The jubilee

Kids exiting uni owe an average of $28,000. For law students it’s four times that amount. If you’re a baby doctor or dentist, owning two hundred grand is no stretch. Lots of people carry those debts into their thirties, when they’re into the process of heaping on more debt – for a car or maybe a house.

In fact student loan debt is one of the inhibiting factors when trying to score a mortgage. And speaking of that, families now carry $1.6 trillion in mortgage borrowing. Plus $400 billion in HELOCs. Then there are reverse mortgages, and another $600 billion in credit card and consumer loan debt.

It’s everywhere. You know the numbers. Four in ten people have less than $200 a month after servicing their debts and buying yogurt and street cannabis. The debt-to-income ratio has never been higher. Borrowing is running four times hotter than inflation. Even when house values go down, mortgage debt goes up. It’s hopeless. Addicted. We’re pickled in the stuff.

This week the bank cop (OSFI) ordered the Big Six to put away more capital because of ‘elevated risks’ flowing out of housing, especially in the GTA and the LM. It’s called the “Domestic Stability Buffer” (I could use one of those), and it’s been raised now three times in about a year. It’s there so when an economic, debt-fuelled shock hits the economy, the banks have cash on hand to, yes, keep making loans.

We’re not alone. The feds can’t balance their books and Ottawa’s deficit will run thick and red for the next four years. Corporations owe a ton. Interest rates are too low, but central bankers are scared to hike since people already struggle to pay. Meanwhile low rates hurt savers and encourage more loans. People borrow money to pay the interest on existing borrowings. Car loans are 96 months – often lasting longer than the damn vehicle. People borrow to buy mattresses. Payday, cash-money loan vultures abound. Debts growing faster than people have the ability to repay them constitutes an economic disease.  Hard to see where this is going to end.

So debt fatigue has bred some rad ideas.

During the GFC Obama’s administration tried bringing in mortgage forgiveness, but failed to get it through Congress. Five million families lost their homes and the financial crisis got worse. Many economists think the downturn would have been shorter and shallower if homeowners had been cut more slack.

Now it’s 2020 (almost) and the political winds have shifted. Have you heard about the Debt Jubilee? It’s the big new thing. The kids love it.

  Democratic contenders for the US presidential contest have been proponents. Elizabeth Warren wants to forgive almost $2 trillion in student loans. Bernie Sanders would do the same and erase another trillion in medical debt. The arguments are interesting.

First, a lot of student debt is owed to the government, or backed by it. So forgiveness wouldn’t really screw the commercial lending business (much). Second, erasing debt for people is the same as cutting their taxes. That’s called ‘fiscal stimulus’. It actually means interest rates can go up to stem the tide of new borrowing because the economy gets a shot from the jubilee. Third, 60% of Canada’s GDP and 76% of that in the USA comes from consumer spending. Indebted consumers spend money on loan payments, not on new Silverados, appliances or (in Alberta’s case) weapons. So a debt holiday would actually boost the economy as a whole, helping employment, corporate profits, wages, markets and investors.

But wait. Is it fair to consider forgiving the debt of some dork who overspent and deserves to waste his adult life paying for it? And what message does wiping away loans send? Don’t we all need more fiscal discipline, financial literacy and a few kicks to the nether regions instead of just giving stuff away? How is this really different from a universal income in which everybody basically gets enough to get by without worrying about employment? Have we all lost our minds?

  Maybe. But the idea of a debt jubilee is apparently five thousand years old, going back to Babylon where new kings would let everybody walk away from their creditors. That way people could afford to pay their taxes and buy stuff, creating a stable, prosperous society. And it was good politics. Kings got to keep their heads longer.

Sound commie ridiculous?

Actually the federal Libs have already started down this road with the shared-equity mortgage. It’s a way of relieving first-time buyers of a chunk of their indebtedness – money used to get a house, for which nothing’s paid.

The dogs are out.



A brief update on this pathetic blog. It’s been eleven years of dogs, balanced portfolios, taxes, chiseled abs, moister-bating, house porn and fighting with infidels, xenophobes and now the Wexit whackos. It contains 3,590 posts (2.7 million words, or the equivalent of 44 books) and 632,033 comments, not counting the 14 million that were deleted. As you may have noticed, unlike TikTok, there’s no dancing here. No lip-synching. Or pneumatic sixteen-year-olds.

Impossible to know how long it will continue. Like the corner milk store this blog is open seven days a week with fresh product. It accepts no ads, generates no income and sometimes immensely irritates Dorothy. “Are you reading comments again?” is usually the warning signal. I lie.

Well, webmaster William Stratas sent over some stats you might find interesting. They come from Cloudfare, the thingy that sits between us and the hosting server (wherever that is) and is tasked with repelling bots and other malcontent attackers. Last month there were 3,544 threats detected and squished. Of those 1,800 came from Slovenia (seriously), 826 from Canada, 465 from the States, 51 from Ukraine and 402 from elsewhere. The good news is that threats in November were 17% lower than October. Sounds significant, but I have no idea why

These were the top traffic locations: Canada accounted for 5,243,905. Just over a million came from the US. France (?) clocked in at 191,758 and Cyprus (??) counted 73,124. Another 656,475 emanated from other places.

What does this mean?

No idea. In the context of our online world a blog on money from Canada written by some old white dude is as exciting as colonoscopy research. And just as fun. But there’s apparently a need for this drivel at a time when most people are going backwards with their finances, making dodgy decisions and being whipsawed by greed and fear. So it continues for a while. All I can promise you is there will be no team dancing routines to a Drake soundtrack. Death would be a relief.

On Sunday we told you the feds would soon table legislation for a sort-of tax cut. Well, the official announcement came just one day later. Bill Morneau, our billionaire finance minister, gave a presser with Mona Fortier to unveil the increase in the personal exemption, to $15,000.

Who’s Mona, you ask?

  She is our Minister of Middle Class Prosperity. The 47-year-old was first elected two years ago in an Ottawa riding after my old House of Commons pal Mauril Belanger died of ALS. Mona’s qualifications to look after the middle class? She was the flack for a local community college, ran her own one-woman communications outfit and was Liberal campaign manager for Belanger.

When asked what the middle class is, exactly, and who’s in it, this was her response after being sworn in last month: “I define the middle class where people feel that they can afford their way of life. They have quality of life. And they can … send their kids to play hockey or even have different activities. It’s having the cost of living where you can do what you want with your family. So I think that it’s really important that we look at, how do we make our lives more affordable now?”

Um. Okay. Thank you, Minister.

So, on cue, they announced it. But that higher personal exemption level will take almost four years to phase in. The tax savings for most families in 2020 will amount to two tanks of gas, minus the carbon levy. Having said that, the Liberal plan will eventually remove another 1.1 million families from the tax rolls, meaning more of the burden will fall upon the shoulders of a diminishing group of people. On Monday Morneau made a point of saying nothing the government is doing will reduce the taxes of 1%ers. Obviously those families don’t have hockey-playing children or financial pressures. They’re just supposed to pay up.

Morneau will have an economic statement before Christmas, he adds. That means in the next ten days. A budget two months later.

So the advice here stands. Maximize your RRSP contribution for 2019. Open a spousal plan and use that if there’s an income disparity. Fill up the TFSAs on January 2nd. Make a RESP contribution by the end of the month. Gift your adult kids money for their tax-free accounts. Sell off any pooched securities so you can use the loss to reduce capital gains. Loan your squeeze money to invest this month and s/he won’t have to make an interest payment for a year. Use Form 1213 to reduce taxes withheld at source when you do the RRSP contribution. Over 60? Apply for your CPP. Turned 71 this year? Convert the RRSP to a RRIF by the end of the month. If your spouse is younger, keep investing in a spousal. Need to raid your TFSA? Do it this month so it can be repaid any time after January 1st. Otherwise you may wait a year. Delay buying investment funds that have year-end capital gains distributions. Pay child care expenses by December 31 and get a receipt.

Remember, Mona wants you to stay in the middle class. This is how.



What’s coming

The average tat costs about $200. So soon you can have a new one, thanks to Justin Trudeau’s government (he has a few). In the coming days the feds will table legislation to cut some taxes by increasing the basic personal exemption to $15,000.

That means no tax on that first fifteen grand (a $2,000 hike) so people earning less than $147,000 will see a small reduction in federal tax – about $600 per year per household when implemented. This will further remove some people from the tax rolls and cut federal revenues by $15 billion over four years, Scotiabank figures. You can be assured the shortfall will come from taxes on people earning over $147,000 annually.

Who’s that?

Well 90% of Canadians make less than $80,500.The top 5% earn just under $180,000. The bottom 90% (all people over 16) have an average income of less than $29,000, which clearly signals something is wrong in our society.

The top 20% of families (average $179,000) earn 49% of all income and pay 56% of all taxes. The top 1% earn 10% of all income and finance 15% of all revenues. This is the same tax bill as the bottom 50% (by income) of all citizens pay. So, that’s is how politics works. Tax success. Pander to the rest.

Of course, there is more coming. The T2 gang are now propped by the NDP (they want a wealth tax on top of income taxes) and the Bloc dudes, who hail from the highest-tax jurisdiction in the land. Likely targets are a higher inclusion rate for capital gains, some diddling with dividends, more grief for small business owners and professional corps, plus yet another whack at the $250,000+ income crowd. According to the latest StatsCan numbers, there are just 245,000 people in this category. That’s 0.65% of the population. In the US 5% earn that much (and in American dollars).

The conclusion: we don’t have enough rich people. If the 1%ers pay 50% more tax per capita than everybody else, don’t we need more? Now that 40% of families pay no net tax (and this week’s changes will increase that) it probably doesn’t make sense to create incentives for people (like medical professionals) to leave. But logic and politics don’t mix.

Anyway, this is all a reminder to the affluent and successful to exploit the tools you have left. The TFSA. The RRSP and the RRIF. A RESP or RDSP. Preferential rates on investment assets. Income-splitting with spousal RRSPs or low-interest family loans. Trusts, estate freezes or tax-deductible mortgages. If you earn over $150,000, you’re the enemy. Arm yourself.


A tale of two cities: Urban Montreal has 4.1 million people. Greater Vancouver has 2.4 Million. The average house price comparison: $350,000 vs $993,700. In Montreal last month sales increased, listings fell and condos were flying off the shelf at an average price of $290,000. In Vancouver, apartment sales were also way up while the average price of $651,500 was down 4%.

The median household income in Vancouver is $86,100. In Montreal it’s $82,000. So why are people in one (smaller) city willing to pay three times more for a house?

Sure, the climate’s better in BC. And Montreal is bilingual. Quebec has a long history of flirtatious separatism (take note Alberta), which has certainly repelled investors. But mostly it comes down to local culture. More than 45% of Montrealers rent, which is 10% more than Vancouver. There is no shame in the country’s second-largest metropolitan area in being a tenant. In fact it’s practically a city-wide party every July 1st when people move from one apartment to another. Moisters in Van seem to crave a Forever House to croak in. On the shores of the Saint Lawrence they get off on variety. Maybe it’s a French thing. Or perhaps BCers have turned into brain-washed property slaves.

It could be telling that this story got a lot of press in Van recently:

Forget paying for your home — in some Vancouver neighbourhoods it could take you as long as a century just to save up for a down payment. The findings were calculated based on median household incomes before taxes and benchmark home prices for detached homes and apartments, according to real estate firm Zoocasa.

The report showed that saving for a down payment of a detached home in Vancouver could be as far as 91 years away in East Vancouver, where the median household income is $65,000. Moving westward, it could take as long as to 217 years to save up for a down payment based on the same median household income.

“In the three priciest luxury neighbourhoods including Richmond, Vancouver West and West Vancouver, where benchmark home prices range between $1.5 to $2.9 million, it would actually take more than 100 years to come up with the needed funds,” wrote Penelope Graham, managing editor of Zoocasa and author of the report.

BC is an angry place lately. The government’s vindictive and grouchy. The kids are feeling disenfranchised. The household savings rate is, on average, negative. Financial stress is high and expectations higher. Tensions over income inequality and race pepper society. The Zoocasa nonsense fuels resentment and is typical of local media. This is why YVR is the country’s most indebted city, and will remain so. House porn is everywhere.

The point is not to compare Montreal with Vancouver. You can’t. Don’t even try. But if you choose to stay in a crazy, obsessed place, stop complaining.

Source: Zoocasa (Click to enlarge and feel inadequate)



Power of compounding

RYAN By Guest Blogger Ryan Lewenza

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

The above quote is attributed to the Nobel Prize winning physicist Albert Einstein. So in addition to developing The Theory of Relativity (you may have heard of it…E=mc2), he also had the brilliance to recognize the incredible power of compounding returns, which is the focus of today’s blog post.

Simply stated, compound returns are just returns on returns, and they help to significantly grow your savings over time. For example, say you invest $10,000 and you earn a 6% annual rate of return over a five year period. At the end of year 1 you’ll have $10,600 with your return being the $600. Then in year 2 you’ll earn another $636 ($10,600 x 1.06), with the $36 representing the compounding returns on the original $600 earned in year 1. In the table below take note of the yearly return column, which increases from $600 in year 1 to $757.49 by year 5. That’s compounding returns at work.

Compound Returns at 6% on $10,000 Investment

Source: Turner Investments

Now the magic of compounding returns, and why Einstein called it the “eighth wonder of the world”, is the earlier you start investing, and the longer you’re able to compound the returns over time, the more exponential the returns become.

In the chart below I calculated an investor saving $1,000/month ($12k/year), earning a 6% return, and starting at age 30 (35 years invested), age 40 (25 years) and age 50 (15 years) to retirement age of 65. The investor who starts saving at 30 years old would have a retirement portfolio at age 65 of $1.43 million. The second investor who starts ten years later at age 40 would see their savings grow to only $696,000. So, in this example, if you start 10 years earlier, which equates to an additional $120,000 of savings, it will result in the portfolio being $700,000 higher at the end due to the power of compounding returns. Finally, an investor who drags their heels and waits till age 50 to begin saving would see their savings grow to just $292,000 by age 65.

As you can see in the analysis the key is starting early, continuously saving, and sticking to the long-term plan so that compounding returns can work for you.

The Power of Compounding

Source: Turner Investments. Assumptions: investor saving $1,000/month ($12k/year), earning a 6% return, and starting at age 30 (35 years invested), age 40 (25 years) and age 50 (15 years) to retirement age of 65

Another interesting way to look at compound returns is to calculate the required monthly savings amount at different ages that will achieve a $1 million portfolio by retirement age of 65.

In the chart below, where we look at different starting ages to invest, lets focus on age 25 and 45. If you want a $1 million portfolio at retirement and start saving at age 25, with the portfolio earning a 6% rate of return, you’ll need to save $499/month or $239,520 in total. Compare that to a person who starts saving at age 45, they will need to save $2,153/month or $516,720 in total till age 65 to realize their goal of $1 million. So here’s the easy question for our readers – would you prefer to save $499/month at age 25 or $2,153/month at age 45 to have a million bucks at retirement? I know which one I would prefer.

Monthly Savings to have $1 million in Retirement

Source: Turner Investments. Assumptions: 6% annual rate of return

In just the last week we saw the S&P 500 hit new highs, followed by a big drop on news that the US/China trade deal could be pushed till after the 2020 election. During these uncertain and volatile times when we’re inundated with so much noise we can lose perspective of what’s really important to investing and realizing our long-term financial goals.

At the end of the day, the two most important factors to successful investing are one’s long-term rate of return and the number of years invested. We get so caught up on which hot stocks to buy, when the next bear market may be coming, how much should we have in equities etc., when the simple truth is it’s about time in the market, rather than timing the markets that will determine whether you realize your financial goals.

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.



The disgrace

It’s a coincidence, but on the day the Bank of Canada head dude said he’s quitting came evidence the maple economy’s melting. Stephen Poloz is out in June. And we lost 71,000 jobs in a single month.

It’s hard to overstate how much this sucks. If we were Americans it would equate to erasing 700,000 positions last month. But guess what? They added 266,000. It was the best performance in 10 months in the US. The worst outcome in a decade for Canada. The contrast is stunning.

The grim beaver stats: it was the most dismal performance since the financial crisis. The jobless rate hasn’t jumped this month in a single month in ten years. Most losses were in the private sector, as opposed to government. Unemployment nationally is now 5.9% – but it spiked a lot more in places like Edmonton (7.7%). The dollar plopped almost three-quarters of a per cent on the news. We shed 27,500 factory jobs, 6,500 in resources and 44,000 in the service sector.

The news comes one day after the new Parliament opened, following an election in which the Trudeau Libs ran on a strong economy and jobs, jobs, jobs. Go figure.

The USA facts: The jobless rate fell to 3.5%, considered by most economists to be full employment. Over 266,000 more started working, and wages increased over 3%. All of the factory jobs (43,000) lost in October were recouped in November. GM workers went back after their strike and 60,000 more health care professionals found jobs. The surge in employment came despite a 17-month trade war with China and concern we’re now in the 11th year of economic expansion, which is virtually unprecedented.

So what does all this mean, you cry? Did you mess up when you voted?

The jobs number here may be rogue. Or not. But it sure puts more pressure on the central bank – where Poloz has resisted the allure of lower rates – to drop the hammer in the new year. Of course any reduction goes straight to the loins of a horny nation, stimulating more borrowing, spending and real estate inflation. Nobody wins.

Big job losses will mean reduced government tax revenues at a time when the Libs won office by promising to fatten their spending. The Throne Speech talked about that – lower overhead for the ‘middle class’ and increased support to families. Suck and blow. Two-faced. You know what this will entail. Bigger deficits. And higher taxes on the rich people who read this pathetic blog. Deadbeats like small business operators, docs, entrepreneurs, vets and the self-employed. Can the top tax rate pass 53%? Just wait.

In the States, it’s all puppies and cuddles. Stock markets erupted higher again. The recession headlines are gone. Expectation of a downturn in the next twelve months has plunged to one-in-five. It seems every month that passes now the odds of a Trump re-election rise, despite the impeachment drama in Washington. As one analyst said, nobody ever votes against the economy. More jobs has meant more family income, more confidence and spending. In a country where $12 trillion – or 76% of the GDP – comes from Mr & Mrs F-150, this is unbeatable.

Let’s not forget this advance has happened even in the midst of the trade war that has kneecapped US farmers, whacked manufacturers like Harley and seriously increased costs for the car and steel guys. So just imagine what the situation might be like in a year after Trump gets his China deal – and just as Americans are heading to the polls.

So stocks are up. Bonds and gold are down. With less than three weeks to go, 2019 has delivered gains on garden-variety US equity ETFs of well over 20%. Boring and pedantic balanced portfolios are ahead 12%, bringing the four-year advance to almost 30% – and that includes the bear market plop of 2018. More evidence that the time to invest is when you have the money. The only time to stop investing is when you need to spend it.

Let’s see if young Andrew Scheer (remember him?) has enough testo left in his battered bod to confront the minority government over jobs. More taxes won’t bring them back. Neither will social justice, indigenous rights nor gender equity – as important as they may be. But pipelines will. Encouraging, not punishing, business owners would help. And the last thing on the agenda should be goosing capital gains or dividend taxes and diverting capital away from the productive economy and into dead-end bank GICs.

Meanwhile, we won’t have Mr. Poloz to kick around any more. And we already know who comes next. Pity her.




It’s a weird Canadian thing. Everybody – buyers, politicians, moms – complains bitterly about houses people can’t afford. But we call markets where sales are brisk and prices rising, ‘healthy’ and ‘robust.’ We say places where real estate is getting cheaper are ‘in distress,’ ‘depressed’ or ‘struggling.’

So are lower prices and less debt a positive or a negative? Have we allowed the Real Estate Industrial Complex to set the agenda? When realtors are making big money on commissions and frequent deals is that a good thing for society? Given the fact we have $1.7 trillion in mortgage debt (a record), a savings rate of less than 1% (almost a record) and 40% of people living paycheque-to-paycheque (definitely a record) the answer would appear simple. Hell, no.

Apparently MLS® has eaten our brains. In Canada real estate values are a proxy for the economy. Even when job creation numbers tank, the banks miss earnings estimates and governments sink further into deficits, the average price of a property in Van or the GTA is supposed to tell the whole story. And speaking of that – news – let’s have a moment of silence to mark the death of reporting. Media no longer discovers, distills and details the news. Its fresh job is to re-run press releases. Especially from the local real estate board. So much for trust.

An example from a day ago:

“Sales soar”, while “prices rebound” – plus we have a “jump in activity” and “unexpected demand.” Yup, all orchestrated to make you believe the market is soaring, rebounding, jumping and that houses are suddenly in demand. The desired result: FOMO. Realtors crave a sense of urgency and competition to spur sales and boost prices. The newspaper, which makes money from real estate, is happy to oblige.

So what’s real? Are things great in Vancouver because people have to pay $1.5 million for a detached house? And are things terrible in Calgary where the same property goes for $450,000 and is getting more affordable every month?

Dane Eitel is one of the few thoughtful analysts calling out the housing cartel. It’s a lonely job in a city like Vancouver, where real estate is porn. But he persists.

The increase in sales, he says, is no reflection of market strength. The people buying need to act for personal reasons. Investors are gone. Nobody should be expecting higher prices in 2020. In fact, the opposite. Eitel points out values are $120,000, or 7%, lower than at the end of 2017.

Not all markets in Greater Vancouver are created equal some areas are closer to the bottom while the majority still have significant percentage losses to come. The time to invest is on the horizon, however not at our feet yet. 2020 will experience needs-based selling as prices dip to 1.4 Million testing the current market cycle’s previously-established prices. At the 1.4 Million price point the market will have correct a total of 23% from the peak – back down to the 2015 level, indicating all gains over the previous 5 years will have been erased. Patience is a virtue and those purchasers willing to wait will be rewarded with stiffer competition amongst sellers in 2020 and 2021.

Newly listed properties that are appropriately priced are likely the ones receiving the acceptable offers. Properties that have been on the market for months are continuing to sit there. 2020 will see the inventory tick back up and surpass the 7000 active listings experienced in the summer of 2018. Largely due to the needs-based selling upcoming. Money save is money earned. Since our initial forecast that the Greater Vancouver Market had indeed topped out and prices would begin to trend lower. The market has realized a $360,000 price loss.

Dan Eitel doesn’t sell houses. Just information.

Re/Max has a different agenda. This is the company’s forecast for 2020 for East and West areas of Vancouver:

The Vancouver East housing market is currently balanced, which is expected to continue into 2020 due to strong market activity in the region. The RE/MAX average sale price for Vancouver East is expected to increase by eight per cent in 2020. Continued population growth and price increases are expected to boost the residential market in Vancouver East.

The Vancouver West market is expected to increase by 4% due to an uptick in buyer confidence returning to the market. Currently there are 4.5 months of inventory left on the market, as sales increase, we are beginning to see inventory levels drop so this is expected to be 15% lower in 2020. The most influential factors impacting market activity in 2020 include supply, interest rates and how sellers price their homes. Higher prices are expected in 2020 due to increasing sales and reduction on inventory.

By the way, the fastest-growing segment of the Canadian economy lately has been real estate commissions. We’re pooched.



The slathering

Why do big-city houses cost so much and rents are bonkers? Yeah, mortgages are too cheap and house lust too strong. But as big a reason as any comes packaged in one word: investors. Half all new condos and four in ten existing ones have been snapped up by people with no intention of living there. A bunch are speckers who rent them out (many in negative cash flow). A pile more are Airbnbers. In fact that company now has more than 22,000 listings in Toronto alone – at a time when the rental vacancy rate’s barely over 1%.

As mentioned here recently, Toronto is trying to crack down on the pseudo-hotel business. So far, no impact. In fact the number of Airbnb places for the GTA has actually increased since anti-rental rules were approved.

Let’s compare that with Boston. Politicians there are apparently tough mothers.

Airbnb scrubbed more than three-quarters its listings for the city (from 4,000 to less than 800) this week after Boston banned short-term rentals in any dwelling not owner-occupied for at least nine months of the year. Hosts may own only one single listing (in Toronto there are scads of people with multiple offerings – it’s a business), and they must register annually with the city. Plus pay a licensing fee.

“Across the city, rents are growing more and more out of reach,” says councillor Michelle, sounding familiar.  “Through closing the corporate loopholes for de facto hotels in residential neighborhoods while preserving homeowners’ ability to benefit from home-sharing, the regulations are designed to help more Bostonians stay in their homes.”

Expect more of this. Everywhere Airbnb operates it has helped boost property values, turned homes into hotels, depressed vacancy rates, made real estate less affordable and increased rents – as well as endangering the business models and jobs of people legitimately in the hospitality business, many of them lowly-paid and vulnerable. It’s a scourge. Like vaping. Tats. And that godawful Drake.

Airbnb is getting ready for a blockbuster IPO next year. Don’t even think about investing. You’ll regret it.

$     $     $

Also big news: no rate change from the Bank of Canada (as expected) , Trump calls Trudeau ‘two-faced’ (a step up from blackface) while Calgary is down again, Toronto isn’t and Vancouver sputters, despite the headlines.

Cowtown and Montreal remain the two most affordable big-city markets in the nation. Prices in the second-largest urban area have been going up steadily, month after month, while in Calgary it’s been a story of continual decline. If you’ve been trying to flog a condo in Alberta’s main city you know the story – falling prices, no buyers, no showings and certainly no offers.  Overall the average price of real estate has dropped another 4.5% from a year ago and sellers are giving up, with listings off 11%.

At least the realtors are being truthful: “Achieving more stable conditions will take time. While the amount of supply in the market continues to ease, the persistent oversupply continues to weigh on prices.”

As Wexit sentiment grows, prices will crumble. Be careful, rebels, what you wish for.

More price declines in Vancouver, too. Sales were up a lot from last November (55%) but dropped from the month before (-12%). Prices overall are almost 5% less than last autumn and detached homes have slipped about 6% (to $1.4 million), although a lot more sold (825 as opposed to 516).

So here we are, two years into the Dipper war on VYR real estate and the average price is still just a hair under $1 million. Condos average more than $650,000, and sales of apartments have jumped 50%. Demand has been pushed down to lower price ranges, jacking the cost of units people can afford, while detacheds stay firmly out of reach. And this is in a market where foreign buyers have exited – kicked out by punitive taxes and xenophobic nastiness.

Conclusions: (a) politicians have no idea what they’re doing and are making stuff up as they go along. Like the 25% hike coming in the empty-houses levy. Taxing real estate as never before has not crashed prices. Just hurt owners. (b) The Chinese invasion wasn’t a thing. Punting offshore buyers hasn’t made it any easier for average families to buy average houses. That’s because the impact was over-stated by government and media, and gave people something to hate and blame – when they should have been looking in the mirror.

Real estate is a cult and a fetish in the LM. It’s all people talk about. It’s the goal of their existence on this earth. And they are paying the price of obsession.


The realtors say sales are up year/year (14%), listing down (-22%) and prices ahead (7%). The credit is going to cheap mortgages and a drop in inventory. Of course you will recall that study described here a few days ago which found 70% of sales in a hot Toronto hood were below the asking price. So, who do you believe?

In any case, the average detached house (at $1.36 million) is still lower than it was three years ago, despite all the pumping, the rock-bottom mortgage costs, the political pandering and media slathering. Apparently there are better places to put your money. Who knew?



Six words

Trump snorted and stocks got the shakes this week. Fresh from hitting record highs, equity markets shed hundreds of points. The issue? China. After  hinting a trade deal was at hand, Tariff Man reappeared saying he was in no hurry to sign anything. In fact a new set of levies may be imposed on the 15th. It’s a risk-off moment. Down she goes.

There are three points in today’s blog post. (A short quiz may be taken later.)

First, this has been a boffo year. Anybody cowering in cash and afraid to invest has robbed themselves or their clients. American equity markets have given a total return of more than 20%. Even Bay Street has been a star, despite energy woes and a silly federal election. Balanced, diversified portfolios are ahead double-digits, and the four-year advance has been more than 25% – despite the plop in 2018, Trump, trade wars, volatility, Brexit, inverted yield curves and the girls on Tiktok. It sure pays to stay invested.

Second, Trump could well trash the Santa rally. New tariffs in 12 days’ time, coming after the pro-Hong Kong, anti-Beijing message from Washington are enough to heat the trade war to a new boil. Obviously the wily but weird president wants to save the big détente for closer to the 2020 election campaign, so he can blow up the Dems. But it’ll come. That probably makes what’s ahead over the next month or two a buying opportunity, if you have cash. And guts.

Third, the storm is over. There’s no recession on the horizon for the US. No reason to hunker in cash or a GIC. The yield curve is the banana it should be. Central banks have been (like me) serious but  stimulating. Corporate profits solidly beat expectations. Unemployment in the States is at a 50-year low. Consumer confidence and spending are strong. Global growth is steady. And there’s big momentum.

“We find that the signs of a global cyclical recovery are firmly in place,” says Van-based equity analyst Cam Hui. “Both U.S. and non-U.S. equity indices have flashed long-term buy signals that have proven to be remarkably effective in the past.”

So, it’s a ‘buy’ signal, he says.

Global recovery firmly in place: ‘Buy’

Source: Pennock IdeaHub. Click to enlarge.

If you believe this, stay invested. Even if December, 2019 turns out to be a pale imitation of the final weeks of last year, when Trump again did his grinch thing. Everybody with liquid assets should expect markets to gyrate, vibrate and occasionally capitulate. It’s normal. Traditionally there’s a 5% plop a couple of times a year (a “pullback”). Meaningless. Once every three years or so there’s a market decline of between 10% and 20% (a “correction’). They’re short and shallow, normally regaining all lost ground in about four months. Most of the time a correction doesn’t signal bigger losses coming. Occasionally it does. A drop of more than 20% (a ‘bear market”) is painful – we had one at this time last year – but equities have always recovered. So the only people who are truly whacked are those who panic and bail.

Humans are consistent in their emotions. We fret over losses more than we relish gains. Fear has always trumped greed, but those two emotions are the primary drivers of all markets – from stocks to houses. Meanwhile logic and experience show us that investing, staying invested and investing more when everybody is freaking out, is an excellent strategy.

If all you did were to find a hundred bucks a week starting from zero, and stick it into your TFSA in assets pacing the major stock markets (through an ETF) for your working life (35 years), you’d end up with $784,000. That would provide a tax-free income of $47,000 forever without diminishing the principal. Add in OAS and CPP and that becomes an income of about $65,000, and no tax. Add a spouse doing the same thing and you have household income of almost $130,000. And a tax rate of about 9%.

To clarify: that’s without putting money in RRSPs. Never having a non-registered investment account. No corporate pension. No inheritance. No lottery winnings. No GoFundMe page. Not even any crime involved. Just one simple action.

So here’s another chart. The market advances are in green. The contractions in red. Over the last half-century you can see what happened. Those who let fear win, lose. Six words to remember.

Big bulls, little bears. The 50-year story.

Click to enlarge.




Most of us outside AB don’t care about Wexit. But we will. Western alienation has the potential to create political chaos in Canada, send the feds into a tailspin, blow up the Conservative party and send a shudder through the national economy.

But Alberta isn’t going anywhere. Just like Quebec. And Jason Kenney, the current premier, is a fool if he continues to gently fan the flames of pissed-offedness in his realm. There is nothing but loss and hurt that flows out of thinking a hunk of the nation with a few million people in it can become sovereign. There is no legal path out. No exit is possible. No prime minister could grant one. Nor should any thinking cowboy want it.

Which brings us to Adam.

“I’ve been reading your blog since 2010 and sincerely appreciate the wisdom imparted. The financial advice keeps our family on track and lets our two dogs eat brand name kibble. You know, the good stuff.”

Fine. But this blog dog has a problem.

“We’re currently renting a house due to the continual year over year price declines here in Calgary. We also own a downtown apartment that we haven’t been able to sell.  Each year we have a realtor tell us the market price and put it on the market, only to receive no offers. Not even low balls. Meanwhile, market prices continue to decline. Should I start aggressively discounting the price or just continue to rent it? Rent covers expenses, mortgage interest and a little of the mortgage principal. What to do?”

Cowtown condo values currently sit about 17% below their peak. That’s worse than detached places, which are down about half that amount. Of course, higher-end Calgary real estate has been a disaster for most of a decade. That won’t end soon, and Wexit would send prices cascading lower.

Calgary (and to a lesser extent, Edmonton) inflated badly, saw a wave of speculative buying/investing fomented by shameless pumpers like REIN (Real Estate Investment Network) and flew high along with crude until the oil collapse. I remember visiting the city a dozen years ago and warning that prices could topple by 15%. The media was gobsmacked. Realtors flogged and ridiculed me. But I was wrong. The drop was  20%.

Lately sales have picked up, but only in the lower price brackets. “Employment has shifted in the city, with job growth occurring in our non-traditional sectors and often at a different pay scale. This is consistent with the shift to more affordable housing product,” the real estate board sad recently, acknowledging oil’s sorry state. “However, at the higher end of the market the amount of oversupply is rising, as supply cannot shift enough to compensate for the reductions in demand. This is likely causing divergent trends in pricing and preventing prices from stabilizing across the city.”

That’s putting it mildly. Calgary (and Edmonton) housing is cheap, struggling, and destined to plunge if the Wexit delusion continues to infect the minds of otherwise sound men. Evidence? Sure, it’s called ‘Montreal,’ a city of four million people where the median single-family house price is $355,000, thanks in large part to a legacy of political instability and wingnut sovereigntists. Compare that to Toronto, a five-hour drive away, where a detached now averages $1.323 million.

Of course, oil was once $140 a barrel and now it’s $55 on a good day. We all know the country’s bickering, indecision, and regionality has prevented building the pipeline infrastructure the oil patch needs, so the Canadian price has tanked. We know the Dippers in BC hate the cowboys, while the T2 Libs in Ottawa were blanked and shunned in the West. Meanwhile Alberta voters have swung from majority Cons to majority NDP and now majority super-Cons in the last three elections. The office vacancy rate in Calgary is ridiculous and the gleaming Bow tower stands as a semi-empty monument to bad planning, too much testo and wishful thinking. None of this inspires confidence. No wonder capital’s gone elsewhere. And now Wexit. The coup de grace.

So, Adam, you might want to dump this condo sooner than later. Sure, prices could increase, but they might also ride the separatist elevator to the basement. It’s possible the entire market could collapse. No sales. No offers. Why would anyone buy in a region destined for economic depression or political ostracism? As international capital flees instability, so would more jobs. The price of independence is prosperity. And opportunity. Talk of an Alberta pension plan, an Alberta revenue agency and an Alberta police force – all approved by the governing party on the weekend – means more overhead, cost, tax and aggrandizement for charlatan leaders.

Finally, look at others for guidance. Brexit has turned into a three-year nightmare for the UK. Trump is abandoning his trade wars and protectionism. Nowhere are nationalism or sealed borders making people wealthier or more secure. It’s the big fiction of our times.

Sell, Adam. Release all the equity you can, trash the debt and stay renting. Keep the car gassed, too.


All of the right moves

DOUG  By Guest Blogger Doug Rowat

Out of university I landed a summer job working the line at an office furniture factory. It was awful work—spraying industrial glue back and forth while standing all day next to an oven that kept the glue at a balmy 350 degrees. Fun stuff during the summer heat waves. It was also incredibly boring.

As a result, talking sports soon became the best way to relieve the boredom. One popular topic was “Name your best fantasy sports experience.” The answers ranged from the pretty cool (“Take some at-bats against Roger Clemens”) to the strange (“Take a punch from Mike Tyson”).

Up to this point if the veteran factory workers had any doubt that I was a nerd, my response removed that doubt: “Get a chess lesson from Garry Kasparov”. Suddenly, not fitting in at high school carried right through to the factory floor. I made the take-a-punch-from-Mike-Tyson guy seem normal.

However, my fascination with chess actually provided excellent training for when I ultimately ended up in the investment industry. Many of the skills that chess teaches translates well to portfolio management. In fact, it’s no coincidence that Kasparov has written a book about how chess informs successful decision making in other areas.

But Kasparov isn’t the only chess master to make this connection. Bruce Pandolfini, an author and chess teacher made famous by the movie Searching for Bobby Fischer where he was played by actor Ben Kinsley, has also highlighted how correct chess strategy can make for better business decisions.

In no particular order, here are a few of the Pandolfini lessons that I regularly apply to my own portfolio management:

  • Don’t overextend. I wish I had the ability of Scion Capital’s Michael Burry, who famously made an all-in bet by shorting the US housing market during the financial crisis, but alas I do not. Nor do any of you. Therefore it’s important not to make concentrated wagers. For instance, if I like US equities, but don’t like European equities, should I abandon Europe entirely? Never. This year is a perfect example of how such a strategy could backfire as the French and Italian equity markets, for example, have both strongly outperformed the US. Similarly, if I like the outlook for China, I might increase my portfolio weighting by one or two percentage points but not by, say, 10 percentage points. Being caught wrong-footed happens frequently in chess as well as investing. Always minimize the downside risk.
  • Seek small advantages. This is related to the above point. Winning chess is really a case of racking up more small victories than your opponent. The rule here is “slightly, slightly, slightly”. Small, winning moves accumulate and can result in the necessary overall advantage. Rack up enough small victories and you control the board or, in the context of portfolio management, enable your client to meet their retirement objectives earlier. Targeting small victories instead of massive wins also minimizes downside risk because the opposite becomes true—the number of big, costly errors are reduced. Capturing the queen is obviously desirable, but there’s absolutely nothing wrong with just winning a pawn.
  • Don’t look too far ahead. Contrary to prevailing wisdom, chess masters typically only look ahead by three or four moves, not the 15 or 20 that many believe. Thinking too far ahead is a waste of time. Too many variables are likely to be introduced as the game goes on, which will thwart future planning. Clients frequently ask me how the economy will perform over the next year. I will make an educated guess, but I’m well aware of the limitations of forecasting. Forecasts are unreliable. The International Monetary Fund proved as much when looking at the remarkable inaccuracy of consensus economic forecasts prior to recessions. For example, the first plots in the chart below show the average forecasts for US GDP growth made in the year before the financial crisis followed by those made in the year of the actual downturn. Needless to say, overreliance on the year-ahead forecasts was a big mistake. From a portfolio management perspective, knowing the fallibility of forecasts should result in a sensible long-term strategy: to always maintain balance and diversification amongst asset classes. In chess, your opponent will often do something you didn’t expect. Same with the markets.

Forecasting is Problematic: Consensus Forecasts for US GDP (2009)

Source: IMF, early plot points indicate growth forecasts one year ahead of recession

Ultimately, however, chess teaches discipline. It teaches the importance of not only controlling risk but, equally important, controlling emotion. Director Stanley Kubrick, who was himself a competitive amateur chess player, put it this way: “Among a great many things that chess teaches you is to control the initial excitement you feel when you see something that looks good.”

In other words, chess forces thinking that’s methodical, restrained and emotion-free, which, of course, is also critical to investing. Emotion is the enemy of investors.

Bobby Fischer said the same thing a bit differently: “I don’t believe in psychology. I believe in good moves.”

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.