[Canada] Canadian Politics Redux

[Rex Francorum]

Quelle tempête dans un verre d'eau. Sure, it was not the job of Trudeau to do that but the elbow hit was likely not intentional. He offered his apologies. Next!

[Barrister]

So, Trudeau is a friend to all women, except when they get in his way.
http://www.ctvnews.ca/politics/trudeau-accused-of-pushing-elbowing-opposition-mps-in-house-1.2908055

It was obviously an accident. The CP whip was blocking the line and other MPs who wanted to vote. Brosseau was behind him as Trudeau swerved around, and his elbow hit her chest. Opposition is going to have a field day over it. Already, Saint-Hyacinthe-Bagot MP was comparing his apologies to those of a husband to his battered wife. Really.

Still, Trudeau didn't have to take matters in his hand like that. That should have been the job of the government Whip to go to his peer and tell him to move his ass and let other MPs vote.

No, I think this does call Trudeau's judgment into question (again!).  He's the freakin' Prime Minister.  He very clearly was in his seat on the other side of the House.  Why on earth would he get up and interject himself into that little fracas?

[viper37]

on that, you are totally right.  On the NPD's overblown rethoric assimilating the PM to a criminal, I side with Drakken.

[Admiral Yi]

I got a chuckle out of the NDP butthurt whining.

[viper37]

"Two broken ribs, one perforated lung"
"I thought I was going to die"
Ruth Ellen Brosseau near death
"I'll kill him! -Mulcair"

[Grey Fox]

I don't think "Il va en manger une criss" is translatable.

[Rex Francorum]

 

Bien bonne.

[Neil]

Poor Vegas girl.  Somebody was trying to tell me that she'd make a strong candidate for leader.  I think this debacle will ensure that never happens.  Having to flee the chamber because the Prime Minister elbowed her by accident?  She's too feeble to lead the NDP through another devastating election.

[crazy canuck]

I am interested to see what the Feds do now that the NEB has approved the Kinder Morgan pipeline expansion. 

[Admiral Yi]

Is there any reason the dude whose path was blocked by Ms. Sore Tits couldn't just walk around to the left?

[viper37]

Is there any reason the dude whose path was blocked by Ms. Sore Tits couldn't just walk around to the left?

A true Conservative never turns left.

[Barrister]

Is there any reason the dude whose path was blocked by Ms. Sore Tits couldn't just walk around to the left?

A true Conservative never turns left.

We're talking about Trudeau here.

[Admiral Yi]

We're talking about Trudeau here.

No we're not.  We're talking about the dude Trudeau yanked out of the scrum.

BTW does a double vent jacket like Trudeau is sporting play in Canada right now?

[Barrister]

At the risk of inciting Beeb to once more liken me to a shoeshine boy, I'm still not convinced that the old models of understanding hotspot Canadian real estate valuation are as valid as they used to be due to globalization, and in particular to large scale wealthy Asian immigration / investing / moving money offshore. The fact that this alleged bubble has persisted for decades and the population of Canada's desirable urban centers continues to grow significantly seems to suggest to me that the game has changed.

"This time it's different".

Said during every asset bubble ever.

The anatomy of a housing bubble
Why do we repeatedly fall into the trap of inflating bubbles even though history shows they always end badly? Blame your brain.

Bob Thompson
May 21, 2016

Every 20 years or so, investor dementia sets in. Memories are wiped clean, allowing individuals to make the same mistakes over and over again. My 20 years in the investment world have been on the money management side, looking at global trends and markets, then investing money to profit from what I see. I mention this as a pre-emptive strike against those who read what I am going to say about Canadian real estate and respond with: "This guy has no authority to say anything about real estate, he's never sold a house or developed anything." I haven't, but if there is anything I know, it is how markets function. It doesn't matter if it is real estate markets, stock markets, commodity markets, or tulip markets (I'll get to this later). They are all the same.

Why? Because markets are a reflection of people, and people are hard-wired to have emotional instincts that don't change. They never have and they never will. Besides, being out of the real estate industry, I will argue, allows for a balanced view. Being outside the industry makes you see the forest, not the trees.

Let's talk very little about real estate, and a lot about people's behaviour and the anatomy of bubbles throughout history. The anatomy is shockingly the same no matter what asset we are talking about. It starts with something actually changing, a new development—in the technology bubble it was the rise of the Internet, and the "new economy." In the early part of last century, it was the building out of railroads, resulting in skyrocketing real estate prices and ending in yet another crash of both Florida real estate and railroad stocks. For sure, there is a valid game changer that starts the boom, and lots of people question whether the valuations of whatever asset we happen to be discussing are overvalued. That's called climbing "the wall of worry." The underlying asset continues to go up however, seemingly proving the disbelievers wrong.

This has been real estate in Vancouver and for many parts of Canada for the last few years. Market bubbles don't pop during this phase, when there are rational buyers and disbelievers. Bubbles burst, and people's financial lives are destroyed at the end of the next phase: euphoria. During this phase, caution is thrown to the wind, people's hard-wired desire to "not want to miss out" comes into full play: "I have to get in now, my next-door neighbour is making money and I am not."

This panic buying can suck anyone into its vortex. During this phase, even the smartest believe that we are in a "new paradigm" and the old ways of valuing things are thrown out. Whatever the asset is, it becomes too expensive for the average investor, which is especially true of real estate.

A necessary step in the euphoria stage is the occurrence of "irregular" lending practices, irregular sales practices, and financial engineering. Through magic, the impossible is made possible. People who could never otherwise afford real estate suddenly can. As the panic to buy increases, it is a self -fulfilling positive feedback loop. Prices go up, people panic to buy more and they outbid each other in an orgy of greed. Amazingly even the experts begin to extrapolate out recent trends well into the future, like in 2008 when oil was $140, and many targets had it going to $200. That didn't happen, it's just how powerful a euphoria becomes.

Even so-called experts get sucked in during the euphoria stage when all the news is good. That is another absolutely necessary component of any bubble: there is no bad news. This is another pre-emptive strike at all the gurus saying that Vancouver and other overvalued markets will go up forever. It ain't gonna happen. A few months ago Maclean's put out a chart extrapolating 17 per cent annualized gains on Canadian real estate. It showed that exponential growth would put the average house price at $20 million in 2040. You laugh, but that's what extrapolation does, and the author made a good point of the ridiculous nature of it.

The problem is that massive amounts of debt are created in any bubble, and at the end, the market gets crushed under its own weight. I'll tell you a little story. During the 1960s, millions of people moved to California. My dad told me that a news anchor came on one day in 1970 and did a little back-of-the-envelope calculation. His numbers were correct and showed that if the same number of people continued to move to California as had in the previous 10 years, then everyone in the United States would live in California by the year 2000. They were making a joke, but you get the point.

Lately there have been some obscene projections for the value of real estate in Vancouver over the next decade, by very reputable sources. This again is a very necessary component of bubble formation. If you haven't figured it out yet, I am simply giving you the anatomy of any bubble over the last few hundred years, then overlaying it on the current real estate market. You can draw your own conclusions.

My degree in university was in anatomy and physiology, and human physiology hasn't changed for eons. Neither has the anatomy of a market bubble. To paraphrase Jim Rogers, co-founder of the Quantum Fund with George Soros, if one wants to be successful in the markets, then skip the degree in finance and instead pursue philosophy, psychology and history: philosophy teaches you how to think, psychology is the one thing you can count on to be irrational in the markets, and history doesn't repeat itself but it rhymes.

On this theme, here's some more bubble anatomy. Politicians are generally oblivious to the bubble as it is happening, or at least do very little to get in the way of it. After the fact, however, when the catastrophic collapse happens, another necessary component is the blame game. Nobody ever blames themselves for getting caught up in euphoria, which always seems so obvious after the fact. People look to blame someone else for the collapse, pressing politicians and regulators to make an example of someone and to regulate something. Some messenger gets shot, and everyone is happy, and the politicians get to be reactive and the saviours of future generations.

So let's back up and ask, are there irregularities going on right now in the real estate market? Of course there are. Is there some form of fraudulent activities going on or at least a massaging of the truth? The answer is most likely—it is a necessary component of the bubble, an effect of the euphoria.

It is also a natural progression of the underlying asset, in this case real estate, which has become too expensive for the consumer to buy. In a competitive system, people will find creative ways to finance the boom. For it to continue, they must find ways to financially engineer it. All seems good during the boom times, then something, somewhere, comes out of left field, and the balloon gets pricked, never to reinflate in that manner again. Everything that seemed so sane, all of a sudden seems so totally insane. As Warren Buffett says: "You don't know who's swimming naked till the tide goes out." For now, all is good in fairy-tale land, but this level of speculation has the ability to destroy the dreams of people for the next 20 years.

Vancouver real estate recently broke all records for volume. People can't get enough. This is yet another necessary bubble component. Volumes are always highest at the top, never at the bottom. The panic to get in creates a gaping hole of demand in the future. For instance, let's say over the next five years 100,000 people would normally buy real estate based on their family needs and other factors. The great euphoria and subsequent price rise, however, sucks that demand into this year, and it can be seen readily with today's high volumes and skyrocketing prices. Who's left to buy two years out? There has already been a massive flight of capital out of China of over $1 trillion. Will that continue endlessly? Of course not, the Chinese government will stop that at some point, leaving the locals of Vancouver and eastern Australian cities holding the bag.

Some readers who haven't had the magical 20-year dementia will recall that during the tech bubble, the average NASDAQ share was held for a period of seven days, volumes were immense and speculation was rampant. The tech bubble was propagated on the same belief that drives any market bubble, the Greater Fool Theory. Speculators regularly convince themselves that there is always a greater fool who will come along to pay a higher price for their asset than they paid. It's too much to get into here, but google "tulipmania" and see how that bubble formed in the 1600s. All I will say is that at the peak of that bubble, people found ways to profit from the time a tulip was bought and the time it was sold. Intermediaries flipped the tulip several times between the buyer and the seller, profiting each time. People think that the practice of "assignment" agreements in the Vancouver real estate market—whereby a newly purchased property is flipped to another buyer before the original sale even closes—is a new thing. It's not. It happened in the tulip bubble more than 300 years ago, and it happens in every bubble. It must happen to keep the bubble growing bigger. It does tell us, though, that we are getting near the bursting. It's a shame, because it's not just Vancouver that will be impacted: real estate markets in many cities are red hot simply because of 240-year lows in interest rates. This type of thing ends badly.

When an asset is overly popular, it is most likely overvalued. You can't find value in anything that is popular. However, you can almost always find value in things that make other people queasy. That's why I have been buying gold stocks lately. By definition, nothing that is unpopular is in a bubble. That's my next rule of investing: sell hubris and buy humiliation. This bubble cycle has only repeated itself 100 times or so in the last few hundred years, but I am sure "this time is different." People have somehow got smarter.

If you believe that, I have a bridge to sell you.

http://www.macleans.ca/economy/economicanalysis/the-anatomy-of-a-housing-bubble/

[Malthus]

The problem with that analysis is that it fails going out of the gate. If what is necessary for a bubble is "euphoria" in which a large number of people, including so-called experts, claim that asset prices will go up forever - well, the first question is: where are these people? No-one, least of all the "experts", are saying that, as far as I can see. Indeed, tons of "experts" - the vast majority - have been saying the exact opposite (including, I may point out, in Macleans, who has been claiming that we are in a bubble for years - even, embarrassingly, that the bubble had already burst a year or so ago!).

Rather, Camerus aside (sorry  ), I think most people realize that what is holding prices high is interest rates being at historic lows. Where people reasonably differ is in what happens when interest rates rise. If we are in a "bubble" that should pop it with bad results. If we are not in a "bubble", then it is possible a "soft landing" will occur.

That's the real debate - between those who think a correction will be catastrophic, and those who think it likely won't be. I don't actually see a lot of folks in the market actually claiming that prices will just go up forever. Ergo, it strikes me that there isn't a lot of "irrational exuberance", which we are told is the hallmark of bubble-dom.

Buy real estate as an investment? I would not. But I'm not going to worry about yet another pundit predicting a catastrophic bubble crash.

Track record of Canadian real-estate bubble predictors has been terrible:

2008: Canada's housing bubble could soon burst

Sure, it could have — but it didn't. However, 2008 was the last time resale home prices declined from the preceding year, with prices dropping slightly to $304,593, according to CREA. In 2007, the average home price had been $306,784. Still, as time passed, it becomes clear this scenario from the Ottawa Citizen via a Merill Lynch report never materialized, no matter how liberal your interpretation of "soon" may be.

2009: Why Canada's housing bubble will burst

Although average new-home prices were down 2.3 per cent compared to 2008, resale prices were heating up around this time. The average price of an existing Canadian home was up five per cent by the end of 2009 over the previous year, according to Statistics Canada. In hindsight, that didn't bode well for this opinion piece in the The Tyee.

2010: Canada's housing market: An accident waiting to happen

"Several factors tend to contribute to the growth of a housing bubble: low mortgage rates, access to easy credit, net immigration and the stock of available housing," highlights this Canadian Centre for Policy Alternatives report authored by David Macdonald. While observers have raised flags over all of these factors since 2010, Porter and company are still waiting.

2011: Canadian home prices will crash 25%

Nope. In fact, from 2011 to the end of 2015, the average sale price for a Canadian home has done pretty much the opposite: it increased about 22 per cent to $443,004, according to historical numbers provided by CREA. "Hey, forecasting is hard," says Porter. "But let's not give a pass to some of these scare-mongers who have been dead wrong," he adds, nodding to this line, likely a reference to Capital Economics economist David Madani's prediction from that year.

That forecast was looking ahead several years, but as recently as February 2015, Madani was still toeing the line, according to the Financial Post. "Prices will have to drop 45 per cent for Capital Economics to be right once you factor in the 20 per cent in price gains that have materialized since the 2011 call," Phil Soper, Royal LePage's president, explained to the paper then.

2012: Canada's housing crash begins

Price growth this year was relatively flat, and sales activity declined. But unless your definition of a crash is a modest price increase of 0.3 per cent to $363,569 and sales slumping slightly by 1.1 per cent to 452,472 units — both numbers registered by the close of 2012 — this headline from a Canadian Business article misses the mark, too.

2013: Inside the great real estate crash of 2013

"My favourite," writes Porter of this header from a front-page story in January 2013's issue of Maclean's containing this bit: "A housing correction — or, possibly, a crash — is no longer coming. It's here. And you don't have to own a tiny $500,000 condo in downtown Toronto or a $1.3-million bungalow in Vancouver to get hurt."

Yet by December that year, condo sales in Toronto leapt 20.7 per cent year-over-year, with prices over this period rising 7.6 per cent to $367,376. That Vancouver bungalow? Well, detached home sales surged 79.3 per cent year-over-year in December 2013, while the benchmark price rose 2.5 per cent compared to a year ago to $927,000.

Maybe someday they will be right, but that strikes me as about as useful as a physician predicting that one day you will die.