Will you outlive your money?
The odds of that happening have never been higher. Two good reasons. We now live, like, forever. On average three years longer than Americans, even. And women come close to being petrified – an extra six to eight birthdays after the guys drop.
Second, savers are being crushed by low rates, lousy returns and high taxes. Sadly, most of us save rather than invest. Over 80% of all the money in TFSAs, for example is stuck in interest-bearing vehicles. Hideous ‘high-interest’ accounts. Braindead GICs. Bottom-feeding bonds.
The combination means the greatest risk (as I’ve said often) is not losing money, but running out of it. Unfortunately everybody is afraid of the first risk and ignores the second. It’s a fatal mistake. Meanwhile government isn’t helping much. The minor improvements to CPP payments announced this week will take 40 years to materialize.
So savers waiting for the good ol’ days of no-risk, high-interest assets to come back are SOL. It’s not happening. This week sure underscored that.
Stock markets, the dollar and oil loved it when the US Fed blinked again and kept interest rates low yesterday. It means more months of cheap rates, easy money and a lower American currency heading into the weirdest Presidential election campaign since ever.
Meanwhile our own central banker, Stephen Poloz, was busy giving a speech he titled “Living with Lower for Longer” in which he spelled out the reason rates aren’t budging – a crappy economy. Growth is so weak, job creation so anemic, commodity prices so low and exports so dismal that any rate increase would, he fears, turn Canada into Japan.
Meanwhile there’s palpable disappointment that the T2 government’s been in office for almost a year, and has done diddly about the economy. Yes, the rich were whacked with a tax increase, and the middle class got a weensy cut. The big money – dole for people with kids – just started a few months ago but has made no difference in spending. Household debt has shot higher, most job creation has been part-time, and no infrastructure projects have been launched despite the pre-election hoopla.
So, rates stay where they are. Savers are doomed. This is particularly tough since 32% of the population is entering or contemplating retirement, with more people hitting 65 each day than has ever occurred previously. The traditional route for retirees has been to stop working, start collecting a corporate pension and supplement that with income from a safe portfolio of fixed-income, boring stuff like bonds.
But today over 70% of workers don’t have one of those pensions, often retire with a mortgage in place and a Millennial in the basement, while interest rates have cratered making ‘safe’ stuff a joke. And did I mention we’re living way too long? A quarter century in retirement is hardly unusual, whereas a generation ago guys conveniently croaked within 7 years of leaving the office.
This s what Poloz was talking about a day or two ago: “I realize this may be cold comfort to those people who have to adjust retirement plans to a lower-for-longer world,” he said when pointing out that lower rates mean higher stock markets. “But the difficult reality is that savers must adjust their plans.”
They sure do. And fast.
High-yield bank accounts pay hardly more than half a per cent. GICs are at 2%. People get giddy and hormonal when they find a lender offering a temporary 3%. And yet it’s a mug’s game to chase yield. Face it: inflation is about 1.5%, and 100% of what you earn in interest is taxable at your marginal rate. So the best you can hope for these days is to preserve capital, not make it grow or create an income stream, which means you’d better retire with a honking big pile.
The better strategy is to invest money in assets that will take advantage of low rates and throw-off tax-efficient income. So the longer the cost of money stays in the ditch the more compelling the argument becomes to have a portfolio with growth assets in it – at least 50%, or better still, about 60%. The best choice here are low-cost, highly liquid and diversified ETFs. As for the ‘safe’ component of the portfolio, a small government bond exposure helps keep volatility down, but ensure you have higher-yielding corporates or provincials as well, along with a mess of preferred shares churning out a sweet 5% dividend.
Over the last six years a balanced, globally-diversified 60/40 portfolio has returned almost 6.5% – and two of those years were stinkers. Better still, money made collecting dividends earns you the dividend tax credit while capital gains come with a 50% tax discount. Even better, stick a hundred grand into TFSAs for you and your wrinkly squeeze and all of the income generated is taxless, non-reportable on your tax return, and won’t cause any of the meagre government pogey to be clawed back.
So, rates suck. You can’t change that. But you need not be a victim.
The risk of saving outweighs the risk of investing. Too bad most will never get that.
151 comments ↓
This is a test of the emergency furst system
Someone over at Stocktwits.Com posted this chart as a harbinger:
https://fred.stlouisfed.org/series/USD1MTD156N
Bob…You can be the crap out of him. I’ll defend you
Wheres Jimmy?
Rates have been low for a decade. Following your portfolio advice means not taking advantage of them l. 20 years from now my kids will ask me why I never borrowed when money is free, what will I say?
Glad to see you’ve come to see the light regarding rates returning to ‘normal’. Low rates and low growth for the foreseeable future. We’re all Keynesians now.
First again, people needs to save first before they can invest. The problem, majority are not in a position to do the former.
There isn’t one province in Canada that isn’t a fiscal mess. Why on earth would I buy any of their bonds as opposed to a US Treasury bond?
More yield and a zero chance of default. — Garth
Amen on today’s post.
Unfortunately the house buying orgy continues as a result with no end in sight.
Better to be invested than be a seduced debtor.
are we still allowed to say first?
Go ahead. Make my day. — Garth
But on the bright side, the masses of people who put their money into low-rate ‘fixed’ investments just make it cheaper for the smart people to borrow such (as all borrowed funds, by definition, are the savings of others!) and earn a higher return.
If everyone took Garth’s advice and rebalanced their TFSA’s, would the TSX be dirt cheap at 14,7k? Or would it be ‘expensive’ at 30k? Would cash be available to borrow from a Canadian broker for 1.5% (or less if you borrow over a million), or would one have to pay more?
In a couple of months time approximately 170 million Americans will vote in a new leader.
Shouldn’t they be deciding whether to keep the Fed as well?
And vote on other things that might actually affect their lives…
M42BC
No rate increase again. Must be the only defence left.
You may want to factor World War into your investment strategy as well. Russia just answered the west provocation when US planes bombed Syrian Army positions a couple days ago and killed 82 Syrian soldiers and injured 120 more.
A Russian military vessel in the coastal waters off of Syria, targeted and destroyed a “foreign operations center” killing several American, Israeli, and Turkish Military officers. “Russian warships fired caliber rockets onto the command posts of the terrorists in western Aleppo, where Turkish, Saudi, Israeli, UK, and US officers are deployed to aid their operations,” Sputnik News Agency reported on Tuesday.
Been reading in other places online that US Special Forces are embedded with terrorist groups in Syria. This is beyond horrible!
The Russian warships stationed in Syria’s coastal waters targeted and destroyed a foreign military operations room, killing over two dozen Israeli and western intelligence officers.
“The Russian warships fired three Caliber missiles at the foreign officers’ coordination operations room in Dar Ezza region in the Western part of Aleppo near Sam’an mountain, killing 30 Israeli and western officers,” the Arabic-language service of Russia’s Sputnik news agency quoted battlefield source in Aleppo as saying on Wednesday.
The operations room was located in the Western part of Aleppo province in the middle of sky-high Sam’an mountain and old caves. The region is deep into a chain of mountains.
Several US, Turkish, Saudi, Qatari and British officers were also killed along with the Israeli officers. The foreign officers who were killed in the Aleppo operations room were directing the terrorists’ attacks in Aleppo and Idlib.
Watch for these icons in the PC Republic of Ontario:
http://politicalhat.com/wp-content/uploads/2015/01/gender_symbols.png
And owning some real estate in Canuckistan has been the biggest lottery ticket. To bad I never participated in it over the last decade.
Re: 3 and 9
Jimmy plays by the rules.
You need two equally important things in your later years. Family that will make the best decisions for your long term care and income. Mom was diagnosed with Alzheimer’s which made it necessary to seek long term care for her needs. Every government assisted home has a 3 to 5 year wait list in our area. The Social worker offered a placement far from home in the GTA (still Godless). We found an excellent private retirement home with a memory care wing close to home. She has a Private suite and excellent care. $5000 per month. Fortunately, the sale of her home, her modest pension, and investment advice such as offered on this fine dog blog will meet her needs for the rest of her life. Thanks Garth.
Surprise!!!! But they will raise in December, right Garth??
“20 years from now my kids will ask me why I never borrowed when money is free, what will I say?”
You can tell them that you saw no uses for that “cheap” borrowed money in excess of the cost of borrowing.
For many asset classes, this may very well be the case as they are inflated by the borrowed money. For instance, housing.
The best time to borrow money is when interest rates are sky-high, and assets are basically selling for distressed prices. The worst time to borrow money is when interest rates are very low and assets have already priced in the low rates.
Canadians are luckier than most, they have quite an ample selection of inversely correlated assets to invest in, particularly in the form of TSX-listed firms. Canada’s investment-phobic culture has left a lot of great assets basically dirt cheap, especially assets with negative correlation to long-term interest rates. But its still important not to get too carried away.
So basically to recap:
1) Borrow when interest rates are high, and invest in assets that appreciate with falling interest rates (ie: the US stock market, real estate/REITs, long-term bonds, minimally capital intensive tech stocks, etc.).
2) Borrow when interest rates are low, and invest in assets that appreciate with rising interest rates (ie: Canadian stock market, mining and O&G stocks, high capital intensity tech stocks, even railways and telecoms to some extent).
Hey Garth, take a look at the NYSE margin debt and the sp 500 .. They are diverging. The market will correct in the coming months I bet.
PEP’s politically exposed people?
from lux /panama/ and the latest bahamas leaks
Wednesday 21 September 2016 19.00 BST
Five months after the release of the Panama Papers, this new cache of information from the world of offshore tax havens contains the names of directors and some shareholders at nearly 176,000 shell companies, trusts and foundations.”
https://www.theguardian.com/business/2016/sep/21/leaked-bahamas-files-expose-politicians-offshore-links
Robax….you had a swing and a miss.
You won’t get any crap from me,others will fling some.
Next time you post wear goggles…
M42BC
Its upside down. The FED ratchets down the GDP growth projection and the markets go up.
Central Bankers keep rates low to stimulate the economy by encouraging borrowing, which only necessitates the opposite, a need to save even more!
Only the stock market loves cheap money more than real estate. Much more, actually.
I second the motion but would like to point out first that housing prices are destined to rise. If you buy today and stay in your dwelling for the next 25 years the value of your house will rise. Just saying…
“So the longer the cost of money stays in the ditch the more compelling the argument becomes to have a portfolio with growth assets in it ….”
With all due respect Garth….the world is drowning in debt and the longer interest rates stay zero bound or negative that debt pile keeps on getting bigger. And while debt increases so does the risk that we end up with a full blown depression when the debt is defaulted upon.
We are all going to turn Japanese – the lessons are out there but we all keep on ignoring them.
You place a great amount of faith in putting that money into the markets. I look at the markets as a Casino – future profits are not assured. It all blew up in 2008 due to the amount of debt going bad, derivatives threatening to take out the banking system and desperate measures employed. The problems were swept under the carpet as we all doubled down with even more credit and debt.
So where are we now ?
In a deeper hole than where we were 8 years ago. The recovery is a mirage and the risks are far greater.
There are no markets, the fundamentals of investing no longer apply. We now rely on central banks to keep on goosing the markets, providing backstops so that confidence is not dented. The amount of intervention and interference is unprecedented.
Continuing financial repression abounds so we are forced to invest in riskier products just to get a return.
We have a 1929 moment approaching where all that speculation that keeps the markets rising will vanish as people join the rush to try and get the return of their money – not a return on their money.
Some think you are offering sage advice.
I think you are being way too speculative and are leaving yourself and your clients open to unprecedented levels of risk
More yield and a zero chance of default. — Garth
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It beats me how we can have real yields in government bonds at zero interest rates in a declining economy at peak debt, but hey, what do I know?
The only possible ‘capital’ gain is if/when ‘yields’ become negative.
————————–
Poloz should be fired immediately. I am not sure what he thinks his role is but it is price stability and fighting inflation. Rubbing shoulders with the world elite has gone up to his head.
His role is not to make comments on long term rates or to provide unlimited liquidity to everyone.
But hey, when you are ruled by idiots what can you do?
Move out. It is that clear.
———————
Governments have no role in regulating markets.
It will be a nice ride in equities and preferreds (and gold) for me but being right does not make me happy, just sad (Mark Baum, The big short) as it would be again the average guy who pays the bills (as always).
You are about to being screwed. Apply some Vaseline and enjoy it. This is pretty much what Poloz said.
Lawyers in Vancouver say they are seeing a substantial increase in B.C. court cases filed by Chinese companies seeking to seize real estate assets from Chinese immigrants in B.C.
Based on the case, Duhaime says she has obtained information from China alleging that “billions of dollars” of bank fraud proceeds are invested in B.C. real estate. She said she could not share the documents for reasons of client privilege.
http://www.calgaryherald.com/news/more+chinese+cases+target+property+lawyers/12181112/story.html
Just buy some Canadian bank shares and get over 4.0% div. plus whatever the stock increases. It takes long term thinking to suck up the bad days (months) on the market but it is worth it.
Rowatt was wrong.
Fed did nothing.
Loooooossssssaaaaahhhheeeerrrrr.
Kidding.
But we gotta raz ya a bit for being wrong.
“I second the motion but would like to point out first that housing prices are destined to rise. If you buy today and stay in your dwelling for the next 25 years the value of your house will rise. Just saying…”
Why? Canadian housing has a P/E of 35, and a likely justifiable terminal P/E of 10 given that it is a low/slow growth asset class.
If we assume that houses’ “earnings” grow at 3%/annum (ie: inflation), but the asset class suffers P/E reversion to the terminal P/E, average Canadian housing will fall to 10/35th of its current price, and only grow at the rate of inflation thereafter.
Running the math on that, it seems perfectly reasonable to have Canadian housing at the same or even slightly lower prices 25 years from now as we saw at the 2013 apex.
Govenor Poloz of the Bank of Canada is spot on encouraging boomers to save more and work longer. Let’s face it how much joy does granite counters and stainless steel appliances add to your life or years. Who needs a $10,000 Safari trip to South Africa to sleep in a tent and drink luke warm instant coffee in the a.m.? Does anybody in their right mind want to buy a 700 square foot pied a tere in Yorkville for 1.3 mil to visit the kids? Who needs a $500 Coach bag or a $3,000 Coco Channel little black dress? We can manage without the bling as more than half the world lives on less than $2 a day.
Well I guess I’m fired!! I was wrong on the rate hike…wish I wasn’t. hopefully I’m wrong about Trump winning the election too!
Sold my approximately $100,000 CAD position in GDXJ before close today (junior gold miners etf). It’s served me well, up 90% from when i bought it last year (although at one point it was up 110%). I’ve only been investing in equities for about 2 years and never really sold anything before. I must say i have a sense of calm tonight: didn’t realize how stressful it’s been. It’s nice to not care about what the price of gold is.
Some day could you share your feelings about absentee ownership of a small business? 30% would be easy with a small amount of leverage.
Every man for himself!!
@ Mark
Why the difference between US and canadian stock markets? US when rates are high and Canada when rates are low?
““One of our next projects is a Toronto house we are looking at, worth $100 million,” Duhaime said. “A guy went to a bank in China, defrauded them, got a loan and all the money in one day, and moved to Canada and got a mansion. And no one asked any questions, even though he never worked a day in Canada. It’s all the same type of story, where a foreign national doesn’t have a job, but is living in homes in Canada and owes money to a bank in China.”
Source? Link? — Garth
Well, where is The American, WalMark, JP, pbrasseur, Shawn who suggested I was drinking the bong water then promptly followed Doug Rowat down the “she raises in September” rabbit hole?
Huh, the explanations are due.
Less than a month ago the Fed heads led by Mother Yellen said “the case for a rate hike had strengthend.” What changed?
Where is the insignificant 25 basis point rate hike that accompanies this “booming” US economy? We were told to brace for FOUR this year. I told you there would be NONE.
The Fed’s next move is a cut. Start preparing your excuses now.
Whoever said markets always slump in September did not factor in Janet Yellen hold on rates. I thought things would have stayed slumpy a bit longer… hope it comes back long enough for me to finish my portfolio. Stuff is going up… again.
The U.S Fed…what a joke these guys are. After almost a decade of keeping rates at 0 and yacking about raising,…”so ya better watch out…!” have 0 credibility left.
DO THEY REALLY KNOW WHAT THEY ARE DOING?
Who was callin’ for a rate hike? Woot woot? No hike! Yea! Party lasts a bit longer..music stil” a’playin!
Jeez Garth, you are depressing me, Hubby just turned in intent to retire, in both our families for two generations if you make it past 50… You immediately get a pass and live to 92! We are in our 60s…our luck we’ll add 10 years to the family average…102!!!
Luckily there are multiple income streams: pensions…RRSPs…TFSAs…nonregistered investments, plus I’ll add a home in a desireable area of the GTA, but I feel we are being penalized for being responsible savers. I WANT HIGHER INTEREST RATES!!! NOT FAIR!!!
I’m at a weird mental fork in the road on how I should feel about everything.
On one hand, companies chasing the cheapest labour means no country is able to provide sufficient consumer demand to support our version of capitalism and increasing automation will make that problem worse.
The West has mostly hollowed itself out its middle class and made them and their nation’s into debtors in order to allow their former companies to provide some wages in some developing countries. However, those wages are still so low in the developing countries – and in many cases kept there artificially – that they can’t provide the consumer buying power to keep things going. So that looks like the eventual death of capitalism and this permanently low rates is part of that.
On the other hand, the planet definitely can’t survive everyone becoming a middle class like the Yanks or we were used to so a slow-down in buying stuff isn’t totally bad. Except that the poorest people tend to pollute the most because they have no choice.
So I don’t know. Go humans?
#30 Valleyboy on 09.21.16 at 7:37 pm
Rowatt was wrong.
Fed did nothing.
Loooooossssssaaaaahhhheeeerrrrr.
Kidding.
But we gotta raz ya a bit for being wrong.
………….
I was leaning the same way. USA must be in real do do.
From Scott Barlow’s column in the Globe –
Charlie Munger is the less visible half of the Buffett-Munger partnership at the head of Berkshire Hathaway. One of the wisest investors of all time, Mr. Munger also told what could be my favourite investing story ever.
Mr. Munger was once at a fishing convention and saw a large crowd of people around a man selling brightly coloured fishing lures. He asked the vendor if the bright colours really helped catch fish and the guy answered:
“Mister, I don’t sell to fish.”
“Why the difference between US and canadian stock markets? US when rates are high and Canada when rates are low?”
3 big reasons:
1) The ‘mix’ of firms in the Canadian index tends to be of sectors which exhibit significant inverse correlation to interest rates. The gold sector. Mining. Etc. If you look at the TSX60 index constituents, for instance, there are really only a small handful of sectors represented. This is why, arguably, the TSX is a very poor “single” investment to hold in a portfolio and foreign diversification is very important.
2) Canadian firms tend to finance on a long-term basis, hence suffer when interest rates fall as they are left paying high interest on long-term debt. US firms tend to finance on a short-term basis, and have benefitted significantly through falling interest rates. So as the interest rate cycle reverses and rates go higher, US firms will suffer higher finance costs, while Canadian firms will benefit from having their finance costs locked in over the long term.
3) Canada’s banks, ~38% of the TSX, are structured in such a way to not be overly sensitive to interest rates. They run matched books, ie: borrowing is duration matched with lending. US banks tend to ‘borrow short, lend long”, which is a fantastic strategy when rates are falling, but disastrous when rates rise.
If you’re not already reading it, I suggest checking out Ben Hunt’s Epsilon Theory:
http://www.salientpartners.com/epsilon-theory/essence-of-decision/
In the latest note (linked above) he discusses what he perceives as the Fed’s real motivation.
In short, the Fed is more like a research university than anything else. The only thing it is really concerned with is it’s reputation.
The work he’s doing visualizing the narrative around interest rates is interesting too.
It’s not all rocks and trees out here.
– B.C.’s high tech boom blasts wages skyward
High tech sector now employs more people than mining, oil and gas and forestry sectors combined
http://www.cbc.ca/news/canada/british-columbia/vancouver-tech-jobs-1.3772400
Garth, here’s the Duhaime link.
http://vancouversun.com/storyline/more-and-more-chinese-cases-target-property-in-b-c-say-lawyers
“For makers of cheap cars, last year might have been the peak. It won’t be so good again for a long time to come.
Ford as good as said so this week when the motor company gave warning that profit would be down this year, in part because the U.S. car market is looking very soggy, but also because Ford is increasing spending on new technology: electric and driverless cars.
The entire auto industry is now convinced that the volume car market will soon be a utility business. Listen to Mark Fields, Ford’s chief executive officer: “For years we have very much thought about the ‘thing’ and how much of the ‘thing’ we sold. Now we are thinking more about usage … and so miles travelled becomes an important metric.”
In other words, we are approaching the event horizon leading into a new motoring universe in which you don’t buy a car; instead, you buy so many thousand kilometres a year. It’s just like your deal with the phone company – so many hours of talk, so many gigabytes of data and a handset is thrown in with the package.
General Motors is concerned that Silicon Valley is about to chew up and spit out Motown’s business model – so worried that GM apparently offered to buy out the majority shareholding in Lyft, the ride-sharing company in which it already has invested $500-million, for $6-billion (U.S.).
Meanwhile, a huge financial industry, almost on the scale of the mortgage market, provides credit for car buyers. Whether the auto loan providers need to consider whether the underlying manufacturing business model of the car industry is sustainable is a moot point. If it shifts significantly to service operators, car clubs and glorified taxis, what is the future of automotive credit?”
http://www.theglobeandmail.com/report-on-business/rob-commentary/executive-insight/the-auto-industry-lacks-strategy-and-thats-worrisome/article31913229/
Its all about the money these days unfortunately.
Why can’t we live in the good ol’ days where its about the principles as well.
Trump 2016…will be a repeat of Brexit.
Might as well sell those accounts and wait until November, then buy in again. Positive thinking never beats rational planning.
Garth, are you (or your fund managers/colleagues) ever short the market? Makes sense to switch sides sometimes depending on valuations, no?
Or are they long-only type of investors?
Just wondering…
Speculating is gambling, not investing. — Garth
People, take note that 3 members of the FOMC wanted to raise rates at today’s meeting. Baring a meltdown, higher rates are coming, whether you can deal or not. They did stress in the statement that they foresee rates staying below what would be considered normal in the past for an extended period of time.
With the amount of automation coming, I just don’t see a very good outlook for employment long term. Inflation is basically dead. I don’t have a basis for saying this, but I think that the fed funds rate settles around 2-3% ultimately.
BTW is it not a systematic risk to have most high tech innovation going on in a major earthquake zone? Seems like poor planning we’ll reflect on one day.
The smart people will leave the high cost of living in Canada and move to another country. This is the most likely outcome for people hitting retirement age in Canada.
Trump has a Trump App. I just signed up as Smoking Man
Look for
America First Android or Apple.
Landslide… He’s getting the millennials now.
If they raise rates it’s going to unleash a global derivative fueled s— storm.
Thanks to J Yellen, a lot of people are experiencing the flu today… affluenza
“But the difficult reality is that savers must adjust their plans.”
When I saw that the U.S fed is now more dovish with its dot plots, I bought REITs and preferred.
Bank of Montreal REIT ETF ticker = ZRE
Bank of Montreal Preferred Shares ETF ticker = ZPR
It’s clear that canadian retirees will be forced to buy 5%+ dividend stocks. How else can they generate income?
It’s a matter of time. Better to buy before they do!
Here’s another one calling for Chinese dude tax, this time coming from no other than Joe Oliver: http://business.financialpost.com/fp-comment/joe-oliver-we-have-no-choice-but-to-slap-a-tax-on-toronto-houses-being-bought-by-foreigners
#19 Mark on 09.21.16 at 6:48 pm
“20 years from now my kids will ask me why I never borrowed when money is free, what will I say?”
The best time to borrow money is when interest rates are sky-high, and assets are basically selling for distressed prices. The worst time to borrow money is when interest rates are very low and assets have already priced in the low rates.
===================================
I’d rather have expensive money and cheap assets, than cheap money and expensive assets.
See how easy that is to say in less than 5,000 words?
Canadians are dumb.
Hi Garth,
Investing today is riskier than it was in the past, because market values for assets are clearly manipulated by non-market forces and not the business cycle. Business cycles mean revert, but the Central Bank politburo are unpredictable (although Janet Yellen has become pretty predictable lately).
Do you have any idea what it would do to your globally diversified 60/40 portfolio if the risk-free rate returned from near zero to historical norms? Even worse, if the risk-free rate doesn’t return to historical norms, future returns will be much lower than in the past (the recent 6.5% return you mention was due to asset appreciation fueled by lower future return expectations, not growth in the ability of underlying assets to generate long-term cash flow). This is called financial repression, or alternatively TINA. “No Yield for You”!
The BOC is manipulating the market in an attempt to pull future consumption forward by making the time value of money zero. At the same time T2 is trying to force ‘savings’ by increasing the Canadian Ponzi Scheme tax.
There’s no market anymore – no choice for savers to save and spenders to spend. The BOC has told us to snort debt by repressing savers. The academic elites seem to believe we can indefinitely postpone the next recession, and that this is somehow good for our economy. The worst part is that savers are being repressed and then told not to bother consuming in the future. The message is “live large now, then when you get old eat cat food and die”.
Central Banks will be a very large political issue in the future. The Proles are catching on.
My two cents. Now back to that my tinfoil hat and that Zero guys’ tabloid.
Portfolios are not static. That’s why there are managers of them. Relax. — Garth
#51 Andrew
Great share…I do some consulting for car dealerships and there is a big pow wow next week for some of the big players out there…..could this be planning more for this?
Any guesses out there for the next rate hike date?
Butts T2s right hand Man bills tax payers 200k for moving expenses. And it’s just year one. Prises George Soros.
Canada is doomed.
Saving is a prerequisite for investing. You start off small and build it up like a snowman in January. Time is on your side when your young. It’s known as time horizon. Trust me, the years fly by.
It might seem like a waste of time when apple pumps out the next new toy or that new 60 inch 4d flatscreen hits the market. Saving is so boring. Is it better to be cool to your peers or shrewd? Screw that junk.
Down the road things start to make a lot more sense to those that sacrifice stuff that looses value anyways and realize how important that little nest egg can grow to significance.
It’s time to study the subject of investing, even if you hire a pro.
Having a liquid portfolio can give one peace of mind and freedom while many others sweat away trying to keep their head above financial water. It takes time and effort and is well worth it.
The nearer your destination The more you’re slip sliding away. Rise again and like The Mary Ellen Carter rise again . The dividends pay mightily given the current discount rate and with the internal rate of return one would be foolish to not invest . Invest in the future if you get my drift .
Blow up the Fed. Complicit for engineering and enabling the greatest theft in history
http://www.otterwoodcapital.com/blog/yellen-confirms-partisan-politics-play-no-role-in-fed-policy/
“The worst part is that savers are being repressed and then told not to bother consuming in the future. The message is “live large now, then when you get old eat cat food and die”. “
Savers are *not* being repressed by ZIRP. ZIRP has actually delivered illustrious returns to people who save either in cash or fixed income investments. The PV of their investments has almost never been better, and the low rate environment is also a low tax environment on account of incomes taxes being computed on paid coupons.
Additionally, as the BoC chair implied today, there are plenty of other ways to save other than merely in cash and fixed income. BoC policy rates are extremely low because Canadians generally have refused to invest in the ‘stuff’ that grows the economy. The TSX, rather unbelievably, is trading at a significant discount to its long-term average P/E, P/B, and inverse dividend yield. In this low rate environment. As Garth reminds us constantly, Canadians are severely overweight fixed income assets and are not taking risk in the (Canadian) stock market. Until this changes, the BoC will likely be forced to run extraordinarily low policy rates. Meanwhile, owners of investments such as the TSX will likely experience significant excess returns.
Traditionally the TSX dividend yield has traded significantly below the 30-year GoC bond yield. If the TSX60’s dividend yield were even to match the 30-year GoC yield, the TSX would need to trade at 3%/1.8% * 14.7k = 24.5k. Unbelievably, that’s just dividend yield equivalency, to say nothing of earnings yield equivalency. The dividend yield of the TSX60 is approximately 40% of the earnings yield. If we use earnings yield, the TSX belongs in the 60k range. Yes, that’s right, in the 60k range. Sure, the TSX at a P/E of 60 would be rather expensive, but if RE can trade at a P/E of 35 nationally, and well in excess of 60 in Vancouver/Toronto, what’s to stop the TSX from reaching such a P/E in a mania? The TSX went to a P/E of ~33 in the 1999-2001 Nortel-led mania pretty much on the strength of Nortel alone with the rest of the index pretty much in the midst of a resource sector depression no less.
The big losers of the next phase of the Canadian economy are likely to be homeowners and cash/fixed income “savers”. Both will be left in the dust as the market starts to finally leave the mess of the past 16 years since the Nortel apex behind.
Garth…does the fact that the Fed did not raise rates lead you to question the relative health of the global economy, and therefore the likelihood of future rate hikes? We were told 2 – 4 this year and we may get 1? What do you expect in 2017? Until we see clear evidence that the Fed will normalize rates in a more decisive manner the probability is that we will continue to see asset bubbles, such as the housing market continue.
Moderation in everything and every thing in moderation. Yesterday all my troubles seemed to far away how I wish for yesterday . Tell me where are you going.?
Here is a link to a Canadian all bank portfolio explanation. It’s not for everybody but it works for my risk tolerance and you pay no one any fees. For every 1% of $1,000,000 you would pay $10,000 in fees to an adviser. If you pay 2% to 3% it’s $20,000 to $30,000.
My wife on the other hand couldn’t handle the ups and downs and she can hire Garth when I’m gone.(her mother is 99 years old)
For portfolios over $1 million fees are less than 1%, and deductible from taxable income on non-registered accounts. Only a fool (or an amateur, or a cheap person) would invest everything in a few stocks in one sector of one market. — Garth
If you own a home or rent, work or dont, the outcome of this will be bittersweet. After Christy has invested $500m in rentals, and after she is reelected, the Canadian banks will be reeling from non performing loans and the wimp T2 will bail the banks out. Oil will be $25, the Loonie at 50 cents, and T2 will print so much $ that we will need to add an extra 0 to the price of anything in Canada.
“Meanwhile, a huge financial industry, almost on the scale of the mortgage market, provides credit for car buyers. Whether the auto loan providers need to consider whether the underlying manufacturing business model of the car industry is sustainable is a moot point. If it shifts significantly to service operators, car clubs and glorified taxis, what is the future of automotive credit?””
Self-driving cars are expected to cost in the high 6-figures to low millions per unit. They will be extremely financially intensive items to own. The SDC proponents are pushing them on a shared usage model for precisely this reason — the cost of building them with the requisite levels of safety and systemic redundancy is likely to substantially exceed that of the ability of the vast majority of the population to own them.
The nature of self-driving cars is such that the owners of them will be forced to maintain a fairly close relationship with the manufacturer for ongoing engineering support and updates. Gone will be the days when someone can drive a vehicle off of the dealer’s lot and never deal with them again. Basically say ‘good bye’ to the automotive aftermarket — because so much of a self-driving car’s systems will be important to the proper functioning of the automation, the manufacturers are almost certain to be able to coerce regulators into prohibiting after-market parts and non-dealer maintenance unless such parts and servicepeople have undergone extensive certification activity led by the OEM.
The whole ‘self-driving car’ paradigm has very serious economic problems. Million dollar vehicles. The requirement for highly skilled and trained maintenance at a dramatically higher level of competence than used on the current vehicle fleet. Mandatory periodic checks. Mandatory operator training and certification. Enormous infrastructure investment required in roads that will be enabled for ‘self-driving’. Personally I find it hard to believe that any of it will add up to a realizable self-driving car fleet that will deliver transportation at a lesser cost than a personally driven car, or shared transportation through a ride-sharing service and a human driver.
“As for the ‘safe’ component of the portfolio, a small government bond exposure helps keep volatility down, but ensure you have higher-yielding corporates or provincials as well,” GT
So do you still recommend bond funds as opposed to individual bonds?
Unless you have a few million. — Garth
I like Vancouver real estate strategy better than portfolios of stocks and bonds.
Buy a condo as an investment. Rent it out. Declare is your Principal Residence so no capital gains tax. Collect rent as cash or cash cheque at money mart.
Revenue Canada has no clue.
Hundred thousand condo units functioning this way in Vancouver right now.
Thanks for not closing the loophole Trudeau. Sunny ways.
It’s no loophole. You are a criminal. — Garth
#66 espressobob
You talk too much sense. Consequently, no audience. More unicorns and sunny ways. That’s the ticket.
People, take note that 3 members of the FOMC wanted to raise rates at today’s meeting. Baring a meltdown, higher rates are coming, whether you can deal or not. They did stress in the statement that they foresee rates staying below what would be considered normal in the past for an extended period of time.
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You must not understand the political science of optics. Some fed members ‘wanted’ an increase – which has been the case for the last several meetings – not something that is new. That helps keep people thinking that rates might rise, which supports Yellen’s messaging. All posturing.
And the new normal, getting back to 4-5% is a pipe dream. Even if rates went back to 2%, which is more likely, that would hardly tickle the RE market here in Canada.
#72
It works !
http://www.theglobeandmail.com/globe-investor/investor-education/should-i-bank-on-an-all-bank-portfolio/article21295299/
Garth,
You have been talking about a 7% portfolio, now 6.5% for sometime vs GIC, etc. But the best thing would be to look at the spread from the typical Canadian investment portfolio vs your model and graph this. Long term portfolio returns are decreasing (Rolling 25year compounded return graph)…everything has to be put into some context, backtested and made visual.
Except the part about buying a condo loses money after paying the mortgage interest, maintenance fees and property taxes. You don’t pay taxes on a loss so no point in cashing the cheques at money mart. Add in prices are going down now so there will be no capital gain to avoid either. Some people live in a fantasy world.
Canadians Sure Are Indebted
The latest from China:
“Oh, you from Canada? Everybody in Canada has villa! [ed. note: in China, a SFH is called a ‘villa’. Yes, even your little bungalow on Maple Street in Beaversville, Canada is a ‘villa’.] I have niece in Canada. She is married. Everything, they borrow money! House – borrow big money. Car – borrow money. Even refrigerator – borrow money! Everything, borrow money!”
#49 Andrew Woburn on 09.21.16 at 8:09 pm
It’s not all rocks and trees out here.
– B.C.’s high tech boom blasts wages skyward
High tech sector now employs more people than mining, oil and gas and forestry sectors combined
http://www.cbc.ca/news/canada/british-columbia/vancouver-tech-jobs-1.3772400
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Everyone knows that RE related jobs account for about 30% in Lotus Land.
On behalf of the 10 million canadians with nothing, i would like to say sure. tfsa are great, everyone i know doesnt have 5500 per year, or any year to save. They have no savings, never have, never will. They simply work for $12.50 per hour, and rent an apartment, millions of people, work every day and are not working poor, they are serf’s, 2016 variety. The number of people i know who dream of making $1500 per month from the goverment when they are 65 will astound you. Not Garth’s clients, the regular people the people who have nothing. you know the girl who served you coffee today, the young mom you saw with the baby stroller when you were stopped at the lights. The old guy walking slowly. Real Canadians. Most of you come from good families that support you, back you up, pick you up when you fall. You have the genes to not get sucked into drugs or influenced by bad people. You go to school, like all your friends, you get a job, and meet a like minded person and create offspring who will continue that. Millions of others are not in that lane, and never were. They were done at birth, bad genes, bad family, no drive, etc. Ask any teacher in grade 4, they can tell you with about 80% assurance who is going to win and who isnt going to in life.
On the subject of Canada…
for all its faults, it is at least in education doing pretty well.
So our future should be bright.
Three Canadian universities in the top-50 world wide best is pretty impressive.
https://www.timeshighereducation.com/world-university-rankings/2017/world-ranking#!/page/0/length/100/sort_by/rank_label/sort_order/asc/cols/rank_only
“It means more months of cheap rates, easy money and a lower American currency heading into the weirdest Presidential election campaign since ever.” – Garth
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Garth, with a 1/4 point increase it still would have been cheap rates. Cheap rates will be with us forever. That’s obvious. There is no way that the economy could ever withstand “normal” rates again. Expensive oil has seen to that.
#49 Andrew Woburn on 09.21.16 at 8:09 pm
It’s not all rocks and trees out here.
– B.C.’s high tech boom blasts wages skyward
High tech sector now employs more people than mining, oil and gas and forestry sectors combined
http://www.cbc.ca/news/canada/british-columbia/vancouver-tech-jobs-1.3772400
*************************8
At the bottom of the article it states that the film industry is leading the way, not sure about the Tech industry as the usual suspects were mentioned – pre election job feel good ad. What happened to all the sawmill / forestry jobs shipping raw logs is not helping our communities out. People can’t afford to live in Vancouver so much for the tech industry.
Hey Garth what is your opinion on robo-advisories such as Wealthsimple, BMO Smartfolio etc. I find that they are too reliable t on ETF’s, some of them very questionable.
Thanks.
Moved from YVR to Il Bel Paese (retired, sold home and live north of La Serenissima). If you can get an EU citizenship get it, I did a long time ago for retirement purposes. For comparing cost of living, excellent web site at Numbeo (compare your current city vs. another world city):
http://www.numbeo.com/cost-of-living/comparison.jsp
Depending on the city, you can get a heck of a nicer place here than in YVR, understatement of the year (and Italian RE market is hurting, so many great deals).
Italian healthcare per WHO is #2 in the world vs. #30 for Canada (important to me as over 60). Deserved ranking, had a car accident recently in S. Italy and got X-Ray, CT Scan within minutes of arriving in emergency and into a bed minutes later.
Better yet, air/train travel here is dirt cheap compared to Canada. Draw a circle with a radius from N. Italy to London, England (about 2 hrs flying time) and courtesy of discount carriers you can be to any of those destinations cheap (e.g., today for €428 I could fly to London, return, incl. a stay of 2 nights in a 4 star hotel, about $650…and that is considered an expensive package here or fly to Amsterdam today for €114, $170, return).
Keep your bank accounts in Canada, Italy has negative interest rates (not really, just 0% but they tax you 0.065% up to a small limit on money in an Italian bank account, yearly). Let Cdn. Gov. know where you are, they will take care of you in bad times (got an email within hours of recent earthquake telling me what to do, where to go for help etc.,…good old Canada). I bitch about Globalization courtesy of financial networks world wide, but for once, for that I am grateful…Bancomat (Italian for ATM) lets me withdraw cash from Canada or Italy in the EU as I please.
Also, the food is much better…and please, do not come here and order Spaghetti alla Bolognese, it does not exist and nor does a Hawaiian Pizza, for that matter.
Today a frigid 25 deg C in N. Italy.
bsant54
I predicted a long time ago Trump would win, after Hillary 9/11 stumble, illness and deplorable’s gaff, Trump surged gaining nearly 60 EC votes in the surge.
Today, surge gone, back to what it was (from RCP EC, No Tossups):
Hillary = 301; Civilization had a good run Trump = 237.
Recent opinion polls, Clinton back at +6% to +7% over Trump (was Trump a tie or up by 4%).
All this in a week. Talk about volatility.
Keep dreaming SM…applies to me as well.
bsant54
Mayfield has gone “bye-bye” and nobody knows what to do.
Last year, jobs up but average wage increase, adjusted for inflation, in BC was:
-2.7%
Huff Post article using StatsCan data:
http://www.huffingtonpost.ca/2016/04/04/inflation-outpacing-wage-growth-earnings-shrinking_n_9611794.html
StatsCan not adjusted for inflation (0.9% yearly increase, in essence flat):
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/labr69k-eng.htm
I admire your positive attitude; however, the data current data says otherwise.
One reason I worry about what would happen in an economic downturn in Canada at current Canadian debt levels, even living abroad (want to return to a vibrant Canada, not an economically depressed Canada).
bsant54
#26 Let’s Get House Horny, talks a lot of sense. A lot.
Re: #79 Bankish on 09.21.16 at 11:36 pm
The rest of the world is short the Canadian bank stocks. Only Canadians buy Canadian banks stocks.
Here is your projected equity loss whilst you are breaking Cdn. tax law:
https://cloudup.com/cPitaqJ38qB
Take note, the current average price drop line (the ubiquitous black line) vs. price projections based on prior price crashes (blue dashed lines). If like the 1980-1985 crash, you will have lost on average vs. the 2016 peak price:
$1 MM in equity
Well, there goes your investment property write-off since you like to break Cdn. tax law.
bsant54
Just how are pensions going to be funded for the wrinklies who are collecting now until eternity and the future class of entitled collectors?
We need a big flush and a fresh deck of cards, people. The entitlements of pensions and retirement promises are going to suffocate what’s left of our economies.
Unless rates go higher the mathematical certainty of a massive depression and full on economic collapse is 100% guaranteed.
There’s already very little funding left for anything else. Health care costs have skyrocketed because people live longer. We have expensive health care on top of expensive retirement for a larger and larger portion of the population.
Who is going to fund this? The poor slobs who were unfortunate to be born as Millenials and who often don’t have two pennies to rub?
Interest rates are low. Growth is anemic because the oldies don’t need as much or can’t afford it and the young ones are up to their eyeballs in debt. Government can try and stimulate all it wants, the bills and problems are just getting larger. Stimulus into .gov jobs just means that the train of entitlement gets longer.
Don’t care what anyone says or thinks. We need the flush. We need to restart and reset. There is no plan to fund all this entitlement. The young ones have no money to set aside. Everything is upside down and topsy turvy. It should be the young who earn, save, consume and contribute. Instead we have generations who are overburdened in carrying the ponzi for the old.
It cannot last. None of the policies are sustainable. The old are living the life of Riley for decades after they stopped working and paying into the system. The young are doing the heavy lifting and cannot start and build families.
As a society we are totally messed up.
Thanks Boomers for wrecking our country’s finances!
So money is “cheap”, and that means everybody should borrow their brains out?
The current meme is that there is no risk to borrowing big and living high because it’s free money.
What I cannot get my head around is how the masses do not worry about the fact that every cent of that money eventually needs to be paid back.
So, even if the interest rate is zero, at the very least, the money has to be paid back dollar for dollar at some point.
Even if people die before the money gets paid back, doesn’t the responsibility fall to the estate?
Can someone explain to me (seriously), who will ultimately be left holding the bag for the massive unpaid debt (I mean the principal, not just the interest being serviced) in the future?
Who will be on the hook for all of this borrowed money?
How will the lenders get all of their money back at the end of the day?
I know that there are some very smart blog dogs out there who I am sure can explain this.
Thanks.
TO Major, is talking about supporting Toronto hydro to provide electricity for the approved condos.
Previously he was opposing it completely.
Love this blog. Good advice. Invest invest invest….not so much in houses anymore but in physical gold and silver! When the housing bubble burst gold will go up….
#78 Low rates for life someone said…..I think so too….to many people would have to chuck the keys at the bank if interest rates went up now…
crossbordershopper on 09.22.16 at 12:41 am
On behalf of the 10 million canadians with nothing, i would like to say sure. tfsa are great, everyone i know doesnt have 5500 per year, or any year to save. They have no savings, never have, never will. They simply work for $12.50 per hour, and rent an apartment, millions of people, work every day and are not working poor, they are serf’s, 2016 variety.
—
It can sure feel that way, but all is not lost. Speaking from experience, I know that even at minimum wage or thereabouts, spending expands and contracts with available funds. There’s always a way to tuck 100 or even 50 bucks a month away. It’s the exercise of saving that’s important. It’s true what they say, eventually you don’t miss it. Gotta start somewhere.
Malkiel, who spent 27 years on the Vanguard board says:
…”robo-advisers— use index funds to build automated investment plans for a fraction of the fees charged by traditional advisers. Just as index funds brought down the cost of investing, robo-advisers will bring down the cost of advice…The one thing I know is that the less I pay the purveyor, the more there will be left for me.”
===============
What about wealth advisors with services offshore that “protect “money from the exwife, greedy inheritors ,government tax rules , scammers etc…as Brooke Harrington describes in her book “Capital Without Borders”
https://www.theguardian.com/business/2016/sep/21/how-to-hide-it-inside-secret-world-of-wealth-managers
=============
An academic investigating offshore tax havens suspects a Mossack Fonseca wealth manager she spoke to may be the source of the recent data leak.
Brooke Harrington is a sociologist who has spent almost ten years investigating wealth managers, including studying to become a wealth manager herself.
She told Nine to Noon she spoke to someone as part of her research who was very deeply conflicted about his work at Mossack Fonseca.
She said he could see the damage his firm was doing in terms of creating inequality and poverty.
http://www.radionz.co.nz/news/national/300779/was-'troubled'-manager-source-of-panama-leak
#86 Say What? on 09.22.16 at 1:05 am
Garth, with a 1/4 point increase it still would have been cheap rates. Cheap rates will be with us forever. That’s obvious. There is no way that the economy could ever withstand “normal” rates again.
_________________________
I agree with you that rates aren’t going up much if at all and not over the next 18 months based on current economic conditions. But when you throw around words like ‘never’ you lose credibility. Don’t mean to pick on this example but it’s a pet peeve of mine.
The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge” – Steven Hawking
We’ve gone from 4 anticipated rate hikes at the 1st of the 2016, to perhaps one; definitely, maybe.
The BoJ experimental monetary policy continues to fail; even though: “– the Bank of Japan now owns 60 percent of the country’s market for exchange traded funds — produced nothing more than a brief, anemic burst of inflation.”
https://www.bloomberg.com/view/articles/2016-09-21/monetarists-are-out-of-ideas
With one of the slowest post WW II expansions on record, (and massive/ multi pronged monetary policy initiatives ever undertaken in history) global growth continues to flounder according to the OECD.
(By the way Janet, the OECD found those nasty asset bubbles that seem to have escaped the FOMC’s observations.)
OECD Warns Fed, BOJ, ECB of Asset Bubbles, “Risks to Financial Stability,” Pinpoints US Stocks & Real Estate
http://wolfstreet.com/2016/09/21/oecd-warns-fed-boj-ecb-of-asset-bubbles-risks-to-financial-stability-pinpoints-us-stocks-real-estate/
Unfortunately, the lesson being learned is that you can conjure up financial activity through monetary policy but you cannot create sustainable economic growth.
Who knew?…
http://www.cnbc.com/2016/09/22/us-markets.html
Stocks up as street cheers fed!
Party like it’s 1929!!! Yeah baby!!!
MF
More foolish housing analysis by a biased developer, you can’t make this stuff up: https://fortressrealdevelopments.com/news/mm-ben-myers-pulse-edition-fall-2016/
#84 crossbordershopper
Great post. Depressing but true. The 1%ers on this blog seem to forget how lucky they are.
So go out and buy a revenue property financed to the max at ultra low rates, charge market rent (which is ultra high) and reap the profits. Don’t be concerned about paying down that debt, hold on while your equity grows through natural appreciation.
Such an idea fraught with peril? Maybe… maybe not. More have prospered than failed doing so… far more.
Of course we can anticipate an onslaught of naysayers to refute. Refute on my friends…
};-)
#28 Dave on 09.21.16 at 7:28 pm
Lawyers in Vancouver say they are seeing a substantial increase in B.C. court cases filed by Chinese companies seeking to seize real estate assets from Chinese immigrants in B.C.
Based on the case, Duhaime says she has obtained information from China alleging that “billions of dollars” of bank fraud proceeds are invested in B.C. real estate. She said she could not share the documents for reasons of client privilege.
http://www.calgaryherald.com/news/more+chinese+cases+target+property+lawyers/12181112/story.html
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bout time – this $hits about to blow
It is not the Fed that dictates interest rates in the long run. The Bond market will have it’s way regardless what the Feds wishes might be.
http://business.financialpost.com/fp-comment/joe-oliver-we-have-no-choice-but-to-slap-a-tax-on-toronto-houses-being-bought-by-foreigners
#103 CJBob on 09.22.16 at 8:50 am
The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge” – Steven Hawking
He should know first hand, has invented nothing, no patents, just a unique brand filling up a blackboard with equations that are wrong and no one understands.
And then there was Tesla and Either.
#88 Andreas Marouchos on 09.22.16 at 2:05 am
Robo-advisories… I tried working with “Canadian Robo-viser” (The bird $ brand) and they failed miserably….
Easy setup, all automated, automated emails started coming to to fund the accounts too (all normal stuff)…
Where they failed (for me) is I had a few simple questions to which I simply replied to the automated emails to fund my account and I never received an answer. “Jenny” was the sig on the emails however it was someone else who replied. I think “Jenny” was a robot (I even asked in the reply too). Was too hard to work with anyone which made it look like the whole company was an automated robot.
When trying to close the account (that was never funded) all I heard was crickets. The total lack of customer service speaks volumes of what you get (it’s been weeks and I never received any automated email that my account was closed, had to chase down “Jenny” to get a quick 1 liner for someone else who replied that stated “Use this email as confirmation that your accounts are closed”)… OK….
I think they are the future, maybe a hybrid blend might be a better approach but from my experience they are lacking a human contact for now.
#76 Money Mart you say….is that why there are so many payday loans shops in the lower mainland that they appear to outnumber the banks? Time for the CRA to create a portal for renters to report who their landlords are.
On the loan side of these payday shops, we have this decision by the BC Libs. Insanely high interest rates are there for good reasons.
http://www.cbc.ca/news/canada/british-columbia/b-c-to-reduce-maximum-charge-on-devastating-payday-loans-1.3773206
Garth – 6.5% is a good return! I’m 27, read the blog all the time and just bought my first house, however, it was a duplex, rent covers multiple expenses including the mortgage, I’ve made +$150,000 non-capital gain from my hard labour but I’m faced with a difficult question that you don’t blogging about much! – Is it worth taking the equity of your home and investing? I’m refinancing and am looking at 2.39% fixed less interest deduction for tax reasons. I don’t know if I should borrow against property and invest +$100K, the 6.5% is a good reminder and is very attractive. I’m surprised you don’t mention this more frequently! Cheap money!
Leverage is debt, which augments your risk. Without knowing everything about you, including your boxer shorts size, I cannot make a recommendation. — Garth
Of course the Feds didnt raise the rates….and Poloz gives us the lecture. I fear the the status quo remains… Nah….Christmas is around the corner for us debt hungry Canadians. Lets rack up those credit cards, new car loans and mortgages. Our debt to income ratio should be that much higher by Jan 2017. Not us savers.. the Mrs and I are heading to the tropics to work on our tans and dry out. Its been a wet and cool this summer in Ab.
#107 Noel
Being a 1%’er has nothing to do with luck.
#84 crossbordershopper
You don’t think successful people fail? They fail all the time. What they don’t do is blame it on someone else. They don’t blame it on their family, their friends or their gene pool. They pick themselves up, learn from it and carry on. You don’t think we all worked for minimum wage at one time. Stop blaming everyone else, make better decisions and get on with improving your life. That’s what 1%’ers do.
Where is the “America is BOOOOMING” crowd? Was really hoping for that rate hike punt analysis only they can provide.
I’d be happy just to hear from “The American” and WalMark at this point.
Is a classic 60/40 diversified portfolio still the way to go, given the statement from Poloz that savers and retirees are screwed? With a long term retirement scenario and even having a good DBPP as a solid core, would it be better to up the proportion of equities in the retiree’s investment portfolio to 70% (or more)? Or does 40% bonds remain the gold standard even in the current environment?
A 1% increase in long-term rates means a 20% decrease in value of bonds. Bump that to 2% and the decrease in bond values hits 35 to 40%.
Scary stuff.
Where did I say 40% in bonds? — Garth
#103
The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge” – Steven Hawking
——————-
That’s why Google is so dangerous.
#120 Classic 60/40 on 09.22.16 at 12:49 pm
Or does 40% bonds remain the gold standard even in the current environment?
//////////////////////////////////////////////
I only have 20% in ETF Cdn bonds, which is not only government but also provincial and corpo.
“The more compelling the argument becomes to have a portfolio with growth assets in it – at least 50%, or better still, about 60%.”
So 40% mix of govt bonds, corp bonds, and preferreds? The preferreds to mitigate the downside risk on the bonds for the fixed income portion of the portfolio?
#51 Andrew Woburn… Wadda I tell ya? Ford is finished just about. As are all the incumbents. Look at Lexus trying to say bad things about Tesla in their California ads. While at the same time, their Toyota division is begging Tesla to borrow their engineers to electrify their Toyotas moving forward.
But the bigger picture is that regular folks in the very very near future won’t need to even consider car ownership. Simply tap your mobile and a driverless autonomous electric vehicle shows up at the curb and takes you where you need to go. Better than a bus, better than a train, more efficient use of the vehicle, no pollution, no traffic, no headaches.
Yes, indeed, chewed up and spit out. “Ultimately this is the point. From San Francisco to Moscow, from Seoul to mighty Coventry (where the UK’s largest driverless car test is taking place), there is a digital infrastructure being laid down… By 2030 our cities, not to mention our cars, may start looking very different. It might be worth thinking about grassing over your driveway.”
http://www.iflscience.com/technology/robocabs-how-long-you-ditch-your-car-driverless-electric-taxi/
#86 Say What? on 09.22.16 at 1:05 am
“It means more months of cheap rates, easy money and a lower American currency heading into the weirdest Presidential election campaign since ever.” – Garth
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Garth, with a 1/4 point increase it still would have been cheap rates. Cheap rates will be with us forever. That’s obvious. There is no way that the economy could ever withstand “normal” rates again. Expensive oil has seen to that.
————————————————————————-
Please don’t say forever. Just like the Grand Canyon grows larger ever so slightly each year, at .25% every 8 years, we will have normal rates in the next 120 years or so.
#117 Old Dog on 09.22.16 at 12:12 pm
#107 Noel
Being a 1%’er has nothing to do with luck.
_________________________
Yes, the three billion plus people worldwide who live in abject poverty just aren’t working hard enough.
Re: #38 Dave on 09.21.16 at 7:49 pm
““One of our next projects is a Toronto house we are looking at, worth $100 million,” Duhaime said. “A guy went to a bank in China, defrauded them, got a loan and all the money in one day, and moved to Canada and got a mansion. And no one asked any questions, even though he never worked a day in Canada. It’s all the same type of story, where a foreign national doesn’t have a job, but is living in homes in Canada and owes money to a bank in China.”
Source? Link? — Garth
Here’s one: http://news.nationalpost.com/news/canada/meet-the-mysterious-tycoon-at-the-centre-of-half-a-billion-in-b-c-property-deals
Not $100 million, but $500 million
#28 Dave on 09.21.16 at 7:28 pm
Surprising absolutely nobody, although everyone is of course shocked, shocked.
Institute tax -> 97% drop in foreign buyers, 50+% drop in home sales.
Are we finally allowed to discuss the elephant in the room without being Hitler?
#124 Neil Armstrong
Simply tap your mobile and a driverless autonomous electric vehicle shows up at the curb and takes you where you need to go.
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I’m still waiting on those personal jet packs that were promised back in the fifties. By now I should be able to conjure one up on my 3D printer.
Seriously though, it’s time we stopped thinking small. By 2100 there probably wont be a need for anyone to go anywhere. The great singularity will be complete. Virtual reality will be the only reality.
http://www.bloomberg.com/news/articles/2016-09-22/greenspan-warns-bond-rally-untenable-as-bill-gross-says-go-long
Is this the Greenspan “Irrational Exuberance” equivalent speech for the bond market?
B Gross says go long. Buffett says “never ask the barber if you need a haircut”. I’m with Buffett.
Will the July lows prove to be the ultimate bottom for bond yields? Hmmmmmmmmm.
Sorry, this has nothing to do with the blog topic. I was bored at work today, reading about the Panama Canal and discovered this quote. Thought I’d share it:
The following words of Theodore Roosevelt are engraved in a plaque on display in the Rotunda of the Administration Building, and more than anything else convey his personal philosophy and the spirit of his thinking about the achievement at Panama:
“It is not the critic who counts, not the man who points out how the strong man stumbled, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena; whose face is marred by dust and sweat and blood; who strives valiantly, who errs and comes short again and again; who knows the great enthusiasms, the great devotions, and spends himself in a worthy cause; who, at the best, knows in the end the triumph of high achievement; and who, at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who know neither victory nor defeat.”
source:
http://www.pancanal.com/eng/history/history/end.html
just turned 35. In YVR. Family income – 175K p.a.
selling the townhouse this year, going to put the 300K profit into an unregistered portfolio of preferreds. Reinvesting proceeds via DRIP.
Maxed out TFSA. Synthetic DRIP set-up.
simultaneously, selling my overseas condo, netting 100K, dumping that into a 10% d/p into an 4bed duplex.
I think Freedom 55 will be very attainable at this point.
Teck (B) wrecked today. Third time’s the charm.
#Tony
It looks like foreign buyers were never a driver in BC Vancouver real estate….not….says the data :)
“The Ministry of Finance figures released Thursday show an almost total collapse in the foreign buyer real estate purchases in Metro Vancouver, from 1,974 sales valued at $2.3 billion during June 10-Aug.1, to only 60 sales worth $46.9 million.
The data suggests an almost 97 per cent drop in the number of foreign buyers in Metro Vancouver after the tax came into effect. ”
http://vancouversun.com/business/real-estate/new-sales-figures-show-dramatic-drop-after-b-c-foreign-buyer-tax
RE: #84 Crossbordershopper:
“tfsa are great, everyone i know doesnt have 5500 per year, or any year to save.”
$5500.00 per year is $15.00 per day.
Perhaps not everyone can sock away $15.00 per day (works out to $105 per week) but a lot of people can.
Most people spend about $5.00 per day on coffee and another $10 – $20.00 per day on their lunches.
So buy a coffee machine and pack a lunch. There you have your $15.00.
He is right about the TFSA. Start putting money in as soon as you can and keep putting money in. I have two of them stuffed full of REITs and ETFs and they produce like you wouldn’t believe. Constant money coming in all the time, all month long, distribution after distribution.
This is real. You actually can draw an income off these things. If you are getting CPP and OAS, an extra few thousand per month off of a TFSA can mean the difference between that basement apartment and a nice loft. When you are in your 70s things like that matter.
#112 Smoking Man on 09.22.16 at 10:59 am
#103 CJBob on 09.22.16 at 8:50 am
The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge” – Steven Hawking
He should know first hand, has invented nothing, no patents, just a unique brand filling up a blackboard with equations that are wrong and no one understands.
And then there was Tesla and Either.
…………………………………………………………………..
Whats this thing about Tesla with you, he was a smart guy but a rather poor investor and was constantly broke. Owed everybody money for decades. Died penniless, alone and destitute. Came to the promised land and never looked back at his homeland!
digital security eft’s ? “hackers” driving these up?
yahoo -hacker claims -500m accts
Dropbox hack 68 million records.
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turned over drug personalities to DOJ
phillipines
http://www.amlc.gov.ph/
=======
Ring fence
Trump never mentions these maras, and pandillas
85000 members
http://www.cfr.org/transnational-crime/central-americas-violent-northern-triangle/p37286
The Obama administration said that its aim was to deter would-be migrants. Meanwhile, the administration announced it would expand its refugee program to admit as many as nine thousand people each year from the Northern Triangle and enlist the United Nations to help screen refugee claims in Latin America.
#118 Old Dog on 09.22.16 at 12:21 pm
#84 crossbordershopper
You don’t think successful people fail? They fail all the time. What they don’t do is blame it on someone else. They don’t blame it on their family, their friends or their gene pool. They pick themselves up, learn from it and carry on. You don’t think we all worked for minimum wage at one time. Stop blaming everyone else, make better decisions and get on with improving your life. That’s what 1%’ers do.
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Yer a hard ass Old Dog, Thats fer sure!
Try pondering what your life would be like if you were born in Accra or Lagos, Nigeria.
http://www.numbeo.com/quality-of-life/compare_cities.jsp?country1=Nigeria&city1=Lagos&country2=Ghana&city2=Accra
Of course the smart ones in any society can improve their lot exponentially but even Warren Buffet may have never got the opportunity to exercise his talents if he were born in Lagos.
https://www.youtube.com/watch?v=QLD0p1QpcI8
Point is there is a lot more luck in your life than you think!
This reputable and valid data speaks for itself about the impact of foreign buyers.
“The Ministry of Finance figures released Thursday show an almost total collapse in the foreign buyer real estate purchases in Metro Vancouver, from 1,974 sales valued at $2.3 billion during June 10-Aug.1, to only 60 sales worth $46.9 million.
The data suggests an almost 97 per cent drop in the number of foreign buyers in Metro Vancouver after the tax came into effect. ”
http://vancouversun.com/business/real-estate/new-sales-figures-show-dramatic-drop-after-b-c-foreign-buyer-tax
#107 Noel
I’ll say this just one more time, Noel. All things being equal, whether you are in the top 2 hundred thousand wealthy or the bottom 3 billion in poverty leaving your lot in life to luck probably won’t work out the way you hoped. Working hard, smart and learning to overcome failure will give you far superior results. If you don’t understand that concept, then so be it.
OK. This triggers some itches I need to scratch.
Beginning with:
“But the difficult reality is that savers must adjust their plans.”
Big news for the Grand Poobah of Canada’s cb:
1- Everybody must adjust their plans. Everybody. From lowly savers to businesses watching profit margins melt- in particular, retailers and most service providers;
2- You may very well be the last person most Canadians would consider taking advice from;
3- Contrary to the all-knowing, Wizard of Oz aura most central bankers affect, no one can predict the future and perhaps most especially cb-ers;
4- We’re all still waiting for ANY sign, however remote, that our cb is able to begin healing the economy.
Course corrections are a constant for most people and always have been.
Except perhaps for…………T2 peerage receiving grossly unjustifiable quantities of taxpayer cash for “moving expenses”.
At once, given that times are tough for so many, this anachronistically inexcusable largesse is a grotesque slap in the face to hard-working Canadians.
The lauded middle class T2 incessantly foams at the mouth about is doing quintuple back-flips on a weekly basis to pay its bills whilst royal court members receive cheques cut to the order of hundreds of thousands of dollars. That’s hundreds of THOUSANDS of dollars. Obscene! (Imagine the feeling of walking on air as you leave your mahogany-paneled office on the way to the bank with that cheque in your wallet or purse). Maybe pick up a bottle of Dom on the way home tonight….
(It smiled inwardly, in the knowledge that no course correction would ever be required in its lifetime)
Completely out of all proportion to the times we live in.
Oh, let “them” eat cake!
Didn’t get my vote last year and that lot will certainly not get it at the next fork in the road.
Prime example of “legal but not moral”.
Perhaps all trauma victims of a BIG MOVE from T.O. and elsewhere to YOW ought to have their plans “adjusted” by a more responsible and genuinely transparent government – not the current version of “transparency” put forth by seemingly unfeeling and uncaring talking heads, blathering on about “plans” and “vision”.
Let’s be frank – the floor is entirely and completely transparent whilst the ceiling certainly is not. It’s well past time for wasteful government practice to change.
We, the people, the electorate, the taxpayers, are paying government to work for us.
We don’t employ them to fast-track OUR tax money to expenditures of all stripes which are sparsely and sporadically disclosed, whilst being TOLD that we must “adjust our plans”, face “austerity” and make do with less. How are these grotesque payments making do with less? A true “us and them” mentality.
I want our taxes spent by government that actually relates to people.
What’s needed is an empowered, third-party fiscal pit bull to put any and all waste on the radar and create a real-time dashboard, accessible to all Canadians, of what’s being spent and where.
The human capability is out there and so is the software. If we can get to the moon and beyond, this stuff is not beyond us.
Sorry Garth, I know I’ve exceeded my word count, but I really do feel that this irresponsibility most definitely impacts the fiscal well-being of Canadians and it seems to be getting worse.
One final point- until the current regime gets the boot, boomers, the “middle class” and especially seniors will continue getting the shaft.
Ugh…. three more years of this vapid, selfie drivel.
http://www.cbc.ca/radio/thisisthat/toronto-black-bears-self-taught-doctor-bathroomless-condo-canadian-invasion-1.3772835/mississauga-condo-developer-forgets-to-put-120-bathrooms-in-brand-new-building-1.3773054
#126 Noel on 09.22.16 at 1:49 pm
Yes, the three billion plus people worldwide who live in abject poverty just aren’t working hard enough.
So what’s your excuse?
@MF on 105
You worry to much.
Let’s Party like it’s 1929!!!
The Great Gatsby – I Can’t Stop
https://youtu.be/TTWumSE8GXM
Epic Party – The Great Gatsby
https://youtu.be/IgcuBOVMGsg
and few more as a good measure
Gentleman – ‘Gatsby Style’
https://youtu.be/5iabyEebfCc
Don’t You Worry Child – ‘Great Gatsby’ Style
https://youtu.be/kGDQd0xJU9g
The Roaring Twenties – Dance Craze
https://youtu.be/yNAOHtmy4j0
Australia seems to get away with incredible amounts of Debit, and yet their house prices are – again – on their way up! Apparently, thay take the title of “world’s most indebted”.
http://www.smh.com.au/comment/how-can-australian-households-get-away-with-the-biggest-debts-in-the-world-20160922-grlsoc.html
Quote from the article – “They predict a nasty recession, where widespread joblessness triggers cascading mortgage defaults, falling house prices and pain for all”
AND
“unequal access to this credit is fuelling rising inequality”
Canada is 2nd to this party. Do you think they will tumble first?
OK, OK, now it’s time for locals to look in the mirror and see who is driving the market…
The foreigners are out, locals still bidding on downtown condos and that i know for sure from 3 trusted realtors. Even they are asking why?
http://www.cbc.ca/news/canada/british-columbia/foreign-buyers-tax-data-1.3772158
#94 Tony on 09.22.16 at 4:20 am
Re: #79 Bankish on 09.21.16 at 11:36 pm
The rest of the world is short the Canadian bank stocks. Only Canadians buy Canadian banks stocks.
Tony buddy you can believe whatever you want, but I’ve had Canadian bank stocks for years through thick and thin and am richer for it. Never sold a stock always had it in a drip and this year with dividends I’m up over $150,000.00. It is what it is.
Its a funny thing how breeding and luck both fade as inputs as one gets older.
Those of you arguing with Noel and Crossbordershopper are missing their point and minimizing what you think they say to improve the point you are making.
Of course luck plays a significant part. All success is a combo of perseverance and luck…mine included.
Just out of high school I found myself way up north, obtained a Manitoba’s fur trader’s license and proceeded to buy fur.
so my bank of mom and dad obviously provided me with the capitalization to start but my luck? As I was shipping my second round of furs to the auction in Montreal prices for beaver pelts tripled while my stuff was in transit.
That paid my family debt in full and bought me a house and four years of University.
Haven’t looked back since.
Part II
That all said there is truth in the replies to Noel and Cross…although I would put it less aggressively. You can spend less than you earn, which is all but impossible for a huge number of working Canadians or you can earn more than you spend which is always possible…if you want to do it.
Here is something I’m thinking about…this spring I’ll bet the terrain underneath ski lifts will be littered with those new ear buds, the wireless ones for the iPhone.
Is there a secondary market…I don’t know.
Can you dip those things in medial silicone and implant them behind a person’s ear…I don’t know
Is there any money there…I do not know.
Or…how about Scrotox, botox only for men?
Never give up guys, ever.
“Will you outlive your money?” – GT
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Absolutely NOT!!
My money is growing at 15-20% year (on average), meanwhile my age is growing by <2%/year (I'm in my 50s).
:-)
I agree with your view of gold completely. It is a speculative distraction. Over the long term, gold steals attention and capital from productive investments resulting in lost opportunity.
Re: #145 Mirror time on 09.22.16 at 5:38 pm
OK, OK, now it’s time for locals to look in the mirror and see who is driving the market…
The foreigners are out, locals still bidding on downtown condos and that i know for sure from 3 trusted realtors. Even they are asking why?
The $3+ billion in bike gang drug money let alone the other gangs that is laundered thru RE here in BC.