Poor Doug. My colleague, smarty-pants portfolio manager Mr. Rowat delivered a concise essay here on the weekend detailing the correlation between central bank largesse and the fact investors in equities have done well for the past seven years. He’s cool with that. And did I mention he’s a portfolio manager? As in, ‘making clients money’?
Doug understands how all the anarchists on this pathetic blog hate central banks for pumping out liquidity, debasing gold (and other commodities) while keeping capitalism and America afloat (plus rewarding investors). But his job is not to lecture central banks or even bay at the moon (which he does well). His job is to manage risk and grow portfolios for people. Duh. In this task he and his sidekick Ryan Lewenza are rock stars.
Meanwhile this blog has spent years lambasting central bankers for artificially depressing rates and encouraging people with no discipline to snorfle debt at an astonishing rate, thereby turning real estate into a gaseous Hindenbubble. So is this in conflict with PMs Rowat & Lewenzwa’s belief markets are still solid, thanks in part to the same bankers?
Nope. Here’s why.
Easy money, cheap rates and bank stimulus have helped economies avoid the deflation, decline and depression that lurked following the credit crisis – our greatest economic and financial calamity since the 1930s. In so doing, they’ve also aided corps. Businesses can borrow for less, pay lower interest, employ more people and sell stuff to working consumers who use enjoy credit. So they make money. Share prices rise. Investors are rewarded. None of that is a bad thing. It may be forced growth, but it ain’t a bubble. Inflation and economic expansion numbers prove that (as Doug demonstrated).
Now residential real estate’s something else. Dangerous. Emotion-based investing by people who overwhelmingly use extreme leverage and dump their net worth into a single thing – quite unlike investors in financial assets. This, above all, is where central bank actions to depress interest rates, bond yields and mortgage costs become potentially destructive – as we may now be seeing in Vancouver.
The main reason stock apples are not housing oranges is concentration. With a 70% home ownership rate and 50% of people one paycheque away from perdition, it’s obvious millions of Canadians have put all of their eggs into a single basket. So far (at least in some markets), it’s worked. Real estate rose. There’s a capital gain. But as I have said for a long time, having all of your net worth in one asset, on one street in one burg is courting risk. If the economy dips, rates rise or governments diddle, you’re screwed.
With financial assets – unless you have 100% of your wealth in one stock, one bond, one mutual fund or one ETF (which nobody ever would) – there’s always vastly more diversification and less concentration risk.
As Americans found when their housing gasbag deflated, the road back can be long and painful. It took an entire decade for average prices there to recover after the 2005 pop, and many middle class families will never have their lost equity restored. In Toronto, the housing collapse of 1989-90 was not rolled back in terms of average price until 2014. This can be devastating. Imagine if you had to sell and retire in the middle of such a dank period. Meanwhile stock markets also decline occasionally, with the average correction being a 14% dip lasting 17 weeks. In other words if you do nothing for 83 days (on average) you can ignore volatility. As Doug pointed out, there have been only 11 of these events in the last seven decades. Yawn.
The key difference between housing and equities, if you believe both have been goosed by central bankers, is debt. As far as real estate goes, we have over a trillion of it. About $1,200,000,000,000, in fact. In contrast total margin debt in Canada (as measured by IIROC) – money borrowed to buy liquid securities – is $21.4 billion, or 1.8% of the mortgage total.
More consequential, financial assets can be sold in a heartbeat to meet a margin call. In a declining market it could take weeks, months or a year to unload a piece of real estate to pay off mortgage debt. More risk. Add to that the fact mortgages renew regularly, and interest rates have only one direction in which to move. Buyers today cannot count on 2% mortgages in 2021, and as rates rise the value of real property will fall. We all understand that.
So, we know housing corrections are longer and deeper than those experienced by financial markets. We also know leveraged homeowners can be creamed because of an illiquidity that equity investors don’t face. And, yes, we know house prices go up because people get horny, get FOMO or listen to their moms. Stocks go up, mostly, because companies earn more and the economy’s growing.
In conclusion, both asset classes have been impacted, bloated and pumped by the cheap money central banks have caused. Both will eventually correct. Only one will be lethal.
Now I must go and hug Doug.
139 comments ↓
Ross Kay on This Week in Money.
– Vancouver Housing Market Crashing ?
http://www.howestreet.com/2016/09/17/this-week-in-money-68/
How does the Fed not raise rates in September while maintaining the narrative of recovery. We’ll see this week!
I live in East Van as I have stated before.
About 4 months ago someone paid 2.3 million for a new build over our back fence.
If they were forced to sell right now they would be lucky to get 1.9million.
I suspect they will be our neighbors for a very long time…
M42BC
That’s great Garth but why are you tap dancing so hard in the comments and in a second clarification post today to convince your readers?
I am trying to protect them. Is that not obvious? — Garth
Now I must go and hug Doug.-Garth.
///////////////////////////
Should I have given Bubbles the chimp to Robax instead?…
164 When Will They Raise Rates? on 09.18.16 at 5:22 pm
#160 Bram on 09.18.16 at 4:26 pm
#105 When Will They Raise Rates? on 09.18.16 at 6:48 am
Ross Kay says Vancouver is finished:
…
https://www.youtube.com/watch?v=OxwIS7IIwvk
Pro tip: Don’t get your advice from a guy struggling with high school arithmetic.
From the youtube video 25:55s in, I quote Ross Kay:
During the first five years, of a normal mortgage, people are going to pay off 32% of their mortgage principle.
Ha ha ha!
Maybe if they are ‘paying’ MINUS 10 percent interest on their mortgage?
What a joke that guy. Not to be taken seriously.
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You misunderstood his statement.
He’s saying that 32% of mortgage payments over the first 5 years go towards the principle, which means that if interest rates go up a full 1.5%, after 5 years the banks can re-amortize the mortgage back to 25 years and the customer pays the same monthly payment.
As far as him being a joke, he’s been dead on so far…
Ignore what he says at your own peril…
Anyone see the SJW fail of the month?…apparently in Calgary at university, the phrase “Make America Great Again” is hate speech.
I think we will have to educate Garth on trigger warnings and safe speech.
He can’t say the things on this blog about debt, rate increases, and risk in real estate without some type of trigger warning for the Millennial snowflakes that this blog has no safe spaces.
The Left’s views are so correct that they are now mandatory.
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Garth,
Just a small remark:
I often get confused by your use of the word ‘pop.’
Personally, I associate ‘popping’ with a bubble that pops, thus crashing prices.
You often use it to indicate rising prices?
You are the only author I know that uses it in this manner. Are you sure this is a correct use of the word? (I’ll admit I am ESL, so probably a bad judge in this.)
Also, on #1 comment: listen to 25m55s of that video:
During the first five years, of a normal mortgage, people are going to pay off 32% of their mortgage principle.
..which leaves me to think that Ross Kay says a lot of nonsense.
I would find another source with more reliable info. Or at least info that adds up.
#4 When Will They Raise Rates? on 09.18.16 at 5:23 pm
He’s saying that 32% of mortgage payments over the first 5 years go towards the principle,
You need to listen to that video again.
It is not what he said.
Twice he said that the principle was reduced by that amount.
Did he mean to say what you wrote?
Maybe, but very unlikely, he stated it twice very prominently, so it was not a one time case of miss-speaking.
And then, putting all this aside…
Are you sure a +50% rise of your interest portion (3.0% -> 4.5%) can be compensated with a +5yr longer amortization? (Don’t forget that in the early years of your mortgage, interest portion is larger than your principle portion!)
I am not so sure about that. Let alone the 2.8% -> 4.3% case which he referred to.
Hey Garth, who makes better coffee, Doug or Ryan?
Plus is cost about $10 to buy or sell an equity position. With RE you pay a tax plus legal fees to buy it and then a realtor commision plus legal fees to sell it. If you are not buying again you will also pay to get out of the mortgage plus any CMHC fees that were added to the mortgage. All this can add up to easily 5% to 10% of the purchase price to get in and out. People don’t seem to notice this when prices are going up but when RE is flat or declining those embedded transaction costs are going to hurt. Someone buying a $1M house with CMHC insurance would lose $80K when sold with flat prices.
Ross Kay cannot spell centre correctly. Ross Kay, is officially still a Realtor
Should 2015 pop be 2005?
Yes. I agreed with Doug. The goal is to make money. This is a Financial Blog. #1 in fact. All information is only to be used to make money. My actions are the only thing I can control. And I am very very good at it. In every area of my life. And it shows.
Also I am very aware I could be attacked in today’s world for simple wearing a hat saying “Make America Great Again”. Zombie world.
You are really grasping to find something that says YVR RE is not crashing. East Van SFH were down 20% from peak as of Sept 1st. Probably 25% today. It is not going to get any better. Either just ignore the crash or try to sell quickly. Denial will not help.
Housing provides the same utility whether it’s worth 200k or 1 million. It provides you shelter, and what ever else you bought it for. Unless you sell out, large amounts of equity does nothing productive.
This is exactly what the CEO of Royal Bank said last week. Our economy now has so much equity in real estate, our economy is losing productivness.
There’s only so much of the pie you can slice off. And unfortunately real estate has most of it. Doing nothing.
Apparently 19 trillion dollars of debt that will never be paid back is no big deal.
Is it difficult to manage an ETF index portfolio?
You don’t have to take chances, by picking separating winners from losers, you simply rely on the overall performance of the index, in exchange of a guaranteed mediocre, but steady return if you have long enough time frame.
Is there any billionaire index investor?
Probably not, unless we start to live for a thousand years.
Portfolio managers benefit from a bloated stock market, not so much from a bloated housing market.
Portfolio managers can’t make any money from individual home ownership – in fact, it drives away substantial resources that could be managed by portfolio managers.
ETF portfolios benefit from M&A financial engineering, even if it ends up not making any long term economic impact.
Politicians on the other hand love the housing industry, it’s low tech, requiring plenty of labor, mostly low skilled labor, which could not be placed anywhere in more sophisticated industries.
Garth, what would have happened to the stock exchange/bond investment portfolios if the US government would have said in 2008 to bankers: you broke it, you own it?
#9 Bram on 09.18.16 at 5:38 pm
————–
Just re-listened to the Ross Kay comment… he does say 32% in principal payments. I admit, he did at first sound like he meant 32% of the entire principal amount.
The point he is making is that the average homeowner after 5 years can simply keep the amortization the same in order to prevent larger payments if rates goes up 1.5%.
Do you think we’ll still get that September rate rise Garth?
Where did I say we would? — Garth
Doug, we are friendly. Really. As for ‘make America great again’ slogan, hate speech? Only if said by those who go on to clarify their stance as America being less ‘great’ due to immigration etc. Ironic, since America was built by immigrants (& slave labour too). In fact, not a few American corporations get stellar profits off the backs of illegal immigrants. Everyone knows they are illegal, but look the other way when profit is involved. Occasional purges are done to soothe the public that no, those illegal immigrants somehow fooled those employers. Again.
With 70% home ownership in Canada it reflects a strong economy and confidence in employment.Its quite impressive only because of third world and sub standard rental supply.
That was your best blog post out of all of them.
#16 BS on 09.18.16 at 6:05 pm
Denial will not help.
For the record:
I think it is likely that YVR saw a significant price reduction last month.
I would put this likelihood at >50% chance.
Yet, I cannot say for sure that this has actually happened already.
The fact that Teranet is not showing lower prices carries a lot of weight for me.
The fact that zolo.ca shows Armageddon the one day, and up hard the next day tells me little. Zolo numbers hold little weight for me.
Last, I also discounted Ross Kay for the things he repeatedly said in that radio show.
So far I have not found a better source than Teranet.
I know many people are lusting for the annihilation of the YVR market.
But desperately wanting one, does not make it true.
That’s all I’m saying.
I will also say that a hard drop in prices would be a healthy thing and is overdue.
Has that happened? I am not sure.
Bram,this guy has a few listings in my neighborhood.
Places like these were going like candy a few months ago for 1.6/1.7
He looks to have correctly counciled his clients to ask for a lower price.
Make of it what you will…
M42BC
http://www.normflockhart.com/listings/index.aspx
Pretty good read about condo crisis:
http://tinyurl.com/z48xx2b
“After Clark’s tax announcement, China’s largest international property portal — Juwai.com — saw an 8.3 per cent increase of inquiries for Vancouver homes under $1 million.
Juwai.com helped generate $14.9 billion in sales leads for homes in Canada in 2015 by partnering with Canadian developers and agents.”
And it’s no wonder they seem affordable, because China created 1.2 million new millionaires in 2014 — that’s one every 30 seconds — and a hell of a lot of them want to park their new riches in safe Canadian homes.
That’s also one likely reason why federal border guards confiscated a whopping $13.5 million in undeclared cash from 792 Chinese citizens at Vancouver International Airport over the past three years, according to documents obtained by NDP MLA David Eby in an access to information request.
Horrors. People trying to bring an average of $17,000 per family into Canada, in cash! Just imagine all the real estate that would buy in Vancouver. What an outrage. — Garth
Going to pull some triggers this month to fully invest my TFSA, and looking for some insight from blog dogs (not Garth, conflict of interest)
Here is my slightly modified formula. Has less Maple, and a bit more REIT:
20% Canadian bond index ETF
20% Preferred share index ETF
10% Canadian equity index (large cap) ETF
20% US equity index (large cap) ETF
20% International equity index (large cap) ETF
10% REIT index (Canadian) ETF
My plan:
WEIGHTING – MER – TRAILING YLD – TICKER – DESCRIPTION
——————————————————————
10% 0.11 2.28% (TSE:VSB) Vanguard CDN SHORT-TERM BOND IDX ETF
10% 0.46 3.15% (TSE:XCB) iShares Canadian Corporate Bond IDX ETF
10% 0.50 5.06% (TSE:CPD) iShares S&P/TSX Canadian Preferred Share IDX ETF
10% 0.50 5.49% (TSE:ZPR) BMO Laddered Pref Share IDX ETF
10% 0.06 2.35% (TSE:VCN) Vanguard FTSE Canada All CAP IDX ETF
20% 0.16 1.42% (TSE:VUN) Vanguard US Total Market IDX ETF
20% 0.22 2.63% (TSE:XEF) iShares Core MSCI EAFE IMI INDEX ETF
10% 0.61 5.39% (TSE:ZRE) BMO Equal Weight REITS IDX ETF
——————————————————————
Anyone have insight into any of above ETF’s?
Already put order in for VSB. I picked ZPR because it has more ‘rate resets’ which will be good if interest rates go up.
Can XCB go any lower this month?
RE: VUN how much higher can it go?. Safe? Has small yield. However, has a low MER and currently sitting below $40 at $39.38, maybe a good buy… but for long haul, probably ok.
“As Americans found when their housing gasbag deflated, the road back can be long and painful. It took an entire decade for average prices there to recover after the 2005 pop, and many middle class families will never have their lost equity restored. ”
————————————————-
In Las Vegas, 20% of home owners are still under water.
http://globalnews.ca/news/2947062/vancouver-based-lawyer-wants-inquiry-into-real-estate-money-laundering/
A Vancouver based lawyer wants an inquiry into money laundering in Van real estate.
There we go.
I knew this all along.
#5 Mark on 09.17.16 at 3:35 pm
2) Will the central banks not eventually run out of assets to purchase?
====================
Probably not unless the Fed/US Treasury runs out of creativity. After all they invented letting the Fed buy Mortgage Backed Securities. The ECB is running out of legal securities to buy but it must deal with 27 European treasuries with no apparent common policy.
What happens if those assets on the central bank’s balance sheets fall in value because of, for example, rising long-term interest rates?
====================
Sheer financial mechanics says that rising interest rates will cost the Fed big bucks on its portfolio. Since it already runs on a razor edge of equity, any significant bump in interest rates would leave it underwater and technically insolvent (if it had to report on a mark-to-market basis).
However, as I am sure you know, the Fed is only really independent of the US Treasury in a policy sense. It’s actions are closely coordinated with the Treasury and all its net income is paid out to the Treasury. Should the Fed flirt with negative equity, I assume the Treasury would cover the shortfall or the Fed would print more cash. However I cannot see the Fed reducing its balance sheet very quickly because, even if QE is over or just stalled, a rapid reversal would undo all the gains. Most observers think the Fed will gradually unwind its portfolio over years as securities mature. They could also unwind faster if they needed another tool to boost raise longer term interest rates.
It is worth remembering that the Fed essentially bought QE securities through major banks by taking their cash and giving back low interest rate bank reserves. This was fine during the Financial Crisis since it meant bank assets were upgraded with trillions of grade AAA Fed Reserve dollars at a time when their capital ratios were extremely suspect. If we start to see the Fed balance sheet unwind, it should mean that capital ratios have improved enough and that banks have better things to do with their cash and want it back in action.
That was a great article. Thanks Gman
“Easy money, cheap rates and bank stimulus have helped economies avoid the deflation, decline and depression that lurked following the credit crisis – our greatest economic and financial calamity since the 1930s.” – Garth
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Yes, yes. They’ve done that. Big deal. Any idiot could figure that such artificiasl stimulus would have an economic “stimulating effect” in the short term. Plus create all sorts of market distortions. But that’s the problem. What happens in the long term? What will happen when the piper has to be paid? I fear that the world economy will have to start contracting someday soon, if it hasn’t already started to do so. The world economic system cannot tolerate $85 oil and it seems as it the oil producers cannot produce new oil for much less than that. It all spells trouble in the future. But for the time being, the world finance mandarins can make it seem as if the world economies are growing. I just don’t believe it is at all sustainable for much longer.
After 5 years of mortgage payments, I had bought the front door and maybe 1/2 the furnace of my modest home. If you could pay off 32% of your mortgage in five years, why would you need a mortgage longer than 16 years?
Maybe the % going to pay off the principle was 3.2%. Those tricky little decimal points!
If interest rates went up, why would I be okay with having another five years of payments added to my amortization period/mortgage? Five years of mortgage payments for nothing.
Thank you Garth. Excellent post. With your help I’m learning and it’s appreciated more then you know.
Thank you Garth. Excellent post. With your help I’m learning and it’s appreciated more then you know.
===
What was exactly that you didn’t know before?
#21 Self Directed on 09.18.16 at 6:44 pm
Just re-listened to the Ross Kay comment… he does say 32% in principal payments. I admit, he did at first sound like he meant 32% of the entire principal amount.
Respectfully, that is not what he says at 25m55s.
The number he quotes also does not line up with payments either!
A 25-yr mortgage at 3% interest means half your payments from the first 5 years is principle.
https://ibin.co/2vYQlsCN60EB.png
Not 32%.
Where is that 32% coming from?
It’s not 32% of principle, it is not 32% of mortgage payments for 2.8 or 3.0 rate mortgage.
What is it?
My guess it’s bad arithmetic.
But yes,
I agree that lengthening the amortization is the thing to do if you can’t handle increasing interest rates.
Many blog dogs will be aware of the Chinese plan to build the “New Silk Road”. This article from Der Spiegel explains how the road is expanding Chinese influence not only throughout Asia but also far into Eastern Europe. This includes countries that were core members of the Soviet Union like Belarus. If I were Putin this would worry me at least as much as NATO.
“The most exclusive five-star hotel in the capital of Belarus is called the Beijing, an ostentatious building with 180 rooms and a conference center that holds 500 guests. The hotel was a joint project by companies from both countries. The most popular restaurant in Minsk is also named after the Chinese city, and one of the items on the menu is baozi, dumplings filled with pork or bean paste. Cantonese pop rules in the karaoke bars along the city’s ring road.
More than 10,000 immigrant workers have come to Belarus from China in the last two years alone. Next to Ukrainians, they are the largest group of foreign workers. Air China recently introduced four nonstop flights a week from Beijing to Minsk — an astonishing development, considering that the two cities are 6,500 kilometers (4,040 miles) apart, and Belarus has much closer historic and cultural ties to Russia.
The Union State of Russia and Belarus is a defense and economic community, and in better times political leaders in Moscow and Minsk even considered merging the two countries.
But now the Chinese are gaining ground in Belarus, where they spare neither prestige nor effort, nor cost, to outdo their trade rivals from Russia and the EU. When Chinese President Xi Jinping paid a state visit to Minsk in May 2015, his Belarussian counterpart Alexander Lukashenko, 61, rushed to the airport to pick up his guest in person and greet him with bread and salt. Xi had joint ventures established in which the Chinese held at least one more decisive vote than the rest.
The most significant of these major projects is called “Great Stone.” The site near the Minsk airport measuring roughly 80 square kilometers (30 square miles) is currently being developed into a giant industrial park. In phase 1 of the Great Stone project, forests are being cut down and bulldozers are digging deep into the ground.
Large propaganda signs proclaim, in Russian, Chinese and English: “Time is Money, Organization is Life.” Almost all the guest workers from the Far East work at the site, which will include company buildings, as well as schools, hospitals and housing for 170,000 people. The E30, the highway that connects Berlin with Moscow, passes nearby. It is quite possible that this route will eventually become an appendage of the new Silk Road, which will then lead to Beijing.”
http://www.spiegel.de/international/world/china-is-building-new-silk-road-to-central-asia-and-europe-a-1110148.html#spLeserKommentare
Lmao. Didn’t read the comments for some time now but kinda thought yesterday that the post won’t be well received. That central banks and politicians are as much a part of the reality as the exploding samsung phones.
#30 Dick on 09.18.16 at 7:52 pm
And it’s no wonder they seem affordable, because China created 1.2 million new millionaires in 2014 — that’s one every 30 seconds — and a hell of a lot of them want to park their new riches in safe Canadian homes.
That’s also one likely reason why federal border guards confiscated a whopping $13.5 million in undeclared cash from 792 Chinese citizens at Vancouver International Airport over the past three years, according to documents obtained by NDP MLA David Eby in an access to information request.
Horrors. People trying to bring an average of $17,000 per family into Canada, in cash! Just imagine all the real estate that would buy in Vancouver. What an outrage. — Garth
———————————————————-
That’s the 13.5 million the was confiscated. Which it about 3% of what was not detected.
Link? Or did you just make that up? — Garth
“That’s also one likely reason why federal border guards confiscated a whopping $13.5 million in undeclared cash from 792 Chinese citizens at Vancouver International Airport over the past three years, according to documents obtained by NDP MLA David Eby in an access to information request.”
Its worth noting that much of that seized currency was not inbound currency, but rather outbound currency. People taking money out of Canada, not bringing it into Canada without making the relevant declarations.
Of course, the “Chinese with suitcases of money” theorists won’t tell you that. Most of them don’t even fly out of YVR where the exit checks on currency are quite visible and are, these days, on most flights destined to Asia. And as Garth calculates, $17k. That’s barely even holiday money these days.
Watching the movie about the election campaign for Johnson.
The story hasn’t changed much at all. It was just less public.
Atleast spell Ryans last name correctly….
When the gurus start with the Margin Call scenarios…. Stand-by one Houston…
Horrors. People trying to bring an average of $17,000 per family into Canada, in cash! Just imagine all the real estate that would buy in Vancouver. What an outrage. — Garth
That’s the 13.5 million the was confiscated. Which it about 3% of what was not detected.
Link? Or did you just make that up? — Garth
—-
If your generous attitude for breaking law is any indication of the government’s effort than there will be no links until the next wikileaks.
In other words, he made it up. — Garth
Big deal all that money at yvr confiscated, they pay a fine and get most of it back, chump change
Re: September rate rise.
Rowat did a couple weeks ago.
It’s his rebellious thing. Kids, sheesh. — Garth
#39 learning
The part about 14% dip lasting 17 weeks. I’m one of the scared ones that wants to time the market. I want to sell the first dip that happens because I just KNOW this dip is the start of the big one.
And how many times have you been correct? (Never.) — Garth
But yes,
I agree that lengthening the amortization is the thing to do if you can’t handle increasing interest rates.
And if you can handle increasing interest rates, its also the thing to do coupled with 12 month, fixed terms.
If your cash flow is good, if your income will hold, send your amortization out as far as possible (give the bank less money on their terms) and have it renew every 12 months.
The “catch” is you must put into a separate account the real mortgage payment… the difference between your must pay to the lender and what it “should” be. Along with any extra cash that comes your way. Bonus, windfall, gifts, whatever.
It works with out the extra cash but just a bit slower.
At that 12 month renewal you place this lump sum directly onto principle…leading to a slightly decreased payment if rates hold.
Rinse and repeat and like a toddler standing at the top of a grassy hill and running down, you pick up speed.
Every 12 months you are paying directly to the principle and in increasing amounts, not with extra payments, not 15 or 20% of original amount but with whatever you want it to be.
This strategy works well during steady rates, works really well in declining rates and works pretty good in increasing rates.
Its the heart of ManuLife’s ManuOne program, its offered by both Investors and Primerica (but do not go to either, eh?), its how Australian Credit Unions set members up, it simply works.
Our accountant laid this on us and we set this in motion when I was accumulating rental homes…I know it works BUT:
The bug in the strategy is you.
Our rental biz had a 25 year amort on a new buy done in 7 years…but we threw cash flow at it.
I know of regular residential mortgages, friends and neighbors of mine who have easily halved their amort times without much extraordinary money at all.
It can be done…can you do it tho?
No sense even trying if you a) believe the bank’s way is the only way and b) won’t stick with it til you are done.
Take the above crumbs to a good accountant, see if she won’t make you the best cookie ever from it.
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oops, tags.
DELETED 2
So YVR prices are tanking? The carpetbaggers have just shifted over to less public markets and are hard at work pumping the Sunshine Coast, Gulf Islands, Okanagan, Vancouver Island, TO and environs. You’ve got a choice, put money into ETFs and cross your fingers or just join the property humpers that are busy moving their betting pools into less bubblicious markets. Christy, Justin and all are making mewing noises but no one is going to kill the geese that are laying these golden eggs. The banks and CUs are pushing mortgage cash fast and furious, no end in sight. No capital gains tax oversight, lots of strongly worded press releases to lull the sheeple; lawyers and realtors hard at work stoking the fires. It may end, but not this year or next. The party’s not over, it’s just shifting locations.
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#48 just making it up on 09.18.16 at 8:56 pm
Horrors. People trying to bring an average of $17,000 per family into Canada, in cash! Just imagine all the real estate that would buy in Vancouver. What an outrage. — Garth
That’s the 13.5 million the was confiscated. Which it about 3% of what was not detected.
Link? Or did you just make that up? — Garth
—-
If your generous attitude for breaking law is any indication of the government’s effort than there will be no links until the next wikileaks.
In other words, he made it up. — Garth
—-
Of course, it’s made up.
We all know that all criminals, tax evaders, blue collar criminals are caught, so we know the exact numbers. That’s a fact.
What’s #2, again?
Truth still contained from the public?
Speaking of bubbles brought about by credit expansion, this quote is fitting for today’s topic:
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
– Ludwig von Mises
President Johnson during his election campaign accused Barry (Goldwater), his opposition with pushing the nuke button and destroy mankind, for sure.
Johnson was elected, of course, he didn’t push that button, still managed to get slaughtered:
Deaths in Vietnam War (1965–1974) per Guenter Lewy
Allied military deaths 282,000
NVA/VC military deaths 444,000
Total deaths 1,353,00
The song remains the same.
I watched the Border Security TV show recently where they detected an older Chinese gentleman with about $100K in undeclared cash in a suitcase coming from China into Canada. They “confiscated” the cash then promptly returned it once the guy paid a $250 fine. He walked out of the airport with the cash within an hour of being caught. You would probably pay more than $250 to wire transfer that amount of cash.
The guys getting caught bringing in $10 in meat products pay a larger fine and don’t get to keep the meat. Clearly Canada is not too concerned with large amounts of undeclared cash being brought in. Undeclared sausages are a different story.
#52 Metaxa on 09.18.16 at 9:18 pm
If your cash flow is good, if your income will hold, send your amortization out as far as possible
Isn’t the easiest way to go about this, to opt for an infinitely long amortization?
Pay interest only.
Never pay back the principle, just invest the money you save on payments.
After a (potentially long) period, your investments will exceed your debt, and you can optionally wipe it out.
Good for the bank too: they get paid more by you, over the lifetime of the loan.
May not be good for Canada, if you manage to deduct your interest from your taxes.
There is some contradiction here.
If people are over-leveraged and at peak debt, how come they can keep consuming and the economy actuary grows?
Foreign economies certainly grow, but our over-leveraged economy is actually contracting. Look at the GDP contraction in the past months.
Peak debt means that, peak borrowing and spending after which the economy starts shrinking.
So where is the profit coming from for domestic companies that do not export?
We can’t have it both ways, we may be counting some nominal gains but real economy is actually contracting and this will accelerate with the housing and credit implosion.
Hence diversification and investment outside of Canada is paramount.
Hey BS,I have watched the show you are referring to a few times and was also surprised how low the fines were.
Below is a story how a person got caught with over $175k and paid a $2500 fine and got to keep it…
M42BC
http://news.nationalpost.com/news/canada/vancouver-international-airport-acts-as-major-entry-port-for-millions-in-cash-smuggled-by-mostly-chinese-citizens
DELETED
@ Andrew Woburn
If I were Putin this would worry me at least as much as NATO
————-
I’m pretty sure Putin and the Chinese are in it together . They seemed pretty cozy when he attended their military parade last year, china showed off the new nukes. Obama declined the invite, and it was past Trudeaus bed time.
Easy money, cheap rates and bank stimulus have helped economies avoid the deflation, decline and depression that lurked following the credit crisis – our greatest economic and financial calamity since the 1930s.
it has eluded me what’s the down side of easy money, cheap rates and bank stimulus? Yes I know, long term misallocation of resources but that doesn’t seem to be a real disincentive.
Andrew Woburn raises the issue of the US Fed: However I cannot see the Fed reducing its balance sheet very quickly because, even if QE is over or just stalled, a rapid reversal would undo all the gains.
and so does Say What? Yes, yes. They’ve done that. Big deal. Any idiot could figure that such artificiasl stimulus would have an economic “stimulating effect” in the short term.
the downside is that the reputation of the US Fed is being steadily eroded:
Like all research universities, the Fed at the organizational level is motivated almost entirely by reputation. Not results. Reputation.
http://www.financialsense.com/contributors/ben-hunt/epsilon-theory-essence-decision
the chart “How Americans Rate Federal Agencies” shows a big cut in the US Fed. It’s more than steady erosion, it’s a big cut.
Give Doug a hug from me too! I really like you guys at Turner Investments!
This Week in Money: I listened to Ross Kay and I think he was spreading the butter too thin. He should have simply stuck to explaining the three terms: contraction, correction and crash and then said it looks like Vancouver is headed for a crash.
“Below is a story how a person got caught with over $175k and paid a $2500 fine and got to keep it…”
The article makes no reference to whether the fine was for an outbound or an inbound currency mis-declaration. And its worth noting that people of any nationality can bring as much money as they want in, or out. Just as long as they declare it appropriately if it is over $10k.
Unfortunately some of the news articles, without evidence, seem to intonate that the seizures were of inbound, not outbound currency. Before slandering a specific ethnic group (“Chinese”), writers should pay particular attention to whether the seizures were inbound or outbound. Anecdotally, most of the seizures appear to be outbound, ie: people inappropriately exporting currency from Canada without declaration. Just as common is shipping containers leaving Canada to foreign lands full of expensive and re-marketable luxury goods.
# 63 Bram asks:
Isn’t the easiest way to go about this, to opt for an infinitely long amortization?
Then you are deferring, not eliminating.
There maybe plenty of reasons to hold onto a mortgage but this strategy is for folks who wish to eliminate a mortgage sooner rather than later.
Folks like the silent readers here who may have a mortgage with amortization left, who are reading Garth’s warnings and the comment section’s Doomers and are wondering if there is another way out.
Shared Services: Wernick has called cyber security one of the biggest operational challenges he faced shortly after Prime Minister Justin Trudeau made him clerk of the Privy Council Office.
He has said federal systems face millions of daily attacks by hackers trying to get at data or insert malicious software, and an “enterprise-wide” approach is the only way to protect departments.
no it isn’t
I worked for the Canadian Soil Information Service:
http://sis.agr.gc.ca/cansis/index.html
security requirements are minimal. I mean we were trying to give the information away, why would anyone try to steal it? Yes the site could be disrupted by denial-of-service attacks but who cares? As long as it’s up the next day then that’s okay. The same can be said about much of government web sites. it cannot be said about Revenue Canada but the people there know that and they have put technology in place to defend their own web sites.
An analogy would be the Federal government buildings – their security requirements are different. You don’t need top security to defend a barn.
the link:
http://ottawacitizen.com/news/local-news/shared-services-canada-was-a-battle-chief-statistician-couldnt-win
#17 Jungle
Housing provides the same utility whether it’s worth 200k or 1 million. It provides you shelter, and what ever else you bought it for. Unless you sell out, large amounts of equity does nothing productive.
This is exactly what the CEO of Royal Bank said last week. Our economy now has so much equity in real estate, our economy is losing productivness.
There’s only so much of the pie you can slice off. And unfortunately real estate has most of it. Doing nothing.
——————
This is very true and very succinctly put. Once at a talk in Tokyo, post bubble, an economist said that the bubble was equivalent to just burying money into the dirt and it produced nothing a total loss of productivity.
That comment always stuck with me.
Think of all that productivity lost in Canada these past 10 years….
#31 Self Directed on 09.18.16 at 7:58 pm
Congrats on taking the first step! May I suggest you reduce the number of ETFs though? Rebalancing becomes challenging with more ETFs. Problem with the TFSA is that you have a set limit every year. So when you contribute the new limit and buy ETFs, trying to keep your ratios is going to drive you nuts. Especially if you end up having to buy $1000 here and there to keep those ratios, the commissions will eat into your returns.
Example: Buying $1000 of a given ETF is 9.95 (with RBC investing) which is 1.0% of the trade. Higher than your MERs.
For your equity component you don’t need more than 2 ETFs. VXC and VCN/XIU will do you just fine. I personally replaced XSP,XEF,XEC with VXC. Easier to rebalance. You get geographic diversification outside Canada, with large, mid, and small cap exposure.
I would also say for bonds just buy XSB. Replace all those preferred ETFs with XPF. There are tax advantages to holding the US preferreds in your TFSA. Keep CPD for your non-registered account.
http://www.moneysense.ca/invest/asset-ocation-everything-in-its-place/
Suggest the following, you pick the ratios: VXC, VCN/XIU, XPF, XSB, XRE.
Think of me when you’re not going insane come rebalancing time. :-)
Mark,Mark M ,mark ,mark r,the other mark,hope I got you all,I know you are having a go at the journalists but the reason I showed BS that one is because I was trying to show the range of the fines.
Canada ,maximum fine $5000
U.S maximum fine 500k.
The show BS is referring to has shown people not getting their money back as well as it was suspected the money was ill gotten.On that show most of the action is incoming but yes it goes each way.
That is a massive difference …
M42BC
How to go from spending less than you earn to earning more than you spend:
About 7-8 years ago I was in a bar, drinking, when in came a couple of guys who looked like they made their living either in the bush or on the water…the hard way. Tuff looking guys.
Long story short we ended up talking, turns out they work in the bush…salal for the florist trade, wild blueberries for a Vancouver broker who sends them to Japan where they make jam and the big part…wild mushrooms.
Turns out they send the mushrooms (chanterelles and morals) to another broker in Vancouver and it is he who makes all the money when he sends them down to LA and now San Fransisco.
I ask why they don’t send them down themselves.
1) They don’t know any brokers in LA
2) They don’t have the cash to buy sufficient product to make air fare, cleaning, packing, etc work
So…I don’t know any LA food brokers either but I sure do know how to find one and I happen to have some cash. Plus a registered holding company just idling along, waiting…
So now all I have to do is send these guys out with $20,000 and I’ll be a millionaire, right?
Gotta tell you I was concerned, my due diligence told me it would work but still…these guys were not confidence inspiring except for a generational lifestyle in the bush and the honesty of a true working man.
Anyway, put all the pieces together, found a LA broker, found a small space to clean and pack, sent them out with their money and mine, bought everything we could, sent the culls to a local cafe/catering company, made numerous shipments down south for max dollars.
Did I mention this was 7 years ago, at least.
And done every year since…
Very lucrative, what freely grows in my back yard (almost) goes for medium high double digit US dollars per pound after a few hours in an airplane.
They are buddies now, drive brand new pick up trucks and can afford a haircut now and then. I have to let my credit union know I need a largish cash withdrawal once a year and beyond that I now do nothing…except get all my cash back at end of season along with my share of the rather juicy profits.
Two things to take away from this, don’t judge a book by its cover and keep your ears open for opportunity.
Did I mention its a cash business?
Make of that what you will…
#71. Just read the article again and it’s tucked near the bottom verbatim. Yup $175 K smuggled in to buy a house or car, $2500 “landing fee”. Old military adage, never issue an order you aren’t willing to enforce. Unenforced laws aren’t worth the pixels they’re displayed on :)
Bond Bubble…What bond Bubble? Thanks global Central Banks for the good times! Will Central banks suffer further credibility loss this coming week?
Worth a listen:
https://www.peakprosperity.com/podcast/101694/michael-pento-coming-bond-bubble-collapse
Hope you decide to listen to this Garth before deleting it and providing your critical, always well thought out response. It’s in keeping with the theme of your message today…Thanks Sir….
Garth, I’d love to know what you think about this article by the motley fools: http://www.msn.com/en-ca/money/topstories/why-canada-will-avoid-a-us-style-housing-meltdown/ar-BBwjcIc?li=AA54rW
While I agree that interest rates will rise, what is to stop them from rising very, very slowly over a very, very long time? We often hear about the historical tightening cycle, but we have not had this kind of QE experiment before. Getting the drunkard of the drink can be a slow and difficult process.
How does the investment strategy change if we are looking at one .25 increase every year for 4 years? Or some other form of starting and stopping. Why is this so far fetched? Can any blog dogs enlighten me?
He never mentioned amortization period, his faux pas but in terms of math, doable.
$1MM Mortgage @ 3% nominal interest rate, semi-annual compounding, monthly payments, here is the % Principle paid off based on amortization period, at the end of 5 years:
10 years: 46.3%
15 years: 28.5%
20 years: 19.7%
25 years: 14.5%
Working backwards, his 32% number occurs at an amortization period of 13.65 years.
The above assumes people are not making payments to decrease principal over and above regular mortgage payments. If they do, well, his number is not that unbelievable.
So you see from the above, not such a joke after all.
Besides, it is a non sequitur in logic to pronounce a person should not be taken seriously based on incomplete information about a single annuity calculation which you, yourself, did not bother to calculate for efficacy…but was easily calculable.
bsant54
Firstly, I agree with almost everything you say especially the lethality at hand.
Many, many people I have known over the years, more often than not (Boomer here) have sold securities when losses were large and mounting daily (i.e., your: “average correction being a 14% dip lasting 17 weeks. In other words if you do nothing for 83 days (on average) you can ignore volatility”)…they panic and remain liquid well after recovery.
Perhaps selling at near peak and then buying low at the onset of recovery is not such a bad strategy…yes, yes, you will counter with market timers seldom prosper; however, when it is clear a recession is happening…it is not such a market timing crystal ball effort at all…rather, logical. StatsCan usually diligent at reporting GDP gain/loss.
I have done this, not many times I will admit, but each time I prospered…sell high at onset of recession, buy low at onset of recovery.
Anathema to you the Investment Advisor for certain as your portfolio holdings will fluctuate like a bouncing ball but you will make more money and then I had the LCGE in hand to work with, and I worked it…everyone happy.
83 days staring at your net worth plummeting an eternity…profit from the ride down and then up.
bsant54
What is more likely Garth, a Trump victory or the FED raising again by the end of the year?
http://www.reuters.com/article/us-usa-election-poll-idUSKCN11M2A4
Judging by Brexit vs. previous FED hike, the market would likely prefer the deplorable Trump.
Sad…
http://news.nationalpost.com/news/canada/they-really-want-to-keep-them-but-theyve-lost-everything-oil-crash-prompts-spike-in-surrendered-pets
GM strike deadline tonight.
https://www.thestar.com/business/2016/09/18/talks-down-to-wire-as-strike-deadline-looms-at-gm.html
#82 Fortune500 on 09.19.16 at 1:14 am
While I agree that interest rates will rise, what is to stop them from rising very, very slowly over a very, very long time? We often hear about the historical tightening cycle, but we have not had this kind of QE experiment before. Getting the drunkard of the drink can be a slow and difficult process.
How does the investment strategy change if we are looking at one .25 increase every year for 4 years? Or some other form of starting and stopping. Why is this so far fetched? Can any blog dogs enlighten me?
—
You’re probably right.
It doesn’t.
It’s not.
They can’t.
At the risk of blowing a code # 6, re/ Ross Mackay, and only going by the comments which I have read here….
He probably meant that after paying on a mortgage for 5 years, at that very point 32% of the monthly goes toward principal. Period.
This seems reasonably true at all interest rates for a 25 year term, just ball parking a guess going by memory of grade eleven math class segment decades ago.
This is why not to mortgage for more than 25 years, or rather why to pay off ahead of schedule, and not the other way around.
It is pretty amazing how many versions of thought came out of one loose sentence. Some people were pretty far off of the logic.
What Garth moderates through to keep his ear to the ground!
Is there any politician active or retired anywhere that has directly given audience to the individual populous’s thoughts on $ as much as the Honourable Garth Turner?
41 Andrew Woburn on 09.18.16 at 8:35 pm
but how to deal with all that sand?
400 kilometres of the China-Mongolia-Russia corridor passes through desert. Half of the 6,000 kilometre long China-Central Asia-Western Asia economic corridor is desert.
carbon sink?
http://www.ibtimes.co.uk/vast-hidden-ocean-found-under-chinese-desert-1513423
https://www.esma.europa.eu/press-news/esma-news/esma-sees-risk-outlook-deteriorate-eu-securities-markets
Updated rules for markets in financial instruments: MiFID 2
http://ec.europa.eu/finance/securities/isd/mifid2/index_en.htm
43 Paul on 09.18.16 at 8:44 pm
#30 Dick on 09.18.16 at 7:52 pm
And it’s no wonder they seem affordable, because China created 1.2 million new millionaires in 2014 — that’s one every 30 seconds — and a hell of a lot of them want to park their new riches in safe Canadian homes.
That’s also one likely reason why federal border guards confiscated a whopping $13.5 million in undeclared cash from 792 Chinese citizens at Vancouver International Airport over the past three years, according to documents obtained by NDP MLA David Eby in an access to information request.
Horrors. People trying to bring an average of $17,000 per family into Canada, in cash! Just imagine all the real estate that would buy in Vancouver. What an outrage. — Garth
———————————————————-
That’s the 13.5 million the was confiscated. Which it about 3% of what was not detected.
Link? Or did you just make that up? — Garth
———————————————————-
Correction 30%
The rule of thumb at the border is they do not find a third of contraband ie cash drugs guns coming in.
The last link is a cocaine bust drugs in cash out.
it’s not just one nationality that’s washing their money.
https://www.thestar.com/news/immigration/2015/05/10/dirty-cash-seizures-on-the-rise-as-ottawa-cracks-down-on-money-laundering.html
http://www.cornwallnewswatch.com/2016/06/06/reams-of-cash-seized-at-cornwall-border/
http://www.rcinet.ca/en/2015/01/21/busy-year-for-cash-seizures-by-canadian-border-services/
http://www.niagarafallsreview.ca/2016/08/25/cocaine-seized-at-niagara-border-crossing
#82 Fortune500 on 09.19.16 at 1:14 am
How does the investment strategy change if we are looking at one .25 increase every year for 4 years? Or some other form of starting and stopping. Why is this so far fetched?
_________________________
It’s not far fetching, it’s what’s currently happening as some of us in the cheap seats have been pointing out. Those who says rates can ‘never’ rise are of course wrong, they can rise. But the fundamentals now and for the past 8 years point to very small increases and the predictions of rising rates have been wrong for over half a decade.
No change to the investment strategy though, balanced is still the way to go.
Good article for all the blog dogs who argue we’re about to enter a period of no growth like Japan:
http://awealthofcommonsense.com/2016/09/the-greatest-bubble-of-all-time/
Garth, I think you and your colleague Rowat read too much into the central banks influence on the economy and on the stock market in particular. If stimulus was really effective on such a scale you’d see inflation, a lot of it, and since printed money can only be funnelled into the economy through credit you’d see credit numbers and debt explode. You see none of that in the US and much of Europe.
But you see it in Canada, housing inflation and fast credit growth that’s way out of whack with the fundamentals. This is due to the Canadian government intervention in the economy via CMHC. This is real stimulus, way more effective and lethal than anything the FED had done.
What the FED has done is to respond to the risk aversion (which drove rated down) resulting from the crisis, reassuring investors by purchasing assets from banks in exchange for bank reserves. But since the reserves were not used and the banks did not ramp up lending the stimulating effect was contained. Very different in Canada and several other countries, there for various reasons credit did expand, massively, and there will be a big price to pay for that.
Since stimulus was truly effective in Canada you could argue that the local stock market has benefited from it, I believe it’s the case and for example in the financials, despite what you colleagues said about the strength on Canadian banks, I much prefer owning US banks at the moment.
Thanks Garth, that makes sense.
(i.e., your: “average correction being a 14% dip lasting 17 weeks. In other words if you do nothing for 83 days (on average)
???????????????????????????
83 business days?
Re: #81 IO on 09.19.16 at 12:53 am
Unless you live in Canada which none of them do it’s all conjecture on their part. They don’t know about the daft millennials in this country or the Chinese factor. They also miss the fact commodities will tank taking the whole Canadian economy down in 2017.
Electioneering. Getting re-elected.
Many people use this is as a motive for why politicians and parties do certain things. Have you never questioned the logic of this? Do you honestly think that this is the main reason for your government making bad decisions? There are very few Hazel McCallions.
How much money does a career politician make? How do you get wealthy being a politician? Even the PM makes low six figures, officially that is…
Quite clearly, getting re-elected is NOT the main factor in government decisions, because the real money to be made is in the side deals and corruption, which can be done whether or not you are a member of the official ruling party. Electioneering is a BAD argument promoted by BAD people, to cover up the fact that most of your politicians are just simply front-men and actors.
So, stop using this as a main argument; rather, get to the bottom of why your government makes their decisions. And I will welcome you with open arms to the world of conspiracies…
RE: #28 Jimmy:
Pretty good read about condo crisis:
http://tinyurl.com/z48xx2b
Always figured this was a looming problem for Toronto Condos. If you look around Toronto you find all of these 1960’s era apartment “slums” with buildings built in the late 60’s and early 70’s. There is a story to these buildings which is interesting to learn about. They are falling apart now and they have become ghettoized.
Our flashy new condo buildings face a similar fate. Once they are sold, what seems to happen is a board of people are elected to manage them, these people having no experience managing a large residential building. This has been called the equivalent of putting a person with no experience in aviation in charge of flying a passenger jet.
What likely will happen is 20 years or so down the road, these new condos will be slums.
Big problem is they’re being built all over the city on some of the most expensive real estate in Toronto, and quite a large amount of old Toronto, including some of our best historical buildings and popular streetscapes are actually being torn down to build these things. We may end up losing quite a bit of the city, when they turn into ghettoized slums, which they are likely to do
Zombie economics in overdrive
http://business.financialpost.com/investing/the-zombies-are-at-the-door-and-investors-had-better-start-paying-attention?__lsa=113d-e63a
“The key difference between housing and equities, if you believe both have been goosed by central bankers, is debt.”
______________
Disagree, the key difference between housing and equities is intrinsic value. Housing has it, equities don’t.
Another difference, which is kind of your point but spun in a more positive way, is leverage. No bank in the world will loan you 5 times your net worth to buy equities, but most banks will lend you more than that to buy a house. More risk = more reward.
Metaxa your talkative employees now are a liability. Next time joshing at bar over new domestic iron when a jilted lover or CRA stooge over hears and snitches.
Now you know why the Mob does it. Liquidity vs. Liquidate.
#83
He never mentioned amortization period
He does so at 26m20s:
Everybody takes out a 25yr mortgage in Canada…
And again 27m00s:
The bank says: your current amortization is now 20, you paid it off in five years…
Oh, some people….
The rabid defending of Ross Kay makes them hear what they want to hear?
Look, he’s right about using amortization to fend off higher interest.
But he is not the all-knowing oracle who will predict the yvr housing market for you.
He seems to struggle with basic math, how can he tackle the really big Q’s then?
But fine, follow your Guru and let Ross do the thinking for you, if that works for you.
From RatesSpy on Twitter:
“When it comes to 5-year fixed mortgages, homeowners can qualify at rates as low as 2.00%-ish. That lets people get bigger mortgages than if they had to qualify at a higher posted rate….”
Ok sure. Now this is the part I did not know:
“…There are rumblings that regulators may rain on the parade by making all borrowers prove their ability to afford posted-rate payments. That, in turn, would force more people into smaller mortgages in order to meet debt ratio limits.”
Now that is a *great* idea. The client must qualify at 3%+ even if he gets the 2% rate. Removes the risk and keeps competition on the table.
“interest rates have only one direction in which to move” Garth, I know you really want rates to go up but there is no backing for this state at all. Rather, interest rates are still more likely to go down than up. As I’ve pointed out on here before, Canada has one of the highest interest rates currently in the developing world. We have a ton of room to go lower and even negative. Further, our economy is weak and getting weaker and our central bankers continue to believe that monetary policy can lift us out of this weakness. If they didn’t raise rates in the so-called recovery why would they now as the fundamentals get weaker? Of course that doesn’t mean that the housing bubble won’t burst anyway (see Japan), but you’re doing your readers and investors a disservice by telling them that rates can only move upward.
The really big future problem for this country is when the bubble pops and all these Jr. voting moisters are suddenly underwater and seeing 5% interest rates for the first time in their little lives.
The crying, whining and wailing from these bubbleboys and girls will be so loud and piteous that lefty politicos of all stripes (and the weakest willed of the rightists) will have to rush to their aid with bailout legislation of some type. The cost of which will be borne, as usual, by people in society who actually had self restraint and common sense towards real estate.
I realize that politics cycles, much like real estate, but the economic damage being created by this current generation of short sighted idiots is going to be high. Very high. Probably even higher than the damage created by the last group of twits that voted for Daddy Fuddle Duddle.
Shared Services: Wernick has called cyber security one of the biggest operational challenges he faced shortly after Prime Minister Justin Trudeau made him clerk of the Privy Council Office.
He has said federal systems face millions of daily attacks by hackers trying to get at data or insert malicious software, and an “enterprise-wide” approach is the only way to protect departments.
no it isn’t
Yes it is. You are confusing one method with one level of security. A modern enterprise platform has a “fort knox” setting and a “barn” setting that you set based on threat level, risk tolerance etc. It is far, far more secure than having 100’s of individual systems all trying to do the same thing. When you worked there, did you get paid? Guess what your ‘no need to protect’ system is linked into the main fed payroll system. I break into you, I break in the feds. A single enterprise system would leave your Barn’s alone but make sure that payroll link was secure.
Hmmm… Is this the first of the bailouts for those Canadians who have neglected to save anything?
And is there now even less incentive to do so?
http://business.financialpost.com/news/economy/ottawa-unveils-enhanced-cpp-benefits-that-will-hike-payouts-to-third-of-income
Ontario has little choice but to tax foreign home buyers, CIBC economist warns
http://business.financialpost.com/investing/ontario-has-little-choice-but-to-tax-foreign-home-buyers-cibc-economist-warns?__lsa=fd06-b62a
The Ontario government has little choice left but to enact a 15 per cent tax on foreign home buyers, says CIBC World Markets deputy chief economist Benjamin Tal.
More than a month after the British Columbia put into effect a similar tax, Ontario has made no mention on what action it will take to cool the red hot Toronto housing market. The Greater Toronto Area is now the lone market experiencing a rapid price surge in Canada, says Tal, as evidence emerges Vancouver’s market is now cooling.
“With other centres taxing foreign investment, Ontario will have little choice but to do the same,” he said in a note to clients.
Variable mortgage rates will soar. Are you ready?
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/everything-you-need-to-know-about-the-risks-and-rewards-of-variable-rate-mortgage/article31946694/
There is a lot of nothing going on right now in Southern Ontario heavy manufacturing. I come in early and leave early. Supplier steel warehouse stocks keep shrinking and becoming more and more garden variety. I get the feeling we’re going to lose a lot of the industrial specialization we’ve managed to build over many decades. Steel is already there – those who are suffering now, do not do garden variety.
Oh well, Kijiji sales went well last week – here’s hoping for another week of cash money revenues :).
https://www.bloomberg.com/view/articles/2016-09-19/the-contrarian-signal-in-the-reit-breakout
Food for thought when determining how much you want to have in REIT’s. Past performance is no guarantee…
#84 … there have been only 11 of these events in the last seven decades
But how can you tell the difference between a snap dip and recovery, a bear-trap or a market which has peaked?
Interesting Globe & Mail article regarding the chances of rising variable mortgage rates entitled ‘Variable mortgage rates will soar. Are you ready?’
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/everything-you-need-to-know-about-the-risks-and-rewards-of-variable-rate-mortgage/article31946694/
#62 BS on 09.18.16 at 9:55 pm
#65 For those about to flop… on 09.18.16 at 10:20 pm
#79 Robert on 09.19.16 at 12:15 am
——————————————————
It is NOT Illegal to bring cash into Canada. You can bring $10,000,000 in Cash if you like.
You DO however need to Declare it. The people who were caught were fined because they did not declare it. Either because they didn’t think they were allowed or didn’t want to be hassled most likely.
Yes they “could” seize the cash but that would be only if they thought the cash was obtained through illegal means. Hence the fines.
If the people who were caught had documentation or had information where the money came from it is NOT Illegal to bring the cash into Canada period.
FYI… I am almost 100% sure that many of these people were caught by the use of Detector Dogs. Cute little “Beagles” a lot of the time who Sniff out large somes of currency. And they are fricking good at it. CBSA targets flights from Certain Countries for specific items being brought in.
Not declaring Agriculture goods which could be harmful to Agriculture in Canada is also Illegal. Hence the Fine and Confiscation of said goods.
Bringing cash into Canada is NOT illegal as long as it is declared if over 10K CDN.
Get a grip….
Oh how the elites are roaring with laughter.
T2 just gave away 1/2 billion more of our money in overseas aid scam. Guess who bombed out those previous peaceful countries anyway….NATO.
Here at home we have zero tolerance for that. Wink wink.
#87 AfterTheHouseSold on 09.19.16 at 6:57 am
GM strike deadline tonight.
https://www.thestar.com/business/2016/09/18/talks-down-to-wire-as-strike-deadline-looms-at-gm.html
____________________________________________
Will be an interesting result no matter what happens. Dias has made it real tough for himself to accept anything less than what he has oh-so publically stated regarding new product (or else).
I feel bad those GM Oshawa workers, even if they get to go back to work again this year with a new contract, it will likely be the very last one.
The auto sector investment has left Ontario for greener pastures, it’s only a matter of time before the jobs leave too.
Interest rates can move in two directions….anyone who tells you otherwise isn’t telling you the truth. Calculate bank fees and inflation into the picture, and we are already a NIRP society.
Rates may go up .25 % then down .25% occasionally over the next 1-2-3 years, but it’s all superficial jawboning from the central banks and governments that got us into this fiasco.
The last time we had 20% rates in the early 80’s I was a banker here in YYC. The conservative government of Alberta launched a subsidy program for homeowners who could prove economic hardship and cut them a monthly cheque to cover their current borrowing cost and the deemed acceptable rate.
I guess we have to keep an eye on Britain and Brexit, so how well they do. From a one of the comment blogger Britain jobs numbers increased. Isn’t that what we want here? Could that blogger send us the video again, thanks.
When we fall time to rethink how to do thinks correctly. Like my dad would say “quit beating around the bush.” Time for honest leadership.
#99 Eks dee Sipal…My opinion, a leader of a country/province/etc. should not be an investor.
“Quit beating around the bush.”
So good news is no more acid rains, atmospheric “pollution” is doing down.
“We can see that the acid pollution in the atmosphere from industry has fallen dramatically since manmade acid pollution took off in the 1930s and peaked in the 1960s and 70s. In the 1970s, both Europe and the United States adopted the ‘The clean air act amendments’
http://news.ku.dk/all_news/2016/09/acidity-in-atmosphere-minimised-to-preindustrial-levels/
—-
#RobotsLivesMatter
http://www.abc.net.au/news/2016-09-17/robot-arrested-by-russian-police-at-political-rally-in-moscow/7854764
Yes, people borrow to buy Real estate because it takes many man-years to build one, and you’d have to save for even more years to buy one with (after-tax) cash. And you can still buy houses in Canada for what it costs to build + normal profit + municipality levies + a bit extra for land. Just not in the good areas of large cities, because there, people bid them up for several reasons, some quite subjective, others very easy to appreciate. That is normal, although sometimes they stretch themselves too much and once in a while we witness price corrections. Nothing too dramatic in comparison to the stock market where share prices that correct all the way to zero are common occurrence.
What is ABNORMAL, is giving money to some ‘money manager’, CEO, board of directors etc.. to play with it, with the hope they will return more to you. Many times it happens – the papers are full of such success stories, while the losers are almost never mentioned. And there have been many. I’m not even talking individuals or companies, but whole sectors, sometimes whole countries. Even more ridiculous, as if the average Joe was not ignorant enough about domestic affairs, he is often advised to ‘diversify’ even further, buy share in companies in far away places of which he knows nothing. But never fear, there are always experts (said money managers) who researched it all on the internet and know exactly what Putin’s, Xi Jinping’s or (future POTUS) Trump’s next move will be. Good luck with that!
With all that’s going sideways in Alberta, it seems the people here have decided to double-down on their one big nest egg.
Is this not throwing good money after bad?
New home starts are down, sales are down, and people here have decided to update the backsplash and throw on some paint?
Is this a sign of waiting to pull the trigger to sell and doing some touch-up work for when the property prices surge?
I wouldn’t think that could occur in the new normal of mid-forty or less oil price, Provincial government policy/legislation that is driving business out of the Province through increased taxation and ramped up minimum wages, a lack of economic diversity, that is driving economic investment out of the Province to less risky parts of the planet.
Thoughts?
Here it comes folks:
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/everything-you-need-to-know-about-the-risks-and-rewards-of-variable-rate-mortgage/article31946694/
Can you handle a 1% increase on your million dollar mortgage?
In some other interesting news, sitting around today waiting for something to happen (which eventually did) trolling through the various tech sites that deconstruct Canadian REITs. Found a REIT heavily involved in Toronto and Alberta Office properties trading at a 43% discount from book value with an 8% yield. Basically, buy this thing, you get the Alberta properties for free.
Found several more going for less than book, up to 55% discount off book, all with solid asset bases, involved in office rentals.
Also having a real close look at Alberta oil companies. There is stuff out there trading at 91% of book (ie 0.91 to 1 book value) which is again ridiculous. What do people think is going to happen, office towers and oil will become worth less than zero?
This while tech companies have valuations in the neighbourhood of 4 -5 times book, with 20 – 30 times earnings. Half of them don’t seem to ever have actually made a profit or produced anything. Yet they sell, sell sell.
And don’t even get me started on Chartered Banks……
Oh well. As usual, on a shopping spree. Time for another 19% net increase year. Investing is fun…..
#106 RentYVR on 09.19.16 at 12:38 pm
Canada has one of the highest interest rates currently in the developing world.
I assume you mean developed world, it’s not that bad over here :-)
But yes, excellent point! From http://global-rates.com/interest-rates/central-banks/central-banks.aspx
NZ 2.0%
AU 1.5%
US 0.5%
CAN 0.5%
UK 0.25%
DK 0.05%
EU 0.00%
JP 0.00%
SE -0.50%
CH -0.75%
So plenty of room below.
What’s up with Australia and New Zealand?
Those rates are pretty high!
Not sure why Aus/NZ don’t drop their rate close to zero, wouldn’t that boost their exports big time when their currency drops?
Or maybe they fear more foreign RE money if they do that.
Talking about currency drops: a lower loonie could help us here too, to exit our slowth.
Looks like Calgary stats extrodinaire Mike Fotiou has packed in his blog. As did Bob Truman. Guess the ‘to infinity and beyond’ message they were bringing to the masses no longer seemed believable. Pity. Well, not really.
“The Canadian government is quietly planning to change key terms of its Automotive Innovation Fund …”
“Yes, the federal government has clearly signaled that they are going to shift direction and that is very positive, Unifor President Jerry Dias told the Free Press on Friday. Do I believe that that will play a role and provide an assistance to us in our negotiations? The answer is yes.”
http://www.freep.com/story/money/cars/2016/09/17/canada-prepares-lifeline-unifor-auto-talks-gm/90441770/
#78 Metaxa on 09.18.16 at 11:59 pm
I really enjoy your stories. Should you have any more, go ahead and post.
Long time ago Garth made the statement that the bond market – not the Government – controls the mortgage rates. Obviously incorrect since it has been painfully demonstrated that Central Banks controls int rest rates and mortgage rates.
Can someone comment on this?
So on Sunday I put on a jock strap with an oversized cup just in case. I decided come hell or high water I’m having an ice cream at: http://www.belfountainstore.ca/
general store, I put on a disguise, just unsure of the reception that awaited me. Was going to slowly introduce myself.
I was in a good mood after the hangover wore off, up the 427, the 401 heading toward 410. this is where all hell broke lose. 410 down to one lane in spite of the fact that there is enough real estate for 3 lanes. I knew this from before, then half way up, the lanes were squeezed down to two. for no reason other than annoying people, why Brampton votes liberal is beyond my comprehension, 427 is being squeezed down to two lanes too.
I got furious, them my chest started to hurt badly, I popped a few aspirin from a container market break in case of heart attack. I had hallucinations of Wynne flying over the 410 riding a broom saying “Come on my pretties, cars bad bicycles good” Then horror, what if I die right here, right now. She got me. What a trophy for her is all I’m thinking.
By the time I got to Bovard, Chest was so tight, I could bearly breath, I went to Brampton Civic Hospital and was released twelve hours later. Diagnosis. Heartburn.
Whatever it was scared the crap out of me. Only 5 cigs today, no booze ever again, but then, damn, I see another night at Seneca is booked for tonight. Wish me luck.
I’ll try for the general store next weekend again.
“Long time ago Garth made the statement that the bond market – not the Government – controls the mortgage rates. Obviously incorrect since it has been painfully demonstrated that Central Banks controls int rest rates and mortgage rates.”
Garth is sort of right, sort of wrong. Mostly right.
Mortgages are a type of bond. One of the most common types of bonds that are out there other than government (“sovereign”) bonds. So by definition, the ‘bond market’, ie: the mortgage market, sets the rates that new mortgage bonds can be brought to market at. So using ‘bond’ and ‘mortgage’ markets interchangeably, as Garth does, is not incorrect.
However, in finance, there is this concept of the ‘risk-free’ borrower which is typically the government itself, the issuer of the currency. The spread between the rates in the bond market applicable to government (“risk-free”) borrowing, and that of riskier credit such as mortgages, is subject to periodic variance. And is largely a function of the quality of the collateral that backs the credit.
I’ve argued, in the past, that “risk-free” rates are likely to fall, even back to zero and perhaps even lower (“NIRP”). However, mortgage credit would become more expensive because of falling house prices due to an oversupply of housing and the perception of overcapacity.
Hence, the ‘bond market’ could signal lower rates to risk-free borrowers (following perception of lower BoC policy rates), yet higher rates to mortgage borrowers. I believe this is in the process of occurring as bond market participants increasingly demand a higher risk premium for investing in mortgages, versus other types of credit.
# 128 eaglebay writes:
#78 Metaxa on 09.18.16 at 11:59 pm
I really enjoy your stories…
Thank you. There is more to life than real estate and gloom, no?
Just remember…relaying a good business story is like being pregnant…everyone is happy for you but no one knows how many times you got screwed to get there.
What I’m trying to get across is you can find ways to get other folks to do the work, leaving you to man your cubicle/career. Most of my exploits take less money than folks spend on a car, yet many of them continue to provide cash flow year after year.
Maybe I’ll talk about some of the losers…like the time my father turned down the opportunity to have all of Saskatchewan as his territory for a new concept called McDonald’s.
– Rates are set by a person called Mr. Market and NOT by Central Banks (e.g. The FED).
– Housing had a boom from say 1995 up to say 2005 in the US (and in Canada even after 2008) NOT because of central bankers but as a result of demographic developments. (think: Harry S. Dent)
– And I never understood why one Mr. G. Turner thinks investors should invest in commodities and gold ? Is Mr. Turner fearing higher inflation ? Is one Mr. Turner fearing rising interest rates ? But why doesn’t one Mr. understand that rising interest rates are actually EXTREMELY Deflationary ?
While stocks may be liquid today, will they remain that way? Central bank balance shhets have increased from $6T in 2007 to $21T today and are currently expanding at $200B per month. This has fueled a massive increase in the value of stocks, bonds and real estate. When this money printing insanity ends there will be a massive selloff in nearly all asset classes. There will be no bid.
Another POV.
http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/learn-how-to-make-money-on-the-short-side-youre-going-to-need-it/article31946809/
Herd mentality like a bad addiction, tends to override common sense. That is how market corrections generally work. Nothing is spared. Fear works.
Experienced investors know this game and enjoy the buying opportunities that the fearful never understand.
That is how you make profit. Diversification is a free lunch. Get over the emotions or hire a fee based pro to take over the reins.
#76 Former Fool on 09.18.16 at 11:52 pm
Thanks for the perspective! Yes, I agree fewer is better. Maybe 8 purchases is easy today, but I don’t want to do that all the time.
The 5 you suggested is probably enough diversification. I guess I thought I needed 2 kinds of Bonds (short term and corp.), but the bonds are only there as a hedge to provide a boost during stock market dips. I’m starting to understand the concept of ‘balancing’. I want to be able to sleep at night.
#134 Basil Fawlty
Yes. However, until that day, I want to be paid.
swiss “specific”
http://www.swissinfo.ch/eng/juncker-eyes–swiss-specific–immigration-deal-despite-brexit/42458572
===
“Were Switzerland to impose unilateral quotas, that According to a study for the Swiss government, annulling the pacts could cost the economy an estimated 32 billion francs ($33 billion) a year in potential economic output.”