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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

December 6, 2015 | Strange Days

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

 

Ken wrote me from his Vancouver Island RV park on Sunday.

“There are now five different families in this small park that all worked in the oil fields in Alberta that are now laid off and living in their trailers,” he says. “All of them have skilled trades, yet not one of them can find any work anywhere here on the Island. Even their wives can’t find a minimum wage job.

“I’m not sure where politicians get their job stats information from but here in the real world people are seriously struggling. I don’t remember this degree of fear since the 80’s. The trickle down from Alberta is affecting the Canadian economy yet no one’s talking about it except you.”

So in ten days interest rates start to rise. Soon there may be a much bigger war against the ISIS crazies. Oil prices are going down as production goes up. We just elected some tax-and-spend governments. Carbon taxes are coming, to dampen consumption. Canada lost almost thirty-six thousand jobs last month. Real estate prices in YVR and the GTA are up by double-digits. House sales are off 22% in Calgary. Condos down 40%.

All these are connected. As usual. For people who think about big things, strange days. For most people, it’s just Christmas. Or, they get hormonal and fall for stuff like this:

SHE modified modified

This pathetic blog won’t belabour the obvious, but Canada’s not moving in the right direction. The global economy is now growing at three times the rate of ours, and the US recovery has proven robust enough monetary policy is changing for the first time in ten years. As rates rise there, mortgages will plump here and debt servicing costs pop. This will occur in 2016 as the economy slumps, a new tax regime dawns, debt levels hit fresh highs and a third of our GDP’s based on people selling each other houses they can’t afford on flat incomes. This is why Calgary’s a harbinger and you need to pay attention, as Ken is, to oil creep.

By the way, over the past five years here is why investors in maple have been shellacked, and those with globally-diversified portfolios have not.

Stocks modified

All of this is lost on the girls you work with, your idiot BIL and, probably, the parents, because Canadians have opted for a one-asset strategy. Real estate is a primary focus of this blog since that’s where people stick the bulk of their net worth. It’s why TFSAs are 90% under-funded, RRSP contributions have fallen off a cliff, why people are so indebted that they cannot save and an interest rate increase is such a threat. With commodity prices in the dumpster, unemployment getting structural and debt saturation close, it’s a strategy laden with risk. Those who expect past gains to be repeated are dreaming.

Well, here’s a summary of the last five years. US equity investors did great. TSX investors made nothing. Oil crashed. Houses in YVR and the GTA roughly paced the returns on a balanced portfolio, but detached owners did better (if they sell). In short, consumption has gone up sharply. Income has not. The difference is debt.

RETURNS 1 modified

The question is, where from here?

You can make up your own mind, but it’s probably a good idea to pay some attention to the principles articulated here.

Be very careful about Canadian exposure – in real estate and equities. Make preparations for higher interest rates – reducing debt exposure (like a mortgage) while buying things that benefit (like preferreds). Be as balanced as you can. That means within a portfolio (40% fixed income, 60% growth) and within your life (recall the Rule of 90 when it comes to a house). Don’t expect the conditions that bloated property prices (cheap money and house lust) to be sustained. Embrace your job. It’s more precious now. Fight home-country bias, seeking exposure to global assets which benefit from cheap oil. Be aggressive about tax avoidance, as politicians move left. Wait to buy.

And never miss a day of GreaterFool. God knows what might happen.

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December 6th, 2015

Posted In: The Greater Fool

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