REAL ESTATE HIGHLIGHTS
- expect a 25-month period of increased market volatility caused directly from US sub-prime implosion which won't be over until at least Q4 of 2008
- Canadian companies with exposure to sub-prime debts will be fine. CIBC may have to write down $100M, in which case, markets will react, CIBC will take a stock price hit, you may want to buy CIBC stock then as you'll get a good deal on a long term hold
- Victoria RE is not in a bubble, supply/demand ratios are too tight (2.5 months inventory)
- Edmonton RE is in a bubble, supply/demand ratios are too loose (9 months inventory)
- The days of flipping RE in Victoria for quick profit are done for foreseeable future
- RE growth expected as SFH 5% real/7% nominal; condos 4% nominal
- Revert back to fundamentals of RE investing; now it really is about location
- Quality of construction is expected to be a significant issue in the next decade, prepare for another "quality crisis"
- Owning a home is still a good economic choice
- Expect interest rate hikes between 25 and 50 points in 2007 in all G7 countries except US
- Markets will be volatile due to rising interest rates and moderating corporate profits
- Canadian productivity is the number one economic issue
- Central Bank has inflation under control
- Tight labour markets are keeping supply/demand ratios close in all sectors
- Chinese market, despite volatility, will continue to outperform all others with exception of India
- Outside North America and China, German market is most attractive
- Want to get into China but can't stomach the risk, look to Japan, as they are China's largest exporter
- Consumer spending is directly related to employment and wage gains (low unemployment/wage inflation)
- Corporate America are high net savers, recession unlikely
- Canadian dollar does not have room for increases, expect volatility, look for settling at $0.93 US
- Upper limits on commodity prices have been reached, volatility for 6-8 months, moderate growth (2-4%) supported by rising global demand
- Equity returns will moderate and slow profit growth, look for balanced mutual funds to return to 7-8% YOY from 10-12%
On inflation: CPI is really good at counting what it counts. The real issue is that it doesn't count what we spend our money on, and what it does count discounts the fact that products change. Yes you are spending more than 2% on the things you buy. But don't worry because the BoC has long since departed from using the CPI as the main index it uses to set monetary policy.
Local RE: buyer beware. Location, location, location. Diversify, Diversify, Diversify (if all you hold as investments is property, look out).
Stock Market: if you're heavily weighted in commodities/oil & gas, it's time to re-balance your portfolio; look outside North America for long term growth.