I'm on the road this week so posting will be sporadic. Here's an open thread for you to post your links and comments.
Anyone else getting tired of reading "Markets depressed by credit squeeze?"
I was on "On the Island" a CBC radio show yesterday morning. I'm glad they're trying to balance out their stories on local real estate by getting "outside the industry perspectives."
I'm in Calgary today: let's say the real estate "sights" are completely different here.
24 comments:
Can someone explain the differing affects between the BoC/Fed/ECB etcetera all printing money and keeping interest rates where they are. Instead of just cutting rates, which I always assumed was mostly the same thing.
Are they doing it this way so they can print money and pretend that inflation is under control?
Possibly due to distractions from the wild ride of the TSX/DJIA today, nobody has yet posted this prime piece of pumpery (pumpage?) from our prestigious paper:
"Despite national predictions, Greater Victoria housing market remains hot"
http://www.canada.com/
victoriatimescolonist/news/story.html?id=049d66a0-a5be-4a5a-a1c6-513a74f0d787&k=52383
Good grief!
Why is it hot when everything I see over $800,000 is selling at least 15% under asking and 99% homes over $1 million are just sitting. That is not a hot market.
Has anyone heard that a bulding under construction on Peatt Rd "the blackberry building" had it's top floor collapse and there are injuries but not sure how serious.
S2
Village:
The reason they are not willing (to yet) cut interest rates is because inflation is confirmed to already be high and rising and needing to be cooled. If you cut interest rates, borrowing money becomes cheaper and inflation is raised to record levels. For instance, if it is cheaper to get a mortgage loan, then this so called "hot" real estate market will go into the stratosphere. And seeing as the whole problem with the stock market is related to easy money for mortgages, cutting interest rates is only delaying an even bigger stock market crash a little further into the future.
Further, it is not the job of the BoC/Fed etc to bail out greedy investment companies (& banks) that invented & propogated this entire sub-prime market in the first place... UNLESS it will affect Inflation. Because that's their prime job - controlling inflation.
In other words, they are caught in a Catch-22. Raise interest rates to control inflation & you risk throwing the economy into a recession (possibly on a global scale). Cut interest rates & you are fueling this easy mortgage money insanity which increases inflation.
So the mid-way option is to print money and lend it to banks so they can lend money with (hopefuly) tighter lending rules, and at the same time calm the stock market... although it is not quite working.
10 days ago, it was almost guaranteed that the Canadian Fed was going to INCREASE interest rates in September. Now they are seriously considering keeping them the same or worst case scenario decreasing them temporarily... but future consequences of decreased interest rates would only lead to a bigger catastrophe down the road.
Hope that helps.
Lucky Luke
Here's some tips I have come up with for those hoping to safeguard their investments during this Stock Market sub-prime mess.
1. Migrate your investments to money market funds (i.e. T-bills) at least until this whole sub-prime mess is over, then buy back into your investments when the shares are at a fraction of the price. This will almost guarantee you avoiding to lose money when the stock market goes down, but it won't gain you much money either while your money is in T-bills. But it would just be for a few months anyway. In other words, gain 1% or so in a few months, or risk losing 10,20,30+ % if you stay in the market.
2. Even T-bills aren't as great as some people think. Money Market funds are usually offered in the currency of the country where your financial investments are in. If you live in Canada and your broker is in Canada, chances are your T-bills are mostly in Canadian dollars. This is a problem because the Canadian dollar is being whacked (as is the currency of nearly every other country). The loonie lost 3 cents in less than 4 days! That's HUGE! So even if you migrate $100K into Canadian T-bills, yes you will still have $100K when this whole fiasco is over, but your $100K Canadian will now be worth a fraction of what it was worth (when the loonie was at 95 cents US) from an International perspective. So what to do? There are two options:
a) Convert your Candian dollars into Japanese Yen. This currency is expected to rise for the next few weeks like crazy (other posts on this blog explain why). It has risen something like 9% in 1.5 months.
b) Convert your Canadian dollars into US dollars. The reason for the Canadian dollar depression is because when all hell breaks lose on the stock market, people move their money into supposedly safe US T-Bills - on a GLOBAL scale, thus injecting billions into US currency and inflating it against the Canadian (and every other currency).
The US dollar may not rise as fast as the Yen though. Once the Yen slows down, move it to the safer US dollars, or at the time research how the Euro is doing. That may be another safe currency.
Once all the madness is over (a few months?), move your money back into Canadian dollars and your $100K may now be worth $110K, $120K +
In addition to this don't forget that everytime you move currency around you are subject to 1,2 or whatever percentage conversion rates. DO YOUR RESEARCH about this before you move any currency. The absolute cheapest (but somewhat dangerous way) to do this is to get yourself a FOREX (foreign exchange) trading account and put your money in there. Trading on the FOREX, unlike the stock market, costs your $0 per transaction. The dangerous part is if you can not resist the 1:200 leverage abilities. Forex beginners STAY AWAY FROM LEVERAGING , or you can go bankrupt faster than you can say OH **IT! The Forex is a place far more ruthless than the stockmarket. 98% of people lose money, 2% make money. If you don't leverage, you can almost be guaranteed to be in the 2%... but your earnings will be minimal without leverage - but still much better than just about every other Stock market fund out there.
Lastly, you can invest in REVERSE INDEX funds in the stock market. To make a long storey short, these go up when the major indexes (DOW/TSX, etc) go down. However, this is only recommend for expert traders, because when the reverse happens (indexes go up) you can lose your shirt (but not as fast as in the Forex market).
So, clear as mud? :-D
Lucky Luke
I should add 2 cautionary remarks regarding my 2b) recommendation. Re:Move money into US currency / T-bills.
The US currency is expected to go up in the short term (1 to 3 months)... but could actually EXPLODE into a MASSIVE freefall like never seen before, for reasons explained in this highly recommended read here by an industry recognized unbiased guru:
http://www.stockhouse.ca/shfn/print_story.asp?edtID=20085
The above article also explains why Gold is going down in the short term, but how it may sky rocket in the next 12 months.
Secondly, I forgot to mention that if you buy your US T-bills through a Candian broker, it is very possible that those US T-bills actually get converted back to Canadian Currency each day & then re-purchased automatically in US funds the next day; thereby eroding any profits and even likely to deteriorate your investments. Sorry, I should have mentioned that before. In short ask lots of questions before you make such a move and especially read ALL the fine print.
Luky Luke
Nice timing on that article in the middle of the month and right in the middle of the biggest financial market correction in many years. Couldn't be a last ditch attempt to pump the market would it ? Nahhh. :)
I would be shocked to see a carbon copy of that article in 3 months from now,in fact I would probably have the big one.
VG, you refering to stargazerxl's Times Colonist article?
anon, yes I meant stargazerxl's article,sorry for not specifying.
Watching the media pump/denial story start up on Global TV tonite. They talk to Cameron Muir and he spills out his usual "can't happen here" bullshit,then they bring on this RE agent and he plays the "can't find any properties anywhere to satisfy my 20 clients who want to buy". Now is there not like 12,000 places for sale in Vancouver right now and he can't even close one sale cause he claims 30 people show up and outbid his client ??? I sense a real denial machine about to ramp up here as things get dicier. So the end result of the story was there is no way prices will fall cause there is so much demand.
Now the part of this segement that ticked me the most was they ask the big question of "can it happen here" and we are supposed to believe that it won't when it has only been the last 3 days that most people may have actually had it cross their mind that danger may be lurking out there.Try asking the question in a month or 2,what else do you expect two biased people to answer ?
The agent did mention people are asking the question about a correction but I am sure he was giving them the wrong answer as he played the lack of selection line means more demand and higher prices. Its sick I tell ya !
PS
Ozzie Jurrock sent out an email alert last week warning his clients of a 12 -18 month correction so at least the head shill has the decency to tell the sheep it's all over.
Why wasn't Global asking Ozzie what he thought ? cause he would give the wrong answer thats why,don't want to upset the advertisers.
Moody's sees risk of hedge fund collapse
Associated Press
August 16, 2007 at 5:16 PM EDT
NEW YORK — Moody's Investors Service warned Thursday that the credit crunch roiling global markets has the potential to cause the collapse of a major hedge fund that could further disrupt markets.
The result could be the “failure and disorderly liquidation of a hedge fund of sufficient size to disrupt markets, as LTCM threatened to do,” he said during the call. He was referring to Long Term Capital Management, a hedge fund that borrowed heavily and had to be bailed out by Wall Street banks after collapsing in 1998. Mr. Mahoney said the risk of such hedge fund failures will exist for the next three to six months.
http://www.theglobeandmail.com/servlet/story/RTGAM.20070816.wmoody0816/BNStory/Business.html
Article in today's Times-Colonist
http://www.canada.com/victoriatimescolonist/news/business/story.html?id=6ad66ce2-d854-4354-a1da-75d9ea3e3122
Note this part: "Some Toronto buyers were here last week with a $1-million ceiling. But they wanted waterfront so their budget was readjusted to $1.7 million to buy a Saanich house, Chapple said. It will be rented for about 10 years until they retire."
Sheesh.
S2
Another pumper article written by Carla Wilson. Is she connected to the RE industry somehow?
Note this part: "Some Toronto buyers were here last week with a $1-million ceiling. But they wanted waterfront so their budget was readjusted to $1.7 million to buy a Saanich house, Chapple said. It will be rented for about 10 years until they retire."
Sold in 3 years to cover loses and stem the bleeding. I'll be amazed if our credit standards don't tighten just on a knee-jerk reaction the the US alone.
More TC media pump,when will it end ? when will any one single reporter with an ounce of credibility actually do a serious expose on the hard facts of owning an average home in this city making the average wage and break it down into detail like many have done here ? They are all too chicken sh_t to try it or their editors won't allow it,dont want to report on reality would we now.
They seem to forget that all these mega rich retirees need young people to live here to support the businesses that they retirees need. We can't find anyone to work at my place employment who doesnt have or lies about their criminal record check.
It would be interesting to know if mortgage lending standards are tightening at Canadian banks now. Anyone?
Lucky Luke, given the information coming out,it doesn't make sense to me that everything will be better "in a few months". I am curious as to why do you think so?
You would have to think they are tightening mortgages after this weeks wake up call.
What gets me is if the US RE bizz and Greenspan are to blame for this bubble ( which yes Mr. Muir "bubble" is reality here)then how can people here pay 30-50 % more and they are considering themselves lucky to get in "just in time" ? man there are some real sheep lining up for the killing.
The US real estate meltdown is going to go on for several years according to all the analysts so how can we keep going up in price ? it can't and it won't.
Yes, I agree it can't and it won't but good heavens when will it ever stop?
S2
I became friendly with a nice real estate agent while on holiday near Kelowna. She said that she thinks RE is a very scary business to be in now and she keeps wondering if she should start looking for another job.
She said too many people are going to be hurt when things crash - it will be very ugly.
It was nice to see someone in the business honest - and we were looking at buying a vacation place.
house frau, that is refreshing to hear. This was THE week that was the wakeup call and will lay the table for a massive change in sentiment. This psychological event will take a couple of months to filter thru to all levels and I predict by the end of this fall we will see the lowest sales levels in years as all those border line borrowers will not qualify.
I heard Ozzie Jurrock say this morning the lending rules are tightening up fast and you better be very cautious going forward. Even CNN Money show was saying low and behold the lending rules are going to go back 10 years like "they used to be", imagine that.
VG,
She was honet and could have sold us a vacation home. We are sitting tight. However, when we do go to buy and if we ever move to the mainland we will certainly use her.
Olives Asked:
Lucky Luke, given the information coming out,it doesn't make sense to me that everything will be better "in a few months". I am curious as to why do you think so?
Hi Olives,
I love "olives" btw :)
What I meant is that the worst of the current impact will possibly be over. A lot of it depends on what the Federal Reserves & BoC type of institutions do or don't do.
A good example was the past week, wherein we had 4 consequitive days of significant losses in the stock markets around the world (1-4% daily), and on Friday after a surprise announcement by the Fed, it recovered some ~2%.
It is of course still too early to be making very confident predictions and next week will prove interesting. In short if these institutions come to the rescue, the stock market will stabilize & possibly even jump back into a bull market as if this was just some minor correction.
But the reality is that this is just the beginning and we may see Sub-prime impacts on and off for 1 to 2 years to come as mortgages hit their reset dates & house holder monthly payments jump to unnafordable numbers forcing foreclosures & bankrupcy which then trickle down the path into additional global impact for those institutions holding the unpaid debt.
In short, I think this may come in cycles which may make our stock market a lot more volitile than it has been in the past 4 years. So in a few months one cycle may be over, the stock market recovers, then another cycle starts.
Anything is possible at this time, so I should really not try to make too many predictions. hehe
It's a wait and see situation at this time.
Regardless, I still think (and hope) a few things will start happening over the next year or so:
1) Interest rates will continue to rise, even if at a slower pace than recently expected. Unless the stock market goes into multi-day free fall or the Canadian economy into recession, interest rates should not be going back down.
2) The easy lending party is practically over. I don't think most of Canada will see dramatic changes here, this is mostly for the US.
3) Rents will increase substancially (due to recent house purchases at inflated rates) - We're already witnessing this in Victoria.
4) Canadian Real Estate will become cheaper and likely have a correction of its own. According to some analysts & even people on these blogs, Victoria is about 30% over valued (in comparison to affordability and historic trends)
5) Hopefully wages will increase & catch up a bit.
Something has to give, and the most likely thing is that each factor (above) will give a little until we're back to some degree of sanity. One thing is for sure - the current model is most certainly not sustainable.
Lucky Luke
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