Wed Post #1: Details Of The $291 Trillion In Derivatives To Which American Taxpayers Are Exposed

The following article was posted on Seeking Alpha and is reproduced here.

Investors buy derivatives for one of two purposes: either they're speculating about the performance of the market in the future, or they're hedging against the possibility of a loss. The way in which you intend to use derivatives influences your derivative investment strategy.

If you're hedging, you'd buy derivatives as a kind of insurance policy. By having derivatives in place for a nominal fee, you can be certain of buying or selling at a certain price, and you don't have to worry as much about fluctuations in the market. Many corporations use derivatives to hedge against fluctuations in interest rates, foreign-currency exchange or the cost of raw materials.

Speculation is a different side of dealing in derivatives. Investors who engage in derivative speculation have no real interest in the underlying commodities, but instead are trying to predict the behavior of the stock market to make a profit. Unfortunately, derivatives can be manipulated in ways that make speculation dangerous to the economy. The government has some regulations in place to protect against speculative manipulation of the market, such as prohibitions against naked short selling, but it can still be a dangerous practice for the economy.

Recall that Warren Buffet once famously called derivatives "financial weapons of mass destruction" and the sovereign debt problem risks detonating these time bombs.

How big is America's exposure to these "weapons of mass destruction"?

Here is what Seeking Alpha had to say...

Details Of The $291 Trillion In Derivatives To Which American Taxpayers Are Exposed

The entire US GDP is less than $15 trillion each year. The gross notional amount of derivatives issued in the USA is more than $291 trillion. Does that sound like a lot? Apologists for derivatives dealers don't like it when we talk about derivatives in terms of the notional totals. Large numbers, like these, discussed publicly, frighten too many people. According to the apologists, gross "notional" is misleading, because it does not include "hedges," offsets and the limits on interest rate risk.

In fact, the total amount of derivatives cannot be accurately presented in any other form but gross notional obligations. The risk to society cannot be judged in any other way. That's why the FDIC, US Comptroller of the Currency and the Bank for International Settlement (BIS) all use gross notional.

Final net obligations can only be determined when and if derivatives are triggered. The net can be significantly lower, but neither we, nor the banks themselves actually know exactly what that is. It depends upon the balance sheets of every counter-party, and the extent to which interest rates will change in the future. Not even the banks have full information about either topic..

There is another number called the "net current credit exposure" (NCCE) that some erroneously claim represents the risk imposed by derivatives. According to the Office of the Comptroller of the Currency (OCC), the NCCE for American bank derivatives amounts to about $370 billion. That's a huge amount of money, but it's not $291 trillion.

Unfortunately, NCCE provides no information about ultimate exposure to loss. It merely measures the net cost of unwinding the contracts, before the occurrence of any trigger event. NCCE is the current market value of the contracts, and nothing more.

There are also a number of "value at risk" calculations that the banks provide. These are not standardized, and are based upon vastly different models and assumptions, from bank to bank. Unfortunately, a very high level of inconsistency and lack of any standards for measurement causes such models to be highly unreliable. For example, during the 2008 credit crisis, similar proprietary models used to determine subprime credit risk failed, in the infinitely smaller subprime mortgage market.

In reality, it is impossible to know the true risk of $291 trillion in New York issued derivatives (ignoring the additional $417 trillion issued out of London). A sudden very large increase in interest rates, alone, could trigger trillions of dollars in payments. One could argue that the Federal Reserve could force interest rates down at any time, but that is not entirely true.

If the US dollar came under heavy selling pressure, for an extended period of time, as has happened to the British pound, Chinese yuan, Japanese yen, German mark, Austrian shilling, Argentine peso, and a host of other currencies in the course of history, the Fed would be able to defend the dollar only at the risk of inducing widespread systemic failure.

That is why interest rates cannot rise for many years, regardless of whether that destroys its status as the world's reserve currency, and/or creates extreme levels of inflation or hyperinflation. It is also one more reason for the government to lie about the true inflation rate, to avoid pressure to raise interest rates (see shadowstats.com.)

All the too-big-to-fail (TBTF) banks, with the exception of Morgan Stanley (which uses its SIPC-insured division) are using FDIC-insured depository divisions to house derivatives. That provides them with lower collateral requirements because FDIC depositary units usually have higher credit ratings than investment banks and/or bank holding companies. It also means that, ultimately, the American people will pay for losses.

While no one can determine the exact exposure, it is safe to say is that the risk is astronomical, and imposes a grave risk upon American taxpayers. It is not surprising that FDIC staff is not thrilled with US bank derivative exposures. In fact, Sheila Bair, who until recently ran the FDIC, is as disgusted with the Federal Reserve slush fund and the banking cartel as you and I. A few days ago, she penned a satirical article heavily critical of Fed policy and published it in the Washington Post.

The FDIC staff doesn't like the fact that the Federal Reserve keeps allowing banks to put their derivatives inside insured depositary institutions. This is mostly for the same reason the banks want to put them there. Insolvency laws provides priority to derivatives counter-parties over the FDIC. If and when a bank is liquidated, the FDIC will be on the hook to repay depositors, but the failing bank will be stripped of all assets.

The US government's full faith and credit guaranty means massive amounts of new US Treasuries will need to be sold, massive numbers of new counterfeit dollars will need to be printed under color of law, and significant tax hikes will need to be levied to pay the bill.

FDIC opposition, however, has had little to no effect on keeping derivatives out of insured units. The Federal Reserve, and not the FDIC, has the authority to approve the practice and it keeps doing so. The FDIC staff can complain privately, and issue regulations forcing disclosures, but little more. But, because of the disclosure requirements, more detailed information than ever is now available concerning derivatives.

In fact, FDIC has made far more information about derivatives public, over the last 3 years, than the Fed and OCC ever disclosed over decades. The numbers reveal a frightening concentration of risk. Five large "TBTF" US banks hold 96% of derivatives issued in the United States.

But the Bank for International Settlements in Switzerland reports that about $707.6 trillion worth of derivative obligations have been issued worldwide as of the end of 2011. That leaves about $417 trillion worth of derivatives that are not accounted for, in the FDIC records.

The surplus derivatives have been written mostly in London. Part of the exposure is held on the balance sheets of foreign, mostly European banks, including Deutsche Bank, PNB Paribas, Credit Suisse, UBS et. al. But, a large number of seemingly foreign derivatives is also hidden inside bank divisions, owned by American institutions, who do business in London. Such derivatives are not reported to the Fed, the OCC or the FDIC. Lenient British banking laws insure that these opaque obligations are not subject to public scrutiny.

Ultimately, if London-issued derivatives eventually cause massive losses to a UK bank division, the US based bank that owns it would end up being closed or bailed out. Ultimately, just like the derivatives issued in New York, the American taxpayer and dollar-denominated saver will pay the bill. Unfortunately, in spite of this, details about London-issued derivatives are not publicly disclosed or I cannot find them. If such data exists, a British lawyer or someone knowledgeable enough about UK regulations and bureaucracy would be needed to ferret it out.

Even in the absence of London data, however, investors should find this incomplete article enlightening. It is useful to obtain a general picture of the risk of investing in shares of the five big derivatives dealers. Here's how the dollar amounts break down, as of December 31, 2011 in thousands of dollars.

JPMorgan Chase (JPM)

Description		Amount
	Total Derivatives	70,268,515,451
	Notional amount of credit derivatives:	5,775,740,000
	Bank is guarantor	2,920,886,000
	Bank is beneficiary	2,854,854,000
	Interest rate contracts	53,708,319,000
	Notional value of interest rate swaps	38,805,453,000
	Futures and forward contracts	7,033,041,000
	Written option contracts	3,841,178,000
	Purchased option contracts	4,028,647,000
	Foreign exchange rate contracts	8,799,397,451
	Notional value of exchange swaps	2,934,191,451
	Commitments to purchase foreign currencies & U.S. Dollar exchange	4,521,035,000
	Spot foreign exchange rate contracts	116,741,000
	Written option contracts	674,276,000
	Purchased option contracts	669,895,000
	Contracts on other commodities and equities	1,985,059,000
	Notional value of swaps	453,521,000
	Futures and forward contracts	137,101,000
	Written option contracts	746,259,000
	Purchased option contracts	648,178,000

Bank of America (BAC)

It should be pointed out that BAC has recently moved a nominal value of about $22 trillion worth of derivatives from Merrill Lynch, into its FDIC insured division. This does not appear to be showing up, yet, in these numbers. The total for BAC's FDIC insured division is now closer to $72 trillion.

Derivatives	50,407,550,785
Notional amount of credit derivatives:	4,720,320,266
Bank is guarantor	2,342,544,257
Bank is beneficiary	2,377,776,009
Interest rate contracts	40,832,704,946
Notional value of interest rate swaps	29,707,570,138
Futures and forward contracts	8,203,345,962
Written option contracts	1,430,677,395
Purchased option contracts	1,491,111,451
Foreign exchange rate contracts	4,676,887,004
Notional value of exchange swaps	1,425,870,031
Commitments to purchase foreign currencies & U.S. Dollar exchange	2,839,430,866
Spot foreign exchange rate contracts	254,990,960
Written option contracts	204,427,019
Purchased option contracts	207,159,088
Contracts on other commodities and equities	177,638,569
Notional value of swaps	76,992,166
Futures and forward contracts	343,077
Written option contracts	44,438,807
Purchased option contracts	55,864,519

Citigroup (C)

Derivatives	52,620,696,000
Notional amount of credit derivatives:	2,975,096,000
Bank is guarantor	1,439,748,000
Bank is beneficiary	1,535,348,000
Interest rate contracts	42,568,376,000
Notional value of interest rate swaps	31,525,209,000
Futures and forward contracts	3,279,189,000
Written option contracts	3,842,701,000
Purchased option contracts	3,921,277,000
Foreign exchange rate contracts	6,488,019,000
Notional value of exchange swaps	1,349,909,000
Commitments to purchase foreign currencies & U.S. Dollar exchange	3,910,599,000
Spot foreign exchange rate contracts	518,436,000
Written option contracts	601,793,000
Purchased option contracts	625,718,000
Contracts on other commodities and equities	589,205,000
Notional value of swaps	116,124,000
Futures and forward contracts	36,180,000
Written option contracts	215,205,000
Purchased option contracts	221,696,000

Goldman Sachs (GS)

Derivatives	44,195,386,000
Notional amount of credit derivatives:	499,741,000
Bank is guarantor	203,723,000
Bank is beneficiary	296,018,000
Interest rate contracts	41,737,737,000
Notional value of interest rate swaps	29,901,018,000
Futures and forward contracts	4,361,219,000
Written option contracts	3,553,371,000
Purchased option contracts	3,922,129,000
Foreign exchange rate contracts	1,945,805,000
Notional value of exchange swaps	1,623,260,000
Commitments to purchase foreign currencies & U.S. Dollar exchange	134,300,000
Spot foreign exchange rate contracts	2,912,000
Written option contracts	89,612,000
Purchased option contracts	98,633,000
Contracts on other commodities and equities	12,103,000
Notional value of swaps	11,885,000
Futures and forward contracts	0
Written option contracts	111,000
Purchased option contracts	107,000

Morgan Stanley (MS)

According to the US Comptroller of the Currency, the Morgan Stanley holding company has about $52 trillion worth of derivatives obligations, but only $1.7 trillion show up in the detailed FDIC statistics. It is not worth listing that small fraction as it would give an incomplete and misleading picture. Unlike other banks, MS is storing most of its derivatives in its SIPC insured investment bank, rather than its FDIC insured commercial banking division.

The reason it is doing that are unclear. Unlike the FDIC, which opposed the addition of $22 trillion in Merrill Lynch obligations to FDIC insured Bank of America's balance sheet, diligent search indicates that the SIPC does not bother keeping track of derivatives. If we did have details on the MS derivatives, the company would rank number 3, slightly above Citigroup.

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Tues Post #2: Peter Schiff on Bernanke's recent public lectures

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Tues Post #1: Another 'peak' at what's happening in Whistler

Time for another trip up the Sea-to-Sky highway to see what's happening in Whistler.

The picture above is of Greyhawk Condominium.

Specifically unit #303-3317 Ptarmigan Place, Whistler BC.

Unit #303 is a 2,200 square foot “penthouse”. Designer furnished and equipped, it was described as an open floor plan, 2 story, with vaulted ceilings, 3 bedroom plus full office property with the best of everything: full house sound system, TV’s in every room, electronic blinds, air conditioning, top of the line appliances, steam shower, jetted 2 person tub, rare and unique wood species, travertine tiles, granite counters, heated floors plus an HVAC system.

Located in prestigious Blueberry Hill steps away from the Valley Trail and the Whistler Golf Course, the property was purchased in 2007 by an Okanagan resident for $1,730,000.

It was listed in early 2009 for $1,995,000.

According to zrh2yvr who posted over on Vancouver Condo Info, the property sold this week for $1,250,000.

That's $745,000 less than the asking price, $510,000 less than what the owner paid for it in 2007.

It's an example of a wise 'investor' cutting his losses before the real crash takes hold in earnest.

Would you have the guts, or the brains, to do this?

Or would you hold out until you got 'what your property is worth'?

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The Illusion of Housing as a "Great Investment" - Robert Shiller

Still working on 'The China Trigger' topic I mentioned in the last post.

In the meantime, some interesting comments made by Yale professor Robert Shiller about real estate.

He says that historically home prices have not been a good financial investment - they essentially tracked the rate of inflation from 1890 to 1990.

But during the housing boom of the 2000s, the mind-set of most Americans (and Canadians) was that housing was a great capital-gains-generating investment.

Collectively we fell into that illusion and it created this spectacular bubble. We have to reflect now that we had a kind of crazy mind-set in the last couple of decades, and we have to get back to thinking like people used to think. Housing is a depreciating asset, goes out of style; it's going to end up in the wrong place. People will want to live somewhere else, so it's not any automatic capital gain.

And how did we fall into that illusion?

How did we get this idea that home prices only go up? There are a number of elements of it. I don't know where to start. One of them is that we had a lot of inflation. I'm talking psychology now. You're asking how we got into a wrong view. In the 70s and 80s, we had a lot of inflation and then Paul Volcker came in and stopped it. So inflation has been declining now for 30 years, and we've lived our lives in that environment.

But we still encounter examples when someone says, "My grandmother just sold her house." Especially five years ago, say this happened five years ago. Grandma sold their house for $300,000, and do you know what she paid for it in 1952? It was only $30,000 or something like that. So it went up ten-fold. Now those stories are in all of our repertory, but when you really look at it, what was just consumer price inflation over that period? It was something like that. She really didn't make any money off of it. And she was putting money into it year after year and maintaining it. So we forget that. It's that kind of bias.

Also I think that we're influenced not by population growth so much, but by the sense of the growing wealth of the world and the finiteness of land, and we mistake land for…well that's another thing that happened. We started to think of urban real estate as land. And that's a change in our thinking.

If you go back hundreds of years, there was land speculation in this country, but there was no housing, not much urban housing speculation. So it was common sense. Talk to George Washington, if you could, all right? George Washington was a land speculator, and he owned Mount Vernon as among his speculations. But for George Washington, speculating in real estate meant buying thousands of acres for a shilling an acre or something like that. Not buying a house in the city, so we've changed. It's become much more proliferated as something that everyone does. You buy this house and it's going to make you a lot of money.

It's also just the bubble itself -- the Fed had very loose policy and that encouraged the bubble and prices were going up fast, so that proliferated stories about real estate as an investment. Anyway, that's a complicated analysis of our psychology. But it is a unique phenomenon, really, that it was so national. And it also reflects our better communications now. It wasn't as easily so national in the past.

A video clip of the interview in which Shiller made these comments is on the website Motley Fool.

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Globe and Mail: What will make the housing boom go bust? 'Greed'

Today's edition of the Globe and Mail newspaper contains an article which asks: What will make the housing boom bust? 'Greed'.

The article notes that speculation in Canadian cities such as Vancouver and Toronto is wildly out of control, and states that the real-estate bubble in this country is overdue for a correction painfully similar to the one south of the border... a theme all too common for blogs like this one.

The Globe speaks to Ben Jones, the Arizona-based accountant who launched the  Housing Bubble Blog in December, 2004. At the time he was one of only a handful who was raising concerns about the vulnerability of the U.S. housing market.

Now, almost eight years later, Jones still sees signs that the real-estate mania is far from over in America. As part of his blogging experience, he keeps tabs on Canada and sees a lot of pain in our future.

Says Jones:

From what I can tell, the condo markets in Toronto and Vancouver are even crazier (than the US was). Prices are still going up and the participation of so many foreign investors is indicative of a more vulnerable market than in, for example, Miami in 2004. And that was a complete disaster.

China probably has the largest bubble in the world and when it blows, it’s going to shake the globe. There have been housing bubbles before, but never all over the world. Every time I hear people talk about the housing bubble in the past tense, I cringe.

Jones casts his eye at the Canadian market, sees all the speculation, sees the huge debt ratio Canadians have amassed and has this to say about our current real estate prices:

Artificially low interest rates and lower mortgage standards have enabled your bubble to do a head fake and push even higher. The same thing happened in Australia and China. You guys should be further along the road to recovery than us and you’re not. I would chalk that up to your government policy. Any objective economist should be able to see what’s going on in Toronto and see that it’s a disaster in the making. In the United States, everybody knew that it couldn’t go on forever, but at the root of a mania is the belief that the trees will grow to the sky.

And what of all the stories about the Chinese speculating with their money by buying Canadian real estate?

I posted the recent story about that Toronto house that sold for $400,000 over asking price. And it was just a bungalow. It really reminds me of 2004 when Californians were spreading across the whole country, buying property left and right, using their equity from the California bubble to create bubbles in other areas, like Las Vegas. We called them “equity nomads.”

China probably has the largest bubble in the world and the fact that they’re using their bubble wealth to drive up prices in Canada is the rolling-bubble phenomenon playing out on a massive scale. If the real-estate market collapses in China, are they going to close on all these condos they’re buying in Toronto? I kind of doubt it.

It’s even more complicated, because the Australians have a pretty big bubble and their resource-based economy is largely dependent upon China. It’s a house of cards: China goes down, Australia goes down and they drag down the market in Vancouver and Toronto, which trickles down to the U.S. That’s the danger people are willing to ignore when things are going up.

But everyone says it’s different here.

Ask yourself, why are the Chinese buying all these properties in Toronto and Vancouver? To make money. Yes, they say they are really nice places, but they say that about every bubble market.

Florida is a really nice place. California has great weather. I don’t think that justifies paying $400,000 over asking. Toronto was a really nice place 20 years ago, but nobody was paying half-a-million dollars for a condo.

It forms what I like to call The China Trigger and tomorrow or the next day I will discuss this is greater detail.

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Is Vancouver's Real Estate Situation comparable to the Titanic? - Updated

Faithful readers know we have been charting the number of real estate listings in Vancouver with keen interest this year.

Rest assured that local realtors are also looking at these numbers... with growing concern.

Today local Vancouver realtor Larry Yatkowsky casts his eye at the burgeoning listings of properties in Greater Vancouver and wonders if comparisons can be drawn to the voyage of the ill fated Titanic.

Yatkowsky posts the graph above (click on image to enlarge) and observes that the:

"total listings in Vancouver, Fraser Valley and Chilliwack (combined) continue to climb. In a matter of days the Titan accumulation of listings may eclipse the all time high achieved last year."

Yatkowsky notes that at this time last year, total listings were 21,705 units. The all time record for total listings was achieved on October 1, 2011 when the market had a record high point of 25,248 listings.

Yesterday total listings exceeded the April 12, 2011 number by 2,417 units (24,122).

"In recent days we have seen total listings leap higher by 200 and more units per day. Assuming this accumulation continues, it seems feasible to suggest that Total Listings will surpass last years record this month – a full five months ahead of last year."

The concern, of course, is that the heavily anticipated Spring Market is failing to materialize.

Yatkowsky suggests that, by themselves, such a load of listings might not sink the market. But when the weight of dismal sales from the non-existent Spring Market (which in Vancouver is currently recorded as -29.2%) is added to the equation, the outlook becomes increasingly questionable.

Says Yatkowsky...

"It is suspect that the combined weight of both an extraordinarily high number of listings and depressed sales may not need the services of an iceberg to cause upending calamity. Indeed, as many have warned, it may only be a small ripple of a change in interest rates that will be needed to destabilize Vancouver Real Estate’s Titanic voyage."

Without a surge in sales to dampen the listings surge normally provided by the Spring selling season, the onslaught of listings over Spring, Summer and Fall could swamp the market.

Is the tipping point near?

Meanwhile Cameron Muir of the BC Real Estate Association has released more bearish news.

Muir paints the dismal March sales in dollar volume of homes sold through Multiple Listing Service.

In BC that 'dollar volume' declined 26.5% to $3.8 billion in March compared to the same month last year.

A total of 6,882 MLS residential unit sales were recorded over the same period, a decline of 20%.

Said Muir:

"The spike in consumer demand recorded a year ago was not repeated last month. A marked increase in high-end home sales a year ago pushed up unit sales and skewed average prices higher."

Oh? Isn't that 'spike in consumer demand' called the Spring Market?

It's also curious that at this time last year, Muir wasn't pointing that high end sales were misleadingly skewering prices higher. He seems to have left this tidbit out when those average prices last year were trumpeted in press releases. Weren't they held up as evidence of the strength of the Vancouver market?

Muir goes on to say:

"... so it’s no surprise to see fewer home sales and lower average prices in March of this year.”

I bet it's a surprise to all of those who thought HAM was supposed to keep out inflated home values high forever.

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Macleans puts household debt and the Bank of Canada’s anxiety levels in a graph

In the graph above, Macleans Magazine charts Canadian's debt-to-income ratios, alongside some increasingly alarmed quotes from BOC governor Mark Carney or other Bank officials.

Macleans notes that it has been years since Bank of Canada governor Mark Carney first started warning about Canadians piling on too much personal debt.

Rising household debt, after all, has been the most dangerous byproduct of his low interest rate policy, which was initially designed to help Canada sprint out of the Great Recession.

Later this low interest rate policy was partly dictated by the need to help sputtering Canuck exports.

Right from the get-go, though, Canadians haven’t been listening.

As the situation has become more dire, so have the Bank’s warnings.

Today Canada’s ratio of household debt compared to disposable income is inching toward 160%, the peak seen in the U.S. and the U.K. just before their respective housing busts.

Macleans also notes that Carney is still sounding those warnings. Last week, he finally raised the prospect of raising interest rates, cutting people off from all that cheap money, even as the Fed down south sticks to near-zero rates.

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Interesting Inventory numbers yesterday

Off to the right you will see the inventory and sales numbers for yesterday.

403 new listings with only 159 sales and the stunning trend for this year continues: every single day this year listings have outpaced sales.

Total Inventory climbed by another 130... it's gone from 10,671 on January 3rd and sits at 16,475 today.

Even more stunning is the fact this comes on a Tuesday after a glorious, warm, sunny long weekend.  As one posted over on Vancouver Condo Info noted, it completely debunks the excuses heard earlier in the year about bad weather holding off purchasers.

The spring market is here but the buyer's are not (although some will argue the sales numbers are published with a delay and that this weekends true sales figures won't be reflected until later in the week).

Regardless, the trend in undeniable.

And speaking of trends, UBC currently has a stunning 215 properties on the market. The infamous Hampton Place (home of all the anti-Hospic campaign) has 45 properties alone for sale.

Like Ian Watt said yesterday, the next quarter could prove to be very interesting. People are not really motivated to buy right now. And so far sellers aren’t willing to drop their prices, and they’re not motivated to sell right now. But of the two, it's highly unlikely buyers will become more motivated because mortgage rates are already super-low.

What will be the trigger that affects prices?

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Tues Post #2:The Real Estate standoff

Local realtor Ian Watt on the current 'standoff' between buyers and sellers of Vancouver Real Estate.

Downtown condo sales are down dramatically, 23.5%. In 2011 Jan-Feb-March, we had 808 sales; in 2012 Jan-Feb-March, we have 619 sales. We used to have about 11.5 sales per day, now we have 8.5 sales per day...big changes. But the pricing, as far as condo sales is concerned, hasn’t changed all that much... Our listing counts are only up 5%; not a big deal right there... But it goes to show you that people are not really motivated to buy right now... And it goes to show you that sellers aren’t willing to drop their prices, and they’re not motivated to sell right now. So, it’s a bit of a stand-off. Only time will tell if this is going to impact pricing... if people become more motivated to buy, or more motivated to sell... but as far as things are concerned right now, it just means activity is down... Eventually, if this continues, it’s going to impact prices... and I can’t see it going up anytime soon... I can’t see buyers becoming more motivated because mortgage rates are already super-low... and sellers don’t really want to sell all that much, because if they bought in the last two years and they have to sell now they’re going to take a loss. So, it’ll be very interesting to see what happens in the next quarter.

Thanks to VREAA for taking the time to transcribe the key points.

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Tues Post #1: They're everywhere, they're everywhere (but you will be surprised to learn who 'they' are)

Does anything define the California stereotype quite like this Santa Monica police car outfitted with a surf board?

Spending time travelling down the Pacific Coast Highway in Southern California, it wasn't hard to leave the dreary rain of Vancouver behind.

And how could it not be so?

Temperatures in the high 20's, low 30's Celsius. Warm, sandy beaches. Cops who carry surf boards when they go to work... mmmm.

Even when you return to the spring type of day we had yesterday here at home, it's hard to think of the Village on the Edge of the Rainforest as the 'Best Place on Earth' (our provincial government's PR slogan the past few years) after having spent almost a week in the California sun.

Seems I am not alone as a Canadian with that sentiment... but I'll come back to that.

I couldn't help but notice that even in SoCal, there were constant reminders of the local real estate scene.

Helicopter's abounded where ever I went.  Your faithful scribe constantly looking skyward to see if any were yellow and carrying Cam Good with a load of eager Asian real estate buyers.

Why would I think this?

I was in California but one day when I opened the USA Today newspaper to an article telling me that HAM was everywhere in America and buying up real estate:

Buyers from mainland China and Hong Kong are snapping up luxury homes, often paying cash, in major U.S. cities such as New York, Los Angeles and San Francisco. They're coming by the dozens to buy foreclosed properties in downtrodden cities in Florida and Nevada. Chinese buyers are even starting to snap up pricey commercial buildings and hotels in Manhattan.

Yes... it's official. HAM has taken on the same spectre as the Japanese in the mid 1980's. 

And even in California you can't escape articles that Asians with money are snapping up everything.

But an interesting tidbit leaped out at me. Seems denizens of the Land of the Red Dragon aren't the main source of Hot Money gorging on real estate in America.

In the U.S., the Chinese are now the second-largest foreign buyers of homes, behind Canadians, accounting for $7.4 billion of sales in the 12 months ended March 2011, up 24% from the previous 12 months, according to the National Association of Realtors.

Canadians are the largest foreign buyers of homes in the United States?

Hmmm...

Maybe Cam Good should consider flying Vancouverites down the California coast instead of Asians around B.C.?

But if Canadians are plowing themselves into record levels of debt, and they are doing this buying up real estate both at home and in America, it makes you wonder just how devastating things will be when the real estate bubble pops in earnest in our country. 

When the crash comes,  it's not just going to be felt here in Canada.

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Away for a bit...

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Email: village_whisperer@live.ca
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Please read disclaimer at bottom of blog.