Cathartic Rants

CNBC housing groupies

2010-07-01T15:20:00.000-04:00

Wow. Apparently the US housing market has gotten so terrible at providing "feel good" stories to the market pumpers at CNBC, they had to whore themselves out to the lowly Canadian realtors/banksters. For an absolutely hilarious, yet completely innacurate read, check out "Why the Canadian Housing Market Didn't Crash"

A more apt title might have been "Why the Canadian Housing Market Hasn't Crashed YET", or "How the hell are Canadian homebuyers THAT stupid?", or "How the Canadian taxpayers are funding subprime mortgages so that the big 6 can reap monstrous profits". I could go on all day...but back to the article:

They saw a housing boom, they saw a recession, and yet the Canadian housing market is still cooking with gas.

Why?

Fundamental differences in Canadian banking, borrowing and home buying.

Umm...no. Going back to your opening line, we watched you dump gasoline on your housing market and then light yourselves on fire. So while watching you do this, and wondering, "What the fuck were they thinking?", we have been slowly marinating gasoline pool of debt in large part due to CMHC and are just trying to find someone with a match to get this party started. In short: the correct answer appears to be: "We're to stupid (or arrogant) to think the same thing can't happen here."

Lloyd Atkinson is an economist and also an empty nester, who just sold his large family home in Toronto and downsized to a condo overlooking the city. He sold his home in one day.

"In the U.S., the whole idea of owning a home, there is almost a national obsession," Atkinson says. He knows because he's an American citizen as well. But he also knows that the banking system in Canada does not allow for the type of irresponsible buying and borrowing that we saw in the U.S. at the height of the recent housing boom (2004-2006).

Really? Your representation of "normal" is interviewing a BANK ECONOMIST who sold his home in the housing boomville of Toronto (second only to the idiocy of the Vancouver housing market). Fair and balanced right?

I love how Lloyd is an "expert" on the US housing market as well because he's an American citizen...reminds me of how Sarah Palin is an "expert" in foreign relations because she's aware Alaska is near Russia (don't ask her to find either on a map though).

Finally, the biggest difference is that if a Canadian borrower goes into foreclosure, the bank can and will come after that borrower's assets until the balance is repaid.

There is no easy way to walk away.

These are full recourse loans.

OOOOOHHHHH... The "recourse" argument. Damn, you guys did your homework...or did you? How many US states had recourse loans as well? How did that work out? And how exactly does a recourse loan help the lender if the owner HAS NO OTHER ASSETS besides their grossly overvalued home?

"There is an element of conservatism that runs right through the Canadian housing industry, from the banking, financing element, to the homebuilders and even in the resale of homes," says Phil Soper, CEO of Brookfield Real Estate Services - Royal LePage. "The innovation has safety valves."

Way to interview a realtor to balance the views of the bank economist. I wasn't aware 5% down (which you can borrow to boot) and 35 year amortizations was the definition of "conservative".

Bubble it may be, and the air is coming out a bit now, but every one of the realtors, economists, and homeowners I interviewed said no way, no way would the Canadian housing market crash as the U.S. market did. Benjamin Tal put it best: "This was not a made in Canada, this was a made in the U.S. recession, and in many ways Canada was a second hand smoker here."

Wait, what? NOW YOU ADMIT IT'S A BUBBLE?!? Don't you guys understand that you can't say "that word"? And thanks for summarizing that this entire shitpile of "reporting" was based upon the thoughts of a bank economist, a CEO of a real estate company, and a homeowner (oh wait, the homeowner was the bank economist). Shit. (I love the double "no way" for emphasis by the way...brilliant)

As for the smoking analogy...we may have used to be a second hand smoker. But it looked so cool watching you smoke, we had to give it a try. And we'll be damned if we're now going to give up our 3+ pack a day habit, because we're fucking RESPONSIBLE, and there's no way that we're going to get lung cancer, despite what the massive government adds say on the packs.

Why? Because, "It's different here."

Krugman - STFU

2010-07-01T11:54:00.000-04:00

Separated at birth? Frankly I'd rather hear Clooney's take on the global economy than the shit spouted by his Keynesian fanboy doppelganger. Krugman has never met a problem that couldn't be solved by throwing piles of government debt at. Lately he's been yapping about the failure of the G20 to agree to engage in more ridiculous "stimulus" resulting in the onset of the next Depression (somewhere he missed the memo that we can't actually prevent the recession and should have embraced it rather than trying to delay the inevitable and wasting trillions in doing so).

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

Seriously, Krugman needs to shut his frickin piehole, because the more he yaps, the more the people at Nobel should seriously consider yanking the joke of an award the Nobel prize in economics has become. The only thing Krugman is "correct" about is that this shitstorm has been brought on by a failure of policy. But he completely misses the mark on what that policy should look like. Mish has far more on Krugman's ineptitude at in How Policy Errors Cause Depressions (and how "in isolation" some things Krugman says make sense)

The problem of the G20 is that some countries (the EU) are beginning to "get it"; where "it" is that you can't endlessly borrow money to prop up a bunch of zombie banks that lent money to anyone with a pulse because eventually the funding from the bond market dries up when they start demanding yields approximating the likelihood of the weaker players actually being able to make good on their debt (Greece, Spain, and the rest of Club Med). The bigger idiots (US and Japan) still haven't figured out that the same principle applies to them, (eventually).

Clearly the solution to the problem of too much debt is even more of it. If I can't maintain my personal spending level, it makes perfect sense that I should borrow more than I make to come up with the difference. Even if I'm spending 10-20% more each year annualized while my income is growing at a paltry level of 1-2% which isn't sufficient to maintain my standard of living. Obviously, tt is the banks responsibility to give me the money I need (want) to spend...and I promise to pay it back sometime...in the future, assuming I get a big raise...if I feel like paying it back...and if not, well I'll just borrow more and add it to the IOU, right? Clearly the banks don't really care if I pay back the principle.

A child could understand the simplistic notion that piling on ever more debt is not sustainable. Unfortunately for us, many economists and most politicians today do not.

Plunge

2010-05-07T08:57:00.000-04:00

Oh the markets are stable eh? This is a sustainable recovery? Greece isn't imploding? Spain and Portugal aren't in line to follow?

What the hell then was this?

Dow down over a 1000 pts intraday. The market was down all day but there was a massive several hundred point drop within the span of minutes. The MSM has for months been using leading indicators (ie the giant bear market rally from last March) to claim that we're in a sustainable recover. How do they spin things if the wheels on that fall off?

What triggered the crash? Who knows? (us lowly retail folks may never know the real cause). Of course, there will be plenty of speculation that there was some type of trader mistake, a fat fingered trade, but the point is...if one trader fucking up can trip off a wave of massive (oft computer controlled selling), then how stable is the market? Stick a fork in it, this bear market rally is done.

Talk is Cheap

2010-04-24T09:47:00.000-04:00

I never thought I'd say it: But George W. Bush is lookin pretty good compared to the sorry excuse for a President the US has now. At least Bush wouldn't try to win you over with starry eyed rhetoric (more talk = more Bushism sound clips). Even if I didn't agree with most of his actions: invading Iraq, instituting a massive new branch of government (Homeland Security), tax cuts that his country couldn't possibly afford, massive deficit spending...at least he DID something.

Barack Obama has talked for well over 2 years. And talked. And talked. You'd think he was still in fucking campaign mode. DO something, jackass! You have plenty of things that NEED to be done (get out of Iraq, balance the budget, fix the economy, stop bailouts, end fraud). Yet, all you do is TALK. Do something. Fuck, it doesn't even have to be legislative, all you have to do to "fix" the problem of endless corporate greed and fraud is start enforcing EXISTING laws. Where are the criminal investigations against rampant mortgage fraud? You can't just fucking scold banks, and then not hold them accountable. Laws are only meaningful if you actually enforce them. Reinstate leverage limits if you're worried about "excess leverage". Start bringing criminal indictments against ALL the fraudulent lending. Reinstate mark-to-market accounting and get banks to remove all their bullshit off-balance sheet assets. There's a reason that shit is hidden, it's because no-one wants to see it. Ban CDS's, move derivitives to be traded on an open exchange.

Or you could give bankers a lecture...ya that will fix everything:

Mr. Obama accused the financial industry of spending millions on lobbyists and offering misleading arguments and attacks to derail the proposed reform legislation, which is aimed at cracking down on Wall Street in the wake of the worst financial crisis in decades.

The U.S. House of Representatives passed a comprehensive set of reforms, while the U.S. Senate is debating a version of the proposals.

Although his tone was stern, Mr. Obama's speech was largely conciliatory, which could help pave the way for passage of the legislation.

"[The] crisis was born of a failure of responsibility--from Wall Street to Washington -- that brought down many of the world's largest financial firms and nearly dragged our economy into a second Great Depression," Mr. Obama said.

Take responsibility for your own actions such as enforcing existing laws, before you start flapping your gums about "banks behaving badly". It's YOUR responsibility to ensure existing laws are enforced. Put up or shut up.

If you don't fix the culture of fraud, you will clearly demonstrate the major difference between your presidency and your predecessor's. While both will be deemed abject failures, I tend to think of your predecessor's defining quality as one of incompetence. Your legacy, however, will be far worse. Your presidency will not be defined as one of incompetence, but one of willful complicity with the banking lobby. Hope and change = more empty rhetoric.

Canadian Banks - Don't Mess with Our Taxpayer Backstop

2010-04-11T12:35:00.000-04:00

Is it really any different here? Are our banks more prudent? Are they wise? Do we have a good banking "system"?

Ask the bankers, and you'll get a resounding "Yes, of course we do! We didn't need government bailouts!"

Why? Because they've managed to offload all of their credit risk through lending loads of cash to sketchy borrowers so they can buy houses that they can't afford. The Canadian banking system is less risky...for the bankers! Risk doesn't magically disappear. If you lend money to someone who cannot pay it back, and then securitize and sell that debt to someone else...you've just transferred that risk to the bondholder. And who would that be? CMHC, ie. the Canadian government, ie the Canadian taxpayer.

So while the banks themselves are safe, everyone else is not. The Canadian government is already running a massive budget deficit, and this doesn't take into account future spending committments the aging boomers for health care. Nor does it factor in the costs of covering all these bad mortgage bets for when the housing market corrects. When the MBS's stop generating the returns they're supposed to be providing because the borrowers can't pay...the taxpayer is left holding the bag.

And they aren't giving up that taxpayer gravy train without a fight. They're worried about global financial reforms that don't take into account "Canada's unique banking system" (ie. Canadian banks mortgages are safe, because the Government is backing them via CMHC - sound familiar? Fannie? Freddie?)

Under Canadian law, mortgage insurance is mandatory if the down payment is 20% or less, in an effort to protect lenders from default. As it happens, the dominant provider of coverage is Crown-owned Canada Mortgage and Housing Corp. Further, the federal government backstops the coverage in the event of a default.

"But there is no credit given to that under the proposed rules," said Don Drummond, senior vice-president and chief economist at Toronto-Dominion Bank. "That's got all the Canadian banks agitated."

As a result, Canadian banks would be forced to have the same amount of capital against their mortgages as a bank in another country operating in a riskier environment.

"Our unique Canadian mortgage market was one of the important reasons why we did so much better than others, and this now may be in peril due to several proposed rules that go over and above the requirements for more capital," Mr. Waugh told shareholders at the bank's annual meeting in St. John's.

Hmm...so the much vaunted Canadian banking system, wasn't a result of prudent lending but more about having the government back your assinine mortgage bets? This doesn't sound familiar at all does it?

Mr. Poschmann said the marketplace likes the current setup in Canada, citing that Royal Bank of Canada is able to sell so-called covered bonds to fund a pool of uninsured, but good-quality, mortgages.

Of course, Canadian banks have also benefited from the setup between Ottawa and CMHC. Industry analysts say the mortgage insurance setup has led to relatively low credit risks for Canadian lenders. It is estimated that almost half of mortgages held on bank balance sheets are insured.

Also, CMHC plays a major role in mortgage securitization. Under its Canadian Mortgage Bond Program, established in 2001, financial institutions originate mortgages, pool them and sell them as packages in the form of mortgage-backed securities to an entity called Canadian Housing Trust. The trust, advised by CMHC, issues bonds that pay interest similar to Government of Canada bonds, using the cash flow from the mortgage-backed securities to make the payments.

Gee, duh, I wonder why the banks like this setup where they can take virtually no risk, and can sell overpriced mortgage securities to someone that is guaranteed to buy the shit? Will the taxpayers like the Canadian "system" when the MBSs blow up and the government is forced to either slash spending (not likely given the spenthrift Keynesian idiocy going in Ottawa), run bigger deficits (welcome to higher interest rates), or increasing taxes (GST back to 7%+).

To close...let's look at how well this worked out for Fannie:

US housing prices began their fall in 2005. And delinquencies are still skyrocketing (even though Fannie imploded long ago and has already been seized by regulators). We haven't even hit our bubble peak yet, as such the CMHC (Fannie North) crisis may be another 5 years out (or more). This will not end well.

Admission of a Housing Bubble

2010-04-11T11:41:00.000-04:00

OK, not exactly in those words, but when average home prices in Canada are up 10% and the head of a major Canadian real estate agency says:

“House sale data from the past two year period shows tremendous variances in terms of how different cities reacted to the recession,” said Phil Soper, president and chief executive officer, Royal LePage Real Estate Services. “In Vancouver and Toronto, for instance, the dramatic unit sales fluctuations exhibit a significant degree of market irrationality: inordinately fearful when faced with poorer markets; and overly enthusiastic when the tables turned.”

And to be clear, we haven't yet entered the "fearful" stage yet. We're still in euphoric home orgasm mode. Human wants being what they are, there is always an overshoot in consumer sentiment going both ways, so while this bubble will eventually "correct" it is quite likely to eventually overshoot, where the bulk of the population will hate housing and realize it's a non-liquid, depreciating, terrible asset to own for investment purposes. Looking south, this is the current sentiment of most Americans, and in general that sentiment is earned due to the collapse in home prices, the crushing reality of negative equity, and the evaporation of the American Dream for the middle class.

We as Canadians, are not so different from our southern neighbours...we're roughly where they were circa 2005. The top is near. I fully except the prospect of rising rates, tightening lending standards, and the introduction of the HST to be catalysts for the correction. It's beginning.

Speaking of higher rates, just as the cost of fixed rate mortgages already have begun rising as per Tightening the Vice - It Begins, variable rates mortgages will soon rise as well, when the Bank of Canada starts raising the benchmark rate from it's historic low of 0.25%.

Scotiabank expects the benchmark rate to rise to 3%. No, that's not the prime rate, that's the overnight rate. Expect prime to hit 5%. And no, this isn't on some timeline far into the distant future (like 30 years from now when the bulk of new homeowners will still be paying their mortgages)...this is by next year. I know what you're thinking...they can't/won't do that. You're fine to believe that, but banks are pricing in that likelihood, so maybe consumers should too...after all, they're the one's setting the rates on the mortgages right?

Canadian Consumer Confidence - Delusional

2010-04-02T12:59:00.001-04:00

CIBC economist Benjamin Tal released a report this week outlining the massive divergence of Canadian consumer confidence with the reality of their financial situation. Basically, he introduced a new metric a "Consumer Capability Index" which roughly is meant to gauge a consumers ability to consume as opposed to their willingness to (via debt typically). Full report here, it's well worth a read, and it's a pleasant surprise to see anything meaningful coming from the banks on this.

A few highlights:

Does this look sustainable?

Not only is the debt to income ratio increasing, the rate of increase as at about the highest level it's been at in the last 20 years. As mentioned in the article (emphasis mine):

Despite Canadian consumers’ high spirits, their recent
consumption pattern has not been supported by an
equivalent increase in income. In fact, growth in real
disposable income has been trending downward over
the past year (Chart 2), and to a certain extent debt is
replacing income as a major driver of consumer purchases.
The rising importance of debt as a determinant of
consumption can be seen in the fact that the 2008-09
recession was the first economic contraction on record
to show overall expansion in real household credit. As of
February, overall household credit was up by more than
7% on a year-over-year basis—more than three times
faster than income growth.

People aren't making more money, they're simply spending more, due to the ease of credit cards, consumer lines of credit (including HELOCs). That debt eventually has to be paid, and the cost is that the consumer has to service the debt in the meantime.

Note that the debt service ratio is around the same level as mid 2006, even though borrowing costs today are significantly lower. When rates rise, the DSR will rocket higher as well. This is when consumers are going to feel the pinch (along with increasing taxes as well due to poor public finances). Ouch.

How bad are things? Apparently the consumer either hasn't noticed the problem, or are hoping it will go away. Canadian consumers seem to be wildly optimistic...over what no-one can seem to say. Reality vs. fantasy:

Ie, Canadian consumers haven't seen their finance in such a piss poor state of affairs in over 20 years, but you wouldn't know it to ask them.

A brief timeline:

Up until around 2001: Canadians expectations were basically in line with reality with some minor fluctuations from the mean.

2001 - 2008: The bubble years. Canadians become completely disconnected with reality and are wildly optimistic due to their rapidly appreciating home values.

Late 2008-Early 2009: Market implosion. Canadians briefly wake up and face reality as their savings in the market (RRSP's or otherwise) get absolutely hammered as the market crashes

Early 2009 - present: Bank of Canada makes money free, drops rates to zero, and the great Canadian reinflation begins. Idiots bid over houses driving record housing prices after the biggest financial collapse since the Great Depression. Market rallies massively on fumes. Happy delusional days are here again!

Future: Rates rise. Canadians wake up with a massive debt infused hangover. Consumer spending dries up as the majority of disposable income is directed towards debt service with rising rates. Economy enters the next dip of the next recession...presumably at some point people wakeup and face reality and a REAL recovery can actually begin.

The public sector 100K club

2010-04-02T11:52:00.000-04:00

The Ontario government recently release their disclosure of employees making more than $100K Who made the list? A crapload of people. Reading the list I'm convinced that the bulk of our government is made up of middle managers, board members who presumably get a sweet appointment to meet monthly, to do God knows what, and a bunch of lawyers. Heck, over 1200 nurses make over 100K per year, as well as a significant number of police officers.

Even the MSM has went through and ranted about some of the more peculiar job titles that fall into the club.

In addition to the usual suspects, there are dog handlers, plumbers and many blue-collar workers in the ranks. A common trait that ties them together is a penchant to be just a tiny bit defensive.

“Oh look, a traffic signal foreman makes $100,000,” said Frank Lalli, a traffic signal foreman from Hamilton who made $114,402 last year.

Lalli, who is on call 24/7 every second week, says he’s married to the city. Sometimes, he has to stay out all night long in bad weather to fix traffic lights.

“Every second week my life is upside down. I can’t go to a movie, I can’t go to Toronto, I can’t go to an event because you never know when you’re going to get called,” the 66-year-old said.

Reality to Lalli: YOU MAKE $114,402! With full benefits/pension presumably IN ADDITION to your salary. And you're being funded by THE TAXPAYER which increasingly is finding themselves without ANY JOB. Unfuckingbelievable the utter sense of entitlement.

Bonnie Olmstead, a security guard at Ontario Power Generation’s Nanticoke station, knows it’s strange to see a security guard make $111,890. But her secret isn’t on-call shifts or midnight dates with traffic lights.

“I’m a mechanical millwright who got hurt, that’s why I make that kind of money,” Olmstead said from her home in Jarvis, Ont. “I certainly appreciate that the company looked after me.”

No shit. So you're basically saying you got a sweet job appointment because you can't do any real work anymore. Great. Why are you still being paid a ridiculous salary, shouldn't you be on disability making some (reduced) percentage of what you actually made previously (you know, because you aren't really doing "work" anymore?

Ontario's manufacturing base has been utterly slammed by the global recession and somehow the taxpayer and the private sector is expected to make up for the public sector's largesse. Did I mention that Ontario is running a massive budget deficit? For more on that, Mish has a good comparison of the state/provincial budget debacles of California and Ontario.

Of course it's not just federal and provincial/state budgets that are completely a basket case, municipal budgets are ridiculous as well. Case in point: Toronto. 1329 Toronto police officers earn over $100K per year (article)

David Soknacki was reacting to the release of 2009 public sector salary disclosures that list 1,329 Toronto police uniform and civilian employees who last year earned more than $100,000 – a more than 30 per cent increase from the year before.

In 2008, 1,006 employees of the Toronto police service earned more than $100,000.
Those fattened pay cheques do not include lucrative "paid duty," where off-duty officers, paid by private companies, earn $60 to $70 an hour to perform such duties as directing traffic around construction.

"Politically, it's toxic" to question whether the city can afford to pay policing costs, said Soknacki, who left office in 2006.

"When money comes up for police, it's very, very difficult to push back.

Of course it's dificult to push back against any public union because they have a vested interest solely in their own benefits, and the hell with the taxpayer. After all you can't put a price on: public safety, your children's education, your health. Funny how somehow this equates to endlessly spiralling costs for all of these services isn't it?

But of course the hypocricy doesn't stop there. Let's say for argument's sake that a police officer is worth 100K (I don't believe this for a second, by the way) because they are valiantly sacrificing their own safety to protect the public. After all THAT'S what we're paying for right?

Michael Thompson, who was paid $161,892, and Abdulhameed Virani, who collected $151,042, were among the 380 constables who topped the $100K club in 2009.

Thompson and Virani didn't rack up their overtime as homicide detectives on 24-hour call.
Instead, they nearly doubled their salaries – the base salary of a first-class constable is $87,500 – in large measure by writing traffic tickets that require them to make frequent court appearances.

Uniformed officers grumble privately that politicians don't mind because they generate income for the city.

Under the Toronto Police Association collective agreement, police officers who attend court as witnesses during a scheduled off day are paid a minimum four hours, at 1.5 times their basic wage, even if the appearance lasts 10 minutes. Officers receive three hours of pay at time and a half if they appear in court before a scheduled shift.

Hmm, so maybe it's not about public safety, it's about prosecuting minor traffic offenses and generating revenue for the government? I wasn't aware that police services were a "for profit" operation. Utterly ridiculous. Not to mention, if the officers are so busy "serving the public" how come they can make extra pay working to direct traffic "on the side" for private companies at $60-$70 an hour. And to be clear, you can't really blame the officers for making ridiculous overtime by writing tickets/going to court, as if the compensation package is specifically setup that way, you're not really encouraging officers to protect and serve, you're encouraging them to issue tickets and sit in court for a few hours. I'm pretty sure you can find tons of people that are capable of doing this for much less than $100K per year...

Tightening the vice - it begins

2010-03-29T21:49:00.001-04:00

We've been warned, and today, Canadian banks announced that they are hiking fixed mortgages rates. While the Bank of Canada has announced repeatedly over the past year or so that rates would be held until June, banks aren't waiting. Nor should this be surprising to mortgage holders, as fixed rates based on bond yields typically will begin to rise before the central banks hike rates.

The move comes as many Canadians with variable-rate mortgages have been anxiously watching for signs of exactly when the Bank of Canada will begin hiking interest rates, in a bid to wait and lock into a fixed-rate mortgage at what they hope will be the ideal time.

While the Bank of Canada may nicely "announce" when they are going to change their rates, banks don't have to give notice. It's based on long bond yields which (if you've been paying attention) have been steadily rising. The 30 year treasury is poised to break a signicificant resistance level (this doesn't guarantee it will), but IF it does, it likely indicates targets for 30 year mortgages are likely to head back to historical norms in the range of 7-8% (within the next 2 years). If you're interested, Karl Denninger has an outline of the inverted Head and Shoulders pattern in the 30 year treasury yield (and it's implications) in "On Deficits and Debt Financed Government". You've been warned.

Getting back to the Globe article though:

Rising rates present a dilemma for many homeowners who face decisions about whether to lock variable rate loans into fixed terms or ride it out and hope that rates will come down again in 2011 as the economy slows and inflationary pressures subside.

Yes, but remember, those fixed prices you think you'll have the option to lock in at will not be available when you (later) want to lock in. They'll be a hundred (or more) basis points higher.

Potential homebuyers entering the market also must consider rising rates when they decide to bid on a house. Is it better to wait until rising rates have cleared out some potential bidders or will a flurry of buyers and sellers spooked by the prospect of higher mortgage costs affect the supply-demand balance?

Wow, REALLY? Buyers shouldn't just consider the current monthly cost associated with a mortgage? They should perhaps factor in future interest rate hikes, inflation, cost of living increases associated with housing, the HST, they're future earnings potential...etc? Why?!? Maybe because a house isn't a "one time cost", and the buyer is spreading their amortization over the bulk of their lifetime, spending hundreds of thousands of dollars that the buyer doesn't currently have? Hoocoodanode!?!

Historically, staying short-term and flexible has been the best strategy, but banks usually advise that locking in at still-attractive longer-term rates of five years and more is always a good bet for many consumers who want to ease their risk.

Short term and flexible is the best plan? Why this sounds awfully like RENTING! Thank goodness the bank's "advice" is to instead lock in at "longer" fixed rates, since this "eases their risk". First off, Canadians don't have "longer" fixed rates. They have 5 years, 7 years, and at most 10 year fixed rate mortgages. In the US however they actually have the option of locking in for a 30 year mortgage...ie they don't have to face renewal risk every 5 years. Who knew that the US housing basket case actually has lending practices that actually make sense for a consumer.

Secondly, locking in for a 5 year term does NOT reduce your risk, it just moves it out. You pay a guaranteed rate for your term, but then you (potentially) face rate renewal shock. Let's say you lock in today at the (new) 5 year posted fixed rate at 5.85% with a 250K mortgage over 25 years (I know, who takes a 25 year am these days). You would be looking at monthly payments of $1577. In 5 years you're up for renewal, but the new 5 year rate is at 7.5% (this is still less than a 50BP rise each year). After 5 years, you still have $224 112 owing on your principle (congrats, you've managed to pay off a measly 5K per year in principle...with the rest going to interest). Finincing over 5 years 20 year AM, at 7.5% you'll see your payments jump to $1790/month (a 13.5% increase, or over $200/month more). And for those that say "that's fine I'll get a raise to match"...OK, except that giant sucking sound you hear is what happens when people have their personal disposable income cut by $200 a month solely to service debt. That's money that's gone, that can't be spent on anything useful, and that doesn't bode well for anyone other than the banks and holders of MBS. Needless to say, that doesn't exactly bode well for the economy as a whole...

Any more advice guys?

If the current bank prime rate of 2.25 per cent rises by 2.5 percentage points to 4.75 per cent, a homeowner with a variable mortgage should expect to pay about 30 per cent more on their monthly mortgage, says Robert McLister, a mortgage planner and editor of the Canadian Mortgage Trends website.

“If that causes you discomfort then perhaps a fixed rate's where you want to be and if a fixed rate is where you want to be...if you're closing in the next six months, I suggest people do that quickly.”

Generally, long-term fixed rates rise by about half of the variable rate, he said.
While the fixed versus variable decision is specific to each individual, Mr. McLister said if prime rates spike by more than 2.5 percentage point, odds are good homeowners will save money in a five-year fixed rate mortgage.

Potential homebuyers should get their pre-approval applications in fast and expect delays in pre-approvals due to increased application volumes, he said. And homeowners' with mortgages up for renewal would also be wise to lock in rates as far in advance as possible.

Typical broker/media publication jackassery spouting off that you must buy now or never. I mean seriously, ask a broker how interest rates affect housing prices, and what you should do about it, and this is what you will hear:

1) Mortgages rates have never been lower, so now's a GREAT time to buy.
2) Mortages rates are starting to go up, so you better hurry, because now's a GREAT time to buy.
3) Motages rates are falling, but you better hurry while they're low, because now's a GREAT time to buy.
4) Mortgages rates are steady, but they won't stay that way, so you better hurry, because now's a GREAT time to buy.
5) Mortgages rates are very high, but are only going higher, so you better hurry, because now's you're LAST CHANCE to buy.

(The irony is that if have you have cash, and are in scenario 5, it MIGHT actually be a good time to buy, because prices should be utterly annihilited by that point).

CIBC chief economist Avery Shenfeld said mortgage rates hikes are a trend consumers should expect to continue.

“Once the Bank of Canada starts pushing up short-term interests rates, and even in anticipation of that, it tends to spill out across the rest of the curve."

He predicts the Bank of Canada will gradually raise key lending rates this summer, resulting in an increase of 0.75 per cent to one per cent by the end of the third quarter.

That would raise the average prime rate at the banks from 2.25 per cent to three per cent, which could tack on three-quarters of a per cent to the rates of homeowners with floating mortgage rates, Shenfeld said.

“Consumers are forewarned that when they look at borrowing today they have to factor in potentially higher costs,” he said.

“Consumers have to be aware in taking on debt at historically low interest rates that down the road they will be higher and have to leave room for their ability to pay those higher rates.”

Gee, ya think? And of course the problem with taking on debt at historically low rates is that people GORGE themself with it, vastly overpaying for the underlying asset (in this case houses). You don't hear the house pumping media say that consumers need to look further down the road very often...as it should be OBVIOUS to anybody that decides to take on a 6 figure debt financed by someone else. Sadly, the entire concept of "renewal risk" is something most new homebuyers haven't yet experienced. They've grown up in a period of declining rates, and appreciating home prices...a rude awakening is coming to many.

Government ads - cut the bullshit!

2010-03-28T14:13:00.000-04:00

So, I came across a CDIC ad while watching the hockey game last night and thought to myself:

Why the hell is the CDIC running ads (in primetime no less on HNIC)? I actually found the prospect of the government actually running the ad (maybe not all Canadian banks are "safe"?) scarier than the message of reassurance they supposedly are projecting.

Couple that with the endless "Economic Action Plan" propaganda bullshit ads, and I'm utterly appalled at the level of spin the government is hellbent on projecting without doing anything of actual substance. But I guess that's the point of politics, convincing the masses "things are under control" while willfully doing nothing.

Worrying about your own stupidity

2010-03-24T22:57:00.000-04:00

In my mind that's what this equates to.

Canadians are "scared" about potentially rising mortgage rates. And in response to this "fear" naturally, they rush out to buy overpriced houses before cheap credit dries up.

“There's definitely a sense of urgency among home buyers,” said Lynne Kilpatrick, senior vice-president of personal banking at BMO.

This is like being scared of heights before deciding to jump out of an airplane. Here's a thought: Maybe if you're "terrified" of higher rates, you shouldn't be leveraging yourself to the teeth and buying a massively overpriced asset with borrowed money. But of course this is far too rational a thought to be covered by the mainstream media, we need to embrace the thought that what goes up will never go down, and that we don't need to be responsible for our actions because someone (presumably) will bail us out if we fuck up.

More than two-thirds of Canadians expect mortgage rates to rise over the next year, with about the same number of mortgage holders concerned about higher rates, a Royal Bank of Canada annual homeownership survey showed.

Two-thirds? TWO-THIRDS?

Translation: 1 in 3 Canadians is utterly fucking delusional that rates won't be going up. Has the Bank of Canada already told us for the last 12+ months that rates will rise by June/July?

Try even suggesting to a homeowner that they may face modest rate increases in the range of 50-100 BP by end of year (with potentially another 100-200BP rise next year), which STILL leaves us below historical norms and just watch their reactions:

-Are you kidding me, don't you know rates only go down or stay current?
-That CAN'T happen! You're dreaming...
-That BETTER not happen, or I'm fucked.
-If that happens, I will stab in the face.
-The government will save us.

What part of denial am I missing here?

Oh ya...they've been TOLD "It's OK"

On Tuesday, Bank of Nova Scotia forecast in its real estate trends report that home sales are expected to rise 10 per cent to 510,000 this year, while average prices are expected to jump 8 per cent to a record $345,000.

Like most economists' expectations, Scotiabank said the housing market in the spring should see a flurry of activity, particularly ahead of new sales tax regimes in Ontario and British Columbia and tighter qualifying criteria for insured mortgage

And the stupid thing is...they're probably right. Prices probably do rise in the first half of the year, the most marginal buyers are always the last in before the crash...rush to buy before rates rise, the HST hits, etc...I'm sure that will work out spectacularly...

Why Democracy fails

2010-03-16T19:44:00.000-04:00

It's not because it's a bad idea. It's because politicians become dominated by special interest groups that are more organized than the average Joe (ie lobbyists). Small groups that are extremely motivated by their own issues (often corporations) get what they want because they're organized, press for their wants, and the hell with everyone else.

Case in point, Stephen Harper is posting answers to questions via youtube .

I actually thought this might be worthwhile, in that you can raise questions, vote on which questions you like, etc? Then I remembered...oh ya, this is the INTERNET. I decided to browse through the "questions" that would be posed.

To summarize:

49% of the questions revolve on whether or not the the government is going to change bankruptcy laws such that pensioners become preferred creditors (most of these cite Nortel specifically).

While this is worthy of discussion, I sure as hell don't think 49% of Canadians number one issue is to ensure that Nortel employees get a full bailout. But apparently they're organized, so their issue becomes "important".

Another 49% of the questions are related to the legalization and taxation of pot.

Again, maybe this is a valid question, but should it really be a BIG issue? Don't we have bigger more important things to worry about than creating a new sin tax so we can enjoy legalized bud? Again, the pro-legalization group seems motivated, and like the Nortel pensioners, felt obliged to spam the same issue thousands of times on an internet "discussion" via youtube...

Of course that leaves about another 1.9% of questions in the "smart-ass" category eg. "Stephen Harper, are you sick of hearing about legalizing pot yet?"

And maybe another 0.1 percent of questions that might actually be worth posing...if you can find them amongst the "Nortel pensions good, pass the spliff" crowd. Go democracy.

Being as I was unaware of this venue for engaging in democratic action in the first place, unlike the motivated pensioners and potheads (maybe they're the same people!), I'll pose a question no-one else seems to care about but constantly scares the shit out of me:

Is the CMHC adequately capitalized to withstand losses due to a potential collapsing housing bubble in Canada, and if so, can you provide figures demonstrating this? If not, is the government going to force the holders of CMHC MBS to eat the loss, or is the taxpayer going to eat it through massively increased taxes/reduction in government services?

Not that they'd answer that one even if the question was asked...

Savings - A Little Perspective

2010-03-14T21:54:00.000-04:00

Mish has a good post on the fuzziness of big numbers and puts the perspective of various "savings" found in the Obama budget.

Similarly, the Canadian Taxpayers Federation provides similar perspective on the Canadian budget. A picture says a thousand words, so that will keep this rant short.

Lehman Autopsy

2010-03-14T21:28:00.000-04:00

While it seems everyone on the planet wants to ignore the events that led us to the brink of an economic collapse, the Lehman report provides a stark reminder that:

1) Balance sheets mean nothing when you can just hide assets/liabilities that are convenient for you to hide.
2) Most major banks in the US (and likely worldwide) are basically insolvent.

A new report details how Lehman executives made business decisions that would ultimately prove suicidal, then used financial manoeuvres to mask the depths of their predicament. Finally, demands for payment by competitors helped push the firm over the cliff.

The report, produced by a U.S. court-appointed lawyer and released late Thursday, will have immediate ramifications. It provides a green light for lawsuits against Lehman's top executives, who allegedly manipulated the company's books, and its auditor, Ernst & Young, which the report says was aware of the scheme.

Let's hope that the ensuing shitstorm of lawsuits doesn't stop there. Let's hope it leads to criminal investigation, not just within Lehman, but with their counterparties and within the willfully blind complicit parts of goverment "oversight" which was supposed to prevent shit like this from happening in the first place.

But the report also points to vulnerabilities that remain to be addressed. One of its major revelations is that Lehman used an accounting sleight-of-hand at several key junctures in 2008 to make its debt level appear smaller than it actually was.

Under the move, known as a “Repo 105,” Lehman shifted tens of billions of dollars of assets off its books as though they had been sold. In fact, they had been pledged as collateral in exchange for short-term loans, on terms favourable to the lender, and would return to Lehman's balance sheet within days. During that time, however, Lehman would take its quarterly snapshot of its financial health and present those figures to investors.

“It's basically window-dressing,” wrote one Lehman executive in an e-mail, according to the report. It also revealed that lawyers in the U.S. didn't endorse such accounting, so Lehman turned to a U.K. law firm and routed the transactions through Europe

While Lehman had employed the manoeuvres since 2001, it expanded its use of them in mid-2007, sailing through internal limits. “I am very aware,” of the impact of the transactions, one executive wrote in April 2008. “It is another drug we' r on.”

Comforting that this kind of crap has been going on since 2001 isn't it? If Lehman was engaged in this sort of crap for near a decade, how many other financial institutions are playing similar games? How many would have imploded had the former Treasury Secretary thief Paulson not passed a 3 page Tarp bill extoring billions of dollars from US taxpayers.

Mr. Fuld, the company's hard-charging leader, comes in for tough criticism. He was a person “who heard only what he wanted to hear,” former Treasury secretary Henry Paulson Jr. told the lawyers preparing the report.

Ya, and unfortunately for Mr. Fuld he didn't have the benefit of having plenty of insiders controlling the purse of the Treasury either. I'm sure that didn't really hurt Goldmans Sach's did it?

Time to take the gloves off and start prosecuting these cocksuckers. Instead of wasting a fucking year in office and doing literally nothing about the root cause of the problem, and instead devising new and even more retarded ways of "stimulating" the economy by racking up monstrous amounts of debt. Hope and change my ass. Obama is possibly even more ensnared by the banking interests than Bush ever was. At least Bush could use the excuse of being complacent because no-one had noticed the problem yet. Obama, on the other hand, has been frantically attempting to look anywhere but where the problem actually lies. He has the full will and anger of the US populace to start taking these corporate lobbyist pieces of shit down...and yet he does nothing because he's completely and utterly dominated by them.

This shit will continue until politicians begin serving the interests of their consituents, rather than that of their corporate masters...when that will occur is beyond me.

Stupid Questions

2010-03-09T20:56:00.001-05:00

Disclaimer: This is not related to housing, politics, the economy, or anything I typically rant about, just stupidity in general. Read on if you wish...

Whoever coined the phrase: "There is no such thing as a stupid question." must have been one of the most utterly retarded people to have ever walked the earth.

Stupid questions exist. This is a fact. We all get them. I am not saying all questions are stupid. Nor am I saying that only stupid people ask stupid questions. Indeed many stupid people don't ask any questions, and many otherwise intelligent people ask plenty of dumb questions.

Stupid questions exist in many forms, and for many reasons...let's look at some of them.

The stupidity of a question relates directly to how likely the individual asking the question should know the answer. As such, 2 different people can ask the exact same question, and only one of them may be posing a "stupid" question.

Example: If a 5 year old asks what 2+2 is, it's not a stupid question. If a 10 year asks the same question, you may think he is mildly handicapped. If a univesity student asks the question he may want to reexamine his life.

This isn't specific to educational levels either, clearly experience plays a role.

If an airline pilot asked you how to land a plane...or a dentist asked you what the difference between an incisor and a molar was, they would both be deemed incompetent. Reverse the questions and everything is fine.

OK, so we've established that education/experience plays a direct role in how stupid a question may be. Let's move on to how many times questions can be asked before it becomes stupid.

If you ask a person a reasonable question, it is reasonable specifically THE FIRST TIME. If you keep asking the same fucking question over and over, each subsequent question indicates that your mental capacity may be closer to that of an amoeba than that of a human being. (If you manage to ask different people the same question, they may not notice how much of a mental midget you are)

Not only is each subsequent question more and more stupid, it also has the added benefit of completely and utterly wasting the time of the questionee. Said individual probably considers you the equivalent of dirt (except dirt doesn't ask any stupid questions...so that's clearly a bad analogy).

Another niche stupid question is one where the question is virtually incomprehensible.

Examples:

How think you is that because? Problem: improper command of the English language.
If the sky is a blue and 6 times 8 is 48 and motor oil is a lubricant, do you think 48 cans of motor oil being drunk by a squirrel that has a kidney disease and farts rainbows is a good idea? Problem: Too many drugs.

How to deal with stupid questioners:

1. Answer them anyways. (this sucks because then they continue to ask the same fucking question over and over ad nauseum).
2. Ignore them. (I like this one - it frees up your time and tells them "fuck off and be self sufficient")
3. Point them in the direction of where they can find the answer. (This one sounds good in theory, except if you repeatedly point them to documentation, Wikipedia, Google, etc. you inevitably STILL get asstards that can't find the freaking answer)
4. Provide sarcastic anal reaming responses that completely insult their feeble intelligence and generally let them know how retarded they are, potentially with the goal of making them cry. (Cathartic...so I like...may be difficult to pull off in a work environment if you have to behave "nicely" with your co-workers)
5. Fuck with them and give them crazy answers...then deny you gave them that answer because only a "complete idiot" would believe that shit. (More entertaining than 4...but with the same problems).
6. Physical violence or the threat thereof. (may be problematic if the questioner is bigger than you, carries a gun, or is a ninja...similar problems to 4, 5 as well).
7. Scream insanely, confide in friends (or apparently the internet in general) the utter stupidity of Stuipid McStupidson (often over drinks)...and then concede and "politely" do 1, 2, or 3.

Seriously. Before being "that guy" ask yourself these questions first::

1."Should I know the answer?" If answer is yes, determine the answer.
2."Have I asked the same person the same question (numerous) times before?" If answer to this is yes, and you still intend on asking the question, at least apoligize in advance for asking the question.
3. "Can I find this information somewhere else myself?" If yes, determine where you can find the answer.
4. "Is the question specific and comprehensible?" This one may be tricky to determine, but here's a hint: If the questionee gives you a "WTF is this guy smoking?" look and almost laughs with an annoyed look while shaking his head...followed by "What?" or "Pardon?" - you may have just asked an incomprehensible question. Congrats dummy!

Seriously, I should be a fucking life coach.

Unanimity - Do the elites even care?

2010-03-07T12:33:00.000-05:00

So, Iceland officially said "No" to the UK/Netherlands repayment request.

According to results released Sunday, just over 93 per cent of voters said “no” in Saturday's ballot, while only 1.8 per cent voted “yes.” The rest were blank or spoiled ballots. The results were based on a count of all but 2,500 of the 143,784 votes cast.

Good on the Icelandic voters; the results were a virual unanimous decision by the people. The deposits of foreign investors were NOT officially covered by the banks, as such the depositor assumes a degree of risk in chasing yield. The general public should not be held accountable for ridiculous risk practices of Iceland's banks (especially when the deposits were never legally covered by the bank nor the government). The UK/Dutch governments reimbursed their depositors and assumed they could just bully tiny Iceland into repaying them. They assumed wrong.

Despite the vote, the Icelandic government said it would continue talks with Britain and the Netherlands on a new agreement.

Translation: None of the politicians inside or outside of Iceland give a shit about the vote and will negotiate some type of convoluted backroom deal with the British/Dutch that is complicated enough to confuse the average voter, and then will ram that deal through, voters be damned.

He said, however, the British and Dutch would get their money back eventually. The two countries have already offered Iceland more favorable repayment terms than the deal voted on Saturday.

“The referendum was not about refusing to pay back the money,” Mr. Grimsson told the BBC. “Iceland is willing to reimburse those two governments, but it has to be on fair terms.”

Really? I'd be interested in seeing how a repayment plan more favourable than "we're not paying you" works.

Last-minute talks on Icesave broke down last week, despite the debtor countries saying they had offered better terms for a new deal — including a significant cut on the 5.5 percent interest rate in the original deal.

That would have required each Icelander to pay around $135 a month for eight years — about a quarter of an average four-member family's salary.

A quarter of their salary? Ridiculous! Clearly, they will attempt some new deal that is modestly more affordable...but will inevitably result in working class Icelanders, their children and grandchildren assuming this debt. Way to sell your children into debt serfdom.

Despite the referendum result, both sides said they were confident a deal would eventually be reached.

The voting public just voted against this deal at a ratio of over 50:1 against this deal. And that somehow suggest just a few minor "tweaks" to work out the deal? A vote skewed that much is akin to trying change 2nd Amendment rules in US red states, making Judiasm the national religion in Arab nations, or banning Catholism in the Vatican.

If voters can be unanimous in rejecting this and politicians ram this through anyways, democracy simply doesn't function. You simply have a dictatorial state ruled by the elite class, but you throw the public "votes" to make it appear that it's something else. The trouble is, eventually the public figures out that the rule of law simply doesn't mean much when it doesn't apply to everyone, and they simply start to take matters into their own hands...

Canadian Budget - Reality Check

2010-03-04T23:42:00.003-05:00

Let's cut through the BS spin of the budget. The short of it is, spending increases have been reined in dramatically, but "cuts" aren't yet in place. The Conservatives "plan" appears to be:

1) Slow down spending increases (but don't actually cut spending).
2) No tax increases.
3) Hope the economy improves.

Emphasis on 3). They REALLY REALLY hope that happens, because 1 and 2 sure as shit won't balance a record $56 Billion budget deficit.

Mr. Flaherty’s program relies on an outlook for economic growth in 2010 of 2.6 per cent and of 3.2 per cent in 2011, estimates that are based on the consensus of 15 private forecasters.

Those are cautious estimates, because history suggests that economies rally much faster after recessions. While that leaves room for a pleasant surprise, Mr. Flaherty, unlike in his previous budget, hasn’t made allowances for the possibility the consensus could turn out to be too optimistic.

Cautious estimimates? REALLY? Is that what the "private economists" (handpicked by the government) say. They look hopelessly optimistic to me. After all, the only reason we managed 5.0% growth in the 4th quarter was due to a combination of massive government stimulus spending, and a ridiculous housing boom. Neither of those are sustainable; we're due to see a snap back to reality this year. Double dip is very much a likely outcome despite what everyone HOPES happens. Hope is not a plan. Look how "hope" is working out in the US.

Some of the "cuts":

Mr. Flaherty’s budget would reduce the planned growth in the Defence Department’s budget by $525-million in the fiscal year ending March 31, 2013 and $1-billion annually the following year. The government will freeze the international aid budget this year, scrapping a previous pledge to increase it by 8 per cent a year, which will save $4.5-billion over five years. Also, departmental operating budgets will be frozen at current levels in 2011-12 and 2012-13.

The government said it would not cut major transfers to provinces (such as health care and employment insurance), though some minor programs will be affected.

Defense is actually a good start, but where's health care (provincial transfers), education, government pension plans? Provincial transfers should definitely be on the radar (again). Too many provinces are utterly dependant on the feds for their funding. If the federal funding shrinks, maybe the provinces will push towards their own improvements.

Making cuts to every tiny little discretionary program is not going to balance this beast of a deficit. Some of the "meat and potato" programs have to be trimmed too. Departmental budgets should be cut 5-10%, not frozen (and just for 2 years). The aid cut doesn't surprise me in the least. In fact I don't even recall the pledge to increase aid by 8% YOY in the first place...seems pretty uncharacteristic of the Cons. I guess the key to finding savings is to make plenty of unrealistic "pledges" in the first place to buy votes, hope the suckers buy it, then cut when you feel like it so you can make the "Look at the savings!" announcement. And you wonder why people despise posturing of the liars in office. That being said, cutting foreign aid is a drop in the bucket and entirely political - "Look we're worried about us, fuck everyone else."

The G&M article cited has an interesting breakdown of revenues/expenses over the last year.

Out of curiosity, I figured I'd take a look to see how revenues and expenses have fared since the Conservatives took office in 2006.

In 2006 revenues were at $235.4B and expenses at $222.2B for a surplus of $13.2B.
In 2007 revenues were at $242.1B and expenses at $232.6B for a surplus of $9.5B.
In 2008 revenues were at $235.9B and expenses at $237.2B for a deficit of $1.3B.
In 2009 revenues were at $213.8B and expenses at $258.6B for a (projected) deficit of $44.8B (this is now revised closer to $56B)

The projections for 2010 have revenues at $231.4B and expenses of $280.5B for a projected deficit of $49.1B.

So, in 4 short years. Revenues have declined by 1.7% (based on the rosy rebound in revenues projected next year. And government spending has increased by 26.2%. Granted, politicians will cite the recession is cause for both the decline in revenues (income and corporate taxes) and the increase in spending due to automatic stabilizers (EI, social assistance).

But if that's the case, and governments have counter cyclical policy firmly in place, then WHY the need for the ridiculous Keynesian stimulus programs?

Answer: Because a politician will never cease to take an opportunity to spend other people's money without being accountable for it.

The Conservatives economic policies have been dismal from the beginning. Ie. letting CMHC run wild to let people with no money buy houses, cutting progressive consumption taxes like the GST instead of reducing personal income taxes, etc., and letting program spending explode.

Unfortunately, the other parties "plan" is to DO MORE OF THAT. Seriously, the Liberals have been MIA since Iggy took over. I guess I can't really blame them, the Conservatives had literally NO POLICY last election beyond "Stephane Dion is a little weeny loser", and look how that worked out. At least he had a FUCKING PLATFORM (yes a carbon tax might make a lot of sense if it was done correctly, you know, tax the polluters, and give everyone else a tax break). And don't get me started on Jack "I'm at Gretzky's" Layton. His plan is to spend even faster than the Liberals...while taxing everyone to pay for it. Clearly government can't be too big for the NDP.

Seriously, the only reasonable option is "None of the above", or a protest vote for the Greens or a decent independant. Democracy doesn't work when all the parties are incompetent.

Update: Greece

2010-02-24T23:34:00.000-05:00

Dumb and Dumber

2010-02-21T23:23:00.000-05:00

Ah, the hypocrisy of politicians. Jim Flaherty has been adamant that there is no Canadian housing bubble. Then why do we need a task force studying why Canadians are financially illiterate? Maybe because you know there's a massive problem, but it's easier to blame the stupidity of Canadians (I'm not disputing this is a problem), than admit any of the retarded policy blunders that have encouraged this reckless behaviour in the first place.

The task force will release its “Leveraging Excellence” consultation document Monday as a starting point to discuss issues including managing debt, saving and investing, retirement planning and pension reform.

That's an awesome name for the report, must be an inside joke...since leverage is precisely why many Canadians are racking up monstrous debt levels. Has a better ring to it than "Borrowing away our future". But that's why these guys get elected I guess.

Let's be clear, the government realizes there is a massive housing bubble, and retirement savings debacle coming but they're scared to actually admit it, lest it cause consumer confidence to plummet. So instead, they lie, and assume we're retarded (which I guess is accurate, based on the actions we're seeing).

Not only are consumers piling up debt at record levels, many also have virtually no savings. When reams of boomers start moving into retirement, the government is going to have it's own problem with mounting government commitments to social security, as well as mounting health care costs. They don't need to worry about the prospect of people not having anything saved for retirement on top of that.

The group is examining a survey of more than 15,000 Canadians that suggests that one-third of the population is struggling financially. The data also suggests that Canadians don't fully grasp their financial picture, or are overly optimistic. Half of them say they are confident that they will enjoy a comfortable retirement, but very few can explain how they plan to get there.

Most peoples "plan" involves their principle residence appreciating rapidly in value. And that has happened largely due to rates being cut to zero and the Canadian taxpayer assuming the risk of all of these high-ratio loans due to CMHC. CMHC might as well stand for "Can't Make Houses Cheap"...since it has basically managed to do the polar opposite of what they are mandated to do - increase housing affordability for Canadians. It's bad enough they've ramped housing prices, but the fact they've done so by protecting banks from mortgage defaults on the back of Canadian taxpayers is unconscionable. This pig needs to be slaughtered - Canadian bacon time.

“Time and again we see behaviour by people – we are talking highly educated, high income people – who are making less than ideal financial decisions for themselves and their families,” said one source. “Other countries that have developed a strategy have focused on education in high schools. This task force has come to the early conclusion that, while enhanced financial education is vital over the long term, it is insufficient.”

The task force is delving into behavioural science and looking for ways to nudge Canadians into adopting better financial practices, such as saving more. Committee members have had discussions with experts on the psychology of money, such as Richard Thaler, the author of “Nudge,” in the hunt for ideas.

The task force is also concerned that if it limited its strategy to education in school, it would not help immigrants or aging Canadians who are struggling with retirement.

Tell me, how does cutting consumption taxes like the GST in place of cutting income taxes provide a "nudge" in adopting better financial practices? How does engaging in ridiculous Keynesian stimulus plans encourage Canadians to save? How does interfering in the market forces for mortage rates? The only people potentially more ridiculous with their finances than average Canadians are Canadian politicians.

As for the education argument, you can't rule out providing better education because it doesn't help seniors and immigrants. We need to show the next generation how utterly incompetant the previous generations were and why they're being asked to pay for their parents and grandparents retirement. We need to tell them that they're going to be taxed at higher rates than previous generations, and the services they'll receive will be in decline because the government cannot afford otherwise. People need to realize that retiring at 65 may not be the norm anymore (hell when I grew up everyone talked about freedom 55). People need to realize that there's a big difference between having to save enough to fund 10 years of retirement vs 20-25 years.

In short people need to do a bit of math and actually start thinking about their own situation and then start doing something about it, instead of ignoring the problem and hoping it will go away.

Or we can fill a Samsonite briefcase with IOUs...after all, those are as good as cash!

Coming to a Boil

2010-02-19T01:01:00.000-05:00

The cracks are there. People are angry. And if policymakers refuse to deal with the corruption in the system, the public will take matters into their own hands (for better or worse).

A small plane was flown into an IRS office building in Austin, TX yesterday. Reuters had the boring lack of details article, but if you want a more detailed insight into the story, I suggest checking out Karl Denninger's post.

I don't have much to add, because let's face it, the Ticker Guy is a far more eloquent ranter than I am. But reading the murder/suicide note, there's a few things you can take from it:

1) This guy wasn't a complete wackjob, indeed he was an educated, and seemingly articulate writer. Angry for sure; batshit crazy, no.
2) If anything, the note screams of endless frustration and disillusionment with the ideal vs. reality of American justice. The elite play by one set of rules and everyone else by another.

I'm not condoning the actions, but it's not hard to understand them either. We've all felt similar fits of rage at our breaking points, the difference here is that eventually you push the wrong person past their tipping point and they snap. And with the multitude of angry, disillusioned, unemployed US workers, it's highly probable that this won't be the last act of violence.

The US has enough of a problem with foreign terrorists, does it really need to add domestic to the list as well? After all, if you're managing to not only piss off foreign extremists on a global scale, as well as the citizens you're supposed to be serving...who does that really leave the government to be taking care of (besides the politicians themselves and the interests of their corporate partners).

Canadian Household Debt: Pass the Crack Pipe

2010-02-16T22:12:00.025-05:00

To much lesser fanfare than the announcement on the new mortgage rules, the Vanier Institute for Families released the annual report on Canadian household finances. To summarize: Canadians are credit junkies that just can't get enough. Link to the entire report (worth reading).

A few "highlights":

The debt to income ratio moved up to 145% at the end of the third quarter 2009. This is another new record. Given the trends evident in the first part of 2009, the Bank of Canada estimates that this ratio could be up to 160% by the end of 2012.10 This ratio has been found to be a key determinant of personal bankruptcies.

A more precise indicator of the burden of debt has been developed by the Bank of Canada. In the third quarter 2009, about 6% of all Canadian households (about 825,000 households) had a DSR (Debt Service Ratio) that exceeded 40%. The DSR measures the percentage of gross income spent on household debt plus payments on the principal. These high DSR households are in a very vulnerable position and the Bank of Canada model assumes that one out of every four households in this situation will eventually default.

The Bank of Canada created two scenarios to see what percentage of households would be in this vulnerable situation given current trends in the debt to income ratio, and if the average cost of borrowing increased by the end of 2011. In the first scenario, interest rates increase by about half a percentage point, and, in the second scenario, they increase by about one percentage point.

Under the first scenario, there would be about 1.1 million households with a high DSR at the end of 2011. Under the second scenario, there would be approximately 1.3 million households with a high DSR at the end of 2011. These are increases of 30% or 50% from the third quarter 2009 situation.

As worrisome as these numbers are, the average cost of borrowing could easily increase by much more than the percentages assumed in these two scenarios. A two percentage point hike could easily cause the number of households with this dangerously high DSR to climb to 1.5 million or so. This would represent an increase of about 80% from the situation in the third quarter 2009 in the number of households with a dangerously high DSR.

And this is only considering the immediate implications of higher rates in the coming year or two. Remember, as Canadians don't have the luxury of locking into 30 year fixed rate mortgages, we have to renew our terms, typically every 5 years. Rising rates are going to cut into affordability massively, couple this with government attempts to balance budget and you're looking at higher tax rates, meaning less disposable income. In short, rising debt levels to service with at best stagnant incomes, and more likely declining disposable income due to tax increases. Oh, and that debt you're holding, it's a recourse loan as well, so no walking away from your ill conceived plunge into a ridiculously bloated housing market. How's that vice feeling?

Credit card and mortgage delinquencies rose (somehow we never seem to hear about these things in the media, ever).

The number of consumer insolvencies was up by 26% (3-month moving average) in October 2009 from a year earlier. The year to year increase had been as high as 42% in mid-summer 2009.

Delinquencies rose. Mortgages held by chartered banks, which are 90 or more days in arrears, were up by over 50% in October from a year earlier. Visa and Mastercard credit card holders, who were delinquent for at least 90 days, were up by over 40% in July from a year earlier.

The relevant chart below (click to enlarge):

In general, if you're 3 months delinquent on your mortgage, you're defaulting. You're not making those payments up unless you come into a family inheritance or win the lottery. Let's cut the crap and call it what it actually is, which is a gauge of soon to be mortage defaults. Keep in mind the chart above is the percentage change from the previous year, so that dip you see does NOT indicate that delinquincies are falling. They are still increasing, just at a slightly slower pace.

So how much have we lost in this debt fueled debacle? Canadian average net worth, is still below it's peak. (click to enlarge).

As of the end of the third quarter 2009, the average net worth (total assets minus total debt) per household stood at about $390,000 in constant 2007 dollars. This was down by approximately 6% from the peak of about $416,000 in 2007. That is a substantial decline of $26,000 per household. The decline was much deeper at the end of the first quarter 2009, but was reduced by a rapid improvement in share prices and the rebound in house values.

(Emphasis mine). That's right, despite a massive equity party from the 2009 March lows AND a 19% increase in home prices in 2009, household equity is still $26000 below the 2007 peak. Where would we be without the market rally and house price explosion due to a combination of zero interest rates and massive government stimulus? It's scary to think, yet this is the direction we are most likely headed back towards. Unless maybe you think a 50% increase in the stock market and 20% increase in home prices is sustainable annually. Brace yourselves.

And finally, the best chart of the report (click to enlarge):

Hmm...let's try to determine when housing prices came unglued from incomes...might it have something to do with crashing interest rates due to the dot.com bubble collapse + 9/11?

Central banks: blowing bubbles decades at a time...until they can't because the weight of the debt taken on is too much. We're at that point now.

Popping the Bubble? Not really.

2010-02-16T10:14:00.000-05:00

This morning, Ottawa announced new rules to tighten lending standards. It's a start I guess...but as expected it isn't really a bold move by Ottawa, more a move so they can claim to save face when things tank.

Let's look at the rule changes:

1) Banks must now approve CMHC mortgages based on a 5 yr fixed rate, rather than a variable rate mortgage. Indeed, many banks were already basing mortgage approvals based on debt service ratios for 5 year fixed rates, but this at least clarifies the requirements "across the board" for CMHC insurance qualification, as opposed to CMHC approving any 5% downpayment mortgage. For many banks this will not impact their lending practices at all.

2) Maximum refinance amount lowered from 95% to 90%. This is a symbolic move only. It may send a message, but it still lets borrowers use their houses as ATMs, they just get back a bit less.

3) 20% downpayment required for CMHC backed mortgage insurance on investment properties. This seems reasonable as a move to curb speculation. Better yet, why provide CMHC insurance for 2nd properties at all?

The problem isn't speculation on 2nd properties, the problem is speculation on their primary residence. 60% of working Canadians have no pension plan, and 4 in 10 Canadians have no retirement savings whatsoever. Yet homeownership is at record levels. This results in the bulk of Canadians net worth being tied up in one asset: their home.

The new rules take effect April 19th. Really, they do very little; it's more about the Feds attempting to save face. When the bubble (which still doesn't exist) bursts the Feds can then choose to play it as "we warned you, and tried to prevent this". They won't actually take credit for popping it, because then they'd be the bad guy...

I still stand by my previous post, Gutless. This move is designed to appear that they are making tough choices...the reality is far from it.

Greece Bailout - A Quick Summary

2010-02-15T22:50:00.000-05:00

The whole Greece bailout crisis is starting to wear on me.

Here's the "quick" rundown:

1. Greece decides it's going to run a 12.7% of GDP budget deficit, more than 4x EU limits.
2. Bondholders refuse to buy Greek bonds, driving up borrowing costs for Greece.
3. Panic sets in as Greek may default, Euro dives, pressure on EU to bail them out.
4. Mainstreet media articles/Greece PM announces "Everything is OK, EU will save us."
5.. Germany responds to #4. with "Fuck that, we can't afford to bail those deadbeats out."
6. Repeat 4, 5 ad nauseum.

So, will they or won't they?

First off when people say the "EU" will bailout Greece, what they're really saying is Germany and France will bailout Greece. And they neglect to mention that if Greece gets bailed out, Ireland, Portugal, Italy and Spain will soon be lining up for their handout.

Germany and France cannot afford to bail out everyone else, it's sheer idiocy.

“If we start now, where do we stop?” Michael Fuchs, a member of economy committee of the German parliament's lower house, told the Welt am Sonntag newspaper. “I can't explain to people on unemployment benefit that they won't get a cent more but Greeks can draw a pension at 63.”
Ms. Merkel raised Germany's retirement age form 65 to 67 in an effort to trim the country's deficit. Greece's maximum retirement age for men is 65, and 60 for women. The Socialist government of Greek Prime Minister George Papandreou plans to raise retirement ages, freeze public sector wages and boost fuel taxes to bring the deficit down, but has provided few details on the strategy. The effort will take several years.

Indeed due to the global recession Germany has its own budget worries:

Germany’s no-bailout position is almost certainly being influenced by its own deteriorating finances. Its budget deficit is expected to grow to 5.5 per cent of GDP this year. The country’s economy failed to grow in the last quarter, raising fears of a double-dip recession. The euro zone as a whole grew only 0.1 per cent in the same quarter, after growth of 0.4 per cent in the third quarter.

Comically enough, the Greek PM has called the EU "timid" for failing to deal with the crisis. This coming from a PM that refuses to deal with his county's own budget crisis and instead preferes to blame bond "speculators", the EU, and anyone else that will listen to his sob story. The idea of responsibility and accountability is clearly a long lost memory. Fuck rational behaviour. Clearly "normal" now is to blame anyone else and hope somebody else will fix your problem for you. Seriously, maybe we should be teaching our kids to lie creatively, steal, and mooch off others...while setting up someone else to take the blame...that seems to be the norm today.

Indeed, I'm not the only one pissed off about the incompetancy of the Greek government.

In Europe, this is causing a chain reaction, where images of striking workers make Greek politicians skittish about agreeing to move more quickly to rein in spending, which renders German voters reluctant to see their government aid in any rescue. The net result is a weaker euro and another display of how difficult Europe finds it to solve its problems internally.

Why should Germany bail out Greece when Greece isn't making any cuts or tax increases to rein in its budget deficit. Indeed I don't understand how Greek citizens can be protesting to maintain the status quo. The status quo isn't an option, either they cut spending and jack taxes, or they get booted out of the EU and their borrowing costs rocket. Contrary to popular belief, you can't just do whatever the hell you want and not accept the consequences.

Then the article seems to go way off base and parallel Greek angst over potentially raising taxes/cutting spending with American angst with reappointing a tool of a central bank chief.

The populist backlash in the United States came close to cutting short Ben Bernanke's tenure at the helm of the U.S. Federal Reserve Board, as lawmakers looked for an easy target after Republican Scott Brown's surprise win in a former Democratic stronghold put a focus on voter rage percolating across the country.
Trouble is, replacing Mr. Bernanke might have threatened the economic rebound by spooking financial markets; just as a failure by the EU to come up with a solid, realistic route out of the Greek debt mess could too.

First off, there's a reason Ben Bernanke should have been replaced, and it's not just "angry voters". There's a reason voters were angry. You know, a central bank head that couldn't see a housing bubble that he was involved in blowing. How do you miss the shitty lending standards? How do you miss the skyrocketing prices? How do you miss the fact you cut rates to nothing? Not to mention, how do you justify bailing out a bunch of insolvent banks that caused this mess with a massive taxpayer bailout as your "solution" to the problem (aided by a Treasury secretary that used to head one of those banks). And if anyone asks to take a look at the Feds books, you politely tell them to piss off. Can't imagine why the public might think you were at best incompetant, and at worse complicit in this taxpayer scam...

Secondly, reappointing him just because you're worried it will "spook the markets" is not a valid reason. The stock market doesn't equal the economy dumbass, let it be spooked.

Just as the Democrats ignored their constitutents' hunger to see Mr. Bernanke's head roll and voted for his reappointment, so Greek and other European policy makers would be wise to ignore opinion polls until the EU has reviewed a progress report that Greece will submit on March 16.

No. The US voters have a reason to be angry at the Democrats reappointing "Helicopter" Ben. Ask the Democrats if ignoring the voter works out come midterms. Greek voters similarly have a reason to be angry at the ridiculous spending habits of their government...but if they're protesting to "maintain the status quo" then they're completely offside.

Gutless

2010-02-10T09:02:00.001-05:00

This describes the current state of most politicians, everywhere, ours included.

Read this and tell me you don't want to punch somebody (or several people) in the face.

The head of ING Direct Canada, the country's sixth-largest mortgage lender, is warning Ottawa not to pull back too quickly on mortgage rules, lest that causes the very thing everyone wants to avoid – a swooning housing market.

Really? In my previous post, Canadian Banks want WHAT? the big 6 wanted TIGHTENED lending rules. Now piss ass #6 is doing an about face, Seriously, the "save your money" guy from TV. I'm fucking sick of banks DICTATING to politicians what they should do. Seriously, any politician with balls would say "Thanks for the advice, now shut the fuck up."

“High level, one-stroke fixes are too simple, and can have a very large impact,” said ING Direct chief executive Peter Aceto. “I worry about government-based tightening of the mortgage rules creating a much worse reaction – too fast of a cooling, which is not really good for anyone.”

Bullshit. It's certainly good for homebuyers in that maybe we could actually restore housing affordability to Canadians. And while we're at it, was the high level one-stroke fix of dropping interest rates to historic lows a problem? How about throwing money at homeowners in useless tax credits to build a deck? How about allowing CMHC to cover next to every high ratio mortgage in the country? Oh right, those are all "good" fixes. Hypocrisy's a bitch, ain't it?

He stopped short of saying Canada is in a housing bubble. Still, the market “is hot and we are seeing some irrational behaviour” such as people engaging in bidding wars and waiving all conditions in buying a new house, he said.

Right, everything is just FINE as long as we don't use the B word. Don't say it. It doesn't exist if we don't say it does. Seriously, don't say that fucking word or the shit will hit the fan. Yes...we'll just say that homebuyers might be a little irrational, and that banks are being accomodative. Problem solved...just don't say that word...you know...the one we talked about...rhymes with trouble...SHHH.

"You can't go from 100 km/h to zero in a nanosecond without suffering harsh consequences," they wrote. "Newton's third law is the best caution that can be served up with respect to abruptly altering Canadian mortgage rules as per some of the whisper talk leading up to the March 4th federal budget after the currently government sharply liberalized the mortgage market in early 2007."

No shit. We're talking about taking our foot off the gas and possibly braking, not about stopping...you know, before we run into a giant fucking brick wall of DEBT which WILL stop the car when we run into it at 200kph. The bigger we blow this bubble the more pain in popping it, so maybe we should stop talking around the issue, pretending it doesn't exist, and actually deal with it.

Pop it. Prove you're not a bunch of gutless cowards.

CREA - "We know best"

2010-02-09T22:21:00.001-05:00

In, Monopoly on Information - CREA, I ranted about the lack of access to information. Apparently I'm not the only one to take notice.

The bureau has asked the federal Competition Tribunal to strike down a series of rules CREA adopted in 2007 that tightened the MLS listing requirements. The rules state that an agent must handle all aspects of a transaction using the system, from the initial listing through to acceptance of offers.
Competition Commissioner Melanie Aitken said the rules restrict competition, because real estate agents are unable to hive off certain services within the system and offer them on a flat-fee basis. Agents who want to offer such services have been excluded from the MLS by CREA, she said.
“What that means is consumers don't have any choice, it's either all [services] or nothing,” she said.

Exactly. God forbid someone just wants to list the property, pay a flat fee and not pay the full commision to a realtor. You either play by their (anti-competitive) rules, or they take their ball and go home.

Naturally, CREA isn't taking this lying down; after all, they have a monopoly to protect.

Mr. Ripplinger said the country's 100,000 real estate agents already compete fiercely for business, with many offering cut-rate services even when using the MLS. Agents find it "offensive" that the bureau believes they are trying to keep prices high by restricting the type of services that can be offered.
"I can say CREA isn't to blame for any of this," Mr. Ripplinger said. "There is nothing that we do that isn't in the best interest of our clients."

The douchebaggery of the last line astounds me.

Tranlation:

It's not our fault that we have to provide "full-service" to our clients because they're a bunch of idiots that will pay a huge commission if we do all the random "confusing" work for them. And while we're at it, we make sure they know how confusing it is (so they have to pay us). At the same time, we expect to present "simple" offers to these peons and have them turned around and signed in a few minutes "All you have to do is sign in triplicate in 10 spots and fingers crossed, they accept your lowball 10% over asking bid (you cheap piece of shit)!" What? You want to READ it? What are you CRAZY, there's NO TIME, buy buy buy! Besides, you can trust us, we're "professionals".

End rant...for now.