Tuesday, July 13, 2010

Going out of Town for a Week

Lets hope the stock-market stays strong enough for the B o C to acquire the cajones to raise another 0.25% (whoop de doo!) on the 20th.

We should have some interesting numbers for July with some areas of significant weakness showing up..look at Larry's Kitz condo prices for a taste.

No SFH sales in West Van yesterday with half a dozen listings and the same in price reductions.
Remember on this blog we are waiting for signs of a gradual correction, not Armageddon which causes wide-spread financial hard-ship and bankrupts the credit unions (that would be us).
We also don't blame any group for the lunacy that has led to this present situation where we are about the most unaffordable city in the western world. The policies that have helped us get here are about done. The local and Federal Governments are in trimming mode not spending and sloshing money around mode.

The Central banks of the world are tightening from their ridiculously low rates, realising late in the day that these low rates are encouraging the very speculative nonsense that got us here.

This credit crisis was caused by Governments in the US ignoring the huge bubble in housing and in fact fanning the flames. What did we learn from that? Nothing. we are heading the same way and when we burst our political leaders will be blamed, and tossed out. Rightly so. However our own greed will be papered over.

Instead people will be lining up to ask for bail-outs from their own mistakes.

This bubble is nationwide. We are at all time highs in Montreal and near that in Ottawa and Regina. Anyone wishing to blame one wealthy group or another, conveniently ignores the fact that it is a national phenomenon. They may affect small segments of the market, but this is the big kahuna jumping.
Keep them listings coming and stay well.

See you next Tuesday.


  1. The only thing I can say is if the BoC is deciding its rate decisions based on the trend of less than 10 days of stock market moves then we have a much more serious problem on our hands than anything that has been discussed here.

  2. Really Chad? More important than the economic crisis in general? Stop being so dramatic. Or by "anything discussed here" did you mean just this specific blog post?

    I still dont think they will raise rates. Good job numbers and a stronger market does put some points in the 'raise it' collumn but not enough to make them actually do it. I would be pretty surprised if they raise it before the fall.

    Even if they do, the effect is a lot smaller now that new mortgage regs mean buyers need to qualify on the 5 year rate anyway. It would put a bit of a pinch on owners just squeaking payments with variable mortgages, but thats about it in the short term.

  3. Chad- if the stock market had a 10% drop between now and July 20th like it did late 2008 in a week - I assure you the B of C will NOT raise rates.

    Or if oil dropped $10

    On the other hand, with the strong jobs report, there is probably a 50:50 chance of a raise.

    You give too much credit to central bankers. They are humans with the same flaws we all have. The Crisis in the US was almost 100% caused by Greenspan and then Bernanke who kept stating in order:

    1) the financial industry needs less regulation not more.

    2) There is no housing bubble.

    3) This housing correction is normal and the financial industry is strong enough to deal with it without Government intervention or help.

    4) The TARP and AIG bail-outs may cost Hundred of Billions, but if we don't do it we will they will fail. They will pay us back.

    See a trend in faulty thinking?

    Carney is cut from the same cloth.

  4. Carney's modus operandi seems to be shouting and barking a lot but not actually raising rates. His previous comments indicate he'll stand pat, at least until September if not longer.

    Long term government bond rates are indicating a chronic lack of private investment. With the government resorting to austerity (i.e. less spending) there needs to be an avenue open to encourage private companies to spend again. When the government is competing with private sources for funding, you know the economy is on the right track and short rates will rise.

    Related to this, until the unemployment rate is back within a "normal" band, it is difficult to imagine rates rising significantly (though even 100-200bps higher is still historically low so who knows).

  5. Wow - Never realised that we were on the hook for all the Credit Union deposits too.

    Why doesn't the Province repeal that now that the crisis is over?

  6. All the people who are whining about the big off-shore money coming will be whining even more when it eventually dries up.

    Just add up how many people are employed as hammer-jockeys, renovators, handy-men, cleaners, movers, concierges, bankers, realtors, property managers, sales-staff in fancy stores like Leone and Holt Renfrew, the airport etc etc

    The knock-on effect is huge. If it dries up, and it will one day, a lot of bears are going to be unemployed.

    be careful what you wish for in case it comes true.

  7. Big GDP numbers out of China tonight 11%. Maybe that will help Carney grow a pair.

  8. The only problem with China's GDP is that Canada has a minuscule total amount of trade with China compared to the US. If the US slows down more, China needs to grow way more than 11% to make up the shortfall, to the point it's impossible.

    Carney gave a speech a few weeks ago "explaining" to business leaders how they need to expand their markets beyond the US into the developing world. Right, Mark. Until then, keep reading those BEA reports.

  9. Stop looking at China's GDP folks, it will have almost no effect on Carney's decision. Instead, look at what the Fed said yesterday in the minutes of their last meeting. The long and short of it is the US is not raising rates any time soon and when they do, it's going to be very small and slow increases. If you actually think the BoC is going to decouple from the US in a big way then you may want to give it some more thought.

  10. Chad, I think you're right. Carney has already indicated rates will be rising slowly and only after businesses are spending again. He's annoyed they aren't but, hey, what do multi-billion dollar corporations know about that sort of stuff.

  11. On yahoo.ca today.

    the message is getting out there.


  12. I don't think the bubble is nation wide. Only Vancouver is out of wick. If you tell anymore, our price tomorrow would be at the peak of Toronto. Many peoople will be so happy to crap their pants.

    I see monthly sales figures for local shopping malls. And the results is not so bright as the media tells you. People are not spending on optional things. No improvements since the finanical crisis. The Olympics actual worsen the sale. Mostly working (salaried) people are taxed to death, the first thing they cut is clothings and coffee. The coffee cart guy at my office building is less bubblely now. Housing and reno are the only two thing supporting this economy. When they slow down, we are in lots of hurt. I am just wishing anyone well in the next few years. When the bubble pops, it will take down a lot of people. During the RE bubble pop in HK during 1997. People dead because of that on a daily basis. Not fun.

    Happy vacationing, fish

  13. Fish alluded to the fact the market had rallied for a week as a reason Carney may feel more comfortable raising rates at this juncture. I responded that it would be absolutely insane to make a rate decision based on a week of stock market performance. I know Fish was not saying things tongue and cheek but with the markets rolling over 3% today, one must realize volatility is still here and those that are hawkish are really living outside of reality.

  14. *** I meant to say I know Fish WAS saying things tongue and cheek.

  15. Hmmm maybe they will raise rates afterall, I really didnt think there was much of a chance.


  16. I'm pretty surprised as well considering all the talk of deflation in the US.

  17. Well wadda you know? They did it!

    They just keep throwing curve balls. First the lower rates to 0.25%, which I didnt understand because our economy was and is stronger than the US, I would have expected 0.5% at the lowest. Then they dont raise rates in the spring, despite all the threats. And now they raise rates twice in a row!

    I am beginning to wonder if they make their decisions based on throwing darts at a board.

  18. "I am beginning to wonder if they make their decisions based on throwing darts at a board."

    I don't think so. There was a statement by Carney that he would keep rates low for a specific amount of time, I believe 1 year from spring 2009. For him to raise rates before that point would have impacted the bank's credibility.

    The Bank is looking at factors around unemployment, private investment, asset prices, inflation, and a few others to help determine what they should do. As long as unemployment remains above the long-term average, rates will remain accommodative. Even a 1% increase is still well below what rates have been when the economy is firing on all cylinders. It's worth noting they mentioned how housing has cooled off significantly, even with ultra low rates, though prices are still at historic highs. My guess is housing will be a net drag on economic growth for a while, keeping short rates several steps below what they would be otherwise.

  19. The economy has decoupled from the US is an amazing way. They are hurting in a terrible way and we're doing quite alright. Honestly I think we're in a real sweet spot here, the economy is on solid ground yet interest rates can't go up too fast with the US not raising ever again in the history of mankind.