Marketing? Or Manipulation?

A couple of years ago a friend, who was renting the house he lived in, was informed that the out-of-town owner had decided to sell.

What ensued was a very acrimonious relationship between the chosen realtor, the property management company and my friend, the tenant.

After several months there was finally an interested prospective buyer, a young Philippine family. A second showing was arranged and I was at the house when it took place. What happened next was one of the most sleaziest manipulations I had seen by a realtor.

The realtor arrived at the house with a work colleague and the property management representative (my friend knew about the showing).

Shortly afterward, the Philippine family showed up for their second viewing.

Five minutes later, the doorbell rang and the realtor stated that there was another interested party to see the house and that was them at the door. The property management rep, the Philippine family and my friend all knew nothing about this 'second interested party'.

A single male came into the house the realtor brought him upstairs to the kitchen (where I was). They stood there talking to each other in their native language. What struck me was that the man, supposedly there to view the house, wasn't the least bit interested in looking around.

As the Philippine family moved through the house, this man would move elsewhere. During the entire time he wasn't the least bit interested in the house.

Finally everyone went outside and the Philippine family and the property management rep left.

After talking for five minutes more, the realtor took out $50 and gave it to the man.

That night the Philippine family made an offer on the house and it was accepted.

Clearly it was a blatant attempt to create a false impression with the Philippine family that there was other interest in the house. No doubt the stereotypical R/E pressure tactic of 'buy now or miss out' was utilized.

It is the type of story that slanders and tars the entire industry with a bad name.

I was reminded of this as I watched another blatant manipulation play out over the past couple of days.

On Sunday Garth Turner altered his readers to a craigslist ad that had appeared in Vancouver.

The craigslist ad said:

• PEOPLE NEEDED TO LINE UP FOR NEW CONDO PROJECT
  
  Just as the title says, we need people to hold spots and line up for a new condo project located in Burnaby (Kingsway/Willingdon Ave). Line up may start as early as weds/thurs night. Grand opening is Saturday February 19, 2011.
  
  Warm beverages and washrooms will be provided by the developer.
  
  Shifts are determined on how long you would like to stay. (preferably 8hours+)
  
  Get paid cash quickly for sitting in a line up!
  
  E-mail me your phone number + e-mail for more details. job-syk6p-2212992997@craigslist.org

You don't need to be a rocket scientist to figure out the purpose of the ad. A condo developer was going to create the false impression of a frenzy for a pre-sale offering.

In addition to craigslist, ads in asian publications started popping up too. As noted over at VREAA there was this one which, when translated, says "“need help to line up, tonight, urgent, contact Shirley 778-863-3870″

Then there was this one, “urgently required, night shift persons, 7, 8pm – 6am contact 604-715-9389″

And finally this one“Builders Assoc CNY Meetup, Feb 19, Bonsor Community Centre, 6550 Bonsor Ave, 27:30-22:00 hours, 604-888-8888″

And sure enough, last night on Global TV's evening news came this glowing story about the return of condo lineups and a frenzy to get a piece of the pre-sale action at a new condo project located in Burnaby at Kingsway and Willingdon Ave.

Industry defenders will tell you this is all shrewd marketing techniques designed to 'stimulate' sales in competitive market. They will rationalize other "explanations" for these ads. But can the rationale person conclude that it's anything but blatant manipulation?; a sham, designed to deceive and pressure prospective buyers?

And do you really want to do business with anyone employing these tactics?

Just make sure you're aware of what's going on and don't get sucked into to making a decision you will regret for the rest of your life.

And, for Gawd sakes, don't think you have to 'buy now or be priced out forever'.

Finally I bring all of this to you on a day when the Wall Street Journal reports that the average debt held by Canadian households has hit $100,000 and the crucial debt-to-income ratio is now at 150%.

The $100,000 figure represents a 78% increase over the past two decades. In 1990, average family debt stood at $56,800, with a debt-to-income ratio of 93%.

Meanwhile, Canada's savings rate has fallen to 4.2% of income, or about $2,500 per household. That is down from 13% or C$8,000 in 1990.

More significantly the number of households which have fallen behind in their mortgage payments by three or more months climbed to 17,400 in the fall of 2010, up nearly 50% since the 2008 recession began.

Average mortgage debt held by Canadians stood at $63,126 at the end of the third quarter of 2010 and 32,300 Canadians became insolvent in the third quarter of 2010, 12% higher than pre-recession levels.

The average level of assets held by Canadian households rose by 62.8% over the past 20 years, including a 73.2% increase in real estate, total debt rose by 77.7% which was led by a 87.9% increase in consumer credit and loans.

This is all going to end very badly.

Prepare yourselves accordingly.

==================

Email: village_whisperer@live.ca
Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Silver Soaring

After fighting an intense battle all week, silver has just broken out and established it's highest intra-day price since March 7, 1980. As this was written, silver hit $31.30.

There are rumours of a fascinating battle playing out between hedge funds, the banking cartel who short and supresses the price with paper shorts and the Comex. I will try and post something on this before too long.

The last time silver was at this price level, the 10 Year bond interest rate was at 12.45% and gold was $600/ounce. In other words, by comparison, silver could still shoot much, much higher.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Presto-Chango

I had to laugh this morning.

As many of you know I have been warning about cost-push inflation since Quantitative Easing began.

The flood of liquidity would find it's way into the markets, commodities would surge, and the cost of doing business would spike for business translating into higher prices. All while jobs numbers - and wages - stagnated.

NONE of this, however, would show up in our Consumer Price Index because in 1999/2000 government changed the way the CPI was calculated and gutted all the factors like food and energy from the calculations.

Thus we have a situation where inflation, when calculated like it was in the 1970s, 1980s and 1990s, is surging along at about 8% while 'official' government statistics peg it at 1-2%.

Yesterday our friends over at Financial Insights commented how inflation is raging in China and retail margins over here are facing a coming squeeze.

(A squeeze which isn't just coming, it's already here. We're finally seeing it translate into higher prices but make no mistake, that squeeze has been going on for months)

I commented on the post at FI and jokingly said that China would just have to change the way they calculate inflation like we did in 1999/2000 and... presto-chango... no inflation.

Turns out is wasn't all that much of a joke as China is about to do just that.

The old saying goes that there are lies, damn lies and then there are government statistics.

Remember that the next time you're wallet is bare and the government (and some bloggers) tell you there is no inflation.

As I said last Friday, combine this squeeze on basics with rising interest rates and new mortgage rules... and life for home owners with a mortgage here in the Village on the Edge of the Rainforest is going to get very, very difficult.

Once this process kicks into high gear, and the serious price inflation comes, I think we will all look back and be shocked that there were people who actually worried about deflation in 2008-2010.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Entire MERS process ruled illegal

It's been a while since we talked about the US Foreclosure Crisis. And while there hasn't been much news, the issue hasn't gone away.

A detailed overview of the issue is outlined in this post.

As you may recall, serious questions were raised last year about MERS, the electronic clearing house for mortgage titles established by the real estate industry in the US.

The Mortgage Electronic Registration Systems (MERS) digitized the land title process to make thing 'simpler' for banks. By 'simpler', I mean 'cheaper' because it allowed big banks and to by-pass local state real estate laws, process and fees for title transfer.

Critics chared that MERS illegally broke the 'chain of title' process for mortgages in the US.

When a homebuyer signs a mortgage, the key document is the note, the actual IOU of the mortgage. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a mortgage-backed security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the ‘chain of title.’

You can endorse the note as many times as you please... but you have to have a clear chain of title right on the actual note: I sold the note to Moe, who sold it to Larry, who sold it to Curly, and all our notarized signatures are actually, physically, on the note, one after the other.

If for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.

To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.

MERS has argued that, under it's membership rules, that it can act as a ‘common agent’ for undisclosed principals and make the tranfers though it's database.

As reported by Bloomberg, U.S. Bankruptcy Judge Robert E. Grossman in Central Islip, New York, in a decision he said he knew would have a “significant impact,” wrote that the membership rules of the company’s Mortgage Electronic Registration Systems, or MERS, don’t make it an agent of the banks that own the mortgages.

In short, MERS lacks the rights to transfer mortgages.

The key to all of this, of course, is that as mortgages were slice, diced and bundled into mortgage backed securities... the transfer of ownership was never done (legally) and now banks lack the legal standing to foreclose on these properties.

As posted last year, this is a major, significant story.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Your Life According to the Government

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Inflation

As faithful readers know, I have written a number of times about inflation.

Back on October 7, 2010 I wrote that while we would have deflation in some areas, we were going to suffer a concurrent bout of inflation too - producing a paradox that many have difficulty reconciling.

The vicious cycle created by the Federal Reserve’s Quantitative Easing monetary policy is kicking in.

We are seeing a huge influx of speculative money flows into the commodity sector pushing up food prices across the board.

At some point, sooner rather than later, the rising cost at the wholesale level as indicated by the CCI and the futures boards will translate into higher retail prices for consumers, who are already being pinched by stagnant wages and falling net worth.

The result – consumers are forced to retreat on spending with the next result – a slowing economy – with the next result – more Quantitative Easing – with the next result – more rising prices as currency induced inflation in essentials rises further will compound the problem exponentially as the cycle repeats itself.

Look at this chart which shows gains over the past year (click on image to enlarge):

Fed money is flowing pell mell into commodities which are now setting new records almost daily.

Look at that chart. In the past year everything, from metals to stocks to bonds to grains to energy, has experienced profound price increases.

Despite this, we are being told - on a daily basis - that inflation is too low.

This is, of course, because the way we calculate inflation has changed.

If you are a boomer in Canada, you remember gasoline priced in gallons. It was the 'unit of measure' we grew up with.

The recalculation of the Consumer Price Index is almost like saying in 1979 gas was $1.00 (per gallon) and today gas is only $1.21 (per litre). Therefore gasoline, as per it's 'unit of measure', hasn't really risen in price.

Riiight.

$1.21 a litre is almost $5.00 a gallon. It's not the same in any way, shape or form.

This nonsense that inflation is only running at 1-2% is only valid if you compare it to the 1970s by measuring inflation the same way then. If you do that, inflation in the 1970s was only running 1-2% then as well.

Calculate the inflation the way it was measured prior to the year 2000 and inflation is running at over 8%.

We simply changed the way we measure the price, and somehow rationalize the 'unit of measure' is the same.

Bottom line... inflation is trending now exactly like it was in the mid 1970s.

Inflation is raging across the globe.

The unrest and riots we are seeing are symptoms of that inflation.

History tells us inflation is best tamed early, but the US Federal Reserve is already late and demonstrating a remarkable callousness by doing the exact opposite of fighting inflation.

By the time action is taken to fight it, Inflation will have the momentum and it will take a vast overreaction on the part of the Federal Reserve to restrain it.

They'll have to drain enormous amounts of liquidity and tolerate vastly higher interest rates to be able to do that.

And you know that the Fed will hesitate, equivocate, and ultimately be late with their actions.

People are finally starting to notice, as this CNBC story notes.

Unfortunately the fact is all this commodity inflation hasn't really begun to work it's way to consumers here in North America yet. It has started, to be sure, but what we have seen is nothing compared to what is coming.

It's called currency induced cost-push inflation, inflation is caused by producers and merchants being forced to pass along through higher prices the rising cost of inputs to their products.

Your income isn't rising to keep pace with rising expenses and you get squeezed. Hard. And its not luxury items that are going up in price, its the staples. Bread, milk, gasoline, clothes, eggs, meat... the basics that no one can realistically live without.

Combine the squeeze on basics with rising interest rates and new mortgage rules... and life for mortgage holders in the Village on the Edge of the Rainforest is going to get very, very difficult.

Once this process kicks into high gear, and the serious price inflation comes, I think we will all look back and be shocked that people were worried about deflation in 2008-2010.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

We are much closer to total destruction than you think!

Did that headline catch your attention?

They aren't my words. That was how CNBC summarized someone who has far more intimate knowledge of the financial system than any blogger.

But we'll come back to that.

First off let's focus on interest rates here at home.

As you know, Canadian banks hiked interest rates this week. On the heels of those rate hikes comes Finance Minister Jim Flaherty with a warning that there are even more rate hikes coming.

• "The recent increase by a couple of the banks is exactly what we expected. And more increases should be coming. We're likely to see higher interest rates as we go forward because interest rates are still very low."

Almost makes quote of the day: "Interest rates are still very low."

That's 'very' low as in, rates are going to go way higher.

The big news story though was occurring south of the border.

As I have said over and over again, we still do not understand - nor do we appreciate - the full depth and breadth of the financial earthquate that hit us in September of 2008.

Yesterday US Federal Reserve Chairman reinforced that point in testimony before the US Congress.

And for all you out there who think the crisis is over and has past, Bernanke's comments are stunning.

Warning that America's fiscal health has deteriorated appreciably since the onset of the financial crisis and the recession, Bernanke told Congress that the US is much closer to total destruction than you think.

CNBC reported the story here.

Said Bernanke:

• "The unsustainable trajectories of deficits and debt that the Congressional Budget Office outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit. One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point. The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will come as a rapid and painful response to a looming or actual fiscal crisis."

Bernanke is telling Congress what Greenspan was telling us last year.

At some point the Bond market is going to force the issue on America and when it happens, the US Federal Reserve won't be able to stop it.

So for all of you who continue to believe that the government will never let interest rates go up like they did in the 1970s, not only are you ignoring the blogosphere... now it's Flaherty and Bernanke telling you what's coming.

Still not convinced?

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Schiff on Bernanke and debt ceiling warning

Peter Schiff discussing Ben Bernanke's warning to Republicans to raise the debt ceiling.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

On the topic of Interest Rates

In last Friday's post, Enthusiasm and Euphoria, I talked about our real estate market conforming to the classic bubble pattern and that it will be rising interest rates that finally prick the bubble.

Dennison's of the Village on the Edge of the Rainforest simply cannot comprehend the looming implosion that will devastate our hamlet on the wet coast.

Many will concede the devastating impact that double digit interest rates will have... but almost to a mortgage holder, they are adamant that interest rates will never climb that high.

For three decades now capital has become progressively cheaper and more easily available. Many people have come to believe that low interest rates now are the norm as they have gone their entire adult lives knowing nothing else.

For those innocent souls the current shifting sands will be nothing short of a paradigm shift. Even those old enough to have watched how the Internet transformed society (a paradigm shift on a scale not seen since the printing press transformed civilization), oblivion reigns supreme.

As noted in a report by the McKinsey Global Institute since 1980, differences in the cost of capital in most countries have converged as financial markets globalized and risk premiums in developing countries fell.

• Capital became plentiful, and long-term interest rates declined too — primarily as a result of falling investment in assets such as infrastructure and machinery. Global investment fell dramatically, creating a decline in the demand for capital substantially larger than the growth in supply created by Asian current-account surpluses.
  
  In other words, the “saving glut” so often cited as a cause for low interest rates really resulted from a decline in global investment.
  
  Today, however, this trend is reversing. Across Africa, Asia, and Latin America, rapid urbanization is increasing the demand for roads, water, power, housing, and factories. Global investment demand will now rise considerably up to 2030, reaching levels not seen since the postwar reconstruction of Europe and Japan.
  
  The global appetite to save, however, is unlikely to rise in step, for several reasons. China plans to encourage more domestic consumption. Spending will rise as populations age. Even increased expenditure to address or adapt to climate change will play a part. As a result, the world will soon enter a new era of scarce capital and rising real long-term interest rates. Such rates will in turn constrain investment and could ultimately slow global economic growth by as much as 1 percent a year.

Interest rates will be going up.

And while government has gone out of it's way, particularly since the early 1990s, to supress those rates artificially as a means to stimulate the economy, those days are coming to an end.

Our problem is coming to grips with that fact.

It is expected, nay... considered a right of entitlement, that government will be able to continue forever with that rate suppression.

Does the prophet see the future or does he see a line of weakness, a fault or cleavage that will be shattered as easily predicted events unfold?

As posted here we have read how Mark Carney, the Governor of the Bank of Canada, has warned us about what is coming.

Likewise has Alan Greenspan, former Chairman of the US Federal Reserve.

Even most well known Canadian blogs are detailing rising interest rate warnings this week.

The harmonics inherent in this particular act of prophecy are not all that hard to discern.

Ignoring them is nothing less than an act of defiance in the face of overwhelming logic and evidence to the contrary.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Is Gold money? And what's going on with Silver?

Some fascinating developments in both Gold and Silver this weekend that are worth noting.

Many of you are aware of the turning tide with Central Banks around the world dramatically increasing their Gold reserves, but we often hear precious metals dismissed as the preserve of Gold and Silver 'bugs'.

Faithful readers know that I speak about the topic because I believe the fortunes of these metals are changing dramatically, a trend the represents a tremendous opportunity.

And in a sign of Gold’s further remonetisation in the global financial and monetary system comes word this morning that JP Morgan will now accept physical gold bullion as collateral.

Speculation is that JP Morgan is having difficulty in securing gold bullion in volume. JP Morgan is the custodian for many of the gold and silver exchange traded funds. It is important to note that they will not accept ETF trust gold as collateral. But real gold... for JP Morgan gold is money.

Don't they know you can't eat it or heat your home with it?

Morgan is not the first, either. In October, the clearing house of global exchange CME Group – CME Clearing – announced it will now accept gold as collateral for trades on the exchange. Gold bullion can be used for margins for CME trades, ranging from crude oil, gold, grains, equity indexes and Treasury bonds.

Given the current monetary, macroeconomic and geopolitical risk gold is an attractive alternative to debt, equities or other paper assets as collateral.

JP Morgans’s move shows how gold bullion’s fungiblity and tangibility as an asset makes it attractive and shows gold’s increasing importance in the financial system.

Meanwhile on the Silver front, there was a very important development this weekend.

Over the past few months, Silver has been showing sings of significant shortage. There has been a shrinking inventory on the Comex in the face of rising prices where the registered inventory now stands at a lowly 43 million ozs.

Anecdotal evidence suggests tight supplies everywhere and there are reports of refineries refusing to take new orders due to insufficient silver feedstock.

News out of China recently showed that China's net imports of silver quadrupled in 2010 to 3,500 tonnes (112 Million ozs). China has traditionally been a silver exporter. For example, in 2005 China made net exports of 3,000 tonnes of silver.

Then there were US mint silver eagle sales last month which set a record of 6.4 million ozs sold. If this torrid pace were to continue all year, the United States would have to import silver for the first time to meet the legal requirement to supply silver eagles.

But by far the most significant piece of news was that Silver entered a zero contango and on Friday closed in complete backwardation on the Comex, possibly the first time in history that this has happened.

In January Silver traded in backwardation between the spot price and futures contract up to one year out. But now the entire futures structure is in backwardation.

In plain English, this is a definite sign that there are shortages of silver.

Contango is where the spot price of a commodity is lower than the following futures contracts. That is the normal condition in the precious metals futures markets.

Contango is a sign that a commodity is in ample or adequate supply.

Backwardation means that the cash or spot price is higher than the futures price for the same commodity. Backwardation occurs when demand for immediate delivery outstrips the market’s ability to deliver the commodity. Backwardation occurs when there are too few sellers of the physical commodity to accommodate all of the actual buyers, so a near-premium develops to compensate the sellers willing to part with metal in return for taking delivery later.

When there is zero contango, it means that there is not even one futures contract that is higher than the current spot or cash price. Zero contango and structural backwardation (where each succeeding futures contract is lower for most or the entire strip) is also known as an “inverse carry” market because the futures no longer compensate holders for the cost of carry, capital, storage and insurance relative to the spot price.

It cannot be overemphasize how unusual and rare it is to have zero contango in the silver futures.

That means that there is heavy demand for immediate delivery silver. It means that silver players are earning a premium to sell physical for delivery now and to wait for the return of their metal until the March contract, the near active contract, which is trading at 1.6-cents lower than spot.

Full-blown backwardation has arrived in the COMEX silver futures market. Backwardation suggests that competition for whatever metal is available is heavy and most analysts consider silver backwardation to be a decidedly bullish condition.

These are significant developments and worth keeping an eye on.

Finally there is this latest offering from the Royal Canadian Mint:

The Mint is offering a new $20 face value coin that is being sold for $20 with free shipping. The coin is pure silver. A $20 silver coin for $20?

This return to silver currency is an interesting development to be sure. But take note, there are only 200,000 coins being minted and there is a limit of 3 coins per person (available only to Canadians, sorry). From the Mint website description:

• Strictly limited new edition. Authorized by the Government of Canada. Only 1 in every 175 Canadians can own one. This new Canadian silver commemorative coin is legal tender with a value of $20. It is available for the official price of only $20. You simply exchange $20 from your wallet for a $20 coin of pure 99.99% silver.

It also means when you want to get rid of it, you simply take it to the bank and get $20 in fiat currency.

If you are interested you can get them from the Mint at this link.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Enthusiasm and Euphoria

If you click on the above image, you can enlarge it.

The chart is Vancouver's average real estate sale prices. The upper line represents detached houses and is significant this month because the Village on the Edge of the Rainforest has hit a new high for average detached house price: $1,144,537.

It's a stunning number to be sure.

Back in the fall of 2009, when prices had started to climb again after a temporary adjustment in response to the 2008 financial crisis, there was considerable dismay in the Bear camp because it appeared that the 'Stages of a Bubble' pattern appeared to be wrong this time.

All asset 'Bubbles' follow a very predictable pattern as exemplified by this graph (also click to enlarge):

Many believed the drop in 2009 was a case of our market passing the 'New Paradigm' stage, moving through the 'Denial' stage and into the 'Return to Normal' stage.

Bear despair began to mount when prices continued to climb and new highs once again established.

On various blogs I commented that the Asset Bubble pattern had not been dis-proven... Bears were simply mistaken believing we had reached the 'New Paradigm' stage.

Mortgage rule changes and a stalling economy may produce a slow melt, but it will be rising interest rates that finally prick the bubble.

And that hasn't happened yet.

And as one watches the market lately, it's hard not to find the developments of late to be significant.

The failure of a crash to fully materialize in summer of 2009 has almost emboldened and cemented the belief that it 'truly is different here'.

There is, once again, mania in the industry.

Our friends over at VREAA were moved to comment on this today.

The recent rise in average prices looks almost "vicious". Taking a snapshot of the current condition VREAA notes a milieu of heady prices, breathless media reportage, a disregard for debt by some economists, and nothing less than full on Bull exuberance:

• In pockets of Vancouver, a fair number of over ask sales; Westside, Richmond, and Eastside, too.
  
  Global BC runs a breathless piece on spiking prices, bidding wars, and over ask sales; with the obligatory mention of “increased Asian investment”. [3 Feb 2011, archived by fellow archivist Greenhorn HERE.]
  
  The Vancouver Sun runs an article ‘How much has the value of your Metro Vancouver home increased in five years?‘ [4 Feb 2011].
  
  In a G&M article [3 Feb 2011] Benjamin Tal, CIBC ‘specialist on household credit’, argues that we’re all richer than we think, and that the 148% debt to disposable income ratio is nothing to worry about. An unwise position, in our humble opinion, and one that is likely to haunt Tal in the fiasco that will follow.

I would humbly suggest that not only is the Asset Bubble pattern still fully at play but that we are only now moving fully into the Greed/Delusion/New Paradigm stage.

The Irving Housing Blog descibes this aptly:

• In the Greed stage, the bullish sentiment reaches a feverish pitch and prices rise very rapidly. Every owner in the market is making money and most believe it will go on forever. As prices continue to climb, buyers become very enthusiastic about owning the asset, and they tell all their friends about their great investment. The word-of-mouth awareness and increased media coverage bring even more buyers to the market. Egomania sets in as everyone thinks she is a financial genius. Any intellectual analysis at this stage is merely a cover for emotional buying and greed. During the Great Housing Bubble, there were many instances of properties receiving a dozen or more offers the day they were listed, with many in excess of the asking price.

As some Bears fretted in autumn 2009/Spring 2010, I suggested that we needed to sit back and allow events to play out.

The Asset Bubble pattern had not been disproven, it simply had not fully played out yet.

Watching events unfold these past two months, I remain fully convinced our real estate market is unfolding in classic Bubble format.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

It's all about interest rates

Pretty much since the first day this blog started, the fundamental theme has been that the one element that will prick the massive housing bubble being blown in our little hamlet in the Village on the Edge of the Rainforest is interest rates.

Interest rates have been artificially suppressed by the powers that be since the dot com crash after 1999.

All around the world this factor has contributed to a real estate boom.

Here in Canada, cheaper access to mortgage funds combined with an easing of mortgage credit terms have created the liquidity that homebuyers have used to drive the price of real estate skyward.

When interest rates reset to the historic norm (8.25% over the past 20 years), the housing bubble will pop in spectacular fashion.

Today Capital Economics has come out with a bleak report suggesting that the Canadian housing market is likely to suffer the same sort of crash that has plagued countries such as the United States.

The catalyst?

Interest rates, of course.

In an article in today's Globe and Mail newspaper the headline screams, rate hikes could spark house price collapse

According to economist David Madani, “even small rises in official interest rates have been shown to have a big effect on homeowner confidence in other countries under similar circumstances as they can change perceptions towards the housing market very quickly. If the Bank of Canada does resume its monetary tightening this year, this could easily prove to be a tipping point for a house price collapse.”

This is no great surprise. The problem is NO ONE believes interest rates will ever return to those historic norms.

That's why we get ridiculous surveys like the one released by the Canadian Association of Mortgage Professionals last year showing that Canadians are confident they can shoulder higher mortgage payments without too much difficulty, with 84% saying a $300 monthly increase was no problem.

That's because no one evisions any sort of dramatic hike in rates.

Using the CMHC mortgage calculator for a $550,000 mortgage, the current monthly payment amortized over 35 years at 3.75% is $2,377.79.

Hike that rate to the historic 20 year norm of 8.25% and drop the amortization to 30 years (as per the new rule changes for mortgages) and the monthly payment on renewal jumps to $4,078.61.

How many households can handle a $1,700 jump in monthly payments?

Even if the rate only rises to 6%, the monthly payment jumps by almost $900... triple the $300 per month jump the survey says most Canadians can handle.

Capital Economics predicts that "as the central bank raises interest rates, mortgages will become more expensive for Canadians. Add inflation to the mix and prices could fall 25%-35% over the next few years."

The domino effect of a drop far smaller is what triggered the collapse in the United States. Combine this with the fact that our home prices are severely out of whack with elements such as incomes and the cost of renting and you have the recipe for a massive collapse here in Vancouver.

The elephant in the room is interest rates. And many Canadians are in denial that they will ever be allowed to rise above 5% again.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

The Great Housing Bubble eBook

Haven't had a chance to read it myself (yet), but for those who are interested here is the link to The Great Housing Bubble eBook.

Lawrence Roberts was a contributor to the Irving Housing Blog and his posts became the basic structure for this detailed look at the housing bubble.

Seems like it might be worth checking out. If anyone has already read yet, let us know what you thought.

Hope to have another post later this afternoon if plans work out today.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Bwahahahaha!!!

Bonus post for the day is your chance to buy this sub-million dollar mansion... err, doll house... on Vancouver's bubblicious west side (click on images to enlarge).

Have you been wanting to buy on the multi-million dollar west side but felt you have been priced out forever?

You're in luck.

Located in Point Grey at 4369 W 15th Avenue, this gem of a mansion/doll house is available at the amazing asking price of only $978,000 ($1.4 million after the bidding war).

From the listing description:

• Freestanding detached home - the only one in Point Grey under $1m! A fantastic location & great design with high ceilings and wonderful natural light. French doors off kitchen / dining area to your own private back yard. Guest room / studio or work from home space, 2 bedrooms, renovated kitchen, OAK hardwood floors and wood burning fireplace. Newer roof, furnace & most appliances as well as a refurbished, gorgeous studio space. A few steps to Pacific Spirit Park and a short walk to 10th Avenue shops.

Presumably the second bedroom is located in the detached quarters at the rear of the property (see last picture below)... or do we call that a laneway house?

Will my grandchildren believe the stories I tell them?

For your entertainment, the view from the rear and some interior shots.

Check out the little detached portion at the rear of the property (would this be considered a laneway house?) I presume the bedroom pictured below it is in this structure.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

CD Howe Institute and CMHC

The CD Howe Institute, a Canadian public policy think tank based in downtown Toronto, has come out with a study on government involvement in the mortgage markets and raises many of the same concerns the blogosphere has been bleeting about with regards to the CMHC and the risks being assumed by taxpayers in the current housing bubble.

The Canadian Federal Government, through its Crown corporation CMHC, hugely dominates Canada’s mortgage insurance market. This means taxpayers of Canada are theoretically on the hook for about half a trillion dollars in mortgage debt.

And the concern is, after having just witnessed a massive collapse of the housing market in the United States, is the risk this poses to the financial security of our nation.

Finn Poschmann, the vice president for research at the C.D. Howe Institute, doesn’t think this is a business the federal government should be taking with taxpayers’ money.

“Private insurers are able to manage such exposures, provided that they are adequately capitalized, prudently managed and regulated, and able to access liquid financial markets,” he argues in above referenced CD Howe study.

Poschmann sees a continuing role for CMHC as a backstop to the lending industry’s own measures to limit and absorb defaults.

This would “limit government policy to its more clearly justifiable economic role – assisting in the managing of undiversifiable risks that markets on their own, in times of financial crisis, may not be able to manage well,” he argued.

“Further, this approach would leave unfettered the ability of the federal government to regulate minimum prudential standards for mortgage lending and insurance.”

Poschmann calls for tighter rules that would put CMHC on a more equal footing with other market participants, and for tweaking the rules for issuing bonds in order to give Canadian institutions better access to low-cost capital in the international market.

Are we about to see a public debate emerge about how and how much Ottawa ought to intrude into the mortgage process?

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Stagflation, anyone? (updated)

It is said that history doesn't repeat itself, but often follows similar patterns.

And if you have followed this blog for any length of time you know my thoughts about inflation are that we are following patterns similar to what we experienced in the 1970s.

Since Quantative Easing began in 2009, I have cautioned that the biggest looming threat is not deflation, but the inevitable inflation that all this liquidity is going to trigger combined with a stagnating economy.

Inflation is already with us.

It has been taking root around the world for the past 6 months, machinations of a deliberate monetary policy to debase the world’s reserve currency.

All that debasement has had one objective... the creation of a little inflation to get America and the west out of the deflationary spiral caused by the failure of those horrid financial instruments known as OTC Derivatives and un-payable government debt.

Around the world, inflation has erupted in global food prices. Most of the world has no savings to get through difficult times and “hedge” inflationary outcomes.

Those outcomes appear quickly and change realities violently. American monetary policy and the global “race to debase” is the reason you are seeing raging crowds on TV from Ireland to Greece and Egypt.

Looking at China and India alone, despite the fact that the yuan and rupee rose 2.4% and 1.3% respectively against the dollar through November of last year, inflation rates in both countries dwarfed the relatively tame readings we are reporting in North America; Chinese consumer prices up 4.4% and India's up 8.6%.

Frequently you hear people say "if inflation is such a problem, why isn't it registering in the consumer price index?"

The answer to this supposed riddle of non-existent inflation: inflation is all in how you measure it.

In North America food, along with energy have been stripped out of our CPI, and the result is a more tame inflation reading.

But those price pressures still exist notwithstanding.

30 years ago when Ronald Reagan entered the White House, it was precisely the spike in food and energy - ignored today - that had Reagan and others so concerned about inflation.

Times change, and governments become slick and manipulative, and now those price pressures have supposedly 'disappeared'.

Calculate inflation today the way it was calculated in the 1970s, 1980s and 1990s and the federal government's measure of inflation would be substantially higher than what we are currently being told.

Once you understand that... then the latest statements from the Governor of the Bank of England that standards of living are about to plunge are not all that surprising.

Mervyn King, Britain’s counterpart to the Bank of Canada's Mark Carney, has delivered a stern, sobering message to his country:

• "In 2011, real wages are likely to be no higher than they were in 2005... One has to go back to the 1920s to find a time when real wages fell over a period of six years."
  
  "The Bank of England cannot prevent the squeeze on real take-home pay that so many families are now beginning to realise is the legacy of the banking crisis and the need to rebalance our economy."
  
  "The squeeze on living standards is the inevitable price to pay for the financial crisis and subsequent rebalancing of the world and UK economies."
  
  "Furthermore, inflation may rise to somewhere between four per cent and five per cent over the next few months."
  
  "The idea that (we) could have preserved living standards, by preventing the rise in inflation without also pushing down earnings growth further, is wishful thinking."
  
  "Unpleasant though it is, the Monetary Policy Committee neither can, nor should try to, prevent the squeeze in living standards, half of which is coming in the form of higher prices and half in earnings rising at a rate lower than normal."
  
  "I sympathise completely with savers and those who behaved prudently now find themselves among the biggest losers from this crisis.”

The Governor of the Central Bank of England has looked his country in the eye and admitted that he is completely powerless to prevent the inevitable decline in living standards that inflation and a stagnating economy are about to ravage upon us.

Meanwhile in Canada, our Central Banker has been sounding alarm bells since last February about high debt and the impact of significant looming interest rate hikes combined with an economy that will not grow fast enough to offset them.

Both Governors can see what's coming.

And as the blog has repeatedly posted, it's all about inflation, a stagnating economy and the looming spectre of rising interest rates.

Meanwhile Reuters reports that more manufacturer's are warning of rising input costs.

Emerson CEO David Farr said inflation ran well ahead of the company's own projections, and the company was spending three times as much on materials as on labor.

"We'll have to significantly increase prices around the world because this is not a momentary blip," Farr told analysts on the company's conference call.

"In my opinion, I think net material inflation could run at higher levels for the next two or three years. That's a plus and a minus in many regards but in reality this is an issue we'll have to deal with. It's not going away."

Earlier this week, Illinois Tool Works, which makes a variety of products for the automotive, residential construction, and industrial marketplace, warned it might not be able to fully recoup all the raw material price increases it is seeing - even though it expects to raise prices this year.

Officially it's known as cost-push inflation. Wages don't rise, jobs don't increase and the economy founders, but manufacturing costs rise anyways pushing up prices.

QE1 and QE2 are the causes. And now there's talk of QE3.

Inflation has only just started.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

The European Debt Crisis... explained?

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Pfft... Fox News Strikes again!

Saw this on Zero Hedge and couldn't resist posting.

What's wrong with this map?

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

New Mortgage Rules as explained on Global TV

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

How about a Central Bank interest rate of 11.25%?

Here's a quick thought to send chills down the spine of anyone with a 5/35 mortgage on half a mil plus in our little hamlet.

Brazil's central bank raised its key interest rate half a percentage point to 11.25% late Wednesday, amid fears that inflation was getting out of hand.

Last year inflation in Brazil quickened to 5.91%, well above the government's target of 4.5%.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Silver demand continues to increase

Been very busy but a quick post with a few quick notes about Silver.

As of today the US Mint has sold a massive 4,588,00 ounces of silver during the month of January.

How significant is this total?

The month isn't over yet and already the US Mint is on track for the biggest monthly total of silver sales going back to 1986 when the Mint disclosed its first monthly sales record.

Yes... the US Mint is going to sell more silver this month than in any month in its history.

Scotiabank continues to be sold out of 1 oz and 100 oz bars and Europe's BullionVault (which has been sold out for the past week) has only just received more inventory for sale.

Reuters reported shortages of 1 kilo gold bars in Asia last week. Sprott Asset Management reported that it was experiencing difficulty sourcing 1,000 oz silver bars. Sprott said they were concerned about the “illiquidity in the physical silver market" and said delays in being able to source physical silver highlights the “disconnect that exists between the paper and physical markets for silver."

So reports of shortages of silver bullion continue to grow. Having said that it is important to note that are no widespread shortages yet. Dealers with extensive supplier networks like mints and large refiners are not experiencing difficulties sourcing bullion inventory, but it would be wise to keep an eye on this.

Yet in the midsts of all of this, those o you who have been following silver lately know that the price has been dropping drmatically lately and almost dipped down to $28 (althought it surged upward today on a raid free Tuesday).

Both gold and silver have really been seriously clobbered since late in the afternoon on January 13.

Price drops of this magnitude don’t just happen by accident. And there is some interesting speculation which is worth paying attention to.

On Thursday, January 13, Moody’s Investor Services issued a report stating that the current fiscal situation in the US is such that, if not reversed, it will result in a lower credit rating for US government debt. Sarah Carlson, senior analyst at Moody’s, said, “We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the US, the likelihood of a negative outlook over the next two years will increase.”

The same day Carol Sirou, who heads Standard & Poors in France, said in a speech, “The view of markets is that the US will continue to benefit from the exorbitant privilege linked to the US dollar” to fund deficits. “But that may change. We can’t rule out changing the outlook” on US government debt. She later said, “No triple-A rating is forever.”

These twin announcements had the expected effect on the value of the US dollar, which dropped in value against other currencies about 1% last Thursday afternoon and that drop has continued.

Normally, when a currency declines like that, alternative safe haven assets rise in price.

Gold and silver would typically experience higher demand and higher prices. However, rising precious metals prices would reinforce the decline of the US dollar. Therefore, the US government had a huge incentive to prevent gold and silver prices from rising.

That appears to be almost exactly what happened. Usually, when gold and silver prices are falling, the number of open contracts on the COMEX declines as traders sell off their long positions. Short buyers who purchase such contracts then close out their position.

In the past 72 hours, there has been a significant increase in the open interest, which is a sign that one or more parties (say hi to JPMorgan Chase and HSBC) have sold as many short contracts as it took to push down the prices of both metals.

The plausible reason for the decline in gold and silver prices over the past 10 days is that the sharp increase in gold and silver prices at the end of 2010, especially late in December, is that there was a supply squeeze in COMEX inventories.

Of total COMEX silver inventories, about 50 million ounces is currently registered, meaning that it is automatically available to cover delivery commitments of maturing contracts. That amount could be absorbed by fulfilling only 10,000 contracts. Today the open interest silver contracts rose from 73,626 to 75,575, no doubt sending shivers through the banking front offices.

There are extensive rumors flying that an unusually large number of December 2010 contracts were held for delivery of silver, which was not physically possible.

Instead, many of them were supposedly settled for cash, often at a premium to “spot” price (estimated at 30%). This certainly would explain why the price of silver rose almost 50% in the last three months of 2010.

Apparently this tactic was so profitable for hedge funds and other deep-pockets investors that they are gearing up to repeat the process with the March 2011 silver contract on a much larger scale.

At current prices, $1.5 billion could purchase the 10,000 contracts needed to deplete the entire stockpile of COMEX registered silver.

The rumors are that these buyers are looking to jump in to make purchases during February and eventually force the price of silver up to about $45 before the end of March. Obviously, there are many hedge funds, private investors, and sovereign wealth funds that could raise enough cash to handle this raid on the COMEX silver market all alone.

However, you can be sure that the traders for banks that hold huge short positions (did I mention JPMorgan Chase and HSBC?) are hearing of these plans.

One defensive tactic to hold off the onslaught would be to dump a lot of paper contracts on the gold and silver markets to force down prices before the buyers start making their purchases in February. Then, when prices have fallen significantly, the short sellers could purchase lots of contracts and physical metal to help them fight back against the supply squeeze effort and also to discourage a planned raid on the COMEX inventories.

Hence the significant drop in gold and silver prices right about now!

Is this true?

Who knows. But it bears watching.

Finally there is this story on SeekingAlpha on silver which is interesting.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Mortgage rules to change tomorrow

So the big news today is that Ottawa is going to finally tighten up on mortgage rules. According to the Globe and Mail newspaper the government will announce tomorrow that CMHC will not longer support mortgages with amortization periods longer than 30 years.

The newspaper also reports that Finance Minister Jim Flaherty will announce that the government is going to take action to reduce the rapid rise in home equity lines of credit by clamping down on the insurance that CMHC offers to the lines of credit. Basically it will be withdrawn.

Finally Ottawa will also reduce how much Canadians can draw on their home equity. Last February the Finance Department announced that it would lower the maximum amount Canadians could withdraw in refinancing their mortgages to 90% from 95% of the value of their homes. It is now expected to reduce that maximum to 85% from 90%.

Says the Globe:

• "Ottawa's recent actions have been moving policy in the opposite direction that it was headed prior to the U.S. subprime crisis. As the subprime crisis morphed into an economic recession, the federal government took steps to make it easier and cheaper for banks to lend mortgages in Canada in order to keep credit flowing and the economy strong. In 2006, the maximum amortization period in Canada was extended to 40 years from 25. Now the government is trying to cool a market that it helped to fuel."

It will be interesting to watch the impact the changes have.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

Time for the government to get out of the mortgage game?

Neil Mohindra of the Financial Post came out today with a great article titled Canada's Mortgage Hazard.

As you know, Bank of Canada Governor Mark Carney has been sounding warnings about Canadian debt levels. The concern? Escalation of household debt is a risk to Canadian financial stability when interest rates begin to rise.

This was followed by the International Monetary Fund weighing in and identifying Canada's stretched household balance sheets as a near-term risk to our nation's financial system.

Not only were average Canadians scolded for taking on too much debt in this era of emergency interest rates, but banks were cautioned to curtail lending.

The response by some bank CEO's was to call on Finance Minister Jim Flaherty to tighten lending standards for residential mortgages, such as a reduction in amortization periods.

The banks claimed they were unable to individually take action because of the competition between them for that debt business.

In a year-end interview Flaherty countered:

• "I find it just strange that I get some of the financial institutions telling me to mind my own business on regulatory matters - and then we have some worries about the level of consumer debt, and the banks are saying the government needs to move in and tighten standards."

The Financial Post article summarizes the problem which the blogosphere has been harping on now for several years.

Banks won't curtail lending because they are protected by the Canadian Mortgage and Housing Corporation (CMHC). The government-backed mortgage insurance is mandatory for all mortgages with a loan-to-value ratio in excess of 80%. Because of that, the conventional incentive for banks to set their own underwriting standards and monitor risk exposure has simply been washed away.

Rather than screening mortgage applications for risk, bank staff simply tick the boxes required by government. At most, banks have an indirect interest in assessing credit risk since households with too much mortgage debt may be more at risk of defaulting on other loans such as credit cards.

This is why the bloggers laugh at the assertions about Canada's 'sound banking system'.

The Financial Post article cuts right to the heart of the matter with a succinct observation:

• “If the Canadian government sees rising household debt levels as a real concern and bank underwriting standards as the solution, the logical course is to exit the business of mortgage insurance and stop guaranteeing residential mortgages with public money. Such a move would protect taxpayers from a business they do not need to be in.”
  
  “As long as the government insists on backstopping the risk of high-ratio mortgages with taxpayers’ money, banks simply won’t have any skin in the game and will react half heartedly at most to calls for them to tighten lending standards to address concerns over rising household debt. Instead, the banks will simply sell as many high-ratio mortgages as they can, knowing that taxpayers will ultimately pay the price if rising household debt creates problems in the future”

This is exactly what the problem was in the United States with Freddie Mac and Fannie Mae.

As long as the government insists on backstopping the risk of high-ratio mortgages with taxpayers' money, banks won't take action. The banks will continue to sell as many high-ratio mortgages as they can, knowing that taxpayers will ultimately pay the price if rising household debt creates problems in the future.

The Financial Post suggests the time may have come for the government to begin exiting the business of insuring mortgages and providing government guarantees.

But will the voting public, now addicted to the crack cocaine of low interest debt, allow them to?

Sounds to me like we're back to square one with everyone pointing fingers and nobody taking any action.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.

$500,000 just doesn't go as far anymore

On the topic of 'Tulip Mania', let's take a quick tour and see what it would take to get into the housing market with a single family home in some Vancouver municipalities.

These are the lowest priced single family detached homes on the market in their respective areas at the start of 2011.

First up is the suburb immediately to the south of Vancouver, the City of Richmond.

The lowest priced single family home in Richmond is this 1 bedroom, 1 bathroom 600 square foot beauty situated on 4026 sq ft at 2931 Smith St. Asking price: $499,000.

===================================

Let's wander over to the suburb just east of Vancouver, the City of Burnaby.

The lowest priced single family home in Burnaby at the moment is this dream home at 5983 Marine Dr. with an asking price of $499,900. From the realor's listing:

• Fantastic Opportunity. At this price, why rent when you can own? This home sits on a 37 X 127 lot close to Metrotown and Bryne Rd. shopping and tons of entertainment. Main floor has a large entertainment size kitchen complete with eating /dining area, three spacious bedrooms and a bright open living room. Basement has its own separate entrance and bathroom making it an ideal mortgage helper. Loads of renovations and updates have been done including roof and hot water tank. Don't miss one of the best priced investments in South Slope.

===================================

Now if you think that borders on unlivable, how about this beauty in Vancouver East.

Offered at $449,000 is this house at 1017 Keefer Street. There is no pretense you can actually live it this one. But hey, Gelato! So it's worth the asking price right there alone:

• One of the oldest character homes in Strathcona,(pre 1900)! The City would love to have it restored. The house is not in liveable condition, RT-3, needs to be taken down to original structure. City would offer incentives eg coach hse, bsmt.Value mainly in the land, buy 'as is where is'. Drive by first! Excellent location, close to schools, downtown, 'The Drive' and the best gelato in town at 'La Casa Gelato'

===================================

Finally we come to Vancouver West. Vancouver West is where all the Hot Asian Money is flowing into so regretfully half a mil doesn't get you on the dance card.

For $699,000 this ranks as the lowest price single family house on the market. It is a 2117 sq ft. 5 Bedroom, 3 bathroom palace at 8508 Oak Street (which is essentially the end of Hwy 99 as it enters Vancouver).

And remember... buy now or be priced out forever.

==================

Email: village_whisperer@live.ca

Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.