at home and pretend that
everything is ok. That you’re safe. In the
mean time I got work to do.

#92 Sheane Wallace on 06.21.15 at 10:15 pm

Not really. Gold is a commodity, volatile, expensive to store and convert, with taxable gains. Plus, the bank won’t pay you interest in returning for holding your gold. — Garth

…………………

Inida is considering paying interest (in gold) on gold deposits.

http://in.reuters.com/article/2015/05/19/india-gold-deposit-bank-interest-idINKBN0O41JP20150519

———————–
#75 Balmuto

It’s a pure fiat system now, based on ones and zeroes, not shiny rocks. Far more likely that gold will follow all the other commodities down as the USD, the cash king of kings, continues to strengthen.

————————-

I will believe that when:
1. central banks openly sell all of their gold reserves, not through gold lease/re-hypotecation

2. when illegal short selling is prohibited on Comex.

While waiting for that 5 % in gold is not that bad at all.

#93 Bottoms_Up on 06.21.15 at 10:20 pm

Excellent financial blog entry today Garth.

#94 Herf on 06.21.15 at 10:26 pm

#67 Realtor007

“Holding a tangible assets (sic) like RE is a must for everyone, having all your hopes and dreams in paper assets you have no control over is irresponsible . . .”

So you believe one has control over the value of real estate? Tell that to the folks in Alberta right now. Or, how about having control over that aneurysm that’s getting ready to explode in one’s head, or the cancer that could be creeping up on one, or the coronary that could suddenly hit unannounced? You epitomize what the apostle James wrote:

‘James 4:14 14 (1)Yet you do not know (2)what your life will be like tomorrow. (a)You are just a vapor that appears for a little while and then vanishes away.’

And who are you to say what assets/asset mix is right for “everyone” or which ones they need and when? As Garth has mentioned multiple times on this blog, tying one’s self to an illiquid asset (or liability depending on the situation) like real estate can be akin to being tied to a ball and chain, restricting one’s freedom and flexibility in other areas of life (like having to move to find another job).

And never mind the fact a house can become a money pit that sucks the owner’s available capital into maintenance, repairs and upgrades, perhaps at the most inconvenient time in a person’s life. I have a friend in her 70’s who in the past year-and-half put a new roof, gutters and HVAC on/in her 35+ year old house because they were needed, and the place still needs new windows, doors, and overall interior repairs/upgrades. Do you think she had total “control” over those deterioration of those items (when viewed from the perspective of other issues that were happening in her life)? What kind of recoup do you think she’ll make if/when she sells the place, particularly if the sale happens in a declining market? This is an “investment”?!! At her age?

I think you’re the one who is irresponsible for selling people a “dream” without due diligence and consideration concerning the customer’s personal financial and life situation, and frank discussion of the assumptions and pit-falls surrounding the “dream”. And along that line, aren’t there laws restricting people (like you) from giving out financial advise without the necessary licenses and certifications?

With regards to your screen name, James Bond you ain’t. More like the Man with the Golden Tongue, only its Fool’s Gold.

#95 Retired Boomer - WI on 06.21.15 at 10:29 pm

More “talk” of rising interest rates. You among you really believe interest rates will ‘rise’ more than say, a 1/4 ;pint, and then…maybe… an additional 1/4 point.

Where I live going from .12 to .62 is hardly normalizing rates. Do I believe rates will be like the 7.5% for a mortgage back in 1997? Not in my lifetime again.

If rates were going to be raised, they would have been raised incrementally along with the recovery.

I do not trust the prognosticators, they have been as right as most weather forecasts. Rates will change when rates will change, not before.

In the meantime the dividends keep piling up.

#96 Retired Boomer - WI on 06.21.15 at 10:30 pm

That should read: Who among you really believe…..

too many cocktails

#97 Madcat on 06.21.15 at 10:35 pm

Hi Garth,

Do you think this is a good option for investing (It is a TD GIC offering)..

3 years Minimum Return is 1.00%
Maximum Return is 8.88%

5 years Minimum Return is 4.00%
Maximum Return2 is 18.88%

(my money is doing nothing anyways and I don’t know how to invest)….

Link: https://www.tdcanadatrust.com/products-services/investing/gics-term-deposits/mkt-growth-gics.jsp

Why would you settle for returns like that? — Garth

#98 Ken Phillips on 06.21.15 at 10:39 pm

If the Bank of Canada held more gold, would our Dollar be worth more?

No. — Garth

#99 Llewelyn on 06.21.15 at 10:42 pm

Why didn’t Gerald Bouey see rapid inflation coming in 1981?

My recollection is that the 5 year Canadian Bond rate went from 13% in January 1981 to close to 19% by September 1981. By any standard this was a rapid increase.

I agree that Canada seems to have inflation under control in 2015 but circumstances can change faster than many investors may be prepared for.

While establishing a balanced portfolio is very good advice the composition of this balance deserves careful scrutiny.

#100 Bottoms_Up on 06.21.15 at 10:43 pm

#44 Steve French
—————————–
Being all in cash is extreme because as Garth highlights in his post, you’ve missed out on 7 to 8% yearly growth.

#101 Bottoms_Up on 06.21.15 at 10:47 pm

#41 Gladiator
————————–
The newest on the food inflation front, corn use to come in 5 packs, now down to 4.

And a couple years ago we discussed cheese packs shrinking in size, the large use to be 650grams, now down to 400g.

#102 Not a gold bug, but.... on 06.21.15 at 10:49 pm

You’re a tax evader. Sure you want to be scattering your IP address around? — Garth

LOL Garth! I wondered if I could bring out the old CRA dude in you, and it worked.

Truthfully though, having been in a number of gold buying shops over the years and spoken to many operators, it is pretty stunning that so many go without any documentation or paper trail. Makes me wonder a lot about how much of the appeal of gold is this ability (only when it goes up, of course) to hide gains from the taxman and others. My hunch is that this is a big part of the appeal of holding physical precious metals, not stocks of in someone else’s safety deposit box. A lot like those who try to evade capital gains taxes by claiming investment properties as principal residence tax-exempt, which is a hugs scam across our country these last few years of ballooning prices.

#103 Doug in London on 06.21.15 at 10:56 pm

Now is not the time to buy gold. When gold has dropped to about half of today’s price and even some of the “experts” say it will drop further, that will be the time to buy. That was the case in 1999, when gold was at about $230/ounce and some “expert” in the business section of The Globe and Mail said something like: “nobody wants gold anymore, it’s a useless metal and it could drop to $150/ounce”. That was this time of year, June of 1999. Oh no, I’m being sucked into the time tunnel again! I think I hear Praise You by Fatboy Slim, followed by I’ve Seen Better Days by Citizen King playing on the radio. I wonder, are we going to survive the date turning over to Y2K?

#104 sluggo8 on 06.21.15 at 11:02 pm

Dan’s confused? Gold is 1471 CAD right now. The high was 1816 CAD. Check your math Garth, a 40% drop would put gold around 1100 CAD which it isn’t.

The 2011 high was $1900 U.S. — Garth

#105 Sheane Wallace on 06.21.15 at 11:10 pm

#103 Doug in London

call me when gold goes bellow $ 600. (assume silver under $5?).
……………………………

#106 Mike on 06.21.15 at 11:14 pm

Lack of correlation is hardly a reason to invest in a non-producing asset. — Garth

So true, you can not invest in gold and silver. But you can speculate. To see where we are now search google:
House price vs silver or house price vs gold

IN 1980 average house was worth 37 oz of gold, In 2004 it was 383oz. I live in Canada and today’s house price is about 350 oz of gold. It is very close to all time high.

#107 Bassrage on 06.21.15 at 11:20 pm

I know, Garth. You don’t see the seven-year cycle – even though there HAS been an economic event every seven years for decades now. Nonetheless, you do have the luxury to assert your suppositions regarding 2015 now, however premature they may be. Believe me, I hope that you are right…but you only would be if there is no cycle – which there is. Cheers!

#108 Madcat on 06.21.15 at 11:38 pm

Lol! Why would you settle for returns like that? — Garth”

Right now I am making 0%…. I don’t really understand ETF’s and the stuff you recommend (unless you were to actually give me the stock abreviations so I could buy them (even then I would be reluctant because I wouldn’t know when to sell).

I always thought I would buy a house but the market stars are just not aligning… l’ve been reading this blog for a long time… started with VHB’s blog and following Freako on the realestate forum…Those guys made sense at the time…. In hindsight I wish I had gambled…. So for now I want to try to make the best of what little cash I have… I have literally bled for years to earn it. Your’s is the only advice I would trust….

My Stats: Mother of 2 (8 and 11).
40 years old this year (still get carded ;) )
350K networth.
No assets apart fom vehicle.
1000k rent…
Need 100k (cashflow) to operate buiz… So 250 ish to invest…

Got any recommendations?…. Or maybe this is good for someone like me….

#109 Dave on 06.21.15 at 11:38 pm

Gold should only be owned by Central Banks.

#110 Ryan Perich on 06.21.15 at 11:47 pm

http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/for-alberta-sellers-real-estate-is-no-longer-such-a-gusher/article23769285/

April 2015,
If Tasha Ptasinski had put her Calgary condo on the market last year before oil prices crashed, she would have come out farther ahead.

“I bought it almost exactly two years ago for $310,000,” the occupational therapist says, describing the 1,100-square-foot unit she owns in the city’s southwest.

“I’m now hoping to sell it because I’m getting married and my fiancé owns a house. I was hoping to sell it for $399,000, but we’ve only had three showings in a week and a half, so now I’m looking at dropping the price by $10,000. I was hoping to list it for $20,000 more but it has been on the market for more than three months and it hasn’t moved.”

she was hoping to make $90,000 in 2 years time , or about 30 % profit ? this is where mass delusion fails us…

average selling time of apartment condos (if they sell) according to CREB right NOW in June is 47 days. 3 months is 90 days….

crash much ?

#111 Kurt the Yurt on 06.21.15 at 11:52 pm

Garth

Is it possible that the next generation will be living of the grid in yurts? Sounds pretty idyllic compared to rush hour on the subway!

https://homes.yahoo.com/blogs/spaces/off-the-grid-yurt-couple-165229153.html

#112 I. M Wheezer on 06.22.15 at 12:13 am

Garth I see 2 problems with your advice (selected excerpts below after my commentary).

Regarding the first bit, this was good advice 3-4 years ago, before the US$ appreciated 30% against the loonie and the huge US bull market run……there is no way that such gains can be expected again in the near term.

The second bit assumes that the future will follow the past(similar to your logic above) which we all know does not happen!

“…. with the US at 21% and International, 18%. Ensure you have 20% or so of the total in US$,….”

“Well, if you experienced no growth at all, the fixed-income would still pump out the equivalent of 3% a year on the total – more than a GIC, and totally liquid. If the portfolio performs in the future as it has over the past few decades, it should give you something north of 7%. If the stock market drops 10%, this might dip 2% and recover more quickly. If we experienced another 2008-9, when equity markets collapsed 55%, this might react now as then – falling 20% then rebounding within a year. If it repeats last year, it would yield 8.5%. If it replicates the last five years, the return would be 7.8%.”

#113 Lotus Man on 06.22.15 at 12:20 am

Here’s an article about the Canadian banking and pension system: http://www.telegraph.co.uk/finance/comment/11690310/Canadas-giant-pension-funds-are-the-new-masters-of-the-universe.html

#114 kommykim on 06.22.15 at 12:22 am

RE: #37 Mark on 06.21.15 at 5:50 pm
Bonds only pay interest in more bonds — and when bonds mature, they repay you in more bonds

Are you off your meds tonight?

#115 millenial1982 on 06.22.15 at 12:27 am

This blog attracts many pessimists, cynics, doomers, fear mongerers, conspiracy theorists, hermits, trust “no one” material hoarding, pain forcasting, sorry assed dark cloud type personalities. Nearly everyone else is busy having fun. It’s Father’s day for crying out loud. Should be little wonder picking on gold is resulting in so many rants tonight. It’s like telling a yank football sucks…you are asking for war. P.S. enjoy the portfolio breakdown reminders every 2 weeks or so. Keeps things in perspective and in focus.

#116 Hugh on 06.22.15 at 12:29 am

Physical Cash”, Fidelity Manager Warns Ahead Of “Systemic Event

Update your thought wave – gold is about default risk. It’s about insurance against central bankers.

#117 Irent on 06.22.15 at 12:39 am

Hi Garth, thanks for your educational posts as always. Will there ever be a chance to buy a home in Toronto to live!?

#118 nonplused on 06.22.15 at 12:41 am

To Garth on #61 –

“The banks won’t pay you to hold your cash either. It’s looking like there is a storage fee there too, inflation considered.

Still beats gold storage, which was the point. Gold is not currency. — Garth”

Is gold still an “asset” then? Sure it goes up and down in value, like real estate, but will there be a time when an ounce of gold is literally worth nothing?

#119 gold on 06.22.15 at 12:42 am

Gold is awesome… if you buy it for your wife as jewellery… she will appreciate it, now go and get her a bullion and you might be in the dog house. These gold lovers might be from Vancouver, the capital of gold mining scammers head quarters. Truth is that the gold miners are cutting their cost with low oil prices so being 10% in top miners etf would be enough.
Or jump on the social network train, that will end up just fine… remember the dot.com bubble?
If Greece defaults then all bets are off and a mini crash can happen in financial markets, but I doubt it. USA is doing just fine, if you think Vancouver is expensive check San Francisco, at least they have real high tech, not bc bud that seems to affect a lot of people brains. Might be the cause of them buying real estate… no worries dude, my shack will be 2 millions in 3 months, just sold a kidney for the down payment…

#120 Hugh on 06.22.15 at 12:46 am

Raise interest rates and pop a bubble? That is THE reason rates haven’t moved. GDP at -0.7 Q1 and maybe 1.7% Q2 is not “liftoff”. $4trillion in QE and still the economy is struggling at best. Scary.

#121 Hugh on 06.22.15 at 12:47 am

#104 sluggo8 on 06.21.15 at 11:02 pm
Dan’s confused? Gold is 1471 CAD right now. The high was 1816 CAD. Check your math Garth, a 40% drop would put gold around 1100 CAD which it isn’t.

The 2011 high was $1900 U.S. — Garth

Gold has resumed bull market in all but USD.

#122 Obvious Truth on 06.22.15 at 12:49 am

Ya just can’t argue with the balanced portfolio. It works. And it’s been well documented that losing less during a big correction is one of the keys to longer term outperformance.

Some of us do it a little different but if you forget risk management then you may as we’ll be in Vegas. Or all in leveraged housing.

As for gold. Gold isn’t money anymore. People are nostalgic about gold and silver. I think the price goes up because everything goes up. No apocalypse needed.

Nagraj

Thanks for the response. To be the best at your craft you need to be a bit of a freak of nature. You need to be able to do something others can’t.

That’s grandma Janet. Central bank freak of nature. A little ‘Jenner’ trash talk and innuendo won’t phase this lady. She’s a Brooklyn girl. Playing in the biggest finance arena the world has known and I’m a fan. When the game is on the line we’ve come to trust her with the ball.

A trusted central banker. ‘freaky’

History of course will tell her story like it did for others from Brooklyn…

http://nyti.ms/UOY4Gv

No star shines forever and no doubt we all feel very ablE till we catch a glimpse of our very own Elba.

#123 kommykim on 06.22.15 at 12:57 am

RE: #97 Madcat on 06.21.15 at 10:35 pm
Do you think this is a good option for investing (It is a TD GIC offering)..
3 years Minimum Return is 1.00%
Maximum Return is 8.88%

Read the foot notes and the fine print. That 8.88% return is over 3 years, or equal to 2.96% max per annum simple interest. And the 1% minimum = 0.33% per annum simple interest.
Pretty crappy eh?

#124 Nagraj on 06.22.15 at 1:09 am

In the comments on this utterly boring blogpost by GT did somebody mention Argentina? [Is GT’s “The deceivers” some kinda rewrite of “the Protestant work ethic” as “the Protestant investment ethic”?]
ARGENTINA IS EXCITING. THEY INVENTED THE TANGO.
Protestants don’ git TANGO. (They line dance.)
[I went over the comments to see who mentioned Argentina but the Bombay Gin just got in the way.]
Argentina is not that concerned about payin’ its bills. So what. They dance, they TANGO!

Irrrespective of what Wikipedia tells you, the truth is that the TANGO was invented in gay sailor bars. That great distance between heads is due to bad breath. [I am not making this up. I read it in a long well-researched tango article.] That form of TANGO where the heads are Siamesed is the result of toothpaste and Listerine becoming widely available.
By the way, can you imagine a Canadian inventing a dance featuring that quick little Tango kick to the balls? Goodness no – SAFE, play it SAFE, is the Canadian motto, a SAFE 7%, “SAFE” real estate. Little mincing fox trot steps. If that.

Argentina knows that NUTHIN is SAFE. Ever. Which is why they TANGO so well. Argentina: Astor Piazzolla, Canada: Stompin’ Tom.

Canadians should look in the mirror and ask, “Could I tango if I tried?”
Can YOU tango?

P.S.
Some of the comments interplay qualifies as Watschenplattler. Google videos of that.

#125 Spectacle on 06.22.15 at 1:31 am

Yes, great blog tonight…..comments not so much due to the constant doomer/one hit wonder get rich schemes.

Re:
#104 sluggo8 on 06.21.15 at 11:02 pm
Dan’s confused? Gold is 1471 CAD right now. The high was 1816 CAD. Check your math Garth, a 40% drop would put gold around 1100 CAD which it isn’t.

The 2011 high was $1900 U.S. — Garth
——————-
You’re correct, I unloaded gold coinage ( not scrap gold…) at a few bucks under $1900 U.S. Gary in YVR downtown helped me and took his cut. Bought way, way lower than that, and made solid return, & yes with a paper trail !

Also, Jewelry as an investment? Stop, Seriously? Markup is add a zero, or 400% depending on the product. Don’t even think of it as anything as a gift for your girl.

#126 olderthanaboomer on 06.22.15 at 2:20 am

You are all nuts. Put yourselves in the shoes of a couple from near Kelowna, log house, wood stoves, forest fires were raging all that summer. They decided how to escape with one vehicle, 2 backpacks , and briefcase with property deed and such valuables. The fire did not happen to them, but how to do this was all written down by Richard Wagamese…great read, makes you think.

#127 Bdy sktn on 06.22.15 at 2:44 am

Again, a preposterous, pompous and condescending assertion
______ _______
But dontyaknow that’s her every post?

She gets more bitter as her doomsday never comes.

Van re is hotter than ever and will easily outperform sp500/tsx or even a balanced port over 5 yrs. The full Chinese wave has not hit yvr yet.

It’s spreading to anywhere drivable. My ex neighbor is up 40% in two years on a big lot in squeamish. I told her that some gal in Victoria had guaranteed that she would lose it all and end up on welfare but did she listen?……….noooooo, what a fool.

#128 BillyBob on 06.22.15 at 3:02 am

#85 Victoria Real Estate Truth on 06.21.15 at 9:45 pm

“This widespread delusional thinking made buying a property seem like a no-brainer to them. Their logic was that house prices can’t fall because rates will never rise.”

Again, a preposterous, pompous and condescending assertion. Most people buy properties to live in and do so because they are comfortable with the cost. They most likely believe their own financial means will rise over time and enable them to absorb increases in housing costs (along with just about every other cost) which will be inevitably subject to inflation.

“They happily and eagerly drank that poisonous industry Kool-Aid.”

Blah, blah, blah.

“It’s also likely that few of Canada’s recent first-time buyers were aware that Canada’s housing bubble is one of the biggest the world has ever seen.”

Well, that’s been a subject of debate and disagreement amongst some very well respected economists, which you would know since you are so smart.

“Many delusional mortgage holders in Canada are in for years of disappointment as rates rise.”

Unless their incomes rise as well, in which case it’s OK.

By the way, your bafflegab last week about double digit declines in Victoria and Oak Bay SFH prices since 2010 are utter nonsense. The annual stats from VREB show small increases (2% and 0.8%).

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

Hmmm. Sounds like a realtor, for sure. Or perhaps just someone desperate for their sole “investment” to hold their value.

It seems pretty clear that Victoria Real Estate Update has gotten under your skin, take a deep breath and try to take a look at the facts without emotion.

A few points.

-To try and imply that there is some disagreement between experts as to whether or not Canada’s real estate is overvalued is just plain dishonest. About the only thing they can’t agree on is to what degree.

-To suggest that incomes in Canada over the last few decades have kept pace in Canada with the rise of the cost of housing is ludicrous. To believe that this situation will reverse or even improve in the future is even more so. Labour is in oversupply, jobs are not.

-As someone who follows the Victoria market quite closely, I receive multiple property updates daily via email. Virtually every single one of them is for price changes…downwards. Doesn’t mean the market is crashing, to be sure, but pretty obvious that sellers aren’t getting their ask. I’m not sure how the RE board manages to massage those numbers into gains, but that’s their job. Perhaps sales are happening invisibly for over asking, but that seems unlikely – that’s usually something they would be trumpeting.

The tide is going out, and starting to reveal who’s really not wearing their bathing suit.

#129 Has anyone seen this? on 06.22.15 at 3:27 am

#78 JP Morgan Quote on 06.21.15 at 9:22 pm
“Gold Is Money, Everything Else Is Credit” is attributed to JP Morgan himself while testifying in front of Congress back in 1912 shortly before his death.

If gold is not Money why do central bankers hold it? For fun? Why don’t they just sell it all away?

This will tell you how much they value gold. — Garth

——-

https://en.wikipedia.org/wiki/Gold_reserve#Officially_Reported_Gold_Holdings

#130 Kevin on 06.22.15 at 6:55 am

For fixed income I hold GICs instead of bonds or bond ETFs. GIC’s often yield more and eventually mature at par unlike ETFs which never mature and holding often bought at a premium thus maturing at lower than buy price. Also GICs are CDIC insured.

You are taxed on GIC income before you receive it. The yield is not greater, and there is zero opportunity for capital gain. Moreover, there is no liquidity. Bad choice. — Garth

#131 Getting old on 06.22.15 at 7:06 am

Eternal truth of personal finance No. 4: Don’t be a renter

http://business.financialpost.com/personal-finance
/young-money/eternal-truth-of-personal-finance-no-4-dont-be-a-renter?__lsa=7ee6-8707

#132 Harry Wilson on 06.22.15 at 7:06 am

More stupid questions from a small dog:

1 – Why isn’t there a Greater Fool ETF, managed by Turner Investments, and mirroring the portfolio cited in your post? Good for you; good for us. (I admit that I have no clue as to what it takes to create an ETF out of thin air. I suppose it could be ‘The Greater Fool Mutual Fund’, but I didn’t want to offend by using the MF word.)

2 – Are there regulations prohibiting ETFs of multiple asset classes, or do they not exist because they’re just not that appealing to investors (or are there some that I’ve missed)?

3 – How ‘Mad Max’ is the future that goldbugs fear? Do most people who hold large quantities of gold see it as a hedge against another 2009, another 1930s, or another 13th century?

If it’s the latter (which is a bit hard to believe), I have doubts as to how gold will save them. If you want to know how a post-Apocalypse world functions, go to prison. If you have a commodity or skill that I can use, we can do business. If you walk up to Spike in the exercise yard and offer him a piece of shiny foil for a cigarette, there’ll be nothing left of you but a grease spot.

4 – As a hedge against a local Apocalypse, such as paying your way to escape central Europe in the thirties or Syria today, why is it always gold or silver; why not diamonds? Easier to transport, easy to hide on your person, hold their value, don’t set off metal detectors, and are unique.

—————————

P.S. Thank you for ending hate week, and posting an article that can inspire us all. Remember when we all used to be friends here?

—————————

—————————

re #97 Madcat

Did you notice the footnotes at the bottom of the page, referenced after the return amounts? Those quoted rates aren’t per annum; that’s the total for the full three or five years. Here’s what it looks like when you move the small print footnotes up to the ‘happy talk’:

3 years Minimum Return is 1.00%
– Actual return is 0.3333% per annum, compounded annually, payable at maturity (equivalent to 1.00% total return)

Maximum Return is 8.88%
– Equivalent to the total return over the term of the investment (i.e. not an annualized rate)

5 years Minimum Return is 4.00%
– Actual return is 0.7885% per annum, compounded annually, payable at maturity (equivalent to 4.00% total return)

Maximum Return2 is 18.88%
– Equivalent to the total return over the term of the investment (i.e. not an annualized rate)

The actual (and doubtful) best that you can do is about 3.75% per year on a five year, if everything goes perfectly for all five years. That’s only about 1% more than the highest-rate 5 year GICs today, which are a guaranteed rate of return (not suggesting those, just pointing out the numbers).

Very rarely do market-linked GICs do well. In the words of noted financial advisors Public Enemy: ‘Don’t Believe The Hype’.

#133 Rory on 06.22.15 at 7:31 am

Garth,
Your answer to #32, Gulf Breeze, does not address his obvious point, which is that gold has gone up over the long term, especially in C$. Exposure to gold stocks by owning the TSX does not get you what you need.

A proper efficient frontier analysis will show you that an allocation to gold bullion will reduce your portfolio’s risk and volatility, while achieving higher returns over the long term.

It might also be helpful to note that for now real rates are negative.

Gold in a portfolio other than in trace amounts in fact increases volatility and risk. — Garth

#134 LL on 06.22.15 at 7:36 am

# 52 – Gold is not money. — Garth

Paper money is not money either..it’s “fiat” money!

#135 Steve French on 06.22.15 at 8:04 am

Smoking Man:

I like it– I’m thinking Robert Mitchum.

Vegas Noir.

#136 Steve French on 06.22.15 at 8:05 am

Hey Smokey:

Some writerly inspiration for you:

http://noirnation.com/2012/07/01/top-10-las-vegas-noir-films/

#137 PowerSuiteRecall on 06.22.15 at 8:44 am

#51 SkyFall
Garth, could you give some examples of what you mean by alternative assets and completion ETF’s?

—————-

I’m pretty sure he meant ‘Alternative Compilation ETFs’. Google says:

“Alternative ETFs consist of funds that employ hedge fund, inflation expectations, long/short, managed futures, and merger arbitrage strategies, which are also known as non-traditional investments.”

For a simple guy like me I’d just add a point or two more CAN/INT’L equity and forget about it.

#138 SWL1976 on 06.22.15 at 8:59 am

Well you certainly are on a roll with stirring the pot Garth. Interesting comments section as always.

So. Is gold going to 600$ like oil was going to 25$ not long ago? Talk about extremes.

I was recently doing some research into the bilderberg group for my own blog post when I came across this article…

http://www.globalresearch.ca/the-true-story-of-the-bilderberg-group-and-what-they-may-be-planning-now/13808

I thought it was well put together and gives us some insight to where we might be going, though few here will admit or accept it.

I feel we have drifted away from a free and democratic society and the days of free markets are in the rear view mirror.

If we truly are living in a democratic society I feel like Garth would still be an MP, cause I don’t see much quit in him.

We all have access to unlimited information to the world around us. What we see and what we choose to accept is our own reality, but then there is the reality we cannot avoid which is that of tomorrow.

I don’t fear tomorrow but I am well aware of the direction we are currently going

I hope to help in change that

#139 Julia on 06.22.15 at 9:04 am

Now THESE are sub-prime loans:

“SécurFinance, a Montreal, Quebec-based alternative mortgage lender, filed for protection under the CCAA on June 8, facing a liquidity crisis. The company borrows at rates between 8% and 10% and lends the funds out at rates between 12% and 15%, but, as a result of mortgage defaults, the company found itself unable to service its own borrowings. At the time of filing approximately 20% of the company’s $107.5MM, 157 loan portfolio was considered non-performing. Deloitte was appointed monitor. Counsel is Blakes for the applicant and Fasken for the monitor. ”

Source: Insolvencyinsider.ca

#140 LL on 06.22.15 at 9:11 am

…and paper money – fiat money – loose value over time.

#141 Squirrel meat on 06.22.15 at 10:19 am

#138 SWL1976 on 06.22.15 at 8:59 am

Well you certainly are on a roll with stirring the pot Garth. Interesting comments section as always.

So. Is gold going to 600$ like oil was going to 25$ not long ago? Talk about extremes.

I was recently doing some research into the bilderberg group for my own blog post when I came across this article…

http://www.globalresearch.ca/the-true-story-of-the-bilderberg-group-and-what-they-may-be-planning-now/13808

I thought it was well put together and gives us some insight to where we might be going, though few here will admit or accept it.

I feel we have drifted away from a free and democratic society and the days of free markets are in the rear view mirror.

If we truly are living in a democratic society I feel like Garth would still be an MP, cause I don’t see much quit in him.

We all have access to unlimited information to the world around us. What we see and what we choose to accept is our own reality, but then there is the reality we cannot avoid which is that of tomorrow.

I don’t fear tomorrow but I am well aware of the direction we are currently going

I hope to help in change that
——————————-
The Bilderbergers are taking the whole circus down…. this summer… the signs are in the skies…the camps are prepared… locked up in Walmart with the walcreatures for eternity…. ONE WORLD rule.

Buy gold (and my book).

#142 Bobby on 06.22.15 at 10:24 am

For #85 Victoria Real Estate Truth,

And you believe the VREB stats, blah, blah. You must be a realtor. Remember, these are the clowns that stated publicly that buyers had better get in because when interest rates rise, prices will also rise.

The more I speak to realtors, the more I realize most would be better off if they said nothing.

#143 Bottoms_Up on 06.22.15 at 10:32 am

#2 The Big Dirty on 06.21.15 at 1:35 pm
————————————————-
Yes, if the place sells for $690k the real estate cartel will exuberantly advertise they got 98.7% of list price, rather than 92.1% of original ask.

That’s why we need open data.

Unsuspecting buyers see 98.7% and think the market is hot and need to offer close to ask. Knowledge of the actual 92.1% of 1st list price would lead those same buyers to think they might be able to get a bit of a discount on a new listing.

#144 Godth on 06.22.15 at 10:51 am

“…Money exists not by nature but by law.” Aristotle (ethics, 1133)

Money is just a token of exchange created by law. It’s inorganic thus it doesn’t self replicate meaning usury is criminal. It shouldn’t be traded or valued as a commodity either. The value of gold is fiat too (when used as money). Because it’s an abstraction we could argue forever (and have been) about definitions but history has a thing or two to teach as we’ve experimented endlessly.

Read a book:
http://www.amazon.ca/The-Lost-Science-Money-Mythology/dp/1930748035

#145 Bottoms_Up on 06.22.15 at 11:06 am

#8 Trading Naked on 06.21.15 at 2:01 pm
—————————————————
So why is a 3215 troy ounce gold coin worth only $300/ounce? Shouldn’t the coin be closer to $3,500,000?

#146 Bottoms_Up on 06.22.15 at 11:09 am

#19 Unhinged Loon on 06.21.15 at 2:55 pm
——————————————————
e-series doesn’t offer a lot of selection.

Various bond ETFs listed here:

http://etfdb.com/type/bond/all/

#147 Dee on 06.22.15 at 11:15 am

@#108 Madcat

I get it — even a few years ago I was scared and didn’t know where to begin. It takes some time and reading, but I also find it gets better with practice.

If you’re nervous, start with a smaller pool of money. I dipped my toe in with a few thousand and used that to learn some basics.

Personally, I really like the iShares Core ETFs, especially when you’re just starting out. For example, look up XIC.TO. Broad Canadian equity coverage at 0.05% MER. They’ve got a whole series of them to give you a relatively easy balanced portfolio at very low fees.

#148 Bottoms_Up on 06.22.15 at 11:16 am

#40 45north on 06.21.15 at 6:10 pm
————————————————
0.07 is 6.7%, you’ve just chosen to round your numbers differently.

#149 Ben on 06.22.15 at 11:23 am

Mr. Turner

I believe that you recommend ETF’s in order to maximize diversification in equities. Is that correct? If so, I presume that at some point the amount that is invested allows for a more diverse asset allocation strategy and therefore the use of individual equities instead of ETF’s. If so, at what point (dollar wise) do you feel that an investor can achieve adequate diversification without relying on ETF’s? $500K… $1 mil… more?

On a different note, I have read that income from American equities and American ETF’s that are held in a TFSA are subject to American non-resident tax and that this tax is not recoverable. Is this correct?

Thanks for your help.

#150 Leo Trollstoy on 06.22.15 at 11:26 am

Poor people defend gold because they have no money.

Gold is trash.

#151 Nemesis on 06.22.15 at 12:01 pm

“Never waste a day worrying about the day to come. One day… tomorrow won’t matter much.” – MasterOfFinancialNoireGT [Still Polishing That Fabled BlockBuster Parliamentary Roman à Clef?]

#FunnyAuldWorld… #AssortedMondayAmusements…

#Gen5CompositeStealth?… #No,It’sSupersonicSvetlana!…

“She surely can work the stick and pull some serious g-forces.”

[RT] – Inside the cockpit of the Best Pilot of the Century (VIDEO)

http://rt.com/news/268762-kapanina-russian-aerobatic-pilot/

#PastorHaggee’sDivineProclamation…

In an outspoken interview, Dr Hagee said that to cry out “God” during sex was “One of the filthiest, most derogatory and sinful uses of the Lord’s name I can think of”.

[Independent] – Women who cry God’s name during sex ‘should be jailed’ says pastor

http://www.independent.co.uk/news/world/americas/women-who-cry-gods-name-during-sex-should-be-jailed-says-pastor-10336015.html

#OnlyTheLonely?,Or… #GoYourOwnWay….

[Telegraph] – Pensioners threatened with ASBO for loud Roy Orbison music: Plymouth Council threatens two 68-year-olds with an ASBO after neighbours complain about loud Roy Orbison and Fleetwood Mac tunes

“We are both retired and we just enjoy spending our time out in the garden while the weather is so sunny. We’ve always made sure our music is turned off by 6.30pm every evening. I belong to the local over-60s club and all my friends can’t believe it.”

http://www.telegraph.co.uk/news/newstopics/howaboutthat/11689927/Pensioners-threatened-with-ASBO-for-loud-Roy-Orbison-music.html

#UltimateVegasNoire… #Smokin’Aces[2006]… #MPAA”R”… #”TheWayOfTheWorld”

https://youtu.be/c-tGV96ceBM

#152 Renter's Revenge! on 06.22.15 at 12:17 pm

“Money is just a token of exchange created by law. It’s inorganic thus it doesn’t self replicate meaning usury is criminal.”

Why should usury (charging interest on loans) be criminal just because money doesn’t self-replicate? If money is created by law, then can’t we just create more money (by law) to pay the interest on loans? I thought interest meant “interest in profits”, which is the lender’s share in the profits generated by the investment of the money they leant out. New money needs to be created constantly as the economy grows to represent the increase in national income.

Also, if something is organic, and self-replicates, like people, then does that mean that usury on that thing is not criminal? What does that even mean??

I can’t follow the quoted logic. Then again, I’m not Aristotle.

#153 Trading Naked on 06.22.15 at 12:19 pm

#145 Bottoms_Up on 06.22.15 at 11:06 am

Beats me. The site says they were made in 2007 when gold was lower and the CAD was higher, so maybe that has something to do with it. Plus, if people do buy it as their personal big-a$$ inflation hedge, I’m not sure how they would go about liquidating it. You can’t just haul the thing to the “Cash For Gold” store during an apocalypse.

#154 devore on 06.22.15 at 12:28 pm

#78 JP Morgan Quote

If gold is not Money why do central bankers hold it? For fun? Why don’t they just sell it all away?

JP Morgan said many things, including “Don’t bet against America”.

Central banks also hold all kinds of things, such as government bonds, cash/currencies, toxic assets, and large quantities of a totally made up currency, SDR. Oh, and also some gold, which most have sold off.

#155 bdy sktrn on 06.22.15 at 12:37 pm

#150 Leo Trollstoy on 06.22.15 at 11:26 am
Poor people defend gold because they have no money.

Gold is trash.
————————
so the olympic winners should get trash medals?

don’t have any Au but like many other things it goes in and out of favor.

gold sure WAS trash in the .com days. as a moist 20something making big bank on tech stocks i was sure it was dead forever too. i couldn’t possibly see any reason to hold it. i was wrong, very wrong. at todays prices it has done even better than the ‘gold’ standard of cdn investments, 604 RE .

just as the seasons change, gold will have it’s day many times to come. (and get killed many times too)

#156 Godth on 06.22.15 at 1:18 pm

Modern Money & Public Purpose 1: The Historical Evolution of Money and Debt
https://www.youtube.com/watch?v=0zEbo8PIPSc

#157 BuyWhenAppropriate on 06.22.15 at 1:22 pm

What are people’s suggestions on having self-directed accounts with only one broker, or should you always keep your money invested with multiple?

Eg. If a broker has financial difficulties, are your ETFs etc safe?

I thought I read in the fine print on Questrade that if you are just holding cash in your account then becomes part of their “general” funds so it might not be there if they went under?

If so would it be better to maintain a few brokerage accounts to avoid having your eggs in one basket?

Thanks for your advice!

#158 Holy Crap Wheres The Tylenol on 06.22.15 at 1:35 pm

So, gold is extreme. Putting everything in a house is extreme. Staying in cash is extreme. And fearing the future is just sad.

Never waste a day worrying about the day to come. One day tomorrow won’t matter much.
_____________________________________________
Well then I better stock up. Sounds like the end is coming.
A good horse.
Tents.
Sleeping Bag.
Tin goods.
Frying Pan.
Fishing Rod & tackle.
Coffee.
Matches.

Claymores.
Ambush 6.8 SPC II
Blaser R8 Professional Success
Browning X-Bolt Micro Buckthorn Pink
Colt M2012
CZ Western Series 550 Badlands Magnum
Howa Hogue Kryptek
Kimber 84M Adirondack
Mossberg MVP 762
Ruger American Revolution
Savage Axis II Xp
T/C Venture Predator
Weatherby WBY-X
Winchester Model 73
Ambush 6.8 SPC II
Blaser R8 Professional Success
Browning X-Bolt Micro Buckthorn Pink
Colt M2012
CZ Western Series 550 Badlands Magnum
Howa Hogue Kryptek
Kimber 84M Adirondack
Mossberg MVP 762
Ruger American Revolution
Savage Axis II Xp
T/C Venture Predator
Weatherby WBY-X
Winchester Model 73
Oh and Ammo for all of the above!
It wont matter much about anything as the most valuable thing will be your weapon. The one with the guns rules. Now what do you want to trade?

#159 Drill Baby Drill on 06.22.15 at 1:35 pm

KIA is now the most reliable auto on the market according to JD Powers second only to Porsche.

#160 Josh in Calgary on 06.22.15 at 2:09 pm

People trying to predict the next market crash and the event that precipitates it need to read some Nassim Taleb (Fooled by Randomness, Black Swan, Anti-fragile).

Nassim is a philospher, but gained his “financial freedom” as a trader. He coined the term Black Swan, which is misused to the point of absurdedy.

In essense he says that the market (and many things in life) are largely shaped by big one time events. We may think we know what they will be (especially in hind site), but we do not (not with enough certainty to call it anything but speculation). It is enough to know that these big events will occur and we must position ourselves in a way that they do not whipe us out.

The rational conclusion is to avoid taking on too much debt (sound familiar?). Stay diversified (sound familiar?). And never become too certain of any one outcome (sound familiar?). And avoid logical fallacies like assuming the past will predict the future (sound familiar?).

The point is you can argue with Garth all that you want about the minor details of what gold, or inflation, or any one asset class will do, but you may be placing yourself in a very “fragile” position and are prone to getting whiped out if you get it wrong.

There are many ways to achieve a position of being robust to black swan events (or better yet gain from them as Taleb does), but the method Garth shares is likely the most practicable for us non-professional investors. Or even the “professional” investors who may seem to do well as they’ve been on the right side of the coin flip a few times, but do not realize (or admit) this was more due to luck than skill.

#161 NoName on 06.22.15 at 2:15 pm

#158 Holy Crap Wheres The Tylenol

The one with the guns rules.
funny that you who where in airfarce would say that.
let me correct you quickly here.
The one with a drone rules!

#162 NoName on 06.22.15 at 2:18 pm

forgot to add this

http://www.bing.com/videos/search?q=air+farce+movie&FORM=VIRE7#view=detail&mid=669287FCB12A0B2A1AEC669287FCB12A0B2A1AEC

#163 Doug in London on 06.22.15 at 2:23 pm

@Sheane Wallace, post 105:
I may not call you personally, but I will mention it here if a time to buy gold should arise. No, the time tunnel isn’t pulling me back to 1999 today.

#164 4 AM Sunrise on 06.22.15 at 3:09 pm

Bring on the haters:

http://mreverydaydollar.com/about-mr-everyday-dollar

I’d like to highlight this turning point in his life: “When I graduated from college I was lucky to find my dream job in IT.”

That, and being frugal, and not burdening himself with a mortgage paved the way to a net worth of $1M by the time he was 35. But it could not have happened without that very good job straight out of college. I wonder how many Millennials are reading his blog yelling, “yes, but where are the jobs?”

#165 run joe run on 06.22.15 at 3:14 pm

Every debt is somebody else’s asset and income stream.

The collateral is leveraged and repackaged and sold globally.

Debt Gdp of households and governments continues to rise

The real assets have become like phantoms.

When all those phantom assets are recognized as worthless, collateral vanishes and the system implodes.

#166 Mike S on 06.22.15 at 3:15 pm

“In essense he says that the market (and many things in life) are largely shaped by big one time events. We may think we know what they will be (especially in hind site), but we do not (not with enough certainty to call it anything but speculation). It is enough to know that these big events will occur and we must position ourselves in a way that they do not whipe us out.”

I would argue that markets are shaped by many “non events” that happen everyday, and not by any one time events

Take this real estate market. The risk is already in place, people already too leveraged to this asset class. now we are just in wait mode to see what the catalyst is going to be.
In Alberta it seems that everything is going to be blamed on oil. In Ontario/BC, we might not see it yet, but it might be as boring as interest rate rise or over-construction.
Yet human mind will try to blame it on something specific like “if it weren’t for oil Calgary houses will still appreciate 10% a year”

#167 TurnerNation on 06.22.15 at 3:46 pm

And…gold’s down again. Whomp whomp.

#168 Will Bateman on 06.22.15 at 3:48 pm

Could Greece sell its gold to pay off its debts? Since holding gold isn’t that big a deal apparently..Strange some people want it and some people don’t (Garth) What am I missing here?

#169 ronh on 06.22.15 at 3:49 pm

#157 Etfs safe. Your etf and or shares are listed at your broker in a streetname. If you fear you will lose your etf/shares, then your maybe able to get them listed in
direct registration at the transfer agent. But it will cost to do so. May not be worth it. Relax, the government has your back.

#170 ronh on 06.22.15 at 3:51 pm

Then you may be able- I need glasses.

#171 rosie "moving forward" in the knowledge that, "this won't end well" on 06.22.15 at 3:58 pm

Never boring.

http://www.theglobeandmail.com/globe-investor/investor-education/tackling-the-challenges-of-financial-literacy/article25049820/

#172 Kevin on 06.22.15 at 4:03 pm

For fixed income I hold GICs instead of bonds or bond ETFs. GIC’s often yield more and eventually mature at par unlike ETFs which never mature and holding often bought at a premium thus maturing at lower than buy price. Also GICs are CDIC insured.

You are taxed on GIC income before you receive it. The yield is not greater, and there is zero opportunity for capital gain. Moreover, there is no liquidity. Bad choice. — Garth

There is zero opportunity for capital gain in bonds in current interest market; more likely capital loss. Liquidity is not required for me for that part of my portfolio. No credit risk with GICs. I am negative in EVERY bond ETF I have ever bought. GICs can only go up. Bad advice.

Sorry, pal. Bonds rise when equities fall, which is a big reason to own them. A capital gain can easily be the result. You are a fool to pay tax on GIC interest you have not received, and to be satisfied with a yield less than inflation. You must have lots and lots of money. — Garth

#173 TurnerNation on 06.22.15 at 4:08 pm

Those taking their family’s money and wasting it on gold should be investigated by child services for neglect.
A psychiatric evaluation is a start to determine fitness or not.

Those waiting for golden slot machine to hit Gold $5000 should be sent here: http://www.gamblersanonymous.org/ga/

#174 Holy Crap Wheres The Tylenol on 06.22.15 at 4:17 pm

#161 NoName on 06.22.15 at 2:15 pm

#158 Holy Crap Wheres The Tylenol

The one with the guns rules.
funny that you who where in airfarce would say that.
let me correct you quickly here.
The one with a drone rules!
____________________________________________
I flew mostly Hercs and C5 Galaxys and we really didn’t have any guns on them. Drones were a dream when I was in the Air Force. They would scare the hell out of anyone today. You bring on a good point the drone master rules todays world.

#175 How buy bonds/bond fund? on 06.22.15 at 4:38 pm

Hi Garth,

I would really wish you could help all of us out — can you clarify – do we buy a bond fund (e.g. etf), or do you advocate buying individual bonds, either as new issues or on the secondary market?

If the latter, do you recommend holding it to maturity and create a ladder? What term (5year? 25 year?) maturity?

I find buying individual bonds to be challenging – there are no good websites that let you know what’s available, you basically have to call the fixed-income bank at some brokerage and talk to a person… and the spread/commission are atrocious, especially in such a low yield environment.

Thanks!

ETFs, of course. Why would you buy a bond to hold to maturity? You want marketable securities that are highly liquid and low-cost. Just go short right now. — Garth

#176 espressobob on 06.22.15 at 4:39 pm

Matching the performance of the indices is far easier, than chasing alpha. Many try, most fail.

It seems to be a fundamental problem with DIY investing. It’s hell learning the hard way!

Global diversification holds PMs & energy already. Why fight it?

#177 I'm stupid on 06.22.15 at 4:50 pm

Wow Garth, you must have been really bored when you wrote this article. As soon as I read it I knew the gold bugs would attack with ridiculous comments, that only people who know exactly nothing about how the world works, would make. Lol

#178 Mike S on 06.22.15 at 5:14 pm

“ETFs, of course. Why would you buy a bond to hold to maturity? You want marketable securities that are highly liquid and low-cost. Just go short right now. — Garth”

Why? Isn’t it like timing the market?
At what point would you go to long duration bonds?

Rising rates punish long bonds, and we all know what’s coming. — Garth

#179 Mike S on 06.22.15 at 5:35 pm

“Rising rates punish long bonds, and we all know what’s coming. — Garth”

Can you explain why 10 yr canada bond yield is currently 1.78%

From efficient market perspective, if all knew it wouldn’t they be inclined to do just that (go short), which will push the 10 yr yield higher?

Why that doesn’t happens, especially that we do see higher rates in 10 yr US?

#180 Macrath on 06.22.15 at 5:38 pm

#172 Kevin

Wave of Defaults, Bankruptcies Spooks Bond Investors

http://wolfstreet.com/2015/06/19/wave-of-defaults-bankruptcies-spook-bond-investors/

“Sorry, pal. Bonds rise when equities fall, which is a big reason to own them.” GT

I`ve seen plenty of days when everything was going down. If rates are going up then all bonds are going down no exceptions .
Why pick up nickels in front of a ZIRP fueled FED steamroller.

“Staying in cash is extreme.” GT
What ever happened to “Cash is King” and capital preservation ?

The reason we hold these bond ETFs is liquidity and I just got liquid.

#181 Mark on 06.22.15 at 5:48 pm

“Could Greece sell its gold to pay off its debts? Since holding gold isn’t that big a deal apparently..Strange some people want it and some people don’t (Garth) What am I missing here?”

Let’s see. Greece gold reserves = 112.5 tonnes.
Greece government debt = 335B Euros

35274 ounces/ton, so Greece has 3.97M ounces. 335B = 3.97M ounces ~= 84,148 euros/ounce.

So, in a nutshell, no. Selling all of Greece’s gold reserves would not, even in the most spectacularly and wildest price scenario put forward by any of the “gold bug” community, resolve Greece’s debt problem.

Greece has a structural problem which is likely only resolvable through default and severe loss of investor value. Bond investors in Greek obligations will be scarred for a generation.

#182 Ej on 06.22.15 at 5:50 pm

Love the FP’s optimism, and comment section is hilarious; this guy, “Wazzup”, he comments on every article about housing, every hour. Must have a lot riding on RE

http://business.financialpost.com/personal-finance/mortgages-real-estate/home-affordability-declines-in-toronto-vancouver-as-rbc-warns-of-rate-hike-shock

#183 Mike S on 06.22.15 at 5:53 pm

Possible explanations for yield gap in 10 yr bond (0.6% right now):

– Market is not efficient, and some institutional investors have to hold bonds in Canada (for instance conservative mutual funds). This is probably the best explanation I have. This means that once the clients realize that MER>yield we will see a massive demand to sell

– Canada (AAA) is safer than US. Doesn’t seem so to me …

– Explanation by Mark. won’t repeat it here, but doesn’t seem likely to me

#184 Mark on 06.22.15 at 6:23 pm

“– Explanation by Mark. won’t repeat it here, but doesn’t seem likely to me”

That deflationary (inflationary) expectations are much higher (lower) in Canada due to factors including:

– the likelihood of a rising CAD$ as a liquidation of speculative excess against the CAD$ and towards the USD$.

– the likelihood of housing declines and forced consumer austerity being a drag on the ‘consumer’ economy for much of the next decade.

– the relative low-existence of CAD$ outside of Canada, hence less need to protect the currency from the spectre of capital flight?

– Canada’s credit quality being relatively better than the US on account of lower levels of government debt and unfunded obligations?

– Canada’s heavy investment in industry allowing it to run long-term trade surpluses.

#185 espressobob on 06.22.15 at 6:46 pm

Short term laddered bond ETFs including Ultra short bond provide less ‘interest rate sensitivity’ than long bond. Check the yield to maturity rates to quantify the risks.

#186 Nemesis on 06.22.15 at 7:09 pm

#HolyCrapThat’sNoOrdinaryHerc!,Or… #SpookyGhostRidersPreferTheSpectre…

https://youtu.be/LiQazjMVBMI

#187 crowdedelevatorfartz on 06.22.15 at 7:25 pm

@#158 Holy Crap.
Pray tell/
Why did you repeat your list?
A stuttering typist par chance?
How many arms and hands do you have? Most people can only fire one gun accurately at a time…..
Or are you dexterous with your feet as well……
Personally, if you fire more than one shot….the zombies will know where you are…………

#188 Doug in London on 06.23.15 at 10:26 am

Why would you ever want to buy gold when there are much better deals out there? Right now CPD is at a 52 week low, and at that price it pays slightly above 5% yield.

#189 Victoria Real Estate Update on 06.23.15 at 2:37 pm

Just imagine how much prices could fall as rates rise (that begins soon).

#190 Victoria Real Estate Update on 06.23.15 at 2:48 pm

could have fallen if 5-year mortgage rates had been rising since 2010 instead of falling (second chart).

#191 Justin on 06.23.15 at 4:07 pm

Great post, thanks. The Sunday posts seem to have more information in them on investing and such versus just making fun of someone buying a house.

#192 Harry Wilson on 06.23.15 at 9:50 pm

re #189 Victoria Real Estate Update

If you click the link behind ‘that begins soon’ and land on a 404 page, just remove the asterisk from the end of the url and hit ‘Enter’.

P.S. Thanks for the links, VREU (and I hope that you continue to ignore the recent spate of creeps and sock puppets).

The take-away, in language that everyone can understand:

“Whatever the size of the principal amount you owe, multiply it by one per cent. And for every year until the U.S. economy and U.S. inflation get back to normal, add that amount to your yearly payment.

Then after your calculations, start thinking about where that extra money is going to come from.”