Entries from January 2023 ↓

Let’s take a break from all the generational bleating, moaning, blaming and shaming to visit a normal person. Like Rob. And he’s happy.

“Just thought I would check in to say thanks for all the free guidance you provide,” he says, in a refreshing moment of contentment. “Sometimes the proof is in the numbers and I thought I would share mine with you. I took ALL the proceeds from the house sale (it was paid for) and invested it.”

Seriously. Rob eschewed buying another house six years ago and chinked it all into a balanced and diversified portfolio. “Almost a million bucks. I rebalance twice a year. Reinvested all dividends. Haven’t taken a dime out.”

In 2020 my wife asked: “what do we do?” I said:”Garth says do nothing”… Last year my wife asked: “What do we do?” I said: Garth says do nothing.” And that’s exactly what we did…nothing. Nothing but watch it grow. See the attached results. Thank you Garth. Thank you, thank you, thank you….

Well, below is the chart he sent me. The cumulative gain is close to 70%, and the annualized performance is 8.58%. Could Rob & his squeeze have done better sinking the cash into a new property and using some leverage to crank things up? Maybe so, depending on location. But by following this path he has the better part of $2 million, all liquid, throwing off income and no need to worry about cashing out in an iffy housing market. No realtors, No listing. No staging. No showings. No rapacious commission. No vultching buyers. No moving.

One blog dog’s tale: Do nothing, make money

Why relate this? Because R did the san  e thing. He ignored the noise. In 2020 that included the Covid meltdown – the fastest retreat ever into a bear market. As we predicted, it passed. Quickly. In 2022 he ignored Putin, inflation and the CB. More noise. The portfolio swooned for a while, then recovered. It always does. Until the world stops growing (which will be never), financial markers will edge higher over time. The noise fades. The steady player wins.

Now, where are we? What next? Is this s strategy to hang on to in 2023? Or are we lurching towards a hard landing like all the Internet guru-smarties flogging gold and crypto swear is coming?

Two words. Soft landing.

This is the holy grail. Such an event happens when an economy cools enough to stem rapid price increases and wage pressures (inflation) without throwing oodles of people out of work and trashing business investment (recession). With each day that passes, we inch closer to this reality. Consider this…

The Canadian economy, we heard Tuesday, is chilling nicely. Growth of 2.9% in the third quarter dropped to 1.6% in the final months of 2022 as those aggressive interest rate hikes bit. This is pretty much what Bank of Canada boss Tiff Macklem had to say last week when he suggested the rate hiking orgy was over. Our CB was the first major one in the world to pivot. Now you know why. If we have a slowdown in the coming months, it will be shallow, tepid and something Rob can easily ignore.

“The BoC can feel comfortable keeping its policy on cruise control,” says a TD economist. And it will. Adds BMO’s Doug Porter: “The overriding message is that the economy is just managing to keep its head above water, which squarely fits with the BoC’s view.” Yup, Tiff nailed it.

Second, things are looking up across the global economy, despite the crazies in Russia and China. The International Monetary Fund (IMF) just upped its growth forecast for the planet to 2.9% this year

Says its chief economist: “Around the world, you see labor markets that have been quite resilient; household consumption that has been stronger than expected and business investment. You put all this together, and you have a slightly more resilient global economy. We’re expecting things to bottom out.”

No recession, it concludes. But that could change if the Trumpers in Congress cause a debt ceiling crisis later in 2023. Odds of that happening: same as Harry Styles staying famous.

That brings us to reason three, America. It’s fine.

Tomorrow the Fed makes its latest rate pronouncement and investors are betting on a weensy, piddling little 25 basis points followed – as in Canada – by a pause. Maybe there’ll be a further quarter point bump in March, but this baby is winding down fast. Many even believe, as we told you last week, rates could be rolled back by a half-point or so at the end of 2023.

Also, no recession in the States. Growth modest, but positive. Like me. Like Rob.

Keep your stick on the ice.

About the picture: “I’ve enjoyed your blog for a number of years. Thanks to you I have a nice B&D I don’t worry about,” writes Jim (who’s also happy). As an additional suck up, attached is a picture of my Springer Gus surveying his kingdom.”

At twenty I left home. At 21 Dorothy declined my marriage proposal. At 23 she accepted. We rented an urban hovel then, at 26, built a small house on a dirt-cheap snowbelt treeless rural lot with a mortgage at 12.5%. Happy.

Change is the only constant, and today society has a whole new patina.

In 1971 – as I tried hard to impress her – 91% of the people my age (early 20s) did not live with their parents or in a multigenerational setting. By 2021, fully 25% were still at home in the US and in Canada the number had jumped to 35%. Over the last twenty years adult children shacking with parents have grown older. Close to half are now aged 25 to 34, according to StatsCan.

It’s a profound shift. The financial implications are deep. Chief among them is the 30+-year drain on parents who may not stop supporting their offspring until well into their own retirement. Making it more consequential are the forgiveable loans made by the Bank of Mom so Junior can buy real estate. That usually comes out of parental home equity or from retirement savings, reducing net worth at the worst possible time – when employment income ends.

Why is this happening?

Lots of reasons, apparently. Kids spend a lot longer in university now, delaying independence and earned income. Mortgages may still be comparatively cheap (we could only dream of a 6% borrowing) but houses cost a bundle. Rents are high. The pandemic messed up everything, created seriously risk-averse young adults and stymied careers. Now there’s angst about a recession, even when we have more jobs openings than bodies to fill them.

Young adults increasingly choose staying home

Mostly, we have a crisis of expectations. The Millennials, for example, have lived their entire sentient lives thus far in a real estate bubble. Ingrained is the belief that owning property is the only route to building wealth, that the stock market’s a casino and debt is inevitable. Millions of young adults refuse to leave home and take on financial risk until they can buy real estate – which they expect their parents to partially finance or co-sign for.

As you know, this breeds generational conflict. Boomers are seen to be the beneficiaries of a time when houses were cheap (even if mortgages rates were triple). It’s why the zealots at Generation Squeeze, for example, what a surtax imposed on everyone owning a house with a million or more – assuming this will help wealth flow from the older to the younger. It all reinforces the cult of real estate which has led us to this point – houses people cannot afford, and the greatest pile of household debt in history, now resetting at a higher cost.

So what is Ottawa doing?

A few days ago the multigenerational home reno tax credit came into being, allowing a 15% write-off of construction costs up to $50,000 to build a suite. Ostensibly this is a for a family member who’s a senior, or disabled, but may quickly morph into something different. One use may be to assist parents in subdividing a home that their child never leaves.

Many cultures foster this kind of arrangement, of course. Parents, grandparents and adult children dwell contentedly in separate spaces or on different floors, sharing expenses and providing mutual support. So is the new federal tax credit an admission all of society should now be moving in that direction? Stay-at-home-4evah?

Yup. Seems so.

Politicians thus far have failed to address the root reasons real estate was financialized, then became out of reach. Building more houses at market price will change zip. The FHSA is intended to boost demand, which makes things worse. Banning wealthy non-resident buyers does nothing to help first-timers. Heaping on land transfer, property, vacancy, speculation, flipping and non-local taxes inevitably raises prices. We have so lost our way when a 2% increase in mortgage rates leads to societal meltdown.

Are we living in a time when our kids are punished and disadvantaged because of when they were born? Are they being denied the fundamental right to real estate?

Or have we birthed a generation of entitled spoon-fed wusses?

What’s in your basement?

About the picture: “This is my mother’s dog, Coco,” writes Travis. “She lives in Australia. Good-natured, except for when humans are talking on zoom calls and the jealousy sets in.”

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Have a beast to share with the pack? Send me a picture and some words, to ‘[email protected]’.  – Garth