“It seems that consumer spending is the biggest force in the economy…and I wonder if consumers aren’t getting tapped out…financially and demographically. I wonder if they have used too much credit to buy “stuff” and are now at risk of setting off a vicious circle of deflationary trends if either the economy slows or interest rates rise…or both of those things happen. I wonder if manufactures made a boo-boo and figured that consumers would keep buying “stuff” and now those same manufacturers are sitting on warehouses full of inventory…financed by banks…and if that inventory doesn’t move the manufactures will have to lay off workers…making their contribution to the vicious circle of deflationary trends.” …
“My deflation bet: I rent a lovely condo on Vancouver’s waterfront…I have no interest whatsoever in buying real estate here. My long term savings are mostly in cash.”
- Victor Adair, Senior Vice President and Derivatives Portfolio Manager, Union Securities, at moneytalks.net 10 Sep 2012
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- Advice Regarding Renting In Vancouver, Please – “Unfortunately, the Vancouver rental stock is absolutely atrocious. It just seems like every landlord is looking for someone to pay 100% of their mortgage on a crappy place through rental income.”
- “I just visited Manhattan for a week, and happened to snap some real estate ads on both the Upper West and Upper East sides of the island. Compare to Vancouver. It simply doesn’t compute.”
- Ben Rabidoux In Vancouver Next Week
- “The mortgage company told me they were calling in my 40-year, 0-down mortgage. I have paid nearly sixty thousand dollars towards it, but, nearly five years in, I have yet to touch the principal.”
- ‘Vancouver City Hall: Housing Report Card 2012′; Plus Revised Version
- “My folks find themselves at 65 still owing half the value of their home and recreation property to the bank. After almost 30 years of ownership in the BPOE and a number of boom markets, they have very little to show for it.”
- “Rent for $2,200 a month or buy and have a mortgage of $4,310 per month. Why would anyone buy?”
- “They were talking about two couples they knew who had recently bought a lot and planned to each build a house on it and live as neighbours.”
- Greater Vancouver Home Builders’ Association Annual First-Time Buyer Seminar Attendance Plummets
- Mom and Pop Get It Wrong In All Markets, Time And Again
- The average British Columbian homeowner is not going to pay off their mortgage by the time they retire.
- “He’s sold all his properties except his current one, which is now for sale. He explained that the market’s currently in crash mode, worst that he’s ever seen.”
- “One of my old high school buddies finally got her mother to sell the family home in Kitsilano – sold for over $1M, monies realized after debt paid off $185K.”
- “I know someone who just declared bankruptcy because her condo was assessed at $150k and she bought it presale north of $250k in 2005 or 2006.”
- Sturdy, With Views – “Calling Froogle Scott!… Is Dr. Scott ‘In The House’?” [Not In This One, Certainly]
- “She said the market was dead in Victoria and that it would remain so for a very long time. I asked how she knew. Her answer was fascinating and should scare the pants off the real estate crowd.”
- Kits Notes – “I’m pretty sure that this is the first 3+ bedroom property of any type that I’ve seen in the 5 years I’ve lived here that is priced below $700K.”
- “A beautiful Belfast home, in the equivalent of 1st Shaughnessy, bought at their RE peak in 2007 for £3.5 million, has now sold for £800K, almost 80%-off. The market didn’t suffer any significant economic shocks. Rates & unemployment didn’t skyrocket. They didn’t build more land. Sentiment just changed and the prices fell and fell.”
- “Two family members of hers are trapped, underwater, in condos on the East Side.”
- “Interprovincial migration is not saying good things about BC’s economy.”
- Vancouver RE: Not As Expensive Provided You Don’t Think – “It’s clear that our perception of affordability has been coloured by living on a continent where housing is unusually inexpensive.”
- More Undisclosed RE Industry Insiders Publicized As Clients – “In 1995, Allan and Karin Hoegg were mortgage-free. But no more. Today their Vancouver home is a valuable source of income as they plan for full retirement.”
- Rumor that some OV units will be reduced by 20%.
- Downside Weights On The Vancouver RE Market – “One of the older guys (over 60) mention to the guy beside him that he and his wife were thinking about selling their family home, and renting, in order to get some of the money that was locked up in the house.”
- “My buddy was looking to upgrade to a house in the Coquitlam area. With 200k extra for a home, that’s half of lifetime saving between him and his wife.”
- “I was walking in the Fraser neighborhood yesterday, I noticed that the population, on average, seem to be composed of workers. I belong to the top 5 percent in terms of income. Nevertheless, I cannot afford any of the houses for sale in that neighbourhood.”
- “Vancouver is an urban resort whose value mostly resides in its real estate and not much else.”
- “Rogers Communications is expanding into RE; aiming to relaunch website; providing critical data that can help potential buyers assess the value of a property from the comfort of their home computer.”
- I’m only 50 and I can just about retire if I want to, all because of a single simple decision – “When prices rebounded to their former highs, then rocketed another 30% higher to what I considered to be totally unsustainable levels, I decided that only a fool would pass up a second opportunity to harvest such a massive non-taxable capital gain, and in 2011 I sold my place.”
- The Vacant Lot of Versailles, Richmond.
- “I don’t think that most people think things are going to crash, just that there is going to be a slight correction, but it was amazing to me how sentiment has changed, and the fact Vancouver RE is too high was just understood.”
- “The ‘investor’ who purchased our house put it up for sale two months later, in January 1981, but the bubble had burst.”
- For A City To Have That Kind Of Vacancy, It’s Like Cancer – “Downtown, the vacant unit rate is so high that it’s as though there were 35 towers at 20 storeys apiece – all empty.”
- “What’s the worst that can happen? You can’t pay your mortgage, so sell your house! No fear.”
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Not buying Vancouver RE = smart move. Allocating long-term savings to cash = not so smart.
I did a lolwut on that. Isn’t that guy a frequent guest on CKNW’s Moneytalks?
For long term, the same case could be made for buying RE. I think what Renters Revenge and VREAA are talking about the current outlook on the economy.
Cash will give you buying opportunities in the near future.
Meant for the replys below.
Cash may not be so smart but what’s smarter?
A subgroup of investors/traders/advisors will have the skills to have a good chance of doing better than cash, but, if one is not in that subgroup, cash is better. [Sounds like a circular statement, but actually a bit more useful than that.]
For the long term, equities.
vreaa, beg to differ. A buy-and-hold diversified portfolio has, over every reasonably long period in history, vastly outperformed cash. That’s all any long-term investor needs to know. You don’t have to have special skills, or indeed investment knowledge whatsoever, to apply and benefit from this approach.
El Ninja -> With respect, we’ll have to agree to disagree.
In the long run a diversified portfolio may do better than cash, but is the average stock market investor capable of using that strategy?
Stock market returns are very dependent on the price one pays when one buys. I understand your argument, but I’d submit that the average participant is spectacularly bad at managing their investments… they buy high and sell low. How has the average Canadian stock market participant done since the turn of the millennium? Significantly worse than the TSX.
Furthermore, IMHO, a sensible contrarian will do far better than a ‘buy-and-hold diversified portfolio’. But one does have to have the ability to trade like a contrarian, which only works because a small minority use that strategy!
So, a subgroup of stock investors may do better than cash, but a majority will likely not.
I have had a large % of my portfolio in http://www.roifund.com/Home/index.php for the last few years.
Very stable, very safe and my mix of their funds returns an after tax 5% per year plus once you have your money in for at least 6 months it can be pulled out quickly with no penalty.
Definitely better than cash although I have a chunk in that as well waiting for short term opportunities. It’s very possible that when he says “Cash” he is referring to very low risk, easily liquidated funds.
vreaa, as I said, buy and hold, not market timing. A passive strategy requires zero skill. Just buy a low-cost index fund and go on autopilot. What could be simpler? Sure, not everyone can do it, because they are tempted to take an “active” role, which inevitably does damage. But for those who recognize that they aren’t expert investors, and can keep their temptations at bay, this is hands-down the way to go. As for buying high and selling low, this is easily mitigated by dollar-cost averaging.
A contrarian approach may indeed yield better results, but very few can make it work due to the timing issues you mention. It is best left to the experts, not the average investor.
Check out any of John Bogle’s writings, I find him to be the most lucid and compelling exponent of passive investing.
I knew I should have bought that GT40….
[BusinessWeek] – Mercedes, Record GT40 Head $220 Million Car Auction
“Wealthy collectors paid record prices for a Ford GT40 and rarities by desirable marques such as Mercedes, Ferrari and Bentley in California’s classic car sales. Gooding & Co., RM Auctions, and Bonhams sales ending last night raised in excess of $220 million, 33 percent higher than the $166.7 million generated in the bellwether West Coast sales last year. Classic cars, like art and wine, have been attracting increased attention from wealthy individuals looking to diversify their investment portfolios. Existing buyers, aware of the worth of rare autos as a store of value in times of economic weakness, are also looking to improve their collections.”…
[NoteToEd: The temptation to drive the 'investment' - or drink it - would most certainly obliterate any potential speculative gains...]
Pick a couple of large index funds, say Vanguard or a low cost broad market ETF for the US, maybe XIC for Canada and a bond fund, have your brokerage set up a DRIP and an automatic monthly purchase/deposit from your paycheque, and wait.
While it’s true that most punters do terribly, that isn’t because it’s hard to set up a low cost investment strategy with a high probability of success, it’s that they treat it like going to bet on the ponies.
There’s advanced strategies, of course, but you have to be willing to dedicate some serious time and effort to them, and consider that your learning curve will be measured in years if not decades, but the above only takes an hour or two a year, depending on whether and how often you want to rebalance.
If you hold “cash” your “savings” are currently being taxed. That may be better than the alternatives but looking at the vast majority of periods in history holding cash doesn’t, on balance, look to be a winning play.
I presume we’re talking about current conditions and the coming year or two, right?
…
In a related sense, when you look at the last two years, people in cash and people who have dollar cost averaged into the TSX are just about even.
He (the portfolio manager) expects “deflationary trends”, so holding cash until he can buy when stuff gets cheaper makes sense. It’s a bet that has worked very well in the US after the bubble popped.
In the longer term, cash is trash, thanks to the nature of our monetary system.
The guy quoted said his “long-term savings” are in cash. I presume “long-term” to mean 10, 20, or more years. It’s a terrible idea.
For the long term GOLD/SILVER..Forget equities. People need to get off Main stream news
Main stream news, or decades of historical evidence favouring equities over gold? Over the long term, gold has been a relatively poor hedge against inflation. And it produces no income.
On the buying too much stuff on credit point, last night at the gym I picked up a stray receipt off the floor in the locker room and looked at it. $537 for personal training sessions. At any given moment there are at least two people receiving personal training in my gym. That’s a really expensive thing and $500 for PT is something that strikes me as very unsustainable. For me that would represent half a year of personal spending money (I have kids). I think personal trainers, estheticians and realtors are all in the same sinking boat when the credit dries up.
It’s always interesting to look at what the last customer did when you’re pumping gas. Odd number = filled with a credit card, rounded to the dollar = filled with cash, rounded to the ten dollar = broke. Of course, it depends on your neighbourhood, but I see broke people.
“That’s a really expensive thing and $500 for PT is something that strikes me as very unsustainable. For me that would represent half a year of personal spending money (I have kids)”
That just means it’s unsustainable for you.
Gee, it’s nice to occasionally get a viewpoint that makes everyone here look like pollyannas. The guy’s been trading for over 40 years and right now he’s got nothin’ for ideas. There’s nowhere to make money because the price of everything is going to go down. The guy makes Nouriel Roubini look like an optimist.
cash is always a good idea until you finding something worth pursuing with conviction … whatever chosen, understanding the risks is paramount … and along with that, some discipline as to what would change your mind … for the deflation dudes, your risk is uncle ben and friends – make sure to watch them all like a hawk (lol) … ciao out
@El Ninja
Gold is up 147% in 5 years.
Gold tracks oil.
Gold is where much the big money is going.
QE=price of gold going higher.
Its fact.
TNT. “It’s fact”? LOL, nothing in investing is guaranteed. If it were, we’d all be rich.
@TNT my house went up 330% in the same time period… but I wouldn’t buy real estate now.
El Ninja..OBVIOUSLY you have no idea about cycles. Its exactly like REAL ESTATE,. for over 40 years (decades) you have been brainwashed into buying houses. This has come to an end. Its called a bubble. GOLD has risen MUCH further over the last 10 years then EQUITIES. It preserves your wealth as the dollar ERODES. QE to infinity will allow GOLD’s rise to continue. Go and read JIM SINCLAIR. ALF FIELDS, http://www.tfmetalsreport.com, http://fofoa.blogspot.ca/, http://www.kingworldnews.com/ and all those analysts, please explain how you are MUCH SMARTER then them!
World Of Antiques: You are making presumptions. I haven’t been brainwashed into buying houses. I don’t own RE. As for gold, if you are basing your investment decision on its performance over the past ten years (a mere blip in history) you are making a grave mistake. Look further back in time… over the long haul gold has performed relatively poorly.
P.S. writing EVERY other WORD in capital letters is ANNOYING.
hey you know how i know you know what you’re talking ABOUT? YOU use caps LOCK to emphasize SALIENT POINTS
Go tell Peter Schiff how dumb he is too:
Peter Schiff – Dollar Vulnerable To A Massive Collapse, Buy Gold & Silver
http://beforeitsnews.com/economy/2012/09/peter-schiff-dollar-vulnerable-to-a-massive-collapse-buy-gold-silver-2452156.html
Peter Schiff sells fear, and does very well for himself.
Well then you can go head to head with him and tell him he is all wrong. Go to his website and explain to him that he is completely wrong.. and here is why..DO IT. Then go join http://www.zerohedge.com tell the readers they are all stupid. or go tell JIM Sinclair or Alf Fields that they are dumb too. Then go to Martin Armstrong tell him that he is the stupidest analyst of all time and tell him why.. too. DO IT. LET’S HEAR HOW SMART YOU ARE..LOL
That’s the thing about markets, World of Antiques. There’s someone on the other side of every bet. Who will be right? Time will tell.
Deutsche Bank: GOLD IS MONEY
Matthew Boesler | Sep. 18, 2012, 5:53 PM
Is gold money?
It’s become a tireless debate: goldbugs seem to cling to the shiny yellow metal with a religious fervor not usually displayed by anyone toward other asset classes, and it’s been known to frustrate some who don’t share their views.
Gold often gets lumped in to investment forecasts with other “commodities” – real, consumable things like oil or food.
But Deutsche Bank analysts Daniel Brebner and Xiao Fu say gold is seriously misunderstood, and in a new report – wherein they update their gold target to $2000/oz sometime in the first half of 2013 – they explain that “gold is not really a commodity at all.”
The undisputable evidence for the case that gold is money, according to the Deutsche Bank analysts:
While it is included in the commodities basket it is in fact a medium of exchange and one that is officially recognised (if not publically used as such). We see gold as an officially recognised form of money for one primary reason: it is widely held by most of the world’s larger central banks as a component of reserves.
http://www.businessinsider.com/deutsche-bank-gold-money-2012-9
When this is your worldview, doesn’t the extreme volatility in the price of EVERYTHING IN THE WORLD OTHER THAN GOLD make you completely nauseous, all day every day? I mean, the price of everything often goes up or down 2 or 3 percent in a day, and 30-50 percent in a year or two? Urghhh…. I gotta go.
http://www.theglobeandmail.com/report-on-business/top-business-stories/risk-of-canadian-housing-bubble-appears-to-be-easing-fitch-says/article4556191/
Risks of a bubble in Canada’s housing market appear to be easing, a “positive development” for the country’s banks, the Fitch ratings agency said today.
Phewww!! Glad we dodged that one!
2012 survey of buyers http://www.maureenseguin.com/blog/?p=2687#.UFlfqSDmTgE.twitter
Deflation won’t happen — look at QE 3+infinity , Canada has no choice but printing money to catch up , same as other countries. Vancouer real estate market still need a correction but I think 10% – 15% probably is the max, buy your dream house with dip .
We’re already 10-15% down so I presume you are out looking at house’s now? Or do you mean another 10-15%? That would be more accurately called a “crash” than a “correction”.
I am talking about another 10% to 15% — once trend is formed is hard to turn back overnight . In my book , over 50% is crash , anything under is correction — but I know it’s debatable
@Double Down
Neither would i, at least not in most of Canada, but i have been buying gold and it has been going up.
Where did you make 330% in 5 years?
@newcommentor
Housing prices are down commodities prices are up.
Deflation and Inflation all in a neighbourhood near you.
maybe at the initial stage you might see both coming , but in the long run housing market will have to follow commodities — the higher commodity price need to be reflected in the any consumer goods.
To clarify:
In the long term, yes, cash is trash, it gets inflated away… But who is holding a gun to your head forcing you to make a single investing decision ” for the long run”? Timing, and timeframe, are everything.
The point is that, like Mr Adair, and some of the prior commenters, I expect there to be opportunities in the next year or two or three to buy stocks, and very definitely Vancouver RE, at prices substantially lower than today’s.
And, btw, even if we get inflation, assets that are very overinflated will do worse than those that are less so.
There may well be periods where stocks do fine while Vancouver re drops, and a buy and hold strategy will do fine thru all that, obviously.
Broadly speaking (this not being an investment blog!) the most important principle is that we believe cash will do better than Vanc real estate for the foreseeable future.
Time horizon is a critical component of ‘investing’. If one is sitting on cash in anticipation of RE opportunities in the short term (“1 or 2 or 3 years”), cash is the place to be.
++ if inflation, eventually rates rise with attendant consequences for leveraged assets (eg. RE) … simplified view -> we are past peak ww credit (2008) and into a prolonged deleveraging phase, choice of to which extent direct default or monetization … CBs/govts have said it will be monetization >> defaults … (in principle, one could have deduced this in advance mostly because it benefits the established 1st class) … without getting all fanatical about it, pog (and related inflation plays) are just a recognition of that … ps. there are places in maple south where RE sells for ~ 1/2 replacement cost despite QEx
@ newcommentor
Currently in Vancouver housing prices are going down with food and fuel prices climbing.
In the USA where many housing markets took a hit and are still way down since the QE1 cash injection food prices are up an average of 40%
Fuel costs are also climbing.
In parts of Europe gas 9.00$ a gallon, housing market down.
Deflation and Inflation.
Vancouver is not different.
Gold is tracking both.
Asset deflation, commodity inflation. Assets deflate because of the credit dynamic of course. I’m 100% in commodities, including gold, and if I could short Canadian assets (Real Estate) outside of renting, I would! Going short HCG doesn’t seem like enough.
25% of your portfolio should be in gold and gold equities. At all times. If gold goes up, sell to maintain the 25% share, when it spikes down, buy to maintain 25% (buy the dips).
We are in a long-term bull market for gold and will remain so until real interest rates stop being negative.
Right now gold equities are probably undervalued versus bullion, but they are still risky as a huge sell-off in equities (highly probable within the next year) will cause gold equities to fall faster than bullion.
Waiting for the spike crash and then piling into gold equities is probably the best play you can make if you have the patience to wait for it and the stomach to go for it..
I predict that the majority of play-ahs who make big directional bets will lose.
Do you feel lucky?
is it me or is ms. clinton now looking suspiciously more like the latter day ani_skywalker? … http://tinyurl.com/d5k8vq2
why don’t you guys all buy guns, ammo, and a shipping container you can bury in the montana countryside? that will keep you well positioned to take advantage of the ensuing chaos from QE8
Gee, Matt… You could be on to something!… Regardless, I think all the ShippingContainers are currently spoken for as affordable housing.
On a related note… Yesterday, subsequent to a celebratory evening of unbridled dipsomania I had the most disturbing nightmare…
I think it was a DunbarSouthlands ‘bidding war’ set in the not ‘too’ distant future…
[NoteToEd: When I awoke, I was suddenly overcome by the strangest compulsion to screen "Dr. No". Go figure.]
@matt
You should read up on what atrocities occurred after Katrina.
Rape, looting, murder.
Police have been implicated.
This began a few days in.
When it hits the fan the worst in man shows up pretty quick.
You should read up on historically what happens to all fiat currencies and the precursors.
They all fail.
History repeats itself , and its not all nice and cushy.
since you’re such an astute student of history why don’t you tell me what happened to the economies of all the countries that went back to the gold standard in the 20th century
after 3 rounds of expansionist monetary policy i’m still waiting for that hyperinflation. it’s still coming right? just i wait
matt
The part where the government reclaimed as much as they could and then upped the price almost over night?
I know that i am paying 15$ for a steak i was paying 7$ for a couple of years ago.
I know my wage has not gone up 40%.
I know that the endless printing of money has already causing a load of pain.
I know millions of people are on food stamps.
I know that 22% of Americans are out of work.
I know that the chickens are going to come home to roost as banks continue to get downgraded.
I hope the rainmakers don’t start a third world war, a scenario that usually follows
Back to the basement with ye, Alex jones
###### please, you can’t even ###### decide if you’re angry at the macro or the micro. 5 year us bond yields are sitting at 0.75% and the 10 year is at 1.7%. the entire world economy stinks because there is a dearth of demand because companies are scared to spend money because, oh wait there’s a dearth of demand. so if no one is spending money, exactly how the fuck is hyperinflation going to take off? your ‘fiat money is evil’ mantra is a load libertarian voodoo economics nonsense. central bankers are deliberately eroding your goddamn pile of money precisely to motivate companies to invest.
gentlemens, the fact that vigorous disagreement still exists should comfort you as investors … que sera sera … whatever we think or say will not change it … besides, i think the ‘dude’ has issued a fatwa on this … sir_nem, sadly my mango dreams are less upbeat lately … http://tinyurl.com/945cqg
@matt
It doesnt have to be deemed HI to pick the pockets of the consumers.
I agree that the banksters have made it very difficult to make money.
Money is becoming devalued, inflation and deflation is seeing to that.
I dont think that fiat is evil but when i see some of the richest people in the world move out of stocks and into metals it makes me think, as does the fact that the price of metals continues to climb.
To print money endlessley leads to only one conclusion.
@chubster
Great clip, i know a director who worked on that movie,he said it was crazy town all around cameras rolling or not.
Still alot easier playing soldier then being one of the 170 million that have died in wars in the 20th century.
Seems pretty real then.
indeed, that and the modest amounts of peasant roadkill … tops list of disturbances every time i authorize ach transfer to treasury … it’s a paradoxical existence … hope for ben to put rates back where they should be and crater my positions … despair when he doesn’t and things just keep going up … of course, the real risk is a radicalization through economic impoverishment … a little thought expt i try from time to time … imagine i’m young, very handsome and german (lol) … in 1929 … at what pt would i have said enough?
@chubster
Heres one for you.
The fed is going to own evey mortgage in the US and leverage them.
may not get to there … fed could lose control of bonds before that