Some recent blog postings
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.
____________________________________________________________
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.
.
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
Halifax NS, Tuesday April 13, 7 pm, Register here.
New Glasgow NS, Wednesday April 14, 7 pm, Register here.
Sydney NS, Thursday April 15, 7 pm, Register here.
Edmonton AB, Tuesday March 30, 7 pm, Register here.
Calgary AB, Wednesday March 31, 7 pm, Register here.
Saskatoon SK, Thursday April 1, 7 pm. Register here.
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.
To order, please go 