“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.”

“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

67 responses to ““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.”

  1. 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?

      • 4SlicesofCheese

        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.

      • 4SlicesofCheese

        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…]

      • Ralph Cramdown

        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.

  2. 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.

  3. 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.

  4. 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.

  5. 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

  6. @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.

  7. @TNT my house went up 330% in the same time period… but I wouldn’t buy real estate now.

  8. 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

  9. Go tell Peter Schiff how dumb he is too:
    Peter Schiff – Dollar Vulnerable To A Massive Collapse, Buy Gold & Silver

    • 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.

  10. 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.

    • 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.

  11. 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.

  12. 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

  13. @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?

  14. @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.

  15. 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

  16. @ 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.

  17. 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.

  18. 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..

  19. I predict that the majority of play-ahs who make big directional bets will lose.

    Do you feel lucky?

  20. is it me or is ms. clinton now looking suspiciously more like the latter day ani_skywalker? … http://tinyurl.com/d5k8vq2

  21. 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.]

  22. @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.

  23. 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

  24. 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

    • Missing a chromosome

      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.

  25. 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

  26. @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.

  27. @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?

  28. @chubster

    Heres one for you.
    The fed is going to own evey mortgage in the US and leverage them.

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