By Guest Blogger Ryan Lewenza
The average Canadian household is pooched! This is the current thinking of many economists, investors and blog dog readers. Taken a step further, the Canadian stock market is doomed and we’re just one mistake away from becoming a banana republic. This is, of course, hyperbole and nowhere close to reality, but there’s no denying the tenuous financial state of many Canadian households.
This week I try to cut through the BS and fearmongering and try to provide a reasoned and rational assessment of Canadian household debt and consumer spending habits, and the potential impact on our overall economy and stock market.
A bit of background first.
Over the last two decades we’ve witnessed a huge change in Canadian spending habits and our acceptance of higher debt levels. Without a doubt a key driver of these changes has been our two decade plus housing bubble, which has led to households taking on more and more debt to fund rising home price purchases. The chart below captures this relationship perfectly.
Since 1999 Canadian mortgage debt has risen from $395 billion to $1.53 trillion currently, this equates to a 270% increase! Over this same period, national home prices have increased by a staggering 242%. See a connection here? To further hit home the point I calculated the correlation between the debt levels and home prices and it’s a very high 0.99 (+1 indicates a perfect positive correlation). Correlation doesn’t imply causation, but in this instance, it’s clear as day that rising home prices are the main culprit of our rising debt levels.
Canadian Home Prices and Debt Levels
Source: Bloomberg, Turner Investments
Now, with interest rates on the rise and home prices trending lower, the natural inference is that we’re all pooched with consumer spending and our economy likely heading materially lower. I don’t necessarily buy this.
While I see consumer spending and economic growth slowing due to the higher rates and lower home prices, I don’t see some catastrophic decline in our economy as so many doom-and-gloomers predict. Below is a good chart that shows the relationship between home prices and retail spending. Historically, when home prices decline we see a contemporaneous decline in retail spending, which makes sense. With our view that Canadian home prices will continue to trend lower this year this should weigh on consumer spending and why we’re forecasting Canadian GDP growth to slow from 2.1% in 2018 to roughly 1.75% this year. But critically I don’t see this softening in consumer spending derailing our economy and leading to recession.
Canadian Home Prices and Retail Spending
Source: Bloomberg, Turner Investments
Here are a few reasons why:
- First, other areas of the economy could pick up the slack like business investment, exports and government spending. I see exports picking up this year on a decent US economy and the conclusion of the NAFTA negotiations, business investment could pick up on a rebound in oil prices and the recent Federal government changes to allow faster depreciation expensing, and it’s clear that T2 is willing to spend money like a drunken sailor on shore leave, all of which could offset some of the weakness in consumer spending.
- Second, is to look at the US experience following the financial crisis, where US home prices declined and US consumers significantly paired back their debt load (debt-to-income declined from a record 170% to 130% currently), while the US economy was still able to grow around 2%. Many believe that our high debt levels and declining home prices are going to result in some huge collapse of our economy when more likely it’s just going to result in slower GDP growth, similar to what we’ve seen in the US.
Finally, looking at the impact to the Canadian stock market, I see consumer spending having a much smaller impact on TSX returns versus the performance of commodity prices and the US equity markets. Some years ago I completed an exhaustive study of the main drivers of TSX returns and found that of all the variables I tested, commodity and S&P 500 changes were the most meaningful in driving TSX returns. Below is my model that illustrates this and why I focus a lot of attention on forecasting commodity and S&P 500 prices in trying to determine where the TSX is heading.
Commodity and US Stock Performance Largely Drives TSX Performance
Source: Bloomberg, Turner Investments
So there you have it. I see lower Canadian consumer spending over the next few years due to rising interest rates and lower home prices, but see this concern as being overhyped by the doom-and-gloomers. At the end of the day, the direction of commodity prices and the S&P 500 will continue to be the main drivers of the TSX, and based on these factors, we see the TSX doing just fine in 2019.
Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.
107 comments ↓
Recent sale report.
Nothing earth shattering about this one, just had it in the folder as it was one of the cheapest options on the North Shore and now it has sold and I will pass the information on.
The details…418 e 11th st, North Vancouver.
Sold 1.04 January 2019
Asking 1.09
Assessment 1.19 down from 1.25
So they got more than a million, not too many going cheaper over that way, as things drop quicker in East Van and Richmond.
North Vancouver and Burnaby seem to be made of a little stronger stuff.
The direction is down, but that didn’t stop these guys from getting a million for a century old house…
M44BC
https://www.zolo.ca/north-vancouver-real-estate/418-east-11th-street
Recent sale report.
I guess while I’m raking around the bottom of the ladder it can’t hurt to put this one up in Richmond that went below a mill.
The details…
11191 Kingsbridge Drive, Richmond
Sold 990k January 2019
Originally asking 1.38
Assessment 1.06
So after being a little optimistic with their original ask and needing 5 price reductions to get the deal done, the market eventually steered them in the right direction.
40 years old , so not an ancient crumbling structure that someone should be able to enjoy for many years to come.
Every king has his castle…
M44BC
https://www.zolo.ca/richmond-real-estate/11191-kingsbridge-drive
DELETED
I put this one up the other day, but I will put it up again, just in case InfLewenza wants to take a peek in-between polishing his Porsche during a polar vortex…
M44BC
“How Long It Will Take to Kill the Average Credit Card Debt in Every State.
Lots of people make New Year’s resolutions to get their personal financial situation in order, and paying off credit card debt is usually a high priority. Credit card debt is at a $1 trillion. The combination of high borrowing limits, steep interest rates and late payment fees make it extremely difficult to get under control.
But let’s assume people in every state created a plan to pay 15% of their income toward credit card debt. We compiled research from Creditcards.com to understand how such a strategy would play out in every state across the country.
Our visualization starts with a heat map of average total credit card balances broken down by state. We then applied an average household income figure to see how many months it would take to pay off such a balance with only 15% of one’s total household income. This takes into account the compounding interest rate adding to the remaining balance each month. Of course, our analysis assumes people would stick to the plan and avoid taking on brand new credit card debt throughout the process.
There are several big takeaways. First, there’s a regional trend in overall credit card balances. Dark red states like New York ($8,510), Texas ($9,100) and Alaska ($10,685) carry the biggest balances, but the Upper Midwest looks relatively financially healthy. Wisconsin ($6,737) and Iowa ($6,726) have the lowest averages in the country.
Most Americans would need at least a year to pay off their credit cards, and even longer for states in the South. New Mexico, Louisiana and West Virginia have the longest timelines at 17 months each, and Massachusetts has the shortest at just 9 months. The average across all 50 states is 12.7 months, meaning it would have to be a New Year’s resolution for 2019 and 2020 for lots of people.
And finally, there’s the imperfect relationship between how long it would take to pay off the debt and the total debt load. The states with the highest balances don’t necessarily need the most time. Take Massachusetts as an example, where the average credit card debt stands at $7,994 but would only take 9 months to pay off. Compare it to Iowa at $6,726 and 11 months. That’s because people in Massachusetts make a lot more money than people in Iowa. Things generally cost a lot more in the Northeast too, which makes it harder to achieve financial security too.”
https://howmuch.net/articles/credit-card-debt-burden-in-each-state
I get tosolds.ca emails daily, I browsed through them and I see houses in Mississauga are selling close and above asking price and they sell fast. House on my street just sold in a week or so. It’s not as bad as one would think
Let me expand on your analysis. In other words S&P rises because of Trump which helps our TSX, but on the other side is Trudeau who has kneecapped our resources and applied a carbon tax on our factors of production means the TSX goes exactly sideways for another decade.
If our resources are not selling, the BOC trying to inch up rates and new taxes on everything people respond by cutting discretionary spending big time.
Peak debt, UN-affordability, rising interest rates. All that really matters is what is happening on the ground.
Like I said ‘eating in’ is a new fad. This is not sustainable and when things don’t to cascade that’s where the trouble is.
To gloss over and simply call people doomers and gloomers are we are seeing some of the big companies hit sales targets.
An ear to the ground, helps separate doom/gloom from fact/reality. Like you said – decades old housing booms and unprecedented debt in our history. No one knows how this will turn out but no money for stuff is a current reality. Not gloom and doom.
Economic growth forecast are always linear, and therefore easy to explain and understand.
However, economic activity has negative impact on the environment and some may argue on societies as a whole.
These negative impacts are never part of the economic equation.
It is impossible to calculate the cost of environmental degradation.
But, if one assumes that they should be measured on a exponential scale, the results could be catastrophic.
What happened in 1999, which caused the beginning of rising housing prices?
Invest in crytocurrencies. what can happen?
https://www.pcmag.com/news/366309/cryptocurrency-exchange-locked-out-of-funds-after-ceos-deat
great read, as usual Ryan. You’re very thorough in presenting your opinion, appreciated
your thoughts on Canadian Preferred Shares space for the next 24 months?
Flop said “Only a small percentage of Greaterfool readers are interested in my posts, maybe 5% on a good day, but that means every 20th person has a read and is better informed because of my efforts.”
Flop, real estate is a big part of this blog and you provide very valuable and interesting real estate information.
You got your percentages backwards. I would say 99% enjoy reading your posts and 1% complain simply because they like to complain about things. Sheesh if they don’t want to read your posts can’t they just skip over them? Why do they need write in and complain about them? They are curmudgeons. Ignore them.
I really missed your posts these past few weeks. If I am in a rush I put the word “flop” into the Search command so I can quickly find your posts and read just them.
A passive global index investor has the advantage of not being all that concerned about an index which is 4% of the world economy.
A weighting in a non reg account does enjoy tax relief though. If the TSX shows some upside, all the better.
Fun in the great white north:
https://www.msn.com/en-ca/money/retirement/the-retirement-age-in-canada-is-too-low%E2%80%94and-thats-a-growing-problem/ar-BBT3PkX?ocid=spartanntp
If retirement age was indexed to life expectancy (as is now the case in Finland), Clemens calculates, Canadians would be retiring at 74 today—working, and paying taxes, for nine additional years. “From this perspective, going to 67 seems a fairly mild option,” he says.
There’s plenty of evidence to suggest most workers are willing and able to work well past 65, regardless of what government policy says.
Talking about people living in parallel universes.
Canadian households are indeed pooched, especially in B.C.
But it’s doing wonders for the government employees union in Comrade Horgan’s domain. Red tape galore, here’s the new form for the spec tax. So complicated that they had to hire a semi-load of new people.
““We already have already 150 staff trained to answer questions. ”
https://globalnews.ca/news/4917576/frustration-speculation-tax-hotline/
And their help hotline crashed.
Commodities and resources. Yes. These were the drivers of TSX as they comprised major part of it/in the past.
Not anymore.
Financial and consumer services – all sorts and types of oligopolies based on extraction of fees and royalties from the indebted consumer comprise the overwhelming majority of TSX cap.
I don’t remember how many times I said:
Canadian resource sector/energy excluded – yes.
The rest – firmly no.
A few days ago TSX was down with gold and oil both rallying.
I don’t really get it why you keep promoting that dead horse.
Do you really believe that it is undervalued if we discount debt?
I don’t buy it. There are tons of other opportunities in the world including ETFs that probably did not exist at the time of your research.
There are reasons why TSX under-performs and these reasons will not be eliminated any time soon.
But critically I don’t see this softening in consumer spending derailing our economy and leading to recession.
That was the funniest thing I have read for for a very long time.
#6 not 1st on 02.02.19 at 2:14 pm
It’s 246 days into the the fake Trump national security risk tariffs for Aluminium and Steel – you can thank your hero for that…
“While I see consumer spending and economic growth slowing due to the higher rates and lower home prices,”
Ryan, what’s your take on the Fed shifting to a more dovish position on interest rate hikes? Current outlook is suggesting no more increases this year from 2-3 just a few months ago.
Things don’t seem to have turned that soft, and wondering if after the market stabilizes for a few months and Trump is seen to be more of a lame duck..Fed will get back to gradually raising rates.
#7 DON on 02.02.19 at 2:24 pm
He is just trying to say that after the biggest ever debt orgy in the history of the world, everything will be just fine, life will go on and there will be no crash. No debt hangover whatsoever. That right after the Australian crash.
Everything will be just fine.
Peak debt does not impact consumer spending apparently.
…and the underhanded and likely fraudulent RE dealings in B.C. continue:
https://theprovince.com/news/local-news/one-of-b-c-s-highest-paid-local-government-employees-implicated-in-alleged-stock-scheme/wcm/20cf6555-5de4-4ed6-8472-789739b27621
“While I see consumer spending and economic growth slowing due to the higher rates and lower home prices, I don’t see some catastrophic decline in our economy as so many doom-and-gloomers predict.”
Ryan your first chart pretty much reveals what has driven the Canadian economy over the past 20 years – the wealth effect generated from 20 years of skyrocketing house prices (fueled by lax lending standards and historically-low rates).
I thought you started out well by presenting facts (love the first chart) – then you went with the point the finger at the doomers thing. You went from posting facts to name-calling those who hold the opposite opinion (based on the same facts).
It would have been nice if you would have continued to explain (with facts) just how big of an economic boost the wealth effect (from a 242% increase in house prices in less than 20 years) has had on the Canadian economy.
You chose not to go that way. It appears you either drastically underestimate (or choose to ignore) just how big of a contribution the wealth effect has had on the Canadian economy over the past 20 years.
In the same way it appears you underestimate just how big of a negative impact the loss (reversal) of the wealth effect will have on the Canadian economy as the bubble deflates and house prices fall.
Your opinion/argument – that the Canadian economy is too solid to be affected much by falling house prices – would be more believable if you could show even one example of a housing bubble at some point in world history that actually experienced an unwinding that didn’t have a major negative, multi-year impact on the economy.
I’ve challenged many to present me with an example of a housing bubble that deflated with minimal impact on the economy. The result… crickets.
Good analysis but pre-mature conclusion. The reality of China and Europe slowing down needs to be considered. China slowing down will impact commodity prices, so that’s not going to bail us out. Automobiles manufacturing is already pooched in Canada, so that’s not really going to help us in exports to US. Steel tariffs are not going to go away as long as Trump is around. Canadian Banks are on a holding pattern with hiring freezes and wait and watch till Spring real estate season. The best case scenario for Canada is that we continue in a Zombie mode for a while. The worst case scenario, I can even contemplate.
not 1st “Let me expand on your analysis. In other words S&P rises because of Trump which helps our TSX, but on the other side is Trudeau who has kneecapped our resources and applied a carbon tax on our factors of production means the TSX goes exactly sideways for another decade.”
Or the S&P 500 goes down because of Trump, just like we saw in December, because he and his administration is a chaotic mess. Yes we saw great stock market gains early on in his administration due to his pro-growth policies, but more recently his actions (threatening to fire Fed Chairman, Syria withdrawal leading to another key cabinet member change, and the idiotic government shutdown) have weighed on the markets, with the S&P 500 declining 10% in December alone. If he does get impeached that will lead to additional stock market declines. That’s the thing with Trump. Trump supporters thought they could just get all the good stuff (tax cuts, deregulations, renegotiating trade deals in US favour), without acknowledging all the craziness that comes along with him. I’m not anti-Trump, but I do believe he brings a lot baggage and chaos as the leader of the free world. – Ryan L
Sam “great read, as usual Ryan. You’re very thorough in presenting your opinion, appreciated. your thoughts on Canadian Preferred Shares space for the next 24 months?
We’re bullish on prefs over the next 12-18 months. First, with the Q4 pullback, pref yields are now back above 4.5%. Second, with the pullback in government bond yields, the spread over risk-free bonds is now the highest since 2017. Third, we see the GoC 5-year yield rising from the current 1.7% back up to 2.25% this year. Fourth, history shows when prefs returns are negative in one year, they almost always post a positive return in the following year. For more insight go to our outlook report on page 7. – Ryan L
http://www.turnerinvestments.ca/pdfs/2018%20In%20Review%20JAN2019–final.pdf
The Great Gazoo “Ryan, what’s your take on the Fed shifting to a more dovish position on interest rate hikes? Current outlook is suggesting no more increases this year from 2-3 just a few months ago.”
I’m calling for one and done this year. The US economy should slow this year from 3% in 2018 to 2.5% this year. This supports a less hawkish Fed hence the call for one rate hike this year versus four last year. – Ryan L
I loved your created buzz word, but there is much more to be added on his list of woes. In terms of the cost of living am fighting back out of spite or revenge if you will, against the corporations that are ripping us off. I started with my service provider and squeezed them hard, and then changed my grocery chain to acquire the same products for less.
# 9 JSS
1999/2000 was when Canada began to implement a large number lax lending standards. For example, in 2003 the maximum mortgage that CMHC would insure was approximately $350,000. That year that maximum mortgage rule was removed, leaving no limit on the size of mortgage that CMHC would insure.
This is only one example of many dramatic policy changes implemented by Canadian policy makers that suddenly and dramatically increase the pool of buyers (and resulted in skyrocketing house prices) in Canada after 1999.
Note that in 1992 Canada’s minimum down payment was lowered from 10% to 5% (it’s been 20% in the States for a long time). 5% is almost zero compared to the minimum down payment in a lot of other countries.
As a result of these lax lending standards, house prices in some Canadian cities more than doubled from 2000 to 2006/08. Indeed some Canadian cities posted San Francisco-like price run-ups from 2000 to 2006/08.
The Canadian mainstream media hasn’t talked about this much at all over the past 10 years. Canada is pretty much in denial about what happened with house prices from 2000 to 2006/08. If the Canadian media did talk about this it would make potential buyers realize just how extreme Canada’s housing bubble actually is and many potential buyers would put their buying plans on hold and wait for the bubble to deflate.
Stan Brooks “#7 DON on 02.02.19 at 2:24 pm. He is just trying to say that after the biggest ever debt orgy in the history of the world, everything will be just fine, life will go on and there will be no crash. No debt hangover whatsoever. That right after the Australian crash. Everything will be just fine. Peak debt does not impact consumer spending apparently.”
Stan you either didn’t read the blog or you suffer from confirmation bias. I never said debt doesn’t impact consumer spending. In fact, I said our high debt levels are going to result in slower economic growth going forward. But because I didn’t say were all doomed and are on the precipice of a great depression, you prefer to slam the blog post and spout your typical end of days prognostications due to our high debt levels. You need to come up with a new shtick! – Ryan L
#23 Ryan Lewenza on 02.02.19 at 4:48 pm
not 1st “Let me expand on your analysis. In other words S&P rises because of Trump which helps our TSX, but on the other side is Trudeau who has kneecapped our resources and applied a carbon tax on our factors of production means the TSX goes exactly sideways for another decade.”
Or the S&P 500 goes down because of Trump, just like we saw in December, because he and his administration is a chaotic mess. Yes we saw great stock market gains early on in his administration due to his pro-growth policies, but more recently his actions (threatening to fire Fed Chairman, Syria withdrawal leading to another key cabinet member change, and the idiotic government shutdown) have weighed on the markets, with the S&P 500 declining 10% in December alone. If he does get impeached that will lead to additional stock market declines. That’s the thing with Trump. Trump supporters thought they could just get all the good stuff (tax cuts, deregulations, renegotiating trade deals in US favour), without acknowledging all the craziness that comes along with him. I’m not anti-Trump, but I do believe he brings a lot baggage and chaos as the leader of the free world. – Ryan L
———
Have we been subsumed by the U.S.? Leader of the free world? I think the free world would disagree. Freely.
The more often a lie is repeated as truth/fact, the more likely the gullible are to believe it and repeat it.
#5 David Prokop
I’ll bite…
You have a very narrow mind regarding prices. Your last post regarding only a few houses selling for 1.4 in your neighbourhood at the height of the market is a perfect example of how prices get set. It only takes one sale at a certain price to raise or lower prices in a neighborhood.
Prices are always set at the margins. Home prices move based on the poorest person in the neighbourhood. If your neighbour loses his job and needs to sell because he can’t afford the home it will affect the resale value of your home.
The question isn’t if it’s bad right now but how many homeowners in your area are one of those that are $200 away from not being able to pay the bills. Their stupidity will have consequences for the rest of us.
My prediction is XIU will be up 20% by years end from Dec. 24/18. Already up 13%. Energy, metals and mining and health care will rule the day.
Sign of the malaise?
Between errands, at Tim’s drive-thru for a quick coffee, I followed a late-model Benz. The lone occupant paid for his coffee WITH VISA.
VISA! for $2.00!
Ryan tack on government taxation at all Govt levels rising 10-30% in the next 5 years as revenues collapse.
Every dollar taken by govt tax decreases family extra income. It kills teh private sector.
Stores, restaurants, etc will decline dramatically. Only internet sites will be left as cities explode commercial taxes and thus higher rents down the line.
Politicians, bureaucrats, unions have feasted on the property tax revenue boom in the last 20 years and now government salaries and gold plated pensions dwarf the private sector.
It all comes crashing down as they drive monstrous tax increases to make up for all teh lower assessemnt income.
It is truly a economic disaster for all Canadians.
Watching the housing markets slide lower every second of minute of every hour of every day of every month. When will the market slides stop ? No one knows. In the US corrections it took several years to go from the peaks to the troughs. Hang on and enjoy your rides towards the market reality. No buyers = no sales = no money. Nada. Everyone sitting on the sidelines.
Ryan, what’s your take on central banks’ ultra-low, zero, and negative-interest-rate-policies which may or may not be coming to an end now, if I may ask?
IHCTD9, I’m interested in how your rocket stove-gassifier test goes. Maybe play it safe and keep a carbon monoxide detector nearby as this technology is somewhat experimental.
My sister in Halifax, NS told me city council is considering getting rid of the cap rate which helped property owners shield themselves from rising housing prices.
Their properties were locked in at a certain point which helped most families dramatically..
If they do this the everage owner is gonna get a tax bill increase of $1200-$5000 per year.
Its gonna calve their economy….
If 49% of Canadians are $200 bucks from bankruptcy its pretty obvious what this event will do….
Remember this – govts are calving from revenue drops…
They will wipe you out first before they cut
#32 Barb on 02.02.19 at 5:29 pm
Sign of the malaise?
Between errands, at Tim’s drive-thru for a quick coffee, I followed a late-model Benz. The lone occupant paid for his coffee WITH VISA.
VISA! for $2.00!
..
Hardly…… every single thing I purchase I do with a CC… keeps it simple and with a points programs.. haven’t not paid it each month ever.
Modern Monetary Theory (MMT)…
“…sandwiches us between hyperinflation and hypertaxation.” (paraphrased)
Socialist snake-oil?
—
https://dailyreckoning.com/the-next-great-monetary-experiment/
The Next Great Monetary Experiment
BY BRIAN MAHER
POSTED
JANUARY 31, 2019
—
https://dailyreckoning.com/the-next-great-monetary-experiment-part-ii/
The Next Great Monetary Experiment, Part II
BY BRIAN MAHER
POSTED
FEBRUARY 1, 2019
…We first note that Modern Monetary Theory goes under a false label.
It is not particularly modern.
MMT has a grandfather in what is called the “Chartalism” school of the early 1900s…
…Consider the thought experiment of 18th-century philosopher David Hume…
Imagine a benevolent fairy slips money into all the nation’s pockets overnight… and doubles the money supply.
Is this nation doubly rich?
If only it were.
The money supply has been doubled. But no additional goods have entered existence.
The new money will simply chase existing goods.
We can therefore expect prices to approximately double…
…In summary… money is not wealth.
…All debt-based consumption steals from the future to gratify the present. It is tomorrow’s consumption pulled forward. And it leaves the future empty.
MMT lives for today. It signs a perpetual check against an overdrawn future…
…And as one wag describes it, MMT would have us all “sandwiched between hyperinflation and hypertaxation!”…
We conclude that MMT is not modern whatsoever… but nearly as ancient as money itself:
The pursuit of alchemy
MMT is a 21st-century alchemy.
“I can tell you my secret,” said the immemorial fraud John Law — “It is to make gold out of paper.”
But rather than gold out of paper, his “secret” made paupers out of princes.
Law’s Mississippi Bubble wrecked France for an entire generation.
Pry it open, drill down to the bottom… and this is what you will find:
MMT is the eternal quest for the free lunch… water into wine… something for nothing.
(Cue: Economystical)
The reason the debt bubble will drag the economy down is because since 1998 or so 8-15% of gdp is from credit growth.
As soon as credit stagnates or starts going negative (it already is) there will be a huge subtraction from Canada’s gdp. Think 5-10%.
I get it, fund managers who makes fees off handling peoples money are not going to call an apocalyptic crash to the Canadian economy but lets get real. Canada will not be any different from; Japan, spain, ireland, usa
.
The BoC can’t slash the overnight rate by 4% this time and save the economy this time.
#35 Long-Time Lurker – A much better heater is the smokeless Perfection Heater using standard kerosene. I prefer the model #530, but the #525 is acceptable. Both are small, but will heat up a lot of square footage quickly, and you can even cook your breakfast on top.
Long-Time Lurker “Ryan, what’s your take on central banks’ ultra-low, zero, and negative-interest-rate-policies which may or may not be coming to an end now, if I may ask?”
I’m not a fan of them but this is the hand we’ve been dealt. Clearly low interest rates have greatly contributed to the different asset/housing bubbles we had in 2008 and today. The low rates in part caused the FC and central banks do what they always do when faced with a recession and that is to lower rates even further. When you have a hammer everything looks like a nail! The thinking then is as rates rise then we’re all pooched. But 1) I don’t see rates going that high, and 2) I believe the high debt levels will translate into lower long-term GDP growth (i.e. US economy growing at 1-2% versus the long-term average of 3.3%) rather than a complete economic meltdown like many believe. Call me an optimist! – Ryan L
Isn’t that a 387% mortgage debt increase, not 270% ?
“Historically, when home prices decline we see a contemporaneous decline in retail spending, which makes sense.”
++++
Its been a long time since I saw contemporaneous in a sentence….
I’ll use it tomorrow to get the great unwashed scratching their heads…..
At Turner Investments we have a quarterly syllabic bonus. – Garth
Victoria Real Estate Update at 21 issues Challenge:
I’ve challenged many to present me with an example of a housing bubble that deflated with minimal impact on the economy. The result… crickets.
************************************
Well, take a look at the United States. The impact of the great recession on the U.S. economy around 2008 was not minimal (so i don’t claim to have fully met your challenge) but it was certainly pretty short lived looking back. And actually the impact on GDP might in fact be described as fairly minimal.
I am looking at my own graph of GDP from 1926 to 2018. This is in nominal as opposed to real dollars. The impact of the “great recession” is barely visible as a tiny flat spot around 2009.
When looked at on a closer scale for just the last 30 years, I can indeed see a modest decline in 2009. But then it was off to the races with strong steady growth since then. U.S. nominal GDP at Q1 2018 was about 36% higher than 2008! (more by now) And in real dollars it is 17% higher.
The decrease in real GDP happened in 2008 and more so in 2009 and was all of a total of 3.1% over those two years!
Here is the data, see for yourself.
http://bea.gov/national/xls/gdplev.xls
Click on the file you will see there.
So even in the “great recession” the impact of the massive U.S. house price crash on the economy as in GDP was actually small and quite short-lived. Of course many many people were greatly affected. In recessions a small percentage of people get roasted alive but most people keep their jobs and merely miss out on a raise that year if they miss anything. GDP declines a few percentage points and then starts to rise again.
You’re an OPTIMITST like the Unsinkable Garth.
You forgot to talk about this chart (in particular an explanation for the last 3 months of data):
https://tradingeconomics.com/canada/leading-economic-index
December 2018 GDP will at best be a wash with Christmas sales below those of the past 3 years and oil export $ then, still in the doldrums. January 2019 with the cold will affect GDP negatively but by how much, who knows?
All in all, the GDP numbers are already skirting with recession, earlier even than I would have thought.
The doom & gloom surveys reflect the Canadian economic psyche and it is not good, Canadian’s are scared = the other 1/2 of the reason a recession happens.
Your Canadian Home Prices and Retail Spending chart similar to that of BMO’s Porter and he is not as optimistic as you:
https://i.imgur.com/K7hRIMU.jpg
On a purely selfish point, I sure hope you are correct about the TSX…
“it’s clear as day that rising home prices are the main culprit of our rising debt levels.”
No, it’s not clear as day that rising home prices cause rising debt levels. They are obviously strongly correlated, but it could be just as easily the case the rising debt levels cause rising house prices. People who aren’t willing to borrow more can’t bid up prices. But then it could also be argued that falling interest rates cause increased borrowing as the cost to service debt remains the same at increased borrowing levels, in which case one could say that falling interest rates cause both rising debt levels and rising house prices (and lots of other prices too). So let’s redo you first graph with the addition of a bank’s prime mortgage rate or if unavailable the rate of a 5 year government bond (inverted), and also the price of a new Toyota Camry. I think we’ll find that all things are related in the money system, and it’s hard to make the argument that the price of a new Camry causes house prices to go up even though they are correlated. So we have to look for a factor that can be causal in both cases. Preferably one that can be manipulated or involves scarcity. And that leaves us with interest rates as the most likely culprit.
Manipulating interest rates was of course a grand strategy that accomplished many things at once. First and foremost it reduced the cost of government borrowing (put that on the graph too), but also because most real estate is already owned it put a lot of “mark to market” money into the hands of anyone who owned a house. Since the incentive to “pay off your mortgage” is much lower if the cost to carry debt is low and falling, of course borrowing went up. The cost to carry the debt however did not.
However, if Garth is right and after 30 odd years we are now in an environment of rising interest rates, eventually borrowing will trend down and so will the price of everything. However I think TPTB will quickly decide that there is too much debt outstanding to raise interest rates too much, so rates will rise but not enough to contain inflation (put cumulative inflation on your graph too, not the year over year but year multiplied by year, because it is exponential. The formula you must use with inflation is not I(n-1)+I(n), but (1+I(n-1)) x (1+I(n)). Be careful about that. It multiplies, it doesn’t add. The formula for inflation is not Price times (Inflation+1) time Time, it is Price times (Inflation +1) to the power of Time.
I probably lost well over half the readers there. Shouldn’t use math, I know.
Biggish Words
#44 crowdedelevatorfartz on 02.02.19 at 6:58 pm
“Historically, when home prices decline we see a contemporaneous decline in retail spending, which makes sense.”
++++
Its been a long time since I saw contemporaneous in a sentence….
I’ll use it tomorrow to get the great unwashed scratching their heads…..
At Turner Investments we have a quarterly syllabic bonus. – Garth
****************************************
For a very long time we did have a notorious commenter here whose views usually seemed to be largely extemporaneous.
For the Love of God, try simple and to the point synonyms for blowhard, way more letters than marmalade “contemporaneous”:
coincident, concurrent, simultaneous…
A word that would make Ernest Hemingway and George Orwell roll over in their graves.
I must say, I have a weakness for the word:
extemporaneous
which describes Garth’s Blog writing style near perfectly I’d say and, why I come every day.
Yes, I know…Buonanotte.
@ JSS on 02.02.19 at 2:51 pm
======================================
In answer to your question: Y2K
37 Cash is dead
No not dead, at least not at van city hall, though I heard you are now limited to $10k cash payment for
property taxes.
And you can’t pay by CC!
https://vancouver.ca/home-property-development/payment-at-city-hall.aspx
Years ago a poster stated how bad things must be for some people as they bought their groceries with a CC.
He was thoroughly “blog beaten” by everyone who does so to collect points (or just convenience) and pays it off every month.
#32 Barb on 02.02.19 at 5:29 pm
Sign of the malaise?
Between errands, at Tim’s drive-thru for a quick coffee, I followed a late-model Benz. The lone occupant paid for his coffee WITH VISA.
VISA! for $2.00!
…………………………….
I pay with my VISA all day long. I even buy $1 McDonalds coffee with it. Any why wouldn’t I when I get 1% back on all purchases and 4% back on all groceries and gas… No brainer in my books.
https://www.cibc.com/en/personal-banking/credit-cards/all-credit-cards/dividend-visa-infinite-card.html
#47 Nonplused
Thank you for that diatribe to explain what every Cdn. Business School teaches in its first 2 weeks of Math, the Future Value compound interest rate equation:
F = P (1+i)^n
where, F is future value, P is principal, i the interest rate and n the number of years. i can be any compound annual rate such as inflation, market growth, interest, etc.
To get fancy, if the compounding period is more frequent than annual then divide i by m and multiply n by m where m = number of compounding periods per year (m = 2 for semi-annual compounding, = 1 for annual).
Recall Canada, at +50%, has the highest proportion of tertiary educated adults in the OECD (avg. = 30%).
Thus and on average, the readers here are more sophisticated than you give them credit.
“I’d like to start with a simple question: Why do the poor make so many poor decisions?”
Because it takes every cent they have just to make it to the next pay cheque.
Visit the dentist about that nagging tooth or buy food for the kids? Welcome to poor dental health.
Put good money after bad into the 15 year old beater you drive? Its that or attempt to use transit that causes you to increase your time away from home thereby increasing your day care costs.
The list goes on and on. Its not “conservative” to lack any empathy for those less fortunate, it is lack of empathy, period.
#32 Barb on 02.02.19 at 5:29 pm
Sign of the malaise?
VISA! for $2.00!
—————————————————————
Its 2019 Barb, more likely a sign of a move to a cashless society and faster movement through the drive thru rather then waiting for someone in front of you fumbling for spare change…
and that’s a 2-3 cent adder to the rebate of they have the right card or may have been debit – they look like CC these days too. Why so nosy btw?
Good model, Mr Lewenza. Better than some things I have seen published in the academic research literature.
The interesting question is how stable are the coefficients in time, and whether they drift systematically in a particular direction.
#53 Dolce Vita on 02.02.19 at 8:34 pm
Thus and on average, the readers here are more sophisticated than you give them credit.
————————————————————
Well said, though its the standard deviation that is the problem…
Cause and Affect?
“I’d like to start with a simple question: Why do the poor make so many poor decisions?”
********************************
An obvious possibility is that many are poor because they made so many poor decisions.
The two biggest life decisions are what career you prepare for (if any) and who you marry.
But I have written in the past that “It costs a lot of money to be poor” The poor pay (by far) the highest interest rates, get hit with NSF and late charges and tend to rent forever and on and on. They pay the higher retail prices that subsidize the rewards the rich earn on their gold and platinum credit cards. They are usually in the weakest position to negotiate.
Ryan, I like your optimism..but why are TD and BNS among the most heavily shorted stocks on the tsx? Someone is taking the oppposite bet. Please convince me otherwise.
#38 Long-Time Lurker
have you ever wondered why debt jubilees were a thing? of course you haven’t. maybe you should.
you must be german where money is guilt, as opposed to latin where credit is faith.
—————————————————————
if only canada was an island…
https://www.ubs.com/global/en/wealth-management/chief-investment-office/our-research/life-goals/2018/global-real-estate-bubble-index-2018.html
Re my $2.00 coffee VISA post.
It’s my aversion to being a StatsCan datapoint, at least voluntarily.
Card use? StatsCan/govt actually have a “discretionary spending” category from card agency reporting.
Does anybody want StatsCan (gov’t) compiling data on how much and/or often charges are for necessities…or credit card $100 at a bar, $100 at a golf course each week?
That’s why they call it DISCRETIONARY, because it’s not for the necessities of life.
I use my CC only for big stuff and DC for groceries.
The “points systems” and “loyalty programs” are an amazing way for agencies to track how much is spent on unnecessary vs. necessary stuff.
Ryan, I always appreciate your posts, you like Garth and others try and educate us on what the charts and data are projecting; which is great, these charts and your education, expertise and experience show us what you all see.
My problem is that (although respected by us) you people (meaning, ah heck you know) just do not see, experience or go through what is actually going on out there. I could say more but I would be deleted, fair or not fair is up to the owner of this blog that I very much respect. Let us see things in all perspectives, in all honesty, without being jackasses!
#28 Ryan Lewenza on 02.02.19 at 5:19 pm
Stan you either didn’t read the blog or you suffer from confirmation bias. I never said debt doesn’t impact consumer spending. In fact, I said our high debt levels are going to result in slower economic growth going forward. But because I didn’t say were all doomed and are on the precipice of a great depression, you prefer to slam the blog post and spout your typical end of days prognostications due to our high debt levels. You need to come up with a new shtick! – Ryan L
‘Economic growth’ implies maintaining current level of consumption (based on debt), which (short of huge, sudden and unexpected productivity boost) requires at least maintaining current levels of debt and even increasing it.
Current debt becomes more expensive to serve and impacts consumer spending big time, we all agree on that.
We simply have disagreement on the degree of that impact.
You think it will be mild. I disagree.
After ultra-aggressive leverage (people use HELOC to go on vacation trips around the world) follows deleverage.
We have not even started that yet.
Current level of private debt to income in US is bellow 100 % (down from 130-ish in 2008). Ours is 178 %.
They used their low rates to pay off debt, we used it to pile up more.
Let’s calculate a decline from 178 % to 100 % for private debt to income, even 120 % and see what happens with the ‘growth’.
Who is going to come up with the difference?
Investments? I see no evidence of that, on the contrary. Throwing a few world like AI would not bring investors on board and with current government policies there is a little chance for that (the tax ‘incentives’ with faster amortization are concerned with manufacturing equipment mostly and are for media consumption and not even worth mentioning).
Increased government spending? With current deficits (at all levels) during ‘good’ economic times we intend to spend more to boost the economy? Raise the deficit to 50 billions yearly?
I have a problem with statements that a projected ‘growth’ of 1.7 % for the next quite a while (which understates inflation big time, if we account for the real increase in the cost of living we well find out that we do not have growth at all) will be enough to pay off debt and maintain increasing spending as to support ‘growth’.
After every credit expansion we have a credit contraction, that is inevitable, not a slowing of the credit growth. Short of huge economy boom which is not expected (we ‘grow’ at half of the worlds growth rate which is 3.5 %)
Ray Dalio explains it in his latest book and it is hard to disagree with him.
The debt over-leverage and rise in house prices was a spectacular multi-decade process (your chart correctly shows the increase in debt being the cause for the run of house prices), we had a boom and now suddenly the deleverage will be mild and things will be just fine?
We clearly have a huge real estate bubble.
There was never ever in the history of housing bubbles in the world a single case of mild deleverage and controlled deflation of that bubble as Victoria Real Estate Update and Ray Dalio correctly point out (short of complete currency destruction).
Any attempt to creatively manage the situation with weakening the currency but at the same time hoping to attract investments and support already excessive consumers demand (considering the real state of the economy) has a little chance of success.
It is not doom and gloom, just numbers.
For example we have no savings. How will that debt be paid off if savings rate is 0.8 %?
Inflationary depression in the next decade or two sounds about right to me.
Increase in cost of living by 6-8 % annually + while reporting sub 2 % ‘inflation’ with nominal ‘growth’ of 1/5 – 1.7 % is equal to contraction of 2-4%.
We all suffer from confirmation bias, I just think that the time to be politically correct has long passed. It incentivizes additional follies as people start feeling invincible with their naked behinds exposed.
TSX is currently heavy on financials and utilities with profits based on increasing debt. Our financials price to book ratio is at record high. Locals have no money to invest which explains the under-performance of TSX.
I surely hope that you are correct, but at this stage I just consider it wishful thinking. The time to act was 2009, not now.
@ Ryan, comparing T2 and me, not cool bro. I will have you know that I pay with cash only, am much better behaved and not as “handsy” if you know what I am saying.
#58 Shawn Allen on 02.02.19 at 8:58 pm
An obvious possibility is that many are poor because they made so many poor decisions.”
Decisions are based on context that you have no control over and with complexity that you are unable to understand.
Without understanding the whole spectrum of the driving forces in the current context it is impossible to make rational decisions, you make emotional or best-guess decisions which might prove to be ‘correct’ or ‘wrong’, based on the timeline you choose to evaluate it in, when the context becomes clear to everyone it is usually too late to react.
Coincidentally what I planned to post today does correlate with your analysis. (Which is always great and appreciated btw)
I did do a double take at the very end of this bloomberg article where Canada was mentioned as a seeming afterthought: (Very last sentence of article)
“In Canada, consumer confidence data on Monday and the employment report on Friday will signal how soft the economy is.”
https://www.bloomberg.com/news/articles/2019-02-03/powell-marks-one-year-on-the-job-as-federal-reserve-turns-dovish?srnd=premium
Note the word soft is used, not strong. I suppose this of course is because I’m reading stateside and every country has its “narrative” and what they want their residents to believe / pay attn to.
Still…….?
A good “MAN”, that passed away much to young, thank you for your service, R.I.P.
https://nationalpost.com/news/canada/canadian-press-newsalert-federal-auditor-general-michael-ferguson-dies#comments-area
#53 Dolce Vita
I’ve met some of those higher educated folks you speak of, and no, 50% of them cannot do math that involves an exponent. Although you are right some can.
However, you also have applied a fallacy. When calculating the affects of inflation, F = P (1+i)^n does not exactly apply. The formula looks more like F = P(1-i)^n. So even you didn’t get it right with your so-called higher education.
I suppose to get the formula exactly right we’d need an “i-i” clause, where inflation is deducted from interest.
But anyway sorry I bored you. My point was that low interest rates and inflation go together, even if the inflation is in housing and not wages.
#14 Stan Brooks on 02.02.19 at 3:08 pm
——————————–
A 60 year old has a 25% chance of dying by age 75. With those odds retirement at 65 seems reasonable.
#55 Remembrancer on 02.02.19 at 8:41 pm
————————–
Yep, people that pay cash are subsidizing those that pay with credit cards. The poor lose again.
Got 20gs. On La.
My logic. The liberals have been losing so much since 2016 they are due a meaningless win.
Dr Smoking Man
PhD Hetdonomics.
Further to my post on the cost of economic growth:
Environmental degradation:
soon to come to Canada.
http://m.spiegel.de/politik/ausland/basra-im-irak-das-venedig-des-nahen-ostens-verkommt-zur-muellkippe-a-1251239.html
How much equity do Canadians have stored in empty beer bottles? I bet we could pay down everything by returning them.
#37 Cash is dead on 02.02.19 at 6:32 pm
#32 Barb on 02.02.19 at 5:29 pm
Sign of the malaise?
Between errands, at Tim’s drive-thru for a quick coffee, I followed a late-model Benz. The lone occupant paid for his coffee WITH VISA.
VISA! for $2.00!
..
Hardly…… every single thing I purchase I do with a CC… keeps it simple and with a points programs.. haven’t not paid it each month ever.
Ya, I do the same. Never paid a cent of interest on my credit card ever. The other day someone posted about a low balance on an ATM receipt they found as if it meant something. Big deal, I dont keep a balance in my chequing account. I pay a few bills and immediately transfer out the surplus to my investment accounts. My balance is about $90 right now. Meaningless. I would suggest if you keep a large balance in your chequing account you’re doing it wrong.
Ryan, beg to differ, but, banana republic is exactly the model that Canada’s ultra socialist Liberal Party seeks to emulate. If we can believe thier own words and actions then the democracy diluting religious ghettos and Trudeaus fawning over dictatorships is also back by unions who are “resisting” ( American political point) to turn Canada into a communist dictatorship similar to Trudeaus father, Fidel Castro.
https://calgaryherald.com/news/politics/canadas-largest-union-sides-with-maligned-venezuela-president-over-canadian-government/wcm/e9505e39-cb21-4ed7-85e6-99fa31aaf418
“…it’s clear that T2 is willing to spend money like a drunken sailor on shore leave”.
I was a drunken sailor on shore leave many times, but the difference between me (and most of my shipmates) and T2 is that when I ran out of money, instead of borrowing more, I just made it back safely to my ship and quit spending.
#32 Barb on 02.02.19 at 5:29 pm
Sign of the malaise?
Between errands, at Tim’s drive-thru for a quick coffee, I followed a late-model Benz. The lone occupant paid for his coffee WITH VISA.
VISA! for $2.00!
————————————————————-
Hi Barb
I do that all the time . Ever hear of Tap? Convenience.
I have rid myself of the dozens of pieces of change in my ash tray and get 2% back for each transaction. All just by touching a terminal. Best thing since sliced bread.
Visa is a good tool if used properly. Never carry a balance.
Ryan I would get used to mr trump if I were you. With the craziness the dems are putting out everyday, his chances for re-election are going up by the day.
How many of you pay for goods or services with cash.
1 – To get a better deal
2 – to avoid HST
3 – to avoid data trackers and ad companies
4 – Other purposes
In your new cashless society – everything is tracked, logged, reviewed by Govt, Ad companies, CC companies to mine your data.
Look at Statscan proposing to monitor your VISA transactions. most of you never even knew about this proposal.
As governments hunt for revenue – the cashless society allows them bountiful new revenue….
Ask yoru self this question – since few do..
What will it do to your bottom line?
Government is using the “Track the criminals” pitch. Most people bought this line hook line and sinker.
Sort of like climate change
You simply shuffle along and accept what your are told…
It’s the perfect Socialist state.
At some point they will tell you to spy on yoru neighbors, family, and friends…. Then we know we have evolved into a Marxist one.
Some countries are now making legislation to make it illegal to question climate change…
The noose gets tighter and tighter
And it’s too late to stop them.
Happened to my relatives many many years ago in Russia…..
VISA! for $2.00!
******
Yeah I don’t understand what this comment is supposed to mean, like what else would I use. I don’t carry cash anymore and I’m mystified when they ask “debit or credit”, like why would I ever use debit for anything when I can get credit card rewards points.
dystopia or utopia
platforms who shapes “intelligent tools ”
“unicorn bubble?”
https://kenney.faculty.ucdavis.edu/wp-content/uploads/sites/332/2018/11/Unicorns-Chesire-cats-and-new-dilemmas-of-entrepreneurial-finance-1.pdf
https://dl.acm.org/citation.cfm?doid=3181977.3173550
#10 i.see.debt.people on 02.02.19 at 2:57 pm
….maybe he is trying to stiff them…;)
==========
EXPOSED: Bermuda cryptocurrency firms Uulala and Arbitrade
Two of Bermuda’s new blockchain start-ups – Uulala Ltd. and Arbitrade Ltd. – are being operated by North Americans with long records of business failures, indebtedness, and scandal, OffshoreAlert can reveal.
https://www.offshorealert.com/ListSummary.aspx?MetaTypeID=156&MetaValue=Canada
https://www.offshorealert.com/uulala-ltd-arbitrade-ltd-bermuda-blockchain-cryptocurrency-firms-exposed.aspx
http://www.royalgazette.com/business/article/20190129/report-casts-cloud-over-uulala-ceo
“A lead figure in a fintech company that was the first to be approved to launch an initial coin offering in Bermuda under the island’s new regulatory regime, has a history of court judgments and tax liens against him in the US.
A new report by the OffshoreAlert website has highlighted the judgments dating back to 2007. In addition, the report features court judgment details relating to shareholders, officers and directors of Bermudian-based cryptocurrency exchange and coin company Arbitrade.
#69 Nonplused
Here, you can go and tell them to correct their formula:
https://www.investopedia.com/terms/t/timevalueofmoney.asp
I used the same basic formula to calculate and discount future cash flows during the heady inflation 80’s in business models with then primitive Lotus 1-2-3. This was at General Electric during that LBO decade – scenario calc’s were used to determine the value of take over companies worth 10’s of 100’s of millions $.
And your business experience in this is?
Perhaps a supplement to your argument is the lesser effect a made-in-Canada (MIC) recession would have on the world economy versus the large hammer blow the American RE market collapse turned out to be. Would it be fair to predict that if the composition of a portfolio includes the recommended portions advocated by Turner et al, then the effect of a MIC recession would be lessened? It would be contained so to speak by the percentage that CDN equities and financial products have in the portfolio.
#57 Remembrancer
It’s hard to say.
Look it, Garth likes to feature emails from financially illiterate people and he gets to do what he does best, advise, calculate to show the error of their ways and all that with a good dose of humor.
From that, you would conclude there are a lot of financially dumb people out there. But the level of education of this great country does not corroborate with that assertion.
I tend to read Comments on topic. In general, I conclude a pretty sharp bunch of people read here and that sometimes point out error’s in Garth’s calculations. Not easily done. Garth’s a pretty sharp guy.
The off topic, well, I’m sure your familiar as I am with that crowd. THAT
Beth Allen “Ryan, I like your optimism..but why are TD and BNS among the most heavily shorted stocks on the tsx? Someone is taking the oppposite bet. Please convince me otherwise.”
There’s this simple investment thesis among many investors that the Canadian banks will fall much like the US banks did following their housing crash. I think they miss how different our mortgage system is to the US, how diversified our banks are, and home much US exposure the Canadian banks now have. I think this is a mistake. The banks offer 4% yields, should continue to deliver positive earnings growth, and trade at attractive P/E’s of 10x. I see them doing better this year. – Ryan L
#81 M.T. on 02.03.19 at 9:10 am
VISA! for $2.00!
******
Yeah I don’t understand what this comment is supposed to mean, like what else would I use. I don’t carry cash anymore and I’m mystified when they ask “debit or credit”, like why would I ever use debit for anything when I can get credit card rewards points.
——————————————————–
Seems to have started as a MB brand shaming / can’t afford to pay for a coffee except on a must be maxed out credit card and then pivoted to a big data mining StatsCan data tracking tinfoil hat conspiracy to track your discretionary and non-discretionary spending double-double by double-double…
#79 not 1st – Trump will not be re-elected, because his need to win has angered Deep State for not following the agenda. Trump flip flops for his need to pander to his base keeping them in line, ignoring the established agenda all too often. Bolton is now in charge of the political WH agenda, and Trump has been thrown under the bus.
Places specialy designed for great instagram pictures are poping all over. One place in LA dosent allow anyone below 20k folowers to take a pic in front of it, apparently there is security guard to keep hype about exclusive selfie mural going… Mankind, i mean Humankind is doomed.
Interesting read
These stores reflect deeper instincts driving urban millennials, for whom social media plays an increasing role in conferring social status. Instagram has become a point of cultural cachet, whereby status can be measured by follower count and the glamor of one’s photo stream. The frenzy reached a new peak in June, with the unveiling of a Los Angeles mural to which access is restricted: only those with more than 20,000 Instagram followers can take a picture in front of it. A security guard is on hand to enforce the rule and keep the unfollowed at a distance.
https://www.city-journal.org/html/instagram-city-16112.html
#81 MT
I always use my visa… no one should pay cash. Retailers pay the the credit card company for the privilege of using the payment method. The retailers pass that fee on to consumers so you may as well get the reward points at least you get something back. If you pay cash you don’t get a discount to cover the payment processing fee that the retailer is saving.
I’ve been around long enough to remember when money (currency) was simply a promise from the Bank of Canada to “pay the bearer on demand”. It was printed on every bill. The “bearer” was any anonymous person who showed up with banknotes in hand. Most people were willing to accept banknotes in lieu of gold.
Money is now data with thousands of eyes upon it. People say they aren’t concerned because they’re not involved in illegal activities and couldn’t care less who knows what beverage they purchased at a hockey game or precisely when and where they did so.
Unfortunately, the definition of ‘illegal activity’ is firmly bolted to a sliding floor. It surprises me how little the modern human cares about surveillance. Rather, they seem to actually embrace it.
When Mark Zukerberg started Facebook in college he was asked how he managed to get so many people to divulge so much personal information. He said it was because they were stupid.
We don’t see that kind of honesty anymore.
Pink Snow falling in Vancouver.
Well, with all the shallow losses in 2017/2018, I always maintained that these people better be buying for the long haul or else the ones that nipped in thinking that the worst was over were going to become featured on Pink Snow as well.
With a lot of the losses less than 10% and The Sell Squad squawking that the worst is over, the people that think there is easy money to be made on the way down need to pay attention, or else I will be reporting double and triple hits,and I ain’t talking baseball.
The details.
2475 Edgar Cres,Vancouver.
*Part one
Paid 3.92 June 2016
Sold 3.39 December 2016
18% or 700k loss in 6 months.
*Part two
Paid 3.39 December 2016
Originally asking 3.98
Now asking 2.48
Assessment 3.42 down from 4.17
This one could be worse than the first case.
Could be a million dollar hit after expenses, although they seemed to have started low compared to assessed value but a lot are going 20% less than this number.
I know it’s Super Bowl Sunday and I shouldn’t be talking about baseball.
I will give you your football happy ending.
How about, these guys are about to be kicked between the uprights…
M44BC
https://www.zolo.ca/vancouver-real-estate/2475-edgar-crescent
Here’s the advice young folks are getting on how to retire early nowadays:
https://www.theglobeandmail.com/investing/personal-finance/retirement/article-condo-conundrum-how-to-balance-a-large-down-payment-without-feeling/
29 years old. Monthly net income after taxes of $6655.00.
His rent is $875.00 per month, rent controlled, close to where he works.
He has $269,700.00 in investments. He can put away $4245.00 per month including his DB pension and his stock option purchase plan through his employment.
The goal of the article? “The payoff: Financial security and a greater chance of achieving long-term goals”
How to get there?
According to this article, he should buy TWO condos. One to live in, and a second to rent. If he cannot afford two condos in Toronto, he should look further out and consider commuting.
So, instead of paying $875.00 per month for housing, he would be paying……$1932.00 per month in interest on his mortgage (I guess assuming the second condo can be carried using the rental income – which is a bad assumption), and also:
“He would have to take into account the additional costs that come with owning a home: condo fees (estimated at $500 a month); property insurance ($50); property tax ($175); utilities ($120); and home maintenance ($100 or more). His total monthly housing costs would be about $2,875.”
Wow. So $2000.00 more for housing, than he is paying now, to get himself into an asset (condo) that likely will decline in value over the long term (Toronto condo prices are inflated right now and due for a correction).
Add to that a commute to work that he does not currently have (and that will likely negatively effect his health), and the stress of managing a rental property.
And for the downpayment on the condo? Easy, gut his savings (his TFSA, his RRSP, all the tax free goodies are to be liquidated, to purchase condos).
This is the advice young people are getting.
And we all wonder why the markets decline in value when corporate earnings are on a tear? People sell their stocks and ETFs to purchase over priced condos and houses. Because that is what they are being told to do….
#80 expat on 02.03.19 at 8:42 am
Oh look another “expat” pontificating to us what we already know. Yawn.
How many times do is it have to be said for idiots like this guy/girl to understand: only 4/10 Canadians voted T2 last election. The majority of us do not want him and his policies. He was able to elected based on math, plus a number of other factors (Harper fatigue being the biggest one).
Got it?
By the way, I paid cash this morning for a good.
MF
Biggest Word Winner
Figure it Out at 66 said:
Many US households were completely exsanguinated by the great recession,
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Yep, it’s a real word, although not one I recall ever seeing before.
Well done!
Beer bottle wealth and a political insult
#74 Honky Donkey Blues on 02.03.19 at 2:29 am
How much equity do Canadians have stored in empty beer bottles? I bet we could pay down everything by returning them.
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I remember thinking the same thing years ago when my son’s hockey team did a bottle drive. We easily scooped $1500 in about four hours of collecting. And that was years ago when the deposits were lower than today. Some houses would give us half a truck load. All told, a lot of stored wealth in total in a typical suburb.
This reminds me of one of the great political insults of all time.
When Ralph Klein (known as a regular guy who enjoyed his beer) was running for leadership of the Alberta PCs in 1990 one of the other candidates said that Alberta could pay off its deficit “if Ralph Klein would just cash in his empties”.
That one got under Ralph’s skin. But Ralph did go on to pay off that deficit!
#80 Expat
In your new cashless society – everything is tracked, logged, reviewed by Govt, Ad companies, CC companies to mine your data.
Government is using the “Track the criminals” pitch.
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……and in fact, we are ALL criminals.
Scammers, tax cheats, swindlers, welfare con artists, E.I. abusers, disability claim fakers, shoplifters, and insurance fraudsters.
It’s the Canadian way!
“I see exports picking up this year on a decent US economy and the conclusion of the NAFTA negotiations,”
Ya said it all right there!
Kanada was, is and will always be USA’s bitch, lapdog, poor cousin etc.
http://www.worldstopexports.com/canadas-top-import-partners/
United States: US$319.6 billion (76% of total Canadian exports)
China: $18.2 billion (4.3%)
United Kingdom: $13.6 billion (3.2%)
Japan: $9.1 billion (2.2%)
Mexico: $6 billion (1.4%)
South Korea: $4 billion (1%)
India: $3.2 billion (0.8%)
Germany: $3.2 billion (0.8%)
France: $2.6 billion (0.6%)
Belgium: $2.6 billion (0.6%)
Netherlands: $2.4 billion (0.6%)
Italy: $1.8 billion (0.4%)
Hong Kong: $1.7 billion (0.4%)
Australia: $1.5 billion (0.4%)
Switzerland: $1.5 billion (0.4%)
Keep dreaming all these others want Kanada’s stuff!
My concern using CC for all purchases is security. Got a call from cap 1 asking if a small charge was mine. I guess it got flagged as being unusual (for me). I said it was not and they immediately shut the account down.
Apparently thieves will do a small charge to test to see if it goes unnoticed then in the next few days its the OLED from bestbuy.
Anybody know of a low-limit card with a max transaction of say $100 that could be used for small
purchases? Tap tap!
60 Godth – interesting link. What I notice, is that once more of the world is included, Vancouver is not so high on the list (Demographia has a limited study area). Given the other centres should have much higher incomes than Van, it may not look expensive at all on an absolute scale.
#58 Shawn Allen
An obvious possibility is that many are poor because they made so many poor decisions.
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Many that appear to be rich are poor because they spend too much of their time and earnings appearing to be rich. We used to call it ”fake it till you make it”. Most don’t make it and so end up poor. I know a few Albertan’s like that.
I just used my computer to transfer a number of 1,000 from one account to another. No cash involved in today’s world we only transfer numbers now. All cash is nothing more than number transfers from one hand to another. Welcome to the digital world of today for buying and selling by transferring numbers.
#96 Ace Goodheart on 02.03.19 at 10:57 am
Here’s the advice young folks are getting on how to retire early nowadays:
https://www.theglobeandmail.com/investing/personal-finance/retirement/article-condo-conundrum-how-to-balance-a-large-down-payment-without-feeling/
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That financial face lift was the equivalent of getting an injection of silicon tub caulk butt enhancer at an unlicensed salon…
#61 Barb on 02.02.19 at 10:11 pm
Re my $2.00 coffee VISA post.
It’s my aversion to being a StatsCan datapoint, at least voluntarily.
Card use? StatsCan/govt actually have a “discretionary spending” category from card agency reporting.
Does anybody want StatsCan (gov’t) compiling data on how much and/or often charges are for necessities…or credit card $100 at a bar, $100 at a golf course each week?
That’s why they call it DISCRETIONARY, because it’s not for the necessities of life.
I use my CC only for big stuff and DC for groceries.
The “points systems” and “loyalty programs” are an amazing way for agencies to track how much is spent on unnecessary vs. necessary stuff.
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Who cares….. everything you do electronically is tracked and beamed in real time to dick cheney….
CC all the way for everything…..
This blog is off course monitored by the CRA.
99 Shawn. Nobody seems to do bottle drives anymore. There may be a bin at the school or clubhouse for
drop-offs. When I was involved, a few of the parents drove, and the kids did the door-knocking, then it was all sorted and returned – ie it was a bit of work for
everybody, not just a handout.
Mrs V now returns the non-alcohol empties to the
grocery store every week. I look after the beer-wine-
booze but it takes a couple of years to build up. This year I took them to the depot (a depressing place) and got $7 which covered my gas and a coffee. Woopie!
Why do poor people make poor decisions?
The vast gulf of ignorance evident within those words can be explained thusly; the Dunning-Kruger effect doesn’t just apply to those who are unaware of their own intellectual deficits, but applies equally to those who are unaware that the advantages granted to them via genetic lottery are not democratically distributed. If one has the tools and resources to make consistently good choices in life, it’s due to random chance that one was likely born in a developed country, to well- off, and well-meaning, parents of above average means and intelligence. Lots of people possess below-average helpings of these necessary qualities, so carry on sneering at their choices; it’s just your Dunning-Kruger syndrome talking.
A lot of news right now on the topic of whether Cryptos will be making a come back.
I think the answer to that requires some market research. We need to ask some questions.
Take for example, the following market research:
36 year old married lady. Works in HR. Earns 90k. Hubby also works. Two kids, one a baby, other in pre school.
Ask this person three questions:
1. You are in store. You want to buy some diapers. You have your debit card with you. How do you do that?
The answer would be easy. Just put your card in the reader, type in your PIN and you are done.
2. Same scenario as above, but you brought your credit card. How would you pay?
Again, the answer comes easily and quickly. Diapers are less than $200.00 So just tap the card on the machine.
3. Same scenario, but you want to pay using bitcoin you have stashed with an online exchange. How do you pay for those Diapers?
For the third scenario you will likely get a blank stare. She has no idea. Can you even use bitcoin to buy Diapers?
Truth is you might be able to. But You’d have to contact the head office of the store directly to see if they’ll take it. If they do, the payment transaction itself will likely take days to process. The block chain is really slow.
You also would have to have our your bitcoin in an exchange that allows you to withdraw it (many don’t – you can add more but you can’t take it out again).
The exchange might also be nothing more than a bunch of flash drives carried around by one person, impossible to access should that person pass on (as many members of a recently bankrupt Canadian exchange just discovered)
So, likely it will not be possible to purchase those diapers with your bitcoin.
And that folks, is why cryptos are and always will be worthless
Interesting, on a day of Superbowl he diseses it and mentions a soccer in kind of positive light… I am thinking he is on to something.
Barron “plays a lot of soccer,” Trump said, adding that “a lot of people, including me, thought soccer would probably never make it in this country, but it really is moving forward rapidly.”
https://www.bloomberg.com/news/articles/2019-02-03/trump-says-he-wouldn-t-steer-son-to-play-dangerous-football
In my line of work at a pharmacy, I routinely have patients who need to apply for the Ontario Trillium Drug Plan due to the catastrophic high drug costs. There is an annual deductible based on the family income, which is paid in equal quarterly amounts as medications are filled. These deductible are typically 1% of gross income, meaning a patient is expected to pay 4% of their gross income towards medication over the course of a year. It boggles my mind how many people don’t file taxes, and how even paying the deductible is a challenge. For those with private insurance, they are expected to mail in receipts to the Trillium program after adjudication, in order to verify out of pocket amounts. The Trillium program will then mail out a cheque for any out of pocket amounts over and above the deductible. The fact that so many of my patients cannot handle a 6 week delay in paper claims processing is worrisome to me, as this is a proxy of economy. There are those who will debate that this is a surrogate marker, but there’s been more and more of it lately over the past year which got my attention.