Lost

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Kim’s so typical. “Every time I get horny for a property and consider making an offer,” she says, “I just log into your blog and the feeling goes away with 3 minutes of reading. I need an occasional dose of reality, even if you make for a depressing read.”

Depressing? Kim. Baby. I’m here to save moist virgins like yourself, from yourself. Especially now.

BTW, here’s her story: 30, makes 100 grand. Defined-benefit pension, Enough saved for a 20% down on a $400,000 box. Other assets are a TFSA with $15,000. Period. Single, no kids. “Expensive hobbies.”

“I love this condo, and also feel as though I wouldn’t have any problems with the mortgage and also managing to save each month. However, I’m not sure if this is a good investment, partly because it sits on leased land (10 years) and is 700 square feet. I think I know what you’re going to say. What concerns me the most about this property is:

1) It’s on leased land. No ownership for me. What does that do to resale value, particularly if the market softens.
2) Why are there so few lenders offering mortgages on leased land?
3) Should I wait and see what happens in the market? Is it possible that in a year or two from now prices will be lower?
4) What will my resale value be in 5-10 years (at most!) when I want to move out of my small, 750 sq. foot condo?

“I’m not sure if I’m reluctant because it’s my first purchase and apprehension is normal, or because deep down, I know it’s a poor financial decision. Thoughts?”

Now, is Kim writing to me because she’s horny again and needs to be hosed down, or because she knows it’s a “poor financial decision” and wants to be rewarded for her insight? Damn kids. So confusing.

Anyway, it’s an easy answer. Don’t do it. Buying a condo is bad enough in this environment (peak house) and because you don’t own any actual dirt – but on a leased plot it’s even dumber. That alone is a deal-killer. Then, Kim, why would you want to throw $70,000 into an apartment and take on a $300,000 mortgage which is 100% guaranteed to reset at a higher rate in five years – when you can lease the place for far less than the loan payment, strata fees and property tax?

You’d end up with only a $15,000 TFSA, less monthly cash flow and a dubious investment that will likely turn negative. And you think you can live in 700 feet for the next five or 10 years? What if you stop being single? Lose your job? Gain weight? Get a dog? Or need to move to Winnipeg? Why the lust for buying a unit that you can live in as a tenant with no debt, less cost and more freedom? I don’t get it. Like I said, especially now.

This is not the time to buy, no matter what the herd’s telling you.

As mentioned yesterday, the Canadian economy is in, or entering, a recession. That simply means growth is negative. We’re shrinking. Fewer jobs. Oil is a big part of it, now barely above fifty bucks. Count on a wave of new layoffs in the energy sector over the next few months – affecting everyone. The latest trade numbers suck, again. Big deficit in May, and for 2015 to date we have the largest imbalance on record. That means more money is leaving the country than coming in ($13.6 billion). It’s way worse than in 2009.

And what are people doing – at least in YVR and 416? Yup, going gonzo. Real estate sales last month were up 18% in Toronto with average prices spiking 12%. The average SFH is again over $1 million. BMO economist Sal Guatieri doesn’t like this one bit. “The bigger question is whether the ‘side effects’ of the current (and future) low interest-rate environment will send the patient back to the emergency ward if (and more likely when) prices correct lower,” he said Tuesday.

As this pathetic but manly blog has tried to point out lately, there’s no good outcome here for homeowners. Higher rates (inevitable, led by the US) will knock down prices and equity in the future. Lower rates (if the Bank of Canada does it next Wednesday) just increase borrowing, inflate prices, create additional uncertainty and set us up for a bigger shock to come.

Anyone paying the new, bloated price is embracing an historic level of risk. Those buyers (11,992 of them in the GTA last month) are gamblers, hitching their financial futures to a fading star. After all, rates in Canada (which have given us high prices) are low only because the economy’s on its knees. Is this the time you want to be paying the highest price on record?

Hopefully, Kim, you’re now depressed and unaroused. I have that effect on women.

Breaking news: Blog dog Brian, who sent in the picture of the poster (above) adorning this entry, reports on Wednesday morning that Jellybean has been found! We have photographic evidence. Life is good.

FOUND

184 comments ↓

#1 Leroy Washington on 07.07.15 at 6:48 pm

My name is LEROY WASHINGTON!!! I am an AMERICAN!!!

The Canadian dollar (a.k.a. the “loonie”) will soon be below $0.70 U.S. If there was ever a more damning STATEMENT about Canadian economic policies than that, I would like to know!

Americuh!!! WOO HOO!!!

#2 Hard Luck Miner on 07.07.15 at 6:56 pm

Hah…tell Kim the story of the ‘leased land’ under those million dollar houses on what was once a toney area in Vancouvers west side until the lease ran out and reverted back into an Indian reserve. The property values went to zero overnight and the people who thought they had once got a good deal on slightly cheaper leased land got hooped for the whole nut when the natives decided not to renew.

#3 Tim M on 07.07.15 at 7:00 pm

Mark. With regard to your post (# 48) yesterday in which you said “our CPP is fully funded”:

If you calculate the financial health of the CPP in the same way that pension plans in this country calculate their financial health ie: at a certain point in time you compare the total promises which have been earned by the plan participants to the amount of cash and other assets the plan has on hand to pay for these promises the current unfunded liability of the CPP is approximately $750 billion. (The number in the article below refers to an unfunded liability of $792 billion, but the article is one year old and the plan had a great return on its investments last year)

http://www.canada.com/theprovince/news/story.html?id=2f6801b0-631b-47e8-864c-7e162b32aab8

I see on page 66 of the 23rd Actuarial Report of the CPP (Dec. 31, 2006) the unfunded liability for the CPP was listed at $619.9 billion.

http://osfi-bsif.gc.ca/eng/docs/cpp23.pdf

#4 nnso on 07.07.15 at 7:02 pm

Conservatives who hate paying taxes and urge small businesses to pursue tax-avoidance strategies take note: Your dream just came true in Greece.
Greece’s former tax collector told Business Insider’s Mike Bird recently.

http://www.businessinsider.com/greece-referendum-result-and-the-meaning-of-debt-2015-7

#5 Retired Boomer - WI on 07.07.15 at 7:06 pm

Please Kim-

Do NOT buy a condo, or a house at this time!!! Rent one, a decent one. Decent “enough” so you can fill up your TFSA, and capture any employer “free money” that might be offered in an RRSP.

Rent for a year, then look at the market. it could still be hot ‘n horny, or prices could be saggy by 5% -or- the unknown number.

A year from now, you could want a different place, different employer, different life.

Change is the new constant, let’s be open to new choices.

#6 Rexx Rock on 07.07.15 at 7:08 pm

2 more rates coming so buy now and after the second rate cut just sell.Its a no brainer,ride the Canadian real estate wave.Its what being a Canadian is all about.

#7 zee on 07.07.15 at 7:08 pm

Hey

The 11,992 buyers are not gamblers, most are not first time buyers and so they are selling high and buying high.
No impact on them if the market ever corrects and they continue to enjoy their palace.

#8 Hard Luck Miner on 07.07.15 at 7:09 pm

Hey G….there’s a photo of a guy getting gored by a bull right in the ass…I thought it might find a place in your collection…under ‘running in front of a crazy bull is a stupid thing to do’. Is it a good metaphor for what folks are doing in today’s real estate market?

http://news.nationalpost.com/news/world/pamplona-san-fermin-festival-2015

#9 Amanda Tang on 07.07.15 at 7:13 pm

If we are going in a recession or Canada is already in a recession then interest rates should go down not up.

Interest rates fall during a recession or economic downturn. They do not go up.

#10 You people just don't get it on 07.07.15 at 7:13 pm

Preserving real estate values in canada is job 1.
Please folks including the victoria price update queen, real estate price will be 13-15% higher next year even if it means 60c loonie.
Are all of you people here renters????????????????
Here is your annual rent increase folks…………LOL

#11 Ben on 07.07.15 at 7:17 pm

Where are the normal examples? 100K basic? Ok so what? Top 7% according to statcan: http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil105a-eng.htm

Defined benefit pension on top which would then push her (easily) into the top 5%, probably far more.

Median wage is 32k and you are (most likely correctly) advising the top 5% how not to get burnt when buying a home.

That is how screwed up the “market” is people.

#12 Ben on 07.07.15 at 7:19 pm

Love the poster who thinks that Canada can cut rates even if the US puts them up.

I hear you can make the earth turn a bit faster if you run on the spot for long enough too. Try it.

#13 Jerry Sloan on 07.07.15 at 7:22 pm

Greece has had socialist governments for 25 years now. They are not a capitalist society and are not even close to even a hybrid capitalist society.

The problem is not that people avoiding paying much taxes. It is they are paying everyone wages, benefits for 1 years work and working 6, 7 months.

They are paying pensions to workers that work for the government or their agencies that would never be worth that if we took that same money and invested it ourselves.

Show me one country or government that has massive debt problems like Greece that there was a conservative government for 25 years. They do not exist.

They are all left leaning, socialistic governments, Argentina, Venezuela, U.S.S.R now Russia, Zimbabwe, Greece.

In Europe, look at the countries that are potential problems in the future, Spain, Portugal, Italy, France.

#14 nonplused on 07.07.15 at 7:22 pm

I think they’d be crazy to cut rates again with and $0.80 dollar. If anything, Canada may have to hike rates before the US to stop the slide. A little competitive devaluation may be a good thing but hoy-vay has anyone bought airline tickets lately? We are taking the $0.80 dollar right in the chin.

Also hotels, cars, whatever you need while travelling and doing business in the US is now 20% more. That’s not a small move.

#15 raisemyrent on 07.07.15 at 7:24 pm

all these people who come to this blog and make 6 figures by 30 or thereabouts (often less). hard to believe many struggle to agree with their partner on real estate or to decide if they should buy or rent.

#16 Nosty, etc. on 07.07.15 at 7:24 pm

The peak oil and global warming theories / fallacies, along with Sadaam’s nuke WMD, all govts. and scientists tell the truth, the US, China and Russia are best friends, ISIS attacks Israel frequently, this is a happy, joyful and plentiful world we occupy, the Rothschilds, George Soros, etc. handing out bags of free cash to those in need, all cops are good cops have almost run their course, and it is time to move on to something else, such as Peak Global Too Big To Oil Fail Warming financial institutions.

Privatize the profits, socialize the losses (corporate capitalism – fascism – socialism – communism — it’s all one and the same) which means that 98% of the world’s wealth ends up with the top 5% of people. Sounds reasonable! For example, this article / video states Germany caused the Greek crisis, now Germany must fix it.

#148 Llewelyn on 07.07.15 at 11:05 am — “The price of every thing goes up – no increase in inflation “

Appears we’re living in an Orwellian world, where poor = rich, low = high, hell = heaven and everything is one and the same. Time to get some much-needed psycho-therapeutic help from . . .

#125 Smoking Man on 07.07.15 at 8:42 am — “Where can we go to escape communism.”

We can check out any time we like, but we can never leave. It is interesting with workforces around the world slowly being replaced by robots (humans not needed).

Fortunately, most of us will be pushing up the daisies in the not too distant future, so it’s for The Next Generation to figure that out (incl. wars, volcanoes, ‘quakes and the like).

#17 Shawn on 07.07.15 at 7:25 pm

Investing Your Way to Wealth…

Devore says you can’t do it.

#244 devore on 07.07.15 at 6:44 pm

The point was, if you’re just doing the same thing the guy next to you is doing, and expecting to become a multi-millionaire before you retire, you’re going to be very disappointed.

*******************************************
Right gotta do the thing the MILLIONAIRES next door (metaphorically next door) are doing.

For some millionaires money continues to grow in retirement.

Say some government workers retire at 60 or 65 with good pensions and have $2 million. They are savers and don’t need the $2 million. Ten years later they easily have $4 million. It can happen.

How much is multi-million?

I suppose $10 million the “new” millionaire level?

#18 Mark on 07.07.15 at 7:26 pm

“If we are going in a recession or Canada is already in a recession then interest rates should go down not up.

Interest rates fall during a recession or economic downturn. They do not go up.

That might be true of policy rates, as set by the Bank of Canada. However, typically in a recession/economic downturn, spreads against policy rates and the bond market rates as applicable to specific types of collateral move. For instance, we know that the ‘consumer’ in Canada is mostly tapped out. Therefore, risk premia is likely to rise for loans against the specific types of collateral that consumers are likely to pledge such as cars, houses, etc., in support of loans.

However, credit in certain sectors which has relatively high quality probably will get cheaper with the economic downturn. For instance, while mortgages more expensive, it probably will be cheaper for large businesses with high quality balance sheets to borrow for investment, for share buybacks, etc. It probably will be cheaper for speculators to borrow to buy quality investments. Etc.

Very few people in the RE sell-side will acknowledge this, but mortgages rates aren’t tied to the bond market or to the Bank of Canada overnight policy target. There is a significant component historically built into actual retail rates simply to compensate for the risk of lending to RE borrowers. At the moment, this risk premia is quite low, but look for it to expand as house prices continue to fall and more people fall into negative equity.

#19 North Burnaby on 07.07.15 at 7:27 pm

Girls are better investors than men, and they choose to buy condominiums

#20 Ben on 07.07.15 at 7:35 pm

nonplused – I think you are right. If they take it down to $0.60 food inflation is going to kick in big time, not to mention other “essential” imports. All at a time where boomers stop earning and expect to live off food priced for CAD at near parity to the dollar (or $0.90 at worst).

Devaluation is great for exporters but it’s gonna hurt the boomers. I’ll protest as much as they helped out the young. Give me a second.

Ok I’m done.

#21 Paul on 07.07.15 at 7:37 pm

As a agent for 30 plus years kim run away!

#22 Ben on 07.07.15 at 7:39 pm

Mark – in the UK mortgage rates began to trend up as perceived risk increased. This was with the BoE base rate at 0.5%.

The govt in the end brought in several schemes to lend cheap and underwrite risk.

The govt here will too. Learn the lessons from the UK it started before you.

Lesson 1: the state will do far more than you think to bail out housing including directly lending into just housing in a “naked” way that will leave you amazed.

Lesson 2: it won’t work

The UK is a more “systemically” important country than Canada and therefore gets a lot of banker love. In spite of this prices outside London have fallen considerably and many are “low rate zombies” waiting to be reaped by higher rates.

#23 Terrier on 07.07.15 at 7:39 pm

I said before …. the market will go south not because interest rate hike which btw is highly unlikely, but steady growing number of those without a paycheck.

#24 Jerry Sloan on 07.07.15 at 7:40 pm

Mark #18

Explain Japan then! They have deflation in real estate, stock markets and since 1989 when the Nikkei was 38,000 and is now 20,000, interest rates on their debt, Japanese government bonds, is 0.45% for 10 year terms when it was around 7.00% to 7.5% for 10 year terms in 1989 to 1990.

#25 MSM-free Zone on 07.07.15 at 7:40 pm

“…..However, I’m not sure if this is a good investment, partly because it sits on leased land (10 years) and is 700 square feet……”
_________________________

Or, you could buy an 1,100 sq. ft. home sitting on leased land as well, for half the price.

It’s called a trailer park. Guaranteed to ‘hose down’ any horny woman at first sight.

From first hand experience, though, I’d take a ‘double-wide’ with grass over a vertically stacked glass rabbit cage any day.

At least you can let your dog out three times a day without waiting for condo elevator. Think that’s spilled coffee on the carpet? It’s not…

#26 armpit on 07.07.15 at 7:40 pm

Vancouver is literally going up in smoke!!

#27 Mister Obvious on 07.07.15 at 7:42 pm

#10 You people just don’t get it

Are all of you people here renters?
————————-

I became one as soon as I realized my real estate equity was languishing badly. Now the wealth that was formerly locked up pays me a nice monthly check instead of the other way around. It covers much more than my rent (increases included).

I’ve had it both ways. This way is better.

Sorry buddy, you’re the one who doesn’t get it.

#28 Jerry Sloan on 07.07.15 at 7:42 pm

To Mark #18

Isn’t japan in a deep recession, some say some type of depression, economic malaise since 1990?

Interest rates were suppose to be higher there and 5 year mortgage rates are around 1% the last time I heard.

#29 Andrew Woburn on 07.07.15 at 7:49 pm

Leroy Washington on 07.07.15 at 6:48 pm Leroy Americuh!!! WOO HOO!!!
======================

Lee-roy, you ain’t no Murican.

First, real Muricans don’t give no never mind what Canadians think about nothing.

Second, real Muricans don’t sashay around squealing “Woo Hoo” like oversexed owls. They say “Yee-hah”or “Yup”.

Go watch some John Wayne movies. You need a refresher course on manly dignity.

#30 Nigel M on 07.07.15 at 7:50 pm

Fully agree with what your saying Gareth and with what you have been saying for quite some time. I continue to rent instead of buy and live in the 416.. The only observation I will make is that I don’t see any of this downturn hitting anyone around me. All of my friends and friends of friends appear to be prospering, employed and buying property. They aren’t stretching themselves financially as their salaries are very large in this part of Canada. There are lots of warning signs as you point out but I wish I could see a few signs of this being a reality closer to home! I feel like the downturn in Canada is hitting everywhere but 416 and 905.. I guess it will eventually ripple through the economy.

#31 Frustrated Kiwi on 07.07.15 at 7:52 pm

Dear Kim,
Here are a couple of cautionary tales on what can happen to leaseholds:
“A leasehold apartment on Princes Wharf in Auckland (pictured) sold for less than a quarter of its 2004 purchase price, when it was auctioned by City Sales this week.” See:
http://www.interest.co.nz/property/75223/princes-wharf-apartment-loses-three-quarters-its-value-auction-provides-its-new-owner
and
http://www.interest.co.nz/property/75715/luxury-auckland-apartment-sweeping-harbour-views-sells-145000-owner-would-have
Note that these stories come in the midst of an otherwise booming housing market here in Auckland.

In any normal market a condo is a depreciating asset (the building depreciates and the land it is on is a tiny fraction of its value). The idea that condos can be bought for capital appreciation is a recent and temporary idea IMHO.

Good luck!

#32 Randy on 07.07.15 at 7:55 pm

Can’t believe that BofC jacKasses will reduce rates again ?

#33 MSM-free Zone on 07.07.15 at 7:59 pm

#10 You people just don’t get it on 07.07.15 at 7:13 pm
_________________________

Actually, you just don’t get it as you’re not looking at the big picture, long term.

Skip drinking the Kool-Aid® and start thinking for yourself (unless of course, you’re a trolling REALTURD®. Then there is no hope for you.)

#34 GB on 07.07.15 at 8:00 pm

I suspect that rates will indeed go down….and as Garth states, this is a bad thing. But the greater Canadian populace will unwittingly rejoice as they continue to gorge on “free” money.

Rates need to go down to keep the real estate Ponzi scheme afloat…until the fall election.

Utter economic collapse does not bode well for re-election. I don’t buy that there is no political influence over interest rates.

Not for one second.

#35 young & foolish on 07.07.15 at 8:08 pm

“Why the lust for buying a unit that you can live in as a tenant with no debt, less cost and more freedom? I don’t get it. ”

This is a relevant question for everyone really. Perhaps all of Toronto and Vancouver should be owned by REITs and we could all be free. Does it make sense for anyone to be an owner in this market? If so, then who?

#36 Mac on 07.07.15 at 8:08 pm

But, Garth, house prices ONLY EVER go up! Now is a great time to buy…house prices will never be lower ;-)

#37 james on 07.07.15 at 8:21 pm

700 Sqft gets old, really fast. It’s one thing to rent a 700 footer, and to be able to move out after a year. It’s another thing to realize that you bought the place, have a mortgage on it, and might lose money if you sell it.

I’ve lived in places that size, with a girlfriend and pets. It is fun when you are 20-26. It isn’t so much fun after that.

#38 Nabatts on 07.07.15 at 8:28 pm

Rates are not going up. Keep waiting. Boc rate going to 0.25.

#39 Most Interesting Man in Real Estate on 07.07.15 at 8:29 pm

I don’t often do dumb-assed stuff, but when I do, I make sure it’s buying a condo on leased land.

#40 Llewelyn on 07.07.15 at 8:31 pm

Note to Kim

All confidence games are based on the projection of a profitable past into a profitable future for potential marks.

Real estate never started out as a confidence game but once the Government of Canada decided to use home ownership as an economic stimulus a steady stream of marks became essential.

Stop and consider who benefits from the premise that purchasing a house represents a form of investment that will increase in value over time without exposure to taxation. Where do I sign!!!

Current homeowners benefit (70% of all households)

The Government of Canada benefit

Financial institutions benefit

The construction industry benefit

Investors in mortgage backed securities benefit

Real Estate agents benefit

Advertisers benefit

Lawyers and other professionals benefit

Etc.

Its all Win Win Win for the players and 100% of their profits come from the marks!!

All of these players have a vested interest in keeping the confidence game going as long as possible. The higher the price goes the more income they make.

There is no incentive to disclose the obvious risk of purchasing an overvalued asset with borrowed money. Better to promote the purchase of as much house as you can afford with as lttle equity as you can get away with. Low mortgage rates represent a once in a lifetime opportunity to use leverage to your advantage. Blah Blah Blah!!

Listen to your inner voice of reason and wait for this confidence game to end. Then purchase to gain accommodation not to retire on the increase in market value.

#41 dolarhyde on 07.07.15 at 8:37 pm

rock and a hard place, Mr Poloz
glad I’m not in your slippers

#42 Jerry Sloan on 07.07.15 at 8:38 pm

By the way, I have an old 1994 December Financial Post newspaper and the Nikkei 225 was around 20,000.

This is 20 years of going nowhere. U.S. 30 year bond yields were 9.06%, U.S, 30 year bond yields were 7.87%.

Compare that to now, July-2015, Canada, U.S 30 year bond yields, 2.22%, 3.03%.

#43 Andrew Woburn on 07.07.15 at 8:40 pm

Shale oil just keeps getting cheaper and more plentiful.

“Refracking Is the New Fracking”

http://www.bloomberg.com/news/articles/2015-07-06/refracking-fever-sweeps-across-shale-industry-after-oil-collapse

#44 Craig on 07.07.15 at 8:45 pm

Re #14 nonplused

Bank of Canada closing USD exchange rate today was 1.2712 ( 1 ÷ .78665) . Don’t forget to add on 1.2712 x .025 (currency exchange fee) = $1.30298 to buy one George Washington . So the exchange rate is actually 30% not 20%. Even worse.

#45 Marco on 07.07.15 at 8:49 pm

@Ben

“Devaluation is great for exporters but it’s gonna hurt the boomers. ”

It’s going to hurt all of us with price inflation.
Including gas prices which are priced in U.S dollars.

Anything to keep the real estate afloat. It making up a larger portion of GDP then even Oil.

We import more goods then we export, so if they cut rates and devalue our dollar good luck trying to dodge price hikes.
Going South of the Border – not so appealing anymore.

As well, if we all start eating KD for instance, then the price of the Pasta Alfredo will rise regardless of if it’s imported or not, due to less demand for the higher end stuff.

Cheers.

#46 Bank of Millennial on 07.07.15 at 8:52 pm

#15 raisemyrent

The message Kim’s story was meant to convey is people with large financial means are having trouble rationalizing the value of purchasing RE in certain markets.

The real bubble that is building is in the build up apathetic buyers in the market. Garth and this blog do a great job of covering the stimulatory factors which continue to whip pseudo-demand along, factors including; low interest rates, the bank of mom/dad, changes in lending sources.

The real market will return in the not so distant future and real-demand will catch up resulting in tears on Yonge street. As always, be efficient with your assets in the meantime.

#unrealestate

#47 I'm stupid on 07.07.15 at 8:52 pm

@debtfree

Nbg straight up 50k shares and hope for a deal. It’s a very small percentage of my portfolio.

#48 Hawk on 07.07.15 at 8:54 pm

#4 nnso on 07.07.15 at 7:02 pm

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

This one-sided article blaming conservative, small business owners avoiding taxes in Greece is laughably absurd.

It is the Greek government and socialistically inclined population whose corruption reached such levels of depravity that large numbers of people actually collect the pensions of their dead parents and grand parents that is the cause of their sad state.

Also interest involves more than just compensation for risk, it is a payment made for the use of money today. If you imagine that lenders will lend people money without guarantees or collateral you’re mistaken. Only loan sharks do that and the price they extract for non-payment is exponentially higher than anyone else.

#49 Ogopogo on 07.07.15 at 8:55 pm

Garth, do you consider Kelowna to be generally over-valued or it basically just YVR and YYZ that you want to avoid?

We can buy a house clear in YLW for around $600 to $700K… but I’m afraid if YVR blows up so too will YLW.

#50 sideline sitter on 07.07.15 at 8:55 pm

Saved $80k for a down payment, but her TFSA is only $15k? I guess Kim likes paying taxes…

Also, who buys as we’re shrinking? Crazy!

#51 Ret on 07.07.15 at 8:55 pm

The effects of a 70, 75 or 80 cent loonie are truly not understood by 99% of Canadians. They think that if they don’t travel they are okay. They think that if they don’t buy imported goods they are okay.

We won’t be dancing in the streets with a 70 cent CDN. The 80 cent loonie has done zilch for Ontario so far.

Toyota runs a Rav-4 plant in Woodstock ON. Why would they take $28,000 CDN for a vehicle sold in Canada when the (essentially identical) vehicle could be sold in the US for 28,000 US$? The Chinese shoe company follows the same USD pricing strategy as Toyota and as every other global manufacturer. Guess what happens to the price of Canadian made Rav-4’s and Chinese made shoes?

Everything has a global price and that price is invariably in USD even if it was made, mined or grown here in Canada. Devaluing a currency to prosperity doesn’t work in a global economy.

At the end of the day, you will pay the global price for just about everything that you buy but with a devalued CDN$. Let me know how that works out!

(Today, I was quoted $1.2525 to sell USD, $1.2925 to buy USD.)

#52 TRT on 07.07.15 at 9:16 pm

Got to love the idiots here who think the BoC won’t cut rates because ‘they think so’.

The Bond market has priced in a 80% chance of a cut at the September meeting in Canada.

Rates here are going down while the U.S. Will raise theirs by a token 25 basis points and then pause for a while and another while.

China market is going down. The cross listed stocks on American exchange were down by as much as 10% today.

And Canadian RE is on sale if you are a foreigner. 25% off in U.S. Dollars since the start of the loonies slide.

#53 Debtfree on 07.07.15 at 9:19 pm

@ 46 IS if I had nads a big as yours I’d be investing in a wheelbarrow .

#54 TRT on 07.07.15 at 9:19 pm

@Ret post 50.

Anyone who hasn’t moved all their cash/securities out of the CDN dollar and into the U.S. Dollar have drank the koolaid. The risk part comes via f/x margins.

Same will happen when U.S. Dollar index bubble burst and Euro rises. It’s all a game of bubbles now. Enjoy.

#55 TRT on 07.07.15 at 9:21 pm

@Mark

How’s your long bet for the loonie going?

It’s going low low low. When U.S. Dollar corrects….the money that were once loonies will plié into euros. Canada, it was once great.

#56 Marco on 07.07.15 at 9:29 pm

@Ret

Well stated,

Imagine we think we are paying too much now for necessities. They lower rates blow-up the dollar.
We are left with diminished purchasing power and prices higher then they are right now.

But hey House prices will go higher…

How do you like them apples?

Cheers.

#57 Another Albertan on 07.07.15 at 9:33 pm

Observations from Stampede 2015:

Cabbies have told me that regular bar-hopping fares are ok. They have noticed a significant absence of corporate taxi chits. I haven’t had to wait for a late-night cab yet.

Many of the functions I’ve attended (invitation only; not open to the public) are quiet and have not been well-attended. Yesterday’s lunch was put on by a major construction company. Usually you try to have more clients and partners than staff. I think we stuck around for 20 minutes. At another lunch function at the big tent downtown, I was shocked (and that says a lot) at the low attendance. Bored bartenders and tub tarts in abundance.

Curious about the low attendance numbers we were seeing, I started asking questions to the various organizers. Many indicated they had received high numbers of RSVPs but that the employees of the owner-operators (a.k.a. the energy companies) were not showing up.

Today, people at one party were headed for the door at 12:50pm.

“A little early?” I commented.

“There are VPs walking around after lunch now, checking head count.”

This turns out to be a common story now. At a number of large companies, there appears to be a lot more “Management By Walking Around” by senior staff. In light of Chevron’s dismissal of 20% of their Canadian staff, it’s clear that there is still a lot of fat that can still be cut in many firms. If you can spend time carousing, clearly you do not have enough work to do. (Interestingly, Chevron announced their move around lunch, just a few hours after hosting their own corporate Stampede breakfast.)

By the end of the day, I had off-the-record commentary from 3 majors about hundreds of job cuts each queued up for the next 4 to 8 weeks.

From the rep of one major: “Back in January, we thought it would be 9 months until prices rebounded. We’re now thinking fourth quarter of 2016. There’s a lot of people we just don’t need to keep around anymore.”

I believe reality is starting to set in for a significant number of people here in Alberta.

Everyone else’s mileage may vary.

#58 Obvious Truth on 07.07.15 at 9:37 pm

Another hike it seems on everything at the grocery store. Cereal and snacks.

Clothing too.

Hey Kim. Garth spelled it out perfectly.

Wouldn’t you rather have money and expensive hobbies than debt?

#59 ANON on 07.07.15 at 9:37 pm

Here we go.

#60 Leo Trollstoy on 07.07.15 at 9:41 pm

How’s your long bet for the loonie going?

I don’t think Mark has money to make bets like that. He just says stuff that is misleading or wrong. But I don’t know for what purpose.

#61 Leo Trollstoy on 07.07.15 at 9:42 pm

#51 TRT

Scary, but you’re likely spot on.

#62 ben on 07.07.15 at 9:52 pm

Lots of people bemoaning Canada’s position. You are not wrong.

You know who to blame:

* BoC in charge for the bubble – Carney
* Politicians creating policy to pump real estate

Right Garth?

#63 paddler on 07.07.15 at 9:54 pm

Leroy Washington

My name is LEROY WASHINGTON!!! I am an AMERICAN!!!
********************************************
I guess by now this blog knows you’re American. You have been advertising it for month. Are you hooked on reading your own crap everyday!
Get a life.

#64 Garth Turner for NDP Minister of Finance on 07.07.15 at 9:55 pm

The Mulcair government needs your wisdom, Garth!

Please say you’ll run!

There’s room for two beautiful bearded beaus in our party!!!!!

#65 omg the original on 07.07.15 at 9:55 pm

I’m not sure if this is a good investment, partly because it sits on leased land (10 years)
—————————-

LEASED LAND FOR 10 YEARS!!!!!!

Do not even consider that – of course your agent will tell you its low risk;
– that the leases have always been renewed in the past, – that the owner is in the business of of leasing not developing,
-that the owner is getting such a good deal leasing the property out he/she would never mess with it.

But you MUST assume you will not own the property in 10 years and crunch your number based on that.

Case in point….

I, along with 300 other people, leased waterfront recreation property on a small lake on Vancouver Island. The lease term was 5 years. The land was owned by a logging company and after all, the logging company was in the business of logging, not property development. The leases had ALWAYS been renewed for the last 25 years.

Suddenly in the late 1990s, when recreation property on the Island started to appreciate the logging company got interested in being a development company and announced they would not renew the leases and would subdivide and sell the properties.

To their credit they gave current lease holders right of first refusal but all of a sudden people had to come up $40,000 to $70,000 to buy the properties if they wanted to keep them.

Second case in point…..

In Victoria there is a lot of condos on leased land – a condo that was on land set for lease renewal in 10 years would sell at a 40-60% discount to a freehold condo.

Unless you are getting a HUGE discount versus a freehold property do not even consider a condo on 10 year lease property

#66 Leo Trollstoy on 07.07.15 at 9:56 pm

Bank of Canada closing USD exchange rate today was 1.2712 ( 1 ÷ .78665) . Don’t forget to add on 1.2712 x .025 (currency exchange fee) = $1.30298 to buy one George Washington . So the exchange rate is actually 30% not 20%. Even worse.

Awesome for the blog dogs who took Garth’s advice and added some U.S. exposure to their portfolios. Especially U.S. rentals.

#67 Nagraj on 07.07.15 at 9:58 pm

GT: ” . . . depressed and unaroused. I have that effect on women.”

Nothing but nothing so arouses women as the TANGO.
Sadly, it may be too late for you to learn to TANGO – still, it’s worth a try, isn’t it.
Failing the TANGO, your next option is the SALSA. Anybody can SALSA. (Even Joe Oliver and Janet Yellen could SALSA together.) Try the SALSA ON ST.CLAIR festival on 15/7, check it out, help you relax in case rates drop that Wednesday.
(Note of caution tho: a male FLAMENCO dancer will triumph over all amorous competitors – if such comes anywhere near the object of your affections, yer doomed.)
(MAMBO and RUMBA you want to avoid, those serve to display the female and will attract competition. That Kim person sounds like a WALTZ afficionado to me – all in all, WALTZING is an expensive proposition.)

Surely you realize that it’s unfair to the female race to have you depress and unarouse them – as, I would add, so many Canadian men do. Yes.
And, for goodness’ sake, DON’T think offering Kim a ride on the Harley will get you anywhere – neither will an offer to POLKA. Like don’t sashay up to Kim singing “I don’ want her/ You can have her/ She’s too fat for me/ She’s too fat she’s too fat she’s too fat for me!” (That’s also politically incorrect.)

If you knew what you were doing, after boring Kim silly with your sharp pencil, you would have said, “You know, Kim, I’m a man of a certain age. And I’m looking for a little twilight glamour in my – ebbing, dreary life. Would you – consider taking tango lessons with me?! I’d be ever so grateful to you.” Kim, deeply moved, “Of course. I’d love to!”

There ya go.

#68 omg the original on 07.07.15 at 10:00 pm

Ogopogo on 07.07.15 at 8:55 pm
Garth, do you consider Kelowna to be generally over-valued or it basically just YVR and YYZ that you want to avoid?

We can buy a house clear in YLW for around $600 to $700K… but I’m afraid if YVR blows up so too will YLW.
————————————-

So Ogo, do the numbers yourself – if interest rates return to what they were in 2005 who in Kelowna can afford the $600-$700k. If you think its lots of people OK, if you think its not lots then there may be problems.

#69 TRT on 07.07.15 at 10:03 pm

Shanghai meltdown continuing. Down another 6% plus.

#70 TurnerNation on 07.07.15 at 10:04 pm

Where do we email for hosing off queue?

#71 White Crock BC on 07.07.15 at 10:07 pm

Can someone, anyone tell me what the BOC expects, besides a lower $CAD should they lower interest rates.
Pretty sure credit card interest will remain unchanged at 19.99%

If a lower $CAD is all they’re trying to accomplish, what level would they like to see it at? Is $.078US not low enough, really?

I don’t think it’s in anyone best interest for Canadians to be paying $10 for a head of California lettuce.

My $.02 (CAD)

#72 Butch on 07.07.15 at 10:08 pm

Friend that bought in 2009 for $350k just sold for $870k… what have we done…

#73 ben on 07.07.15 at 10:10 pm

TRT – has some way to fall before it hits the level it was at 6 months back, no?

https://ca.finance.yahoo.com/q/bc?s=000001.SS&t=1y

Meanwhile TSX, Russell 1000 and the FTSE are as flat as your absolute best conquest’s chest.

She had a nice personality though.

#74 Henry on 07.07.15 at 10:12 pm

Is Canadian real estate over priced…sure. But remember what John Maynard Keynes said:
” Markets can remain irrational longer than you can remain solvent.”
It maybe be a long time until they meaningfully correct. Longer than your lifetime. As Keynes also said: :
“In the long run we’re all dead”

#75 ben on 07.07.15 at 10:14 pm

Are you sure keynes said “in the long run we are all dead”?

It’s a pretty deep quote. I’ve not seen that before on a finance forum. Thank you.

#76 slick on 07.07.15 at 10:23 pm

‘Real estate sales last month were up 18% in Toronto with average prices spiking 12%. The average SFH is again over $1 million. ‘

Blow off top????

#77 Mukadi on 07.07.15 at 10:24 pm

Nostradamus told me last night that the interest rate will be (-1) % by the end of 2015.

That’s good news for home buyers really – they’ll be paid by the bank to own their homes.

Hurry up and buy now or you’ll miss the jackpot!!

#78 espressobob on 07.07.15 at 10:24 pm

#17 Shawn

When are you going to stop embarrassing yourself?

#79 Porsche on 07.07.15 at 10:26 pm

Shanghai and Hong Kong shares plunge

http://finance.yahoo.com/news/euro-holds-drop-greece-deadline-224546630.html

#80 Karma on 07.07.15 at 10:27 pm

More Schadenfreude….

“EU Tells Tsipras the Party is Over as Euro Exit Door Swings Open”

http://www.bloomberg.com/news/articles/2015-07-08/eu-tells-tsipras-the-party-s-over-as-euro-exit-door-swings-open

#81 Ogopogo on 07.07.15 at 10:29 pm

OMG wrote:

“So Ogo, do the numbers yourself – if interest rates return to what they were in 2005 who in Kelowna can afford the $600-$700k. If you think its lots of people OK, if you think its not lots then there may be problems.”

There’s a lot of money in Kelowna. The people buying homes will never be the retail/service sector crowd, but the business class / wealthy retire class.

If the markets crap out, or whatever, there’s still lots of people in this world who have money. And many live or want to live in Kelowna.

#82 M on 07.07.15 at 10:30 pm

So Gartho.. watch for the next lowering of rates then count 6 months. This is when the housing hole in the ground happens.
As a rule: housing collapse comes half a year after lowering the “lowest” rate.
Yes, you can buy me a Finlandia. I keep tellin’ ya this for a loooooooooooong time. Interest rates do only go downwards. Except when market forces obliges them to go higher, i.e. the bond market (the biggest ever bubble) go south. Since Canada is the pimple on the camel’s arse, this will not take long at all.

PIIGS are us baby. Canada is just as broke as Greece is.

http://www.theglobeandmail.com/globe-investor/investment-ideas/can-canada-go-the-way-of-greece/article4179962/

I know you don’t like it.. (the morons from G&B should ve published this article 10 years ago)..but this is it in a nutshell

#83 Min In Mission on 07.07.15 at 10:34 pm

“pathetic, but manly” – tremendous

#84 Porsche on 07.07.15 at 10:44 pm

#71 Butch on 07.07.15 at 10:08 pm
Friend that bought in 2009 for $350k just sold for $870k… what have we done…

////////////////////////////////////////////

How does the idiot buyer feel? lol

#85 Love my Kia on 07.07.15 at 10:48 pm

#63 Garth Turner for NDP Minister of Finance
——————————-
You would be my dream man Garth if this were true. Smart and sensitive all in one package.

#86 Frank on 07.07.15 at 10:49 pm

This has been a depressing year.

Gains have slowed down massively compared to last year. Housing is still high so there’s no chance to invest there and enjoy the advantages of a nicer house.

Just gotta keep socking it away and hope for an opportunity to arise I suppose.

#87 Keith in Calgary on 07.07.15 at 11:20 pm

The paid shill (economist) for the Alberta Treasury Branch today said that Alberta is “not” in a recession.

So = Alberta “is” in a recession.

The wife and I went for drive tonight. At 730PM on a 20 degree Tuesday during the Calgary Stampede, every single bar patio on the 17th avenue strip had seating available, and there were virtually no lines anywhere. Most patios were at about 50% capacity and some were simply empty. A sign of the times……….lots of available parking around the Stampede grounds too, and literally zero crowds of fair goers using the entire WALK light making it unable for cars to turn left.

It was like a normal weekday and you wouldn’t even know that the “world’s greatest outdoor show on earth” was in town.

#88 Freedom First on 07.07.15 at 11:23 pm

Kim. Find a man to pay for your house. That’s how most women do it. Most men do what the woman wants, no matter how stupid. Just look at our housing market.

#89 Has anyone seen this? on 07.07.15 at 11:42 pm

http://www.huffingtonpost.ca/2015/07/07/china-stock-market-crash_n_7747180.html?utm_hp_ref=canada

(“China could well be setting the stage for another financial time bomb to match its local government debt and real estate bubbles,” said Sherry Cooper, the former chief economist at the Bank of Montreal, in a note issued Tuesday.)

#90 Greg on 07.07.15 at 11:55 pm

It will be interesting to see if there is a correlation between the Chinese market melt down and YVR RE.

#91 Mark on 07.08.15 at 12:50 am

“Can someone, anyone tell me what the BOC expects, besides a lower $CAD should they lower interest rates.
Pretty sure credit card interest will remain unchanged at 19.99%

Basically the BoC needs to stimulate investment and/or speculation. Now that house prices are falling, there aren’t a lot of other outlets for such. The stock market is pretty cheap on a historic basis. So I suspect that the BoC hopes that a speculative cycle is set off in the relatively cheap stocks — a big enough speculative cycle that demand lost from declining RE prices and falling household demand is somehow ameliorated. Such a speculative cycle, in theory, should also create employment in Canada’s long-starved-for-capital private sector outside the narrow FIRE and O&G sectors.

The problem with this is that not that many Canadians are actually exposed to the stock market in any way that is directly visible to them (ie: they might own a few equity mutual funds alongside their GICs, or they might be part of a pension plan, but that’s not exactly money that a lot of people would go out and spend if it were to experience outsized short-term gains). This means that stimulation will have to be pretty severe, with a prolonged period of low rates, to overcome the deflation associated with the housing market.

As far as retail personal credit card interest, it might even rise on account of diminishing consumer credit-worthiness in the deflationary environment.

Depending on global events, some of the capital associated with lower interest rates could make it into the precious metals sector. I view that as somewhat of a potentially very positive wildcard for the Canadian economy, much like Nortel and Canada’s tech sector emerged in the 1990s to provide economic vibrance in what otherwise was a resource depression.


If a lower $CAD is all they’re trying to accomplish, what level would they like to see it at? Is $.078US not low enough, really?

I don’t think they’re trying to accomplish a lower CAD$ as a policy goal. A lower CAD$ is largely an artifact of cyclical weakness in commodities and excess speculation against the CAD$ by dumb hedge fund guys who don’t understand the dynamics of deflation and its impact on a currency.

Might they get a lower CAD$? Of course. But its probably not sustainable.


I don’t think it’s in anyone best interest for Canadians to be paying $10 for a head of California lettuce.

Talk about hyperbole! The US is suffering deflation across the spectrum of exportable consumer goods so the actual CAD$ price isn’t likely to change much, if at all.

#92 Bobs ur uncle on 07.08.15 at 12:54 am

“There’s a lot of money in Kelowna. The people buying homes will never be the retail/service sector crowd, but the business class / wealthy retire class.

If the markets crap out, or whatever, there’s still lots of people in this world who have money. And many live or want to live in Kelowna.”

Replace Kelowna above with the overvalued RE location of your choice – let’s say Van. Does the logic still hold? You might also want to read #57 Another Albertan describing one group who are likely no longer buying BC RE at that price anytime soon. If you can afford it comfortably, go to town. But if rates rise, the theme ’round here is that prices have only one way to go…So you want to be comfortable with that potential outcome.

#93 Mark on 07.08.15 at 12:59 am

“Isn’t japan in a deep recession, some say some type of depression, economic malaise since 1990?”

If you’re a useless banker type, then there aren’t good returns to be had in Japan. But the average Japanese citizen enjoys a phenomenal standard of living given the practically non-existent resource endowment the nation has.

If Japan has been in a ‘depression’ or even a ‘recession’ for the past 2 decades as some claim, then my thoughts are “bring it on”.


Interest rates were suppose to be higher there and 5 year mortgage rates are around 1% the last time I heard.

True. House prices are still falling, despite the low rates, because the Japanese housing industry, like the Canadian housing industry, has demonstrated that it can more than supply whatever demand exists.

There’s nothing magic about RE. Prices are falling in Canada because there’s simply no shortage of houses available to buy or be built. Demand has been stretched and expanded in almost all categories. “Pent-up demand” has been fully satiated, and plenty of demand has been pulled forward through subprime borrowing sponsored by CMHC subprime mortgage insurance.

#94 Shawn on 07.08.15 at 1:09 am

Buy High, Sell Low?

Advice on moving funds to the U.S.

54 TRT on 07.07.15 at 9:19 pm

@Ret post 50.

Anyone who hasn’t moved all their cash/securities out of the CDN dollar and into the U.S. Dollar have drank the koolaid.

*******************************************
Okay, well moving ALL certainly seems radical…

Did you do this or advise this when the American dollar could be bought for more like $1.10 Canadian much less when it could be bought at par a couple of years ago?

Or do you advise to buy the America dollar only now that it is high?

Personally, I bought American at par and up to the $1.10 level or so and then sold a bit as the American dollar continued to rise and am thinking of selling some (high) now. At least it is higher than it was. Many predict our dollar will go lower and the American dollar higher. That is just prediction. But it is a fact that the American dollar is a lot higher now than it was a year ago and two years ago in Canadian dollar terms. So I say now may not be the time to buy America dollars on speculation.

#95 Shawn on 07.08.15 at 1:12 am

Embarrased?

#78 espressobob on 07.07.15 at 10:24 pm said:

#17 Shawn

When are you going to stop embarrassing yourself?

***************************************
How about you go first?

#96 Show me the Money on 07.08.15 at 1:21 am

Any good buying opportunities as Canada slips into a recession? Canadian pref US pref? Thoughts anybody.

#97 pwn3d on 07.08.15 at 1:43 am

there’s no good outcome here for homeowners
———–
u mad bro, homeowners have been killing it the last decade+. there’s only a good outcome for them.

what you meant to say was there’s no good outcome for those about to enter the property ladder… which is probably true, but not necessarily.

hey mark, let me know when housing in toronto has been in decline for 3 years, you’ve been saying 2 for a long time now. lulz.

#98 West Coast on 07.08.15 at 1:45 am

http://www.bankofcanada.ca/wp-content/uploads/2015/06/fsr-june2015.pdf
This makes for interesting reading for all Canadians..
The Bank of Canada continues to highlight three key areas of vulnerability:
-the elevated level of household indebtedness,
– imbalances in the housing market, and
– illiquidity and investor risk taking in financial markets
…………also check out p. 2 and 3 in overview

#99 sam on 07.08.15 at 2:24 am

Leroy Washington,

Americans have no interest in the boring canadian stuff like you do. I am Canadian real estate, who cares ?!??

#100 Exurban on 07.08.15 at 2:52 am

#75 Ben

Yes, J.M. Keynes is responsible for both “markets can remain irrational for longer than you can remain solvent” and “in the long run, we are all dead”. IMO the first is a classic warning about all investment bubbles, and the second is a symptom of the advancing narcissism of modern times. Keynes, himself a successful investor, was gay and childless, which troglodytes like me think might have had an effect on his attitude.

#101 BillyBob on 07.08.15 at 3:13 am

omg the original on 07.07.15 at 9:55 pm

Case in point….

I, along with 300 other people, leased waterfront recreation property on a small lake on Vancouver Island. The lease term was 5 years. The land was owned by a logging company and after all, the logging company was in the business of logging, not property development. The leases had ALWAYS been renewed for the last 25 years.

Suddenly in the late 1990s, when recreation property on the Island started to appreciate the logging company got interested in being a development company and announced they would not renew the leases and would subdivide and sell the properties.

To their credit they gave current lease holders right of first refusal but all of a sudden people had to come up $40,000 to $70,000 to buy the properties if they wanted to keep them.

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

Horne Lake, perchance? My family has one of the spots up there. Outstanding. Not that I get to use it much, living in Dubai. However, not a good specific example of the lease to own not working out.

Ogopogo on 07.07.15 at 10:29 pm

There’s a lot of money in Kelowna. The people buying homes will never be the retail/service sector crowd, but the business class / wealthy retire class.

If the markets crap out, or whatever, there’s still lots of people in this world who have money. And many live or want to live in Kelowna.

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

I’m sorry, but outside of BC, let alone Canada, you’d be hard pressed to find a single soul who knows where or what, a Kelowna is. The “rich foreigners” will not save you.

#102 old gringo on 07.08.15 at 3:23 am

Last week I mentioned to beware of the Chinese stock market.
Today they stopped trading on 40% of their stocks.
Trillions of $$$ lost and this CAN affect any Vancouver sales.
More fallout from a bloated bubble market overseas.

#103 devore on 07.08.15 at 3:43 am

#17 Shawn

I didn’t say someone who saves and invests won’t be well off, and I didn’t say someone like that won’t be better off than someone who does not.

The point was the average working stiff will not approach 1%er wealth levels just by squirreling some money away. That’s not what investing does.

You’re off by an order of magnitude, and discussing a completely different topic.

#104 Londoner on 07.08.15 at 5:50 am

“It’s way worse than in 2009.”

And that’s why the BoC will have to lower rates. Btw, the US Fed probably won’t be raising rates while the BoC is cutting. I’m not sure where that opinion is coming from. US trade data is not looking good either and they’re not seeing the “further improvements in the labor market” that Yellen specifically mentioned. Perhaps a small increase late in the year but it’s entirely dependent on improving data.

In the Canada, corporations need to innovate to pump up non-energy related exports. A rate cut will make exports more competitive but real increases in productivity relies on further capital investment. Sadly, this is not likely to happen and corporations will instead focus on reducing expenses.

This means that the Bank will then rely on those (as of yet) not over indebted consumers to fill the gap in GDP through increased spending, encouraged with lower borrowing costs. Cue Nancy, Josh and Kim.

#105 TurnerNation on 07.08.15 at 7:00 am

Was this posted?
Larger question is why this is a “housing market”. Why would prices rise, on what fundamentals and earnings?
Sick system.

From frying pan (lo interest savings account) into FIRE:

http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/is-it-too-late-for-this-single-mother-to-re-enter-torontos-real-estate-market/article25257881/

“orrie is thinking of buying a home in the $650,000 price range. She would have a down payment of about $208,000 (including $25,000 from her RRSP under the federal Home Buyers’ Plan) and closing costs of about $14,000. A mortgage at 3 per cent amortized over the 17 years she has left before she retires at age 65 would cost about $2,800 a month.

“Depending on the estimates used for property taxes, insurance, utilities and home maintenance expenses, there could be another $1,300 a month in home ownership costs, bringing the total close to $4,100 a month,” Mr. D’Souza says. This compares with the $1,800 a month she currently pays in rent.”

#106 Apocalypse2015 on 07.08.15 at 7:19 am

We need to stop fooling ourselves that we an ‘manage’ the kind of changes that are coming upon us right now like a tsunami.

Sorry folks, it appears to be far too late.

China is EXPLODING. Today 72% of stocks are not even trading. Blue chips that are trading are being pounded.
When the rest go back on the block, expect 50-90% declines. The growing middle class will be wiped out.

Slowdown in demand.

Remember that phrase. It’s about to knock Canada’s economy into high speed reverse.

Real estate? Utterly doomed.

http://www.bbc.com/news/business-33438416

http://money.cnn.com/2015/07/07/investing/china-stocks-shanghai-crash/index.html

Meanwhile, Greece is floundering and enraging its EU counterparts expecting a deal by tomorrow. Good luck with that.

Vancouver is inundated by smoke which has already travelled as far as Toronto. They are expecting 30 new fires every day now in B.C. with no hope of getting this under control.

Ontario’s environment commissioner has just reported that we have no hope of meeting even our modestly readjusted emissions targets for 2020.

http://kitchener.ctvnews.ca/cars-and-trucks-to-blame-as-ontario-struggles-with-emissions-targets-report-1.2457747

So how will we divert our attention from the apocalypses we have created, soon to come together around the planet?

A war (or two, or three) would do quite nicely.

Your extremism serves no purpose. Chinese stocks soared over 80% in a wild speculative bubble, and have retreated now by a third. Classic greed. Classic fear. That’s a crisis? Get a grip, A-guy. — Garth

#107 8 ball corner pocket on 07.08.15 at 7:44 am

Garth

I am gonna help you with a shortcut for your responses….try and connect your iphone to one of those old magic 8 balls….onecould ask any question, rub it and get an answer..usually very close to what was asked.

https://en.wikipedia.org/wiki/Magic_8-Ball

I think you could get away with it for 99% of the comments required here…you tell me!
Possible answers[edit]

The 20 answers inside a standard Magic 8 Ball are:
1.It is certain
2.It is decidedly so
3.Without a doubt
4.Yes definitely
5.You may rely on it
6.As I see it, yes
7.Most likely
8.Outlook good
9.Yes
10.Signs point to yes
11.Reply hazy try again
12.Ask again later
13.Better not tell you now
14.Cannot predict now
15.Concentrate and ask again
16.Don’t count on it
17.My reply is no
18.My sources say no
19.Outlook not so good
20.Very doubtful

Ten of the possible answers are Positive(●), five are Negative (●), and five are Neutral(●).

#108 Steve French on 07.08.15 at 7:51 am

Check my postings from thw last while…

I told you blog dogs that China was gonna be a problem!

I’m plugged into Smoking Man’s “UCC” and got the complementary tinfoil.

#Chinameltdown trending

Let’s see how the Australian and Canadian resource economies hold up without China.

It’s about grasping greed, and then the blind panic of the HERD.

#109 maxx on 07.08.15 at 8:30 am

A few months old, but a good read:

http://www.pbs.org/newshour/making-sense/why-canadas-economy-may-be-headed-off-the-cliff/

Check out the links at the bottom of the article- Canadian videos flogging a private lender.

People ARE lost in this country- completely lost their marbles to re. Astounding that tptb allow it.

Fiscal roadkill.

#110 Llewelyn on 07.08.15 at 8:47 am

I would like to know why a country that has found ways to increase agricultural production under a wide variety of climatic and soil based challenges sat on the sidelines while the Chinese companies backed by the Chinese government gobbled up millions of acres of arable land in Africa.

Large Chinese companies have invested heavily in Africa and are using technology pioneered in Canada to increase productivity. If the Government of Canada actually encouraged Canadian companies to invest in Africa they sure keep it a secret from Canadian investors. If our government had guaranteed private investment in Africa, or other underdeveloped economies, our economy might be expanding today not contracting. Food is a renewable resource the whole world needs more than oil.

Before Canada decided to become an American puppet they had a very good reputation for supporting the development of third world economies. If we had played our cards right we could have assisted dozens of African nations to grow the food necessary to feed their citizens. This would have created new markets for our fertilizer, machinery, irrigation equipment, technology etc. Assuming we hadn’t been tempted to sell our companies to the highest bidder first.

Now that China and other countries with deep pockets have decided to buy all productive land in Africa we will find access to this expanding market blocked by a plutocratcy we are not members of.

Not to worry though I hear the plutocracy will offer a fair price to purchase every Canadian company involved in agriculture. Not great for the ordinary Canadian citizen but why should that concern our Government?

I am afraid the very soul of Canada has become a commodity controlled by external sources.

A nice Brazilian Tim Horton’s coffee anyone?

#111 Karma on 07.08.15 at 8:57 am

For all the belly-aching on this blog about how inept the BoC is, at least they’re the most accurate at forecasting in the G7…

http://www.bloomberg.com/news/articles/2015-07-07/here-are-central-banks-who-have-been-getting-it-right-and-wrong

#112 LOL CANADA on 07.08.15 at 9:09 am

“Anyone paying the new, bloated price is embracing an historic level of risk. Those buyers (11,992 of them in the GTA last month) are gamblers, hitching their financial futures to a fading star. After all, rates in Canada (which have given us high prices) are low only because the economy’s on its knees. Is this the time you want to be paying the highest price on record?”

Isn’t everyone who owns a house in a similar boat to the ones who are buying? If you can buy at record level pricing, then owners should be selling at record level pricing. If there is ever a rush for the exit, it could get ugly.

#113 Alex on 07.08.15 at 9:09 am

Hello my name is Alex and I am a real-estate-aholic

Own 462 units (33 homes of which 25 have separate basement units and 404 units amongst 14 multi residential buildings) Approx 25% of my holdings are in Toronto with the balance in Hamilton.

A one asset class strategy has made me a very VERY wealthy man. Been accumulating real estate for the better part of 10 years – I fully acknowledge that I am the beneficiary of great timing over wise investing. But here is the thing … Been predicting interest rates would be going lower, in fact was preaching not to lock in any longer term mortgages because I told fellow investors money will get cheaper … Demand for single family homes will increase (and it has in a big way) … Been preaching for people to invest in Hamilton rental properties as the demand is through the roof. Last Saturday posted a newly renovated main floor unit and basement unit for rent on kijiji with an open house @ 12pm … I had no less than 30 showings and it was rented within 20min at record rents – $1750main floor and $1350 basement. That’s $3100 gross monthly rent for a $295k bungalow. Recently gave tenants in my Humber valley Village home (Toronto) a 60 day notice to move – I have an approved permit on the home, want to demo and build a typical Humber valley village monster home. Tenant negotiated to extend lease for 12 months if they paid $1200/month more ??? So I did … I was floored. A lease on my kingsway home expired and posted it for rent at $1000/month increase to $4200/month … Rented within 24 hours. Rental market is as crazy as any.

Times are just getting better for someone in my position, rents going up, vacancies are literally ZERO, values increasing … I require no financing at this point in my life as my real estate basically funds its own expansion … But if I did, it’s basically free money.

If Garth is right and real estate eventually does crash or correct (eventually it always does – it’s a cycle) why would I care, my paper net worth will have a dent, maybe my ego? But I do not really care about the values at this point , I care about the cash flow generation … Economy tanking means more renters – that’s good – economy tanking means I might be able to snap up cheaper real estate – that’s good. Increased home prices drives up rents – that’s good … It’s a win win in either direction

Bottom line is we don’t have a crystal ball – no one knows the future, even though they think they do. No one saw the last rate cut coming, after that we were warned it will def be going up … My prediction is another rate cut and then another … I see cheap money for real estate buyers well into 2017 and maybe beyond. However responsible Real estate buyers at these prices MUST be buying for investment purposes and cash flow generation – not personal residences – that is simply ridiculous. And most likely you will find, as I have, savvy investors are priced out of Toronto – the numbers make my decision when acquiring real estate, not my emotions, not my gut, not my ego.

Current stock market levels scare me … I actually do not own a single stock – maybe because I can’t devote the time to educating myself enough, or maybe because Real estate has just been that good to me. Nevertheless, I do not preach against the markets – because there are many people that benefitted from great timing (bought in 2008) just as I did in real estate in 2005.

I find this blog to be very anti-real estate and wanted to add a different perspective. I am a daily reader, posted a couple times, sometimes agree and other times disagree. My opinion is that life is too short for a balanced approach, maybe easy for me to say because I can take a big hit and still stay retired … Cash flow for the most part will not change … But risks and rewards are intertwined … If you want to retire and still live with a pay cheque to pay cheque mentality then balanced is def for you … I prefer a more calculated, well thought out risk approach – and nothing wrong with one asset strategy (if your timing is right ) – not sure what you all are aiming for, but my retirement includes lots of travel, very nice residence, nice cars, great dinners, giving money to charities, spoiling friends and family, etc.

Think about it …

#114 Polozified on 07.08.15 at 9:19 am

Buying a house at the peak (or, in this case, a condo slightly over the peak when prices are already starting to fall) is stupid enough, but a condo on LEASED LAND?

I don’t get people. I really don’t.

#115 Blogbitch on 07.08.15 at 9:20 am

Unlike the other lady whose story was featured on this blog not long ago, with a cool $3 Million in retirement savings, you, my young lass, do not have enough money. Keep saving. Shelter more. Invest more. Don’t buy a box on land you can never own.

Time to put on those big girl panties and take care of your own damn self.

#116 Mr. Pink on 07.08.15 at 9:49 am

“Canadian building permits fell more than economists forecast in May, with declines across all major types of projects from hospitals to condominiums and industrial sites.

The value of municipal permits fell 14.5 per cent to $6.7-billion, giving back part of the gains recorded over the prior two months, Statistics Canada said Wednesday in Ottawa. Economists forecast a 5 per cent fall according to the median of 11 responses to a Bloomberg survey.

Canada’s economy has been hobbled this year by a plunge in crude oil prices, and other reports on international trade and gross domestic product suggest the weakness has extended into the second quarter. The building permit figures showed declines in new building projects from the energy hub of Calgary to the financial capital of Toronto.

Permits for non-residential construction fell 16 per cent to $2.77-billion in May. Residential permits fell 13.5 per cent to $3.93-billion.

Permits in Calgary fell 35.1 per cent to $418.5-million led by multi-family housing, Statistics Canada said. In Toronto, permits dropped 46.7 per cent to $1.35-billion after a percentage gain of about twice that size the prior month, with both moves led by institutional buildings and multi-family housing.”

http://www.theglobeandmail.com/report-on-business/economy/housing/canadas-may-building-permits-fell-145-per-cent/article25349903/

#117 TurnerNation on 07.08.15 at 10:08 am

From Stockwatch.com.

The Globe and Mail reports in its Wednesday edition one of Canada’s largest shoe sellers has filed for bankruptcy protection, leaving Bank of Montreal in the lurch. The Globe’s Grant Robertson writes Sherson Group Inc., which owns 48 Nine West shoe stores and holds the Canadian rights to brands such as Anne Klein, Bandolino, Easy Spirit and Enzo Angiolini, sought protection from creditors as it tries to restructure the business. The company has been hurt by the tumbling loonie, which has raised supplier costs and eroded margins over the past two years

#118 Mf on 07.08.15 at 10:34 am

#113 Alex on 07.08.15 at 9:09 am

So your advice is what? To buy real estate outside of the GTA? With what? Well debt of course because it worked so well for you!

Your comment is laughable, like you said you benefitted from great timing. We are in 2015 not 2003. Our population (I live in the GTA) is financially illiterate. Everyone is overpaying for the crap that passes as an “investment” these days because they don’t know any better. Fortunes were made and lost in the collapse of the U.S. Not going to be different here, well might be worse.

PS why would we lower rates?? Poloz did this in January and all it did was fuel real estate in the GTA and GVR. Trade sucks, employment sucks. Now they want to lower it further? Sorry but these guys seem like a bunch of stooges.

MF

#119 None on 07.08.15 at 10:42 am

#88 Freedom First on 07.07.15 at 11:23 pm
Kim. Find a man to pay for your house. That’s how most women do it. Most men do what the woman wants, no matter how stupid. Just look at our housing market.

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

Seriously, with such a misogynistic attitude towards women, what type of women date you? Ones with such low self-esteem that they have no problems with your, no marriage, no cohabitation, my-way-or-the-highway approach to the relationship? I’m curious, when you first go on a date with a woman, or ask her out do you present your relationship tenets in the form of a written terms sheet then and there and if she says no to any of them you just walk away? Do you target vulnerable women or something?

#120 Shawn on 07.08.15 at 10:46 am

Congratulations on Success

#113 Alex on 07.08.15 at 9:09 am said:

Hello my name is Alex and I am a real-estate-aholic. Own 462 units…

A one asset class strategy has made me a very VERY wealthy man.

I require no financing at this point in my life as my real estate basically funds its own expansion

******************************************
Sincere congratulations Alex. I am interested in hearing more about how you did it.

Are you saying that you have no debt on the units at this time or just don’t need new debt?

I would expect you had debt on each unit as you bought but that the debt has become smaller as a percent of market value. Or has all the debt actually been paid off?

#121 Apocalypse2015 on 07.08.15 at 11:00 am

JELLYBEAN FOUND!!!!!

(Apocalypse deferred by 100 trillion nanoseconds as a result. Gotta love the kids and their pets!)

#122 randman on 07.08.15 at 11:29 am

Great line from the movie Heat…

“Don’t let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you feel the heat around the corner.”

#123 randman on 07.08.15 at 11:31 am

Seriously, with such a misogynistic attitude towards women, what type of women date you? Ones with such low self-esteem that they have no problems with your, no marriage, no cohabitation, my-way-or-the-highway approach to the relationship? I’m curious, when you first go on a date with a woman, or ask her out do you present your relationship tenets in the form of a written terms sheet then and there and if she says no to any of them you just walk away? Do you target vulnerable women or something?”

The usual retort from either a feminist or White Knight muffin man…….. blah blah blah …….avoiding the real point!

#124 Musty Basement Dweller on 07.08.15 at 11:37 am

#27 Mister Obvious on 07.07.15 at 7:42 pm
#10 You people just don’t get it

Are all of you people here renters?
————————-

I became one as soon as I realized my real estate equity was languishing badly. Now the wealth that was formerly locked up pays me a nice monthly check instead of the other way around. It covers much more than my rent (increases included).

I’ve had it both ways. This way is better.

Sorry buddy, you’re the one who doesn’t get it.
=======
Well said Mr Obvious. This is exactly my experience too after bailing from this housing as an investment notion.

#125 randman on 07.08.15 at 11:38 am

Canada’s finance minister not ready to declare a recession

Joe Oliver says Canada should experience growth in 2015 as a whole, despite a report suggesting first half of year was recessionary

Read more: http://www.vancouversun.com/business/Canada+finance+minister+ready+declare+recession/11195703/story.html#ixzz3fJZsh2sg

What’s he waiting for???

#126 Dogman01 on 07.08.15 at 11:43 am

#4 nnso on 07.07.15 at 7:02 pm

Thanks for the link, great article. Real Journalism is refreshing. Thank goodness for the internet and the opportunity to be informed of how the world actually works.

The hypocrisy of our elites is astounding. They call is capitalism, but it is a carney game and totally rigged.

The Internet has them scared; the informed become rejectionists; I reject them as leaders and reject their system.

Garth – Thanks for the missing cat update. I was having trouble focusing on the article thinking about the impact of what was lost.

#127 Mike on 07.08.15 at 11:47 am

I track MLS listings for Fort Mac, Calgary, and Edmonton. All 3 have listings down (but still very high), but that’s most likely due to the summer slowdown. Fort Mac prices continue to drop (Down maybe $15k from a few months ago, so an easy 10% YoY at least)

Edmonton and Calgary prices (amazingly) seem to remain high and sticky. I can’t believe people are this stupid. A nearby house to me in Edmonton, on a very busy street, right beside storm runoff slew, which would have sold 10 years ago for $100k was listed at $375k maybe a month ago and sold. I’m not sure for how much, but I thought for sure this garbage dump was going to sit on the market for months at that price!

I’m heading down to Stampede on Friday. I’ve attended every year for well over a decade, so i’ll be able to give some more first hand experience about it this year, but so far, I’ve barely heard any of my friends talk about it. One sales buddy has VIP passes. That’s it. Used to be 20 of them and day drunk all week at pancake breakfasts.

#128 Bottoms_Up on 07.08.15 at 11:50 am

98% of buyers wouldn’t touch a property on leased land.

Why would you ever limit your potential exposure to buyers by buying something on leased land? Gotta be one of the stupidest financial moves ever, unless you are getting a deal (ie, paying the same amount of money as rent…nothing more).

Glad to see Jellybean lives to fight another day…

#129 White Crock BC on 07.08.15 at 11:51 am

#91 Mark

Thanks for the articulate answer. Hope you’re right on all points.

#130 Has anyone seen this? on 07.08.15 at 12:02 pm

http://www.cnbc.com/id/102806720

(Nothing to see here. Move along)

#131 Leo Trollstoy on 07.08.15 at 12:07 pm

#113 Alex

Congratulations Alex! Awesome accomplishment.

#132 Leo Trollstoy on 07.08.15 at 12:10 pm

#129 White Crock BC

Long post. Too bad it’s all wrong.

#133 Leo Trollstoy on 07.08.15 at 12:11 pm

#93 Mark

Does Mark get some perverted joy from misleading people?

#134 Shawn on 07.08.15 at 12:13 pm

Too Much Equity in Real Estate?

It is said that Canadians typically have way too much of their equity in real estate.

Some thoughts:

Firstly unless you plan to declare bankruptcy your risks are proportional to the full asset value of the real estate not just to the equity in it. Having 10% equity in a $500k house is about the same risk as 100% equity in the same house. BUT the person with 100% equity is in a FAR better position to ABSORB or take on that risk. And if you have 100% equity then taking a loan so that half of that equity can go into an investment portfolio (yes even a balanced one) in no way lowers your risk. Adding assets funded by debt adds to risk despite the diversification.

Secondly, as many people here have pointed out house “investment” should not be thought of as a portion of an investment portfolio. There is usually no intention to cash out of the house basically ever.

Investments should be thought of in terms of investible assets in a portfolio. A goal should be to build up your INVESTIBLE assets not just your net worth.

On that basis it is not so much that Canadian have too much invested in houses. Not that many are really over-housed on a physical basis. It is more that too many Canadians have very little invested assets in an investment portfolio at all.

The house asset and equity are not really interchangeable with investments assets for most people.

It’s reasonable to have a house and to pay for it. It’s also good to have invested money as well.

One you decide to have a house you do have to pay for it. If it rises in value that is largely irrelevant as if you sell it you will probably buy another. That equity is for all practical purposes not really available to be taken and put into investments, unless you are willing to take the risk of borrowing to invest because that is what you would be doing.

Pay for the house AND save money to invest. Or rent if you want to.

#135 Mike S on 07.08.15 at 12:15 pm

http://www.cdhowe.org/pdf/commentary_430.pdf

Is Canadian tax payer is on the hook for mortgage defaults?

#136 Timing is Everything on 07.08.15 at 12:18 pm

HAAAA! Coincidence (again)? I don’t think so…

NYSE temporarily suspends trading of all securities

http://tinyurl.com/o9ym6q9

…and what ‘timing’. What a system.

#137 Salutations Sally on 07.08.15 at 12:20 pm

I am SO glad that Jellybean has been found!

#138 Renter's Revenge! on 07.08.15 at 12:23 pm

BEHOLD the power of leverage!

I didn’t believe it until I calculated it, but Alex’s story (@113) holds up under certain assumptions:

1) He starts with $1,000,000 in savings (he didn’t say how old he is or how much money he started out with).

2) He buys $5,000,000 worth of rental properties using his savings and $4,000,000 worth of debt.

3) The properties generate rent at a 12% cap rate (i.e. $600,000 in the first year)

4) He pays 3% interest on his debt and 3% expenses on his properties ($120,000 and $150,000 respectively, in the first year).

5) He pays 50% tax on his net cash flow.

6) He saves $1,000,000 each year from his job (heart surgery, or whatever).

7) He doesn’t pay off any of the debt principal.

8) He uses his after tax cash flow from his properties and his savings from his job to leverage into more properties each year for the next ten years.

At the end of ten years he would own $89.5M worth of properties (albeit with $72M debt outstanding) generating after tax cash flow of $7.2M. Given inflation in property values and rents, the properties could easily be worth the $138.6M he states (462 properties assuming an average value of $300k each).

Another way this scenario could work is if he started with initial savings of $5M and quit his day job.

Einstein said that compound interest is the eighth wonder of the world. Maybe leverage should be called the ninth wonder.

Haters gonna hate, eh Alex? ;)

#139 Daisy Mae on 07.08.15 at 12:25 pm

CBC News Alert

“New York Stock Exchange halts all trading…”

#140 Daisy Mae on 07.08.15 at 12:27 pm

CBC: “All stocks trading on the New York Stock Exchange were halted on Wednesday for reasons that were not immediately clear.

The NYSE “has temporarily suspended trading in all symbols,” the stock market said in a brief note nearing noon ET.

“Additional information will follow as soon as possible.”

Earlier in the day, the exchange said it had a technical glitch that resulted in some traders not receiving confirmation of orders they had made or received for at least 221 different stocks.

Trading was then halted in all shares as of 11:32 a.m. eastern time.

The TSX was down 177 points at midday, and trading normally.

Before trading was halted, U.S. indexes were lower as investors digested bleak economic news out of Greece, and a Chinese stock market tumble that Beijing officials seem powerless to slow down.

The Dow Jones industrial average was down 215 points, or 1.2 percent, to 17,561.

The Standard & Poor’s 500 gave up 24 points, or 1.2 percent, to 2,057. The Nasdaq was down 73 points, or 1.5 per cent, to 4,924.

More to come”

#141 Mike T. on 07.08.15 at 12:27 pm

this is from February

‘Greek Defense Minister Panos Kammenos’ remarks, as reported by Reuters on February 10, 2015: “…if we see that Germany remains rigid and wants to blow apart Europe, then we have the obligation to go to Plan B. Plan B is to get funding from another source. It could the United States at best, it could be Russia, it could be China or other countries,”’

scripted to perfection

the movie ends with Ron or Rand Paul as president of the USA

I’m picking Ron because he played his role so well for so long.

#142 BlackDog on 07.08.15 at 12:38 pm

Re: #88 Freedom First
“Kim. Find a man to pay for your house. That’s how most women do it. Most men do what the woman wants, no matter how stupid. Just look at our housing market.”

Why is misogyny OK, but racism is not?

If I changed FreedomFirst’s comment as follows, I would be chastised at best, but more likely deleted and possibly banned:

Kim. Find an Asian man to pay for your house. Most Asian men do what the Canadian woman wants, no matter how stupid. Just look at our housing market.

#143 BlackDog on 07.08.15 at 12:42 pm

@None #119 re: “I’m curious, when you [FreedomFirst] first go on a date with a woman, or ask her out do you present your relationship tenets in the form of a written terms sheet then and there and if she says no to any of them you just walk away? ”

LOL. He probably takes new applications every fall.

#144 robert james on 07.08.15 at 12:44 pm

So will they be dumping their overpriced Vancouver houses next to raise cash ??? http://www.bloomberg.com/news/articles/2015-07-08/china-market-crash-spreads-from-stocks-to-the-price-of-pig-food

#145 BlackDog on 07.08.15 at 12:49 pm

@Randman #123 re: “The usual retort from either a feminist or White Knight muffin man…….. blah blah blah …….avoiding the real point!”

One could use the same non-argument in support of the racist comments we see on this blog. In the world of men(or at a blog where men outnumber women), misogyny is often ‘cool’, racism not so much.

#146 Timing is Everything on 07.08.15 at 12:53 pm

For your entertainment…’No quotation’ “I’ve never seen this happen”…

http://tinyurl.com/q54sbpu

#147 NEVER GIVE UP on 07.08.15 at 12:57 pm

Im starting to like this Leroy Washington, in a sick and twisted sort of way…..

#148 Shawn on 07.08.15 at 1:00 pm

Businesses (and government) need NEVER repay Debt

#138 Renter’s Revenge! on 07.08.15 at 12:23 pm said:
BEHOLD the power of leverage!

I didn’t believe it until I calculated it, but Alex’s story (@113) holds up under certain assumptions:

7) He doesn’t pay off any of the debt principal.

********************************
Successful businesses never really do pay off their debt. They roll over old debt as new debt. Nor do they need to pay it off, ever. A small business owner working to pay off his business debt will never get to be a large business owner. Real success comes from being profitable and using profits to expand, not to pay off debt.

Consider: Even the likes of Berkshire Hathaway has WAY more debt today then it did ten years ago and almost infinitely more than it had when Buffett took over in 1965. But it has a stellar credit rating.

As Renter’s Revenge points out, businesses use debt as leverage. To the extent it is advantageous to use debt, that advantage can last permanently and there is no need to pay off the debt. Ever. Seriously.

Same for government. If debt is advantage it remains advantageous basically forever.

People have to pay off debt because they eventually die. Successful businesses and governments can last indefinitely and so there is no need to pay off debt.

Even with people, consumer debt certainly is to be paid off. But debt incurred to earn income does not necessarily ever have to be paid off. The income the debt is supporting can pass on with the estate.

The notion that ALL debt is evil and must be paid off is part of what separates the 1% from the rest. Most of the 1% use debt as leverage.

#149 Bill Gable on 07.08.15 at 1:19 pm

Last Night we spent flying across our burning Beloved Country – returning from Rome – still reeling from watching the mess in Greece.
Then awaking to the Chinese Debacle, The NYSE halt – United watching their black computer screens and – well – you get the idea.
Mr. Turner has basically begged you to be ready for change with having your kip diversified.

It is very comforting to also have an expert handle the loot. (*Not to mention any bearded friend in particular).

Look at volatility and craziness today = and after two weeks in Roma and Paris – I maintain that IF you have not readied yourself for a storm, I hope you can row.

#150 Marco on 07.08.15 at 1:19 pm

Joe :

“What that indicates clearly is that we are not exporting as much as we like, and that goes to the willingness of Canadian companies to make the investment and the expansion necessary to present themselves and produce goods that are for export,” Oliver said. “It’s a function both of the willingness of Canadian companies to make goods available and the demand from the other side, and that global demand has been lagging.”

Don’t start up companies tend to head to cheaper pastures?
Even established ones are flying the coop.

Blowing up the dollar with another rate cut, to lower export costs?
What companies can compete with countries that have cheaper labour costs?

If anything the dollar devalues and workers demand more pay due to price inflation.

Joe Oliver kind of reminds me of Mick Jagger – singing:

“stuck between a rock and a hard place .”

Cheers.

#151 gut check on 07.08.15 at 1:19 pm

@ #142 BlackDog on 07.08.15 at 12:38 pm

Why is misogyny OK, but racism is not?
__________________________________

It’s a mystery, isn’t it?
I have watched the respect women slowly began to carve out for themselves devolve in the past ten years to the point where women are just meat – talked about as if we’re not even in the room. Devalued for everything but the utility of our sex appeal or cooking skills.

I am appalled at it every single day as I scroll past naked asses on every single web site I frequent – or if it’s not image heavy, then I have to endure verbal battering of my entire gender in whatever comment section I visit.

I’m not calling for censorship, I would rather see people call out this heinous, dehumanizing behaviour until it disappears (so thank you for doing so!)

I have a daughter who is only 21. She feels it, sees it, and internalizes it too.

#152 old gringo on 07.08.15 at 1:30 pm

Check this news from China to try to stop the bleeding in the stock market.
I know people in Vancouver that borrowed at 12% in West Vancouver, to fund their Chinese stock investments.
Ouch ouch ouch

• Regulators also increased the kinds of assets that can be used as collateral to buy stocks, to include — are you ready for this? — people’s homes.

#153 Mark on 07.08.15 at 1:35 pm

“Does Mark get some perverted joy from misleading people?”

I’ve never misled anyone. Which is more than you can say with your nonsensical claims that the sales mix doesn’t exist.

#154 bdy sktrn on 07.08.15 at 1:40 pm

#142 BlackDog on 07.08.15 at 12:38 pm
Re: #88 Freedom First
“Kim. Find a man to pay for your house. That’s how most women do it. Most men do what the woman wants, no matter how stupid. Just look at our housing market.”

Why is misogyny OK, but racism is not?
—————————————————-
can you read?

agreed FF is a weeeeiiiiirrrrrd dude, but your logic seems that of one so blinded by ‘something’ it’s hard to believe.

simplifying his argument (as my old logic prof would)

1:women use men.
2 men allow it.

who is getting slagged here? (you say the woman?!?)

then simply changing the MAN part to asian man. this becomes a slag on the man not the woman.

give your head a loooong hard shake, then turn in your GF posting pass, you are brainwashed.

#155 TurnerNation on 07.08.15 at 1:45 pm

In the news. ..Starbucks increasing some drink prices. Cineplex decreasing drink cup size, by 25-30% in its theatres. Same price though.
I’d never visit any of these places.

#156 Mark on 07.08.15 at 1:49 pm

” Regulators also increased the kinds of assets that can be used as collateral to buy stocks, to include — are you ready for this? — people’s homes.”

Whats so extraordinary about that? HELOCs have existed for decades in Canada/USA.

#157 Piccaso on 07.08.15 at 1:54 pm

LOL… for you debt dogs

A $2,000 credit balance with an 18% annual rate, with a minimum payment of $10 would take 370 months or just over 30 years to pay off.

#158 robert james on 07.08.15 at 2:14 pm

That is interesting, Canada needs a 9 billion dollar fund to shield it from a severe housing crash.. And here I thought everything was hunky dory with the “non housing bubble”.. http://business.financialpost.com/personal-finance/mortgages-real-estate/ottawa-needs-9-billion-fund-to-shield-it-from-full-blown-housing-crash-c-d-howe-warns

#159 gut check on 07.08.15 at 2:17 pm

bdy sktrn

hardly. The comment implies that women do not want love, they just want things. It implies that they can’t or won’t get these things for themselves but instead prey upon the ‘better nature’ of men (who really CAN love and are often taken in by materialist women) to achieve their worldly goals.

Your reply to BlackDog misses all of that and then makes use of a “you’re pussy-whipped,” closing, too. Congratulations on being both haughty AND completely undignified simultaneously.

#160 Yaroslaf on 07.08.15 at 2:20 pm

Garth, are you willing to comment about any of the following 3 stories? I’m curious what your take is…

IMF: US Financial Reforms Remain Incomplete

http://www.cnbc.com/id/102813840

Canada Needs a Hedge Fund to shield against mortgage meltdown: CD Howe

http://www.bnn.ca/News/2015/7/8/Canada-needs-a-fund-to-shield-against-mortgage-meltdown-CD-Howe.aspx

China Stock Market Plummets as Sell-Off Continues

http://www.huffingtonpost.com/2015/07/08/china-stock-market_n_7752190.html?utm_hp_ref=canada&ir=Canada

#161 Shawn on 07.08.15 at 2:20 pm

NYSE Halt not such a big deal:

“All stocks trading on the New York Stock Exchange were halted on Wednesday for reasons that were not immediately clear.

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

Actually, not quite true.

Should have read:

All trading on the New York Stock Exchange was halted on Wednesday for reasons that were not immediately clear. However, all of these stocks are still trading on other exchanges.

Because other exchanges trade these stocks and NYSE no longer has a monopoly in probably any stock the trading continued uninterrupted.

The DOW was still updated and the S&P 500 was still updated every few seconds as usual.

This is a BIG deal for the NYSE itself.

It was not a big deal for the market trading in NYSE-listed stocks however.

#162 H on 07.08.15 at 2:21 pm

Wow, those Fed minutes sure looked like the fed was ready to move on rates!

(sarcastic detection unit activated)

And yes, those minutes where they refer to Greece etc was before the latest round and of course China.

Cue the “by spring 2016” calls.

#163 Steve Malerick on 07.08.15 at 2:29 pm

U.S. 30 year bond yields are below 3.00% again, 2.984%.

They did not stay 3.22% for long and this seems that we are going back to below 2.90% in the short term and we might see below 2.6% as well.

#164 None on 07.08.15 at 2:32 pm

#123 randman on 07.08.15 at 11:31 am
The usual retort from either a feminist or White Knight muffin man…….. blah blah blah …….avoiding the real point!

========

Firstly, I do not know the muffin man.

Secondly, I’m a male but I guess I’m also a feminist because I don’t believe in treating women like objects who must bow to my demands.

#165 TRT on 07.08.15 at 2:43 pm

Tsunami of sell orders ready if stock market outage not fixed by 3 pm ET.

Wow.

#166 TRT on 07.08.15 at 2:50 pm

There’s going to be a bloodbath in China tonite. The news of the USA stock market shutdown is slowly reaching the retail investors there (90 million of them).

#167 None on 07.08.15 at 2:51 pm

#154 bdy sktrn on 07.08.15 at 1:40 pm
simplifying his argument (as my old logic prof would)

1:women use men.
2 men allow it.

who is getting slagged here? (you say the woman?!?)

=========

If Kim had married a man for the sole purpose of getting to buy a house and the guy was okay doing that, then your logic would hold true.

But, freedomfirst is proposing a theoretical situation, in which he is assuming that women are users of men because either that is the only way they can get a house, or it is the only way they want to get a house.

That is how he is slagging women.

Kim has done nothing like this, thus assuming she can only be/will only be a user of men is misogynistic.

Maybe she wants to go buy a house on her own. Maybe she wants to buy a house with a man 50/50. Maybe she wants to own 90% of a home and have the guy only own 10%.

Who knows, but it seems that FreedomFirst figures that the ladies can only want a man’s money. That’s misogyny.

Some of Freedomfirst’s posts have really showed that he has an ingrained prejudice against women and thus he cannot think of them as anything other than money grubbers that he must lay the law down for in the form of his strict tenets of dating him to protect himself.

I don’t think I’ve been brainwashed, unless you call treating women as equals as being brainwashed.

Saying all this does not make me a whiteknight of the internet (yes I know what it refers to). Implying I’m defending women in order to get some sort of sexual advantage with them illustrates bdy sktrn’s misogynistic view that women can only be coerced into bed.

Your mother was a woman. Would you approve if a man treated her with the same disrespect the both of you seem to view/treat women with?

#168 TurnerNation on 07.08.15 at 2:59 pm

Appar 12hrs ago the Hacktivist group ‘Anonymous’ tweeted: I hope Wall street will be ok tomorrow.

I hope they were not set up as another well funded controlled opposition group for chaos. Cough I’m looking at you Al-Q err Is… as our masters rebranding.

#169 Mark on 07.08.15 at 3:01 pm

“A $2,000 credit balance with an 18% annual rate, with a minimum payment of $10 would take 370 months or just over 30 years to pay off.”

Really? At 18%, the interest alone on such an obligation is $360/year. How is paying $120/year going to actually ever pay such a loan off?

#170 bdy sktrn on 07.08.15 at 3:03 pm

ok here’s another east van insanity report!

friends of ours just sold a big old timer on a double lot, i think i mentioned it here. Ask was 1.8m sold for 2.05m.

i guess they moved out last week while we were out of town as they seem to be gone now.

well it’s an attempted flip it seems, new sign out front, ask is 2.5m. might take a couple weeks to sell at this new price.

———-
other local friends who just sold another very old timer for 1.1 just closed on a newish (25yrs) house in gibsons for exactly half of that price.
they are ‘downsizing’ to a place twice as big! good for them. (and good for me as now i can borrow their car when we make our regular wknd trips there by boat)

the guy that bought their old timer is the red paper clip guy from a few years back. he must have done well with his paper clip, now that he’s buying 1+M van RE.

#171 Frank on 07.08.15 at 3:15 pm

Glad to see the cat returned. This is a dog heavy blog but all pets deserve to be loved and appreciated.

Don’t hold your breath on a Sept rate increase: http://www.usatoday.com/story/money/markets/2015/07/08/federal-reserve-june-meeting-minutes/29867231/

#172 bdy sktrn on 07.08.15 at 3:40 pm

whew, what a day.

any guesses if china rebounds tonight?

#173 Broke Dick on 07.08.15 at 3:47 pm

#157 Piccaso on 07.08.15 at 1:54 pm
LOL… for you debt dogs

A $2,000 credit balance with an 18% annual rate, with a minimum payment of $10 would take 370 months or just over 30 years to pay off.

++++++++++++++++++++++++++++
Piccaso stick to art cause your math stinks!
To keep it simple.
$2000 balance at 18% per year is $360 interest in year one. Monthly payments of $10 for a year would only total $120 and thus the outstanding balance would rise year after year. capeche?
But I could be wrong, if that’s what your statement says then that’s what it says.

#174 Freedom First on 07.08.15 at 4:21 pm

#119 none

Seriously?

I never have to ask a woman out. Men like me are in high demand. The hardest part about dealing with women is saying no to them as many women don’t handle rejection well. Also, in my living a Freedom First lifestyle in every way, I am swimming in the very deep end of the pool. Many women miss this, as I am a very humble guy.

#175 Holy Crap Wheres The Tylenol on 07.08.15 at 4:23 pm

#136 Timing is Everything on 07.08.15 at 12:18 pm
HAAAA! Coincidence (again)? I don’t think so…
NYSE temporarily suspends trading of all securities
http://tinyurl.com/o9ym6q9
…and what ‘timing’. What a system.
__________________________________________
Two in the head and one in the heart. Were all dead!

#176 Don Smith on 07.08.15 at 4:30 pm

Piccaso, your math is not even close. A minimum $10 monthly payment in 1 year is $120, just the interest on $2,000 is $360 a year.

You are not even close to paying the interest. In order to payoff $2,000 credit card balance at 18% interest rates in 370 months, it would be a monthly payment of $29 not $10.

#177 bdy sktrn on 07.08.15 at 4:40 pm

big congrats for our local tennis hero ,Vasek Pospisil, gave it a great effort in Wimbledon today.

this kid’s got a bright future.

#178 Tim M on 07.08.15 at 4:40 pm

Thanks for the update Garth about the cat being found.

#179 Henry on 07.08.15 at 5:04 pm

@#75 Ben

Google it my friend, Google it! The full quote from Keynes is:
“In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”

#180 4 AM Sunrise on 07.08.15 at 5:13 pm

#170 bdy sktrn on 07.08.15 at 3:03 pm

I’ve heard of the red paper clip guy! I guess he wanted to come home after years of living in Saskatchewan.

#181 4 AM Sunrise on 07.08.15 at 5:18 pm

Nobody in the media mentioned that the US stock markets also had data/technical problems between 6:30 and 6:42 a.m. on Monday, July 6th. People weren’t getting their orders filled and I guess the ticker data was just wrong. Perhaps today’s shutdown is just a nastier version of Monday.

#182 zedgt87 on 07.08.15 at 5:20 pm

Freedom First:

You’ve been reading to much TRP reddit lol.

#183 K-dot on 07.09.15 at 1:54 pm

Thanks for mentioning Winnipeg again! You should write another entry on this mosquito-infested wasteland. While still cheaper than Vancouver or Toronto, the calculations I’ve done is that it’s still way cheaper to rent than own (I actually put a bid in on a fixer-upper house this week, and the greedy owner turned it down). Only then did I create a detailed rent v. own spreadsheet to comfort myself – and found that I totally dodged a bullet. Unless I rent out 3 rooms in the house (ugh), I would be losing money (monthly renting costs for me in my current shared house with 2 roomies are $650 for me while monthly owning costs before renting out any rooms [with 20% down and accounting for lost investment income] are $1900.

#184 Nagraj on 07.09.15 at 3:23 pm

Re #88 RURAL REVOLUTION and
#158 BOTTOMS UP

I had this book which was a compendium of legendary Wall Street traders biographies. I’m sorry I’ve misplaced the book, and I can’t find it.
ALL OF THESE GUYS put great store in gut instinct, atmospherics, sixth sense, even dreams. And technical analysis.
#158 says, “We wouldn’t have ‘subtle internal clues’ for things such as stock mkt behaviour.” Don’t be so sure.

By the way, a successful marriage among this group was a rare exception – I only remember one.
And it’s worth mentioning that almost all of them were completely broke at least once.

I’d say that none of these billionaire legends qualify as, well, normal. (Evidently normalcy has a price.)

Don’t hold me to this: but it seems to me that in any fight between gut instinct and reason, gut instinct usually wins. And if it doesn’t because you cold-bloodedly succeed in having RATIONALE trump feeling, the subconscious will exact a proportionate revenge. Don’t marry except for love, don’t get married to the mkt if you can’t feel it.

– three cheers for the chickens –