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April 21, 2016 | Bait & Switch

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.



They’re called yield hogs. As opposed to HAM or piggy banks. YHs are people who think investing is too hard and scary, and would rather save. But in a low-yield world, where central banks everywhere have crashed the price of money and (in so doing) blown some mothers of an asset bubble (hello Vancouver), saving is also hard.

Interest rates are astonishingly skinny. The good news is you can now get a fixed-rate, five-year mortgage for about 2.5%. The bad news is your “high-interest” savings account pays 0.55% and a five-year GIC returns 1.5%, unless you choose the Wawa Disabled Ukrainian Veterans Credit Union, Online Division. Of course, no matter how risk-averse you might be, this GIC thing is nuts. You will earn less than inflation. You get no actual income until five years from now. However (if outside an RSP or TFSA) the phantom interest is taxable. And at your full marginal rate. Completely nuts.

Even worse is an interest-bearing investment held inside a TFSA. No tax on the few pennies you earn, but you’re throwing away the benefit of an outstanding tax shelter. These accounts are for your juiciest long-term growth assets, the ones with the greatest upside potential. They are not intended (as the government suggests) as glorified savings account for your next Aruba romp, or bamboo flooring.

Anyway, stupidity and the misinterpretation of risk have led Canadians to hold about $400 billion in accounts that pay nothing, or next to it. In fact, 80% of all TFSA money now sits in HISAs or GICs. Oh, the agony. This, I guess, is why the EQ Bank made such a splash a few months ago.

As this pathetic blog, which saves absolutely nothing, told you, the Equitable Trust guys were able to offer a rate through their digital, no-branches, no-advice bank that almost made saving make sense. Three fat per cent. No minimum balance. No required period of deposit. No gimmicks or time limit. Until this week.

As a result tens of thousands of people who should know better snorted and hooved their way over to the EQ Bank site and opened accounts. So many, in fact, the bank quickly established a moratorium on new customers since its robots couldn’t cope with the load.

By the way, how could EQ pay out 3% on deposits when giant Tangerine could muster only 2.4%, PC Financial 0.8% and the mighty Royal Bank 0.6%?

Simple. Equitable is a Canadian subprime mortgage lender (in this country we call them “Alt A” or “B” borrowers). It assists the poor schmucks who cannot afford to buy a house but nonetheless get a mortgage broker to fluff them up with very expensive high-ratio debt  so they can become over-financed homeowners and end their productive financial lives. Naturally these subprime loans cost a lot more than conventional ones, so EQ has access to an enhanced spread between loan interest and savings account yields.

Anyway, it’s over. That 3% rate has been sliced by about a third, and EQ now pays 2.25%. There is no guarantee how long this will last, and the bank joins the ranks of other classic bait-and-switch marketers.

Granted, this is a better return than the big banks pay. But isn’t it ironic where people terrified of risk will put their money?


If you believed that silly story in the HuffPost the other day – extrapolating recent house price gains into the future – you know all about FOMO. The conclusion was the average Van house will cost $5.1 million by 2026, if trends evident over the last three years hold. Which, of course, they won’t.

However, we have no shortage of morons in the country who have enough Fear Of Missing Out that they’ll panic-buy right now, seemingly at any price. The parallels with the dot-com frenzy are, well, staggering. The trouble is, most of the FOMOers were 12 years old when Nortel peaked and the Nasdaq exploded. So they think it’s different this time. So cute.


TD surveyed folks a few days ago, and found 20% of people suffer from FOMO, especially in poor YVR and the entire GTA area. These people confessed to “rushing” a buying decision in order to lay claim to a house. That is more than enough moist new buyers to have a profound impact on the market in general. As I mentioned here recently, higher prices beget even higher prices, as emotion becomes the dominant motivator – as opposed to affordability, economic conditions, employment security or personal finances.

Hard to imagine a scenario in which risk builds faster. Oh, and TD found 40% of buyers worried they don’t quite understand the cost of owning a home. Yikes.

Did I ever mention how this ends?

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April 21st, 2016

Posted In: The Greater Fool

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