Nightmare on Fungi Drive

Well, here's one heck of a deal for the
rubber-glove set in Ottawa.
For just $219,000 this beautiful home,
complete with a few billion bacteria,
can be yours. Sez the realtor,

"FLIP THIS HOUSE". GREAT OPPORTUNITY TO DO
A COMPLETE RENOVATION. THE INTERIOR MUST
BE TOTALLY GUTTED DUE TO A MOULD PROBLEM.
GREAT LOCATION IN TERRIFIC RESALE AREA.
BEING SOLD "AS IS".

Thanks to Blog Dog Todd, who says, 'just add water!'

A recurring message of this blog is that the mess we all stepped into last autumn ain’t over yet.

The threats I’ve outlined here, and which underscore the urgency of my new book, will come to dominate the investment choices of those who are serious about avoiding the pitfalls of rising interest rates, an inflated yet stagnant economy, government debt, higher taxes and millions of Boomers making bad and emotional decisions, ruining the housing market while they usher in history’s greatest retirement crisis. This will mean long-term drifting stock markets, rising commodity prices and the necessity of crafting a diversified portfolio stressing growth and capital preservation at the same time. No easy task. So forget the index funds and the ETFs.

Trying to achieve security through no-risk GICs or savings bonds will be hopeless. Jumping into a few stocks or sectors will be downright dangerous. And riding the market higher on a surge of new economic growth – the kind politicians talk about – is a non-starter.  In case you missed it, that myth was laid to rest in major report this week written  by TD Bank economists Grant Bishop and Derek Burleton.

According to them, the country’s growth rate will crash to just 1.6% between 2010 and 2012, and just edge up to 2.1% all the way through to 2019. This will be the result of factors I’ve already mentioned, namely a rapidly aging population and a massive debt overhang for both families and governments. What it means:

• Less government spending, and an obvious end to the kind of stimulus programs which helped rescue us from a deflationary spiral.

• An uncompetitive economy as we become comparatively less productive.

• A non-stop government debt crisis, since GDP growth won’t be enough to goose tax revenues and pay down deficits quickly. So, more taxes. Hello HST.

• Danger for families than don’t curtail their borrowing. “Households cannot continue to borrow at rates exceeding income growth and prospective asset accumulation,” the economists said, since this will lead to “heightened household vulnerability and credit risk.”

• And here’s a chart showing just where the bank thinks the economy’s headed over the next ten years. Don’t show it to your kids. It raises the question of whether or not this could turn into Canada’s lost decade.

The implications for people serious about investing and achieving financial security are clear.

• There’s no way a real estate asset bubble will be able to withstand this onslaught of moribund growth, with little room for income increases and even moderately rising interest rates.

• As the Boomers hit an average age of 65 – about 2015 – the flood of house listings should be taking a serious toll on real estate values.

• Barely-alive growth in the economy, an aging workforce and productivity lags will all drag on corporate profits, suggesting stock markets will be range-bound for years to come.

• As growth shifts out of Canada (and the US) and into other countries with younger workforces and less debt, smart investors will be looking to put their wealth there.

• Governments will be unable to grow out of their deficit woes, and taxes will rise. Tax minimization and tax avoidance are therefore essential strategies.

• Commodity prices will likely rise as the twin realities of peak oil and climate change become major economic forces over the decade.

• For the first time in the lives of most Canadian investors, their standard of living may decrease, or at least stagnate, as the economy sputters, inflation returns, prices and taxes rise, but incomes do not.

• This will make it harder still to build wealth and achieve security.

Finally, for those who think this might be cool because a Japanese-style lost decade means your mortgage stays cheap, chew on the chart below. I’d say those folks know something about real estate we have yet to learn.