Today's blog posting

Beneath your means

Real estate’s a fundamental part of net worth. You should have some.

I have not been propertyless since I was twenty. Probably never will. But I made the decision long ago, having been through real estate booms and busts, the bulk of my net worth would always be elsewhere.

It’s this one tenet of personal finance which has saved me. Instead of buying high, I bought modest. Rather than pile on debt, I scrambled out of it. I sold routinely to take profits and never put them back into real estate. And I don’t have granite countertops in the bunker (pictured above).

But that’s me. I’m unconventional. Liquidity turns me on.

I mention this because most people are so screwed. And real estate has done it. Ever-higher prices have been trumped only by ever-higher expectations. Cheap money for some time has made modest people feel wealthy. Children buy first homes nicer than their parents’ final ones. Consumption replaces wisdom, and HGTV becomes the news.

Debt seems immaterial since so young buyers know they’ll never actually pay it back. All that matters is the carrying cost. The mortgage that was there upon purchase will still be there when it’s sold. You just pray the market keeps rising, and rates behave. But those times are ending.    More here…

Where's Garth speaking this week? Go here.

It works

Later this week I’ll be in Calgary, Red Deer, Kelowna, Vancouver and Surrey. I used to think when I was an MP that I had a cool job – being able to drop in on people’s lives and share their experiences in a way that was utterly unique. But now, it’s better. I still get to drop in, and fewer people hate me!

Actually, every single day strangers ask me to enter their homes, their marriages, their families and their jobs. They send me spreadsheets of their finances, copies of the investment reports and pension statements. They ask me about what their parents, their kids or their husbands should do.  TSFAs, RRSPs, RRIFs, RESPs, ETFs. Hell, my email looks like Alphaghetti on steroids.

But I love it. Unlike being an MP (and spending half my days fighting the damn system), this time I actually get to help people – sometimes dramatically with just a note or two. Many have no clear idea how to slice their tax bill, radically improve their pension income, increase their take-home pay without a raise or avoid investing disasters. But why should they? Nobody teaches this stuff.

No doubt, given the volatility and the surprises which now lie ahead, personal financial planning strategies will save a lot of us from misery. That’s where I can help. And I will.

In Calgary and Vancouver I’m meeting with people who have asked me for such assistance. In Red Deer, Kelowna and Surrey I’ll be speaking at free events about the things I write about on this blog and in the new book. Then, in a few months when my travels are over, I plan on having more time to seriously help a large number of middle-class Canadians determined to stay that way.

But I am not alone, of course.  More here…

On the Road

For the first time, I am publishing an exact guide on how to deal with, and overcome, what lies ahead. Money Road is now available.

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The trouble with writing things down, of course, is they never go away.

That though crossed my mind Thursday as I sat in CTV’s Atlantic Canada studio in Halifax as the news anchor announced to viewers that, in preparation for our interview, he’d just re-read my 1995 book, ‘2015: After the Boom.’

“All these years later,” he said, “I wanted to see how you’d done, before we talk about your next one.”

I stared at my boots and tried to remember what forecasts I’d made that were obviously about to bite me in the ass.

“You know what?,” Steve Murphy continued. “I think you were about 70% right. Right about where the stock market would be. Right about the Boomers. Right about real estate.” So on the plane back I thought over the basic premise I’d arrived at in 1995. The book was called 2015 because that was the time frame I set – 20 years from the date I penned it. And I subtitled it ‘After the Boom’ referring to the time when the Boomers would be hanging ‘em up, and the profound influence their retirement would have on markets, investments and the economy.

My conclusion: Long-term (without knowing about Nine Eleven, dot-coms or the global financial meltdown) it was clear to me demographics would diminish real estate as the Boomers bailed out of the burbs, feed equity markets as trillions rushed from real assets into financial ones and create one mother of a retirement crisis.

Today, 15 years later, we’re totally on course for those three things to happen – and in roughly the time frame I forecast. Most of the Boomers squandered the last decade and a half, piddling away their wealth on bigger houses, hedonistic lives and stuff. In the course, they have grossly inflated real estate values and thereby entrapped, ensnared and skewered their now-adult children.

This will change. The big Boomer real estate dump is coming. And as it happens, trillions will be flowing from housing into financial assets, since only three out of 10 people in this generation have an actual pension while 50% have no retirement savings. There’s no choice. They’ll be property refugees.

But will there be enough time for these millions of Boomers to become financially self-sufficient, and avoid bankrupting their kids and shafting the economy? The jury’s still out on that one.

And this brings me to Money Road.  More here…

The mugging

As the man history will remember taking the country’s finances down a rabbit hole, Jim Flaherty should expect certain things. Not being finance minister after the last election’s a high probability. Being mugged earlier, a certainty.

In fact, already happened. In a Goldman Sachsy sorta way. You know, with class and subterfuge.

The Governor of the Bank of Canada even got other people to hold the little guy down and beat the crap out of him, while he kept his cuffs clean in that glass and stone tower. In case you missed it (and most did), Mark Carney just took all the blame he’s been shouldering for a housing bubble, for middle class people being priced out of their own homes, for a burgeoning subprime-like negative equity crisis, and dumped it on the guy lying in the alley.

It came Monday in a carefully-worded speech spelling out that the central bank would not be immediately raising the cost of money to address the gassed-up real estate market because of collateral damage. “If the Bank were to raise interest rates to cool the housing market now…we would, in essence, be dousing the entire Canadian economy with cold water just as it emerges from a recession.”

And that, damn sure, is true enough. Teaser Carney interest rates caused the housing market to tank up like a swollen gland, but jacking up loan costs now would also hurt small business, big business and jobs. So, back to Plan A: rate hikes this summer. More here…

What problem?

US Treasury Secretary Hank Paulson closed an office door, grabbed a wastebasket and vomited.

A week later at a hastily-called Saturday morning meeting of G7 finance ministers in Washington, including Jim Flaherty, Paulson warned there was a good chance ‘the banks won’t open on Monday. Or the markets.’

Fourteen months after we came to the edge of a yawning canyon of financial collapse, the story dribbles out in bits and pieces. Some of it’s in an extraordinary book, ‘Too Big to Fail,’ a 600-page gripper. Other parts have slipped from the lips of people who will never forget they were there.

I hope you recall how you felt little more than a year ago. Markets falling 500 points a day. No house sales. No buyers. Massive layoffs announced daily. Sudden stories about a depression. Plunging RRSPs and a sense things were just going to get worse.

In a way, they did.

A year later the one Titanic cause of the global meltdown – debt – is a far greater problem than in the autumn of 2008. The US will now have trillion-dollar deficits for a generation. Canada’s red ink has never flowed faster. Households have more debt compared to income than at any other time. Mortgages outstanding have mushroomed. Billions in Canadian liquid wealth has also been invested in an asset which has just peaked in value – real estate.

In a word, more people are more at risk, with less cash, more debt and probably less secure jobs, than they were then. So, we blew it. After peering into the abyss and shuddering, we did nothing about it.  More here…

False positive

Note: A couple of times in the past week I’ve offered my email address to people looking for specific information. I’m always happy to help, because I am grateful of those who come here to renew their souls or just yell at me.  I have 4,224 new emails at the moment. Trust me, I will answer them all. If you have yet to hear from me, relax. You will. – Garth

“I got a memo from the editor,” the journalist told me as we chatted. “He said to just keep writing.”

The editor in question was one of the poohbahs running The National Post, and the reporter was one of a few who called me late Friday about the latest story: serious doubts about the real estate market. The timing was interesting, as you know. A few more wheels had just come off the mighty Canwest media machine, as it put its newspaper empire on the auction block.

Ten dailies, whole blocks of inner-city real estate in some of the largest cities, hundreds of millions in equipment, 35 weeklies and community newspapers, and many thousands of jobs are all now in play, and at peril. As far as I could tell, the mood in the Toronto newsroom was black. How could it be otherwise, with such an uncertain future in the first 10 days of 2010?

Sure, Canwest is a disaster, born of debt and family greed, now paying the price for both. And, yeah, newspapers everywhere are on the skids, as little bloggers like me open up new forums of information without having to hire ten-year-olds to deliver it. The entire media universe is shuddering and uncertain these days, since the press barons and even the TV gods have yet to understand or master this most democratic of media.

But this ain’t about papers. They’re just more canaries in the shaft, telling us with their demise that danger’s in the air. More here…

Subprime nation

In the cold, barren, frozen city of Ottawa, where it’s also quite cool this time of year, 2009 ended on a high note for houses.

Sales were up more than 7%, and prices ahead 5%. Why?

The action, says head realtor Pierre de Varennes, came ‘when Canadians realized this country didn’t share in the subprime mortgage woes of the US, and was in better shape than most when those problems helped trigger a global credit crisis.’

Really?

Meanwhile Royal LePage’s Phil Soper’s been out harvesting headlines again with his company’s prediction prices will continue to rise. ‘Appreciate significantly during the early months of the new year,’ he says. In fact, LePage claims Vancouver prices, for example, will be 7.2% higher in 2010, which would add another $66,000 to the value of the typical $920,000 standard two-storey boring house.

Now, I actually happen to agree with my buddy Phil. Prices will go up some. How could they not? Everyone knows mortgage rates will be higher in September than in February, that minimum down payments may rocket ahead to 10% in March and the HST is coming in July. What normal, house-lusting hormonal young couple still able to fog a lender’s mirror would not go out and buy before this stuff hits?

And what sane homeowner every remotely thinking of selling wouldn’t list in the next six weeks? I mean, this is the top of the mountain. The only direction for the Sherpas now is down.

More interesting in all this is the persistent claim Canadians – especially our realtors, lenders, seller and buyers – are different from those to our south. ‘Subprime’ now seems to be code for ‘Americans’, and it is a grossly unfair slur. After all, we’re just as bad. And that leads me in a moment to a conclusion.

US buyers got in trouble by paying too much for houses that were considerably over-valued. Just like we’re doing. Many of them were lured into home ownership simply because teaser interest rates allowed them to qualify for purchases that normal financing would not. Yeah, just like us. American mortgage lenders allowed some buyers to get financing without verification of their income. Just like the CIBC and others do here.   More here…

Tough Guys

Garth, you’re a chickenshit! As if you wouldn’t post my response. You know full well that in a debate about active vs. passive management that I would kick your ass. — Ben

Being a free speech kinda guy with skin of naugahyde, it’s a rare thing when I trash a comment rather than publish it. Even posts of a quasi-obscene nature get a gentle clean-up from me, rather than being thrown into the digital woodstove here in the bunker.

But lately, a change. This day alone I have incinerated a number of comments because they traversed the one line I try to maintain: respect. Actually I don’t care what crazy financial or economic argument anybody wants to make. But if they do it by climbing down someone else’s throat (mine included), they end up smoke.

So why have the number of offensive comments, like, quadrupled in the past week? More here…

Garth's latest book - Money Road

Panicked Boomers. Galloping rates. Troubled houses. And a tax attack. Welcome to the next five years, on the Money Road.

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Garth Turner’s new book is a roadmap through chaos.

Global financial collapse maybe be so 2009, but the next five years will be the ones that impact Canadians’ daily lives the most, says bestselling financial author Garth Turner in his latest book, Money Road.
The reasons are compelling and inescapable. Among them:
* Nine million Boomers – generally house-rich and cash-poor – start turning 65 in 2011. The consequences for the economy and real estate market will be profound.

* After more than a year of emergency interest rates, the cost of money is expected to start rising this summer and continue for several years, bedevilling those who have to renew mortgages.

* Taxes are about to careen higher, starting with the HST hitting 16 million in Ontario and BC. Governments at all levels are drowning in debt with only one way to change that.

* Canada’s housing bubble, which goosed prices 20% in the midst of recession, will not withstand a tepid economy, likely changes in minimum down payments or higher rates – especially in Vancouver and Toronto.

* The country’s headed for a retirement crisis, as 70% of us have no corporate pensions, only half have RRSPs and a majority no long-term savings.

* And after an ill-advised torrent of spending in 2009, Canadian families are tapped out with household debt at record levels and unemployment stubbornly high. This bodes poorly for an economy now 60% dependent on consumers.

But despite the problems, which will lead to volatile stock markets and confused investors, Turner insists there’s a positive path ahead for those who understand what the next five years will bring. More here…

Garth's next speaking dates 

Qualicum BC  February 11 (private event)
Nanaimo BC Money Expo February 13
Victoria BC Money Expo February 14

Garth Turner's web of web sites.

For my daily blog on the economy, investment and survival strategies, go here.

For information on my books, including Money Road, After the Crash, Greater Fool and Sheeple, plus my public speaking schedule, go here.

How a maverick MP blogged his way out of the Conservative caucus.

Book Review by John Baglow

Sheeple: Caucus Confidential in Stephen Harper’s Ottawa Garth Turner, Key Porter 224 pages, softcover ISBN 9781554701797

I like the quixotic former Conservative member of Parliament Garth Turner, his quirky adherence to principle and his exuberant maverickism. I used to check out his blog fairly regularly, and I looked forward to reading his exposé of the Conservative caucus—the “sheeple” of the title of his new book. But I will admit that I expected more of Sheeple: Caucus Confidential in Stephen Harper’s Ottawa than it delivered.

Turner does not entirely disappoint. Digital democracy versus the iron heel is a great theme: the mildly eccentric man of principle, a journalist with a taste for blogging, versus the tightly wound, intensely ideological and media-hating Stephen Harper.

The book is not well constructed, however: there is far too much cutting forward and backward in time, in a contrived and at times confusing attempt to build suspense and maintain narrative tension. But the story line is actually rather simple. Turner, elected in 2006 with lukewarm support from his own party, made the big boys furious when he came to Ottawa, and within the year he was given the heave.

Harper and his advisors, we learn, control the Conservative caucus to the last detail and squelch dissent. Most have already drawn that conclusion, I think, but to hear it from an insider certainly reinforces it. The other strand of narrative is the notion of blogging as a kind of direct and open democracy—a new way of doing politics. For me, that is where the interest of the book really lies, although Turner raises more questions than he answers.

It must be said that there is something self-serving and disingenuous about the air of puzzled innocence that Turner affects as he recounts his political tale of woe. He is no neophyte. He was a Progressive Conservative MP under Brian Mulroney, ran for the PC leadership and was even minister of national revenue for a short spell under the ill-fated Kim Campbell. Given his experience, he would have been well aware that his enfant terrible antics would worry and anger his colleagues. Yet he feigns surprise that they caused quite predictable consequences. And his principles, which appear entirely genuine, fetched up against the shoals of a realpolitik with which we must assume he was intimately familiar.

His story, in any case, very nearly tells itself.

To Turner’s considerable credit, he chose to stick to those principles. In opposition, his party had belittled and insulted Belinda Stronach for crossing the floor to the Liberals and taking up a Cabinet post. But immediately after the 2006 election, David Emerson, who had just been elected as a Liberal, did precisely the same, joining the Conservative Cabinet on February 6—even before the new Parliament had sat.

Turner was outraged, but the Conservative top guns, in effect, gave him pitying smiles. Snaffling the capable Emerson was a coup, and that was that. Then Turner told the media what he thought about it. And that initiated a downhill slide that would end a mere ten months later with his ouster from caucus. So badly had he offended the powers that be, in fact, that he was forbidden to run as a Conservative ever again.

As Turner tells it, an “MP’s job has evolved into representing a party to the people, not the people to Parliament.” Conservative MPs were expected to be docile, meekly accepting talking points from the Prime Minister’s Office and obediently parroting them. Caucus debate was unwelcome: people were shouted down when they attempted it. Guy Lauzon, now chair of the Conservative caucus, told him: “We have no room for an independent thinker on our team.” And: “We had an election, and we have a platform, and that’s what we think.”

‘To Turner’s considerable credit, he chose to stick to those principles.’

From the point of view of any political party in power, Turner would come across as dangerously unpredictable, a classic loose cannon.

That was not the way Turner thought, though—which might not have mattered so much had he not had an increasingly popular blog, to which he contributed a thousand independent words a day.

On it he insulted fellow caucus members, suggesting that they were being bought off with posts and perks. He called some of them “hats-and-horses colleagues.” Worse, he publicly questioned and even opposed the government’s electoral platform and policy, yet he pretends to be shocked by the consternation that this inevitably caused.

Things quickly began to escalate. An attempt was made to steal his nomination for the next election, with the help of the sinuous televangelist Charles McVety. It failed, which Turner attributes to his blog. Finally, charged with breaking caucus confidentiality, he was expelled.

From the point of view of any political party in power, no matter what the issues or the ideologies, Turner would come across as dangerously unpredictable, a classic loose cannon. He may or may not have broken caucus confidentiality—he sort of admits that he did on one occasion, but says he removed the offending words in his blog as soon as he was asked to [!]—but he certainly had a lot of powerful people on edge.

An odd mixture of narcissism, self-righteousness and boyishness pervades his account. He calls himself “an unusual renaissance man.” When he refers to himself as a “digital Trojan horse,” it is impossible to tell whether he is being ironic or simply boasting; it may be a bit of both. “My crime was information,” he says, “but my potential for mayhem was much worse. The virus of empowerment might spread.”

But what does he mean by “empowerment,” and who, exactly, is empowered? Turner revelled in the internet’s sheer anarchy: he was “obsessed, hooked, addicted, high on the narcotic of [digital] populism.” He goes on: “Leaders and parties fear the potential of the internet for the massive destabilization it could bring.” The digital world is like “an out-of-control town hall meeting.” Blogging is “as insanely dangerous as it is gloriously democratic.”

All great fun, of course, but government is serious business. How is control restored? How is a new stability maintained? How does anything get done in the future that he imagines?

In fact, there is far less to blogging than meets his overly enthusiastic eye, and the only federal politician destabilized by it so far has been Turner himself. The blog-reading demographic is hardly representative of the real-world electorate, which refused to return him to Ottawa as a Liberal in 2008. According to a Harris poll last year, most adults do not read political blogs.

Those who do tend to be in their mid forties or older, and only a few of them leave comments.

Not that the new communications technology should be underestimated. In early April, in the tiny Eastern European republic of Moldova, thousands of demonstrators stormed the country’s parliament to protest a communist electoral victory, forcing a recount. “Six people,” explained organizer Natalia Morar. “Ten minutes for creativity and action. A few hours of information on networks, Facebook, blogs, SMS [texting] to friends, and an e-mail newsletter. All of the organization through the Internet. On the street came out 15,000 young people!”

But Turner exaggerates the importance of blogging to the point that he claims it is better than going door to door and actually meeting people face to face—which is what won him his election in the first place. Blogging is less intrusive, he says, but blogs are also bloodless, remote and easily ignored. And blog readers, as noted, are not the general public but an unrepresentative slice of it.

Blogging also creates the illusion of “public dialogue.” When a controversial public figure posts, lots of comments are guaranteed in response. But Turner’s out-of-control town hall meeting—in his case, between 1.5 million and 2 million visitors a month—is hardly a conversation.

To many people, I suspect, the political blogosphere resembles an auditorium full of lunatics talking to themselves and shouting at each other, as they pass hurriedly by. A new way of doing politics? A new tool, certainly, with much potential. But, as Turner unwittingly demonstrates, we should not let ourselves get carried away.

Dear Garth:
I just finished “After the Crash.” It is a great read. (The fact that it could use some editing only underlines the urgency of the global situation!) Thanks for the hard work. My household (along with lots of others, I am sure) is putting some of your sage advice into practice. Thankfully, we are in good shape already. But we are preparing for a long, hard time.

You are likely challenged, even confronted at times. “Illegitimati non carborundum” (Don’t let the bastards drag you down)! Just continue to do good, and to show concern. We are not responsible for the actions and sentiments of others; we can only strive to do what is right ourselves.
You needn’t respond as I am sure that you are busy. I just wanted to thank you.
Cheers, John Harvey

Mr. Turner,

I purchased (and the next day finished) your book, “Sheeple”.  As someone who tried political activism at the time of the merger between the CA and PC parties, I discovered (though not nearly to the detailed extent that you did) how political parties in general, and the CPC in particular, truly operate.  Your book was more depressing than alarming, confirming what I feared I already knew about partisan politics in Canada.  Lamentations aside, thank you for trying to be a principled politician and for subsequently writing your book.  I only hope it opens a few more eyes to the sad state of democracy in our country.

Also, as a former resident of Wellington-Halton Hills and someone who voted for Michael Chong when he first ran, I was both heartened and saddened to read your account of his despicable ouster from the CPC.  I am glad the faith I once placed in him to be an MP of strong principle was not unfounded, and if you still keep in touch with Mr. Chong I would ask that you tell him I, for what it’s worth, applaud his actions when told to act against his better judgment, indeed his very moral code.

Thank you again,

Anon

Hi Garth,
Thank you for writing Sheeple. I just now finished reading the book, bought it after hearing you on The Sunday Edition in conversation with Michael Enright and Elizabeth Day.
Democracy is my passion, but I am looking at it from the other end of the spectrum, the municipal level. I have written a book about it (Citizens’ Hall: Making Local Democracy Work) and I hold to the belief that if citizens cannot assume the responsibility of democracy at the local level, how in hell can they ever be expected to deal effectively with the political machinery installed in provincial capitals and in Ottawa.
I knew it was bad up there, but I had no idea just how bad it was until I read Sheeple. Depressing, but not without a glimmer of hope.
Thanks for writing it.
Andre

Andre Carrel
Terrace, B.C.