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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

July 8, 2016 | Out of control

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.

 

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We’ll get to the macro in a moment. It may surprise you. First, the micro. Here’s Sam:

“I’m a software developer living in Vancouver and a big fan of your blog. I’ve never seen a story like this, and thought you (and your audience) may find it interesting.

Two months ago our landlord put up our apartment in Yaletown for sale and sold it in 15 minutes for $688,000 to the first buyer! I was thinking I spend more time buying $68 jeans than this dude spent buying a $688K apartment. Long story short, and the buyer forced us to move and said it is going to be used by their parents (they actually brought them to see the place).

Now I’ve been following the insanity in Vancouver for a while and had subscribed to a couple of realtors’ newsletters and receive “superb opportunities… all the time. I sometimes open them up randomly and I was shocked yesterday when I saw our previous apartment up for sale, just one month after they kicked us out! And guess what, they replaced the carpet with laminate flooring and that apparently added $111,000 (15%) of value and it is now listed for $799,900! Maybe the laminates are gold coated, who knows?

I’m going to start a dispute resolution process with BC and see if I can get them to pay me back the $150 I was charged for cleaning the carpets, since the carpets are gone! (and more…). Keep up the good work!…

No, this is not another post about Vancouver. (I can’t take it.) But in light of Friday’s statistics, let’s talk about where all this is headed. As you may have heard, there was a mother of a US jobs report, blowing past all expectations, igniting talk of interest rate hikes being back on the table. Meanwhile in Canada, our labour data choked. We’re in some trouble.

Against this backdrop not only did some dude take only 15 minutes to pay $688,000 (plus closing costs) for an 880-foot apartment, but he turned out to be a specker, immediately throwing it back on the market for a hundred bucks less than $800,000. (There’s an open house this weekend, if you want to drop by.)

This is an intensely unhealthy market, wherein single-family detached home sales are plunging, prices are wobbling to extreme heights, FOMO stalks the land and anger is fomenting as middle-class people fall further and further behind. That was evident here yesterday. And in Brexit. And Trump. In the anti-Chinese, anti-immigrant swill. And in the eat-the-rich, tribalist sentiment that has globalists, elites and governments popping he Tums.

The thread running through all of this is fear that people are losing ground in a world where social and economic change seems out of control. Including Canada — where (ironically) we have created what’s possibly the planet’s greatest debt-fueled speculative real estate bubble.

The job creation numbers out of Ottawa Friday were appalling. Forget the middling headlines about the nation losing a net 700 jobs, since the picture’s far darker. Gone in the latest count were 13,000 more manufacturing jobs, for a body count of more than 30,000 in the past year. Just over 40,000 full-time positions, with full-time benefits, have been replaced with part-time jobs, many with no benefits. Almost an equal number of positions (38,000) morphed into ‘self-employment’. And you know what that means. The labour participation rate has been dropping since the spring (now at the worst level since 1999), and youth unemployment is stuck at more than 13%, which is why you have a thing living in your basement.

In the last year the total number of jobs in Canada increased by 0.6%, or about a hundred thousand. That’s less than half the rate at which the population grew. More worrisome, the bulk of those new hires were part-time, and the pace of job creation is slowing. No surprise there. The economy is barely expanding, oil prices are a burden, family incomes are stagnant and yet household debt has hit a new record high as the middle class over-reaches to sustain a lifestyle now unsupported by cash flow.

Pow. Political backlash. Xenophobia. Soak the rich. Tax empty houses. Shut the border. Cheer Trump and the Brexiters. And mutiny over at GreaterFool.

Meanwhile in the US, despite too damn many guns and nutjobs, the economy powers ahead — fueled in part by the same cheap energy that’s impoverishing us. The number of new jobs in June surged to 287,000, outpacing the rosiest of estimates, boosting stock markets above their pre-Brexit levels as more people poured into the labour market. This, some say, is ‘full employment,’ that point at which most of the people who want to work, are.

Commented US payroll forecast Hugh Johnson to Bloomberg: “If you take the last three months and smooth these numbers out – which is really what you should do – employment conditions are improving, but there’s no question there’s, to some extent, a slowdown in the improvement. That’s to be expected when you reach what I would argue is full employment.…

Hmm. So why are there no US metropolitan areas where house prices are increasing 30% a year, as in Vancouver? Or even 16.8% annually, like Toronto? With full employment and millions of new positions, higher incomes and lower living costs, why are American family debt levels going down? With borrowing rates like ours, why aren’t they gorging on cheap debt, speculating on rising property values, using their houses like ATMs, and pushing house prices into the sky?

That’s easy. They’ve been there. Done that. And learned. It’s taken almost ten tortuous years for American families to start getting over the shellacking they took where their own real estate bubble imploded. Those who piled the bulk of their net worth into a house, who banked on ever-rising valuations, who played the greater fool buying out of fear or greed, who thought it was different this time, paid a heavy price. And it astonishes many of them that Canadians would watch closely, then trod the same path.

So, if you think people on this pathetic blog are pissed now, just wait.

I’m buying body armour.

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July 8th, 2016

Posted In: The Greater Fool

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