Thursday, April 1, 2010

Who is the real Fool?

I am!

Let me tell you about the history of this blog. I started in 2007. We watched local RE reach crazy heights, then we charted the steady rise in inventory of 2008, and the crash that followed it.

I had a hiatus for health reasons and returned in March 2009, well into the correction and my first post was discussing when the bears should get in.

We were by then in the midst of the financial crisis, and housing was in 'no-bid' land. I posted on how the 15% + drop in prices and the zero 'emergency' rates had brought about the 40% price drop that we had all been expecting.

I expected a recovery and then another down-leg as the emergency measures were lifted or the recession moved unemployment up and buying power down.

Neither happened.

These emergency rates and all the increased Government spending were to make up for years of irresponsibility.

Debt that was piled on shaky assets and could no longer be serviced.

The answer to this, according to our central banks, was more of the same. Bring the interest rates down to insanely low levels, for an insanely long time, and then whine, as Mark Carney does, about how Canadians aren't saving enough, how they are borrowing too much and why is housing in a bubble?

What else would they expect?? Take a glutton to a buffet and wonder why they are gorging themselves to death.

It is not just RE. Look at all assets, they are back up to pre-crisis levels in many cases. The TSE is flying, gold hit new highs, and most of the rest are up there. Who would have thought it?

Certainly not me.

I thought they would act more responsibly and we would be at 2-3% by mid-2009, once they had allowed the banks to reap enough money from the steep yield curve.

However playing by the old (and failed) tactic of accommodating excesses seems to have won the day. With this we get:

1) Low savings - why should I save when I am getting 0.4% before tax and inflation is running at three or four times that.

2) A stampede into assets, leveraged up, on borrowed money. Isn't that what got us into this mess in the first place?

The really foolish US consumer over-extended themselves on debt for flat screens, and SUVs and over-priced homes and then couldn't pay back their debts, so the world spins out of control and the result is we are all doing it now!

Chinese, Canadian, European - we are all American now.

Ultimately though I am the fool, for believing our policy-makers would be more responsible this time.

Greenspan said there was no debt and property bubble repeatedly, then after it burst he said he couldn't have been expected to see the bubble, and even if he could, it wasn't his fault. With leaders like that, looking for responsibility was definitely foolish.


  1. You're not alone, bears have looked like fools for a very long time, there's always a bearish argument to be made for any market, at any time. I agree with many of the bearish points that have been tabled throughout the years but as I've said for a while I really do think the bears simply don't understand how markets function and that has been their downfall. Listen, if you're comfortable renting and feel over the long term that's more beneficial for you and your family that's fine, I'm just debating where prices are going and I still think there's room left to go.

  2. Well Chad it is not the bears who are fools, it is those who make public policy. My foolishness was for underestimating their lack of responsibility.

    They are sacrificing future generations to bail out the excesses of the current one and their own bad decisions, by piling debt upon debt.

    You may be right, prices may go higher, but if they do - it is because of absurdly low interest rates which is stealing money from prudent savers and giving it to imprudent borrowers.

    How many people will be in trouble on their home loans and credit cards if rates rise 1%, 2% or 3% at the long or short end?

    Get ready for the government to bail them out once it does. It has to- it was their stupid policies that got folks into this mess.

    Then the prudent fools get to pay again.

  3. Like I said, the bears have valid points, but they are still fools for thinking prices would go down in the time frame they thought they would. I'm not attacking you or other bears, but you guys have a lot of trouble admitting you were wrong, but you were/are. Prices continue to make new highs, price is the arbiter, bulls were right, bears were wrong, regardless of how you want to spin it.

  4. 'bulls were right, bears were wrong'

    no argument there.

    I knew US and Canadian RE was grossly over-priced by all parameters.

    I knew the stock-market was also floating on this debt/asset bubble.

    I did not conceive that they would cut rates worldwide to 0.25% +/- for over a year and allow the CHMC to expand it's lending at all time low rates, all time high prices, or that both the Federal and Provincial governments who are supposed to be fiscally conservative would throw caution to the wind and run huge deficits.

    All these were necessary to reignite this boom. Are you faulting the logic of bears, or just the fact that they were wrong?

    Maybe you correctly forecast all these - in which case kudos to you.

    However the game is not over yet.

  5. I was as bearish as anyone when we started declining in 2008, but once the extraordinary measures were put in place and the market started to turn, I became bullish (there are posts I made a few months after the bottom on other blogs when I bought my place because of my bullishness last summer). There are always very valid bull and bear arguments in any market, the price judges which one has more validity. You claim the only reason the bears were wrong back in mid 2009 were because of low interest rates and other extreme measures. This confuses me though, the rates went to 0.25%, if you thought this was such an extraordinary measure why didn't you get bullish at that point? If that wasn't enough for you to get bullish then obviously there were other aspects that bears were overlooking that sent prices to highs. The issue I always have with bears is they refuse to admit when they are wrong, if the market corrects 10% the bears are going to have a party and claim that they were right all along, even though the market will still be up enormously since the time they started to get bearish.

  6. Hey,

    There were 450 listings today - very bearish if you ask me. Based on the listings, I say we're in for a bit of a price correction.

  7. Now that fish has finally capitualted i expect real estate to start correcting in a very severe way. Watch out!

  8. Bears would have been right...the crash was well underway but we underestimated the extent to which our government would intervene in the market. What other tricks do they have up their sleeve? They seem hell bent on keeping housing prices UP, the April 19th rules are not worth the paper they're written on.
    However, I think at some point we will hit a debt wall. Bond market will push interest rates up, consumers will max out on credit. Come on, it can't go on forever. Debt isn't limitless, though at this point it certainly seems to be.