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acsm6 · 发表于 2008-7-4 21:17

2008: The sequel

Welcome to the second half of 2008. Hang on. It gets worse.

I have some ideas of where we’ll be soon, but first have a look at where we are. The economy of our friend and client is shredding, and we’re not immune.

• When Starbucks closes 600 stores and lays off 12,000 people, you know there’s something seriously wrong with consumerism.
• When monthly sales for Ford, Toyota and GM drop by 28%, 21% and 18%, you know heavy industry’s in big trouble.
• When Wall Street legend Lehman Brothers is shopping itself for pennies on the dollar, you know the banking industry is teetering.
• And when housing prices suffer the greatest annual decline since the Depression, you know the middle class is getting crunched.

As a direct result of all this, autoworkers in Canada – thousands of them – are losing their plants and their jobs. New home prices in a city in my riding have fallen $25,000 in the past ninety days. The tourism industry in Canada is being hit by a perfect storm, of higher operating costs, a crash in visitors and a too-high dollar. Cottage sales in toney Muskoka have plunged by 50% this summer, and prices are following suit. In most major cities, a stealth condo crisis is brewing. Eveywhere, recent buyers of SFH will be taking a haircut if they try to sell in the next couple of years. The US stock market has just had its worst month since the 1930s - a harbinger of days to come.

Is it any wonder the latest polling shows Canadians now put energy prices and the economy at the top of their list of worries? Granted, things are not as dire here as in the US – where thousands of families are losing their homes every day. In fact, mass foreclosures are unlikely because of our system. Far more certain is that everyone’s home will just lose value, bringing down the net worth of the middle class by 10%, or 15% or – depending on where you live – 30%. That’s bad news if you need the cash in your home to retire on, or if you’re a new homeowner with lots of debt and little equity. Soon you could have none.

Why is this happening?

The immediate disease is energy. That’s killed off the SUV and the pickup, idled factories, ambushed car companies and sucked off family cash flow that would have been spent at the mall instead of on gas. Thus, retailers are being nailed and more jobs lost – like those 12,000 people at Starbucks.

Beneath that is the collapse of real estate in the US, which is now happening in Canada – despite the anguished denials of the housing industry. That was created by absurdly low interest rates, easy credit, greedy owners, sellers, builders, agents and irresponsible bankers who created subprimes in the States and 40-year mortgages here.

Beneath that are federal government monetary and fiscal policies in both Canada and the US which have failed us. The US Fed should never have crashed rates to 1% following Nine Eleven, since that created an asset bubble which burst with predictable consequences. Today Washington is trying to export is orgiastic debt mess with a cheap dollar – which, in turn, is helping send oil prices to the moon, and killing off Canadian jobs.

In Canada the central bank slavishly followed the Fed, dropping mortgage rates to the point where we all lost our healthy fear of debt and house prices exceeded the ability of people to afford them. Then along came a federal government which thought a high dollar was a cool endorsement, and talked it up by 30% in less than a year. At the same time, it was spending more money than any other national government, and going from surplus to deficit territory in less than three years.

The combination was deadly, even before gas hit $1.40 a litre. We now have a deindustrializing ecoomy with an at-risk middle class, a housing market in trouble and a government which spent its cash and still can’t stop spending. For example, we are now shelling out more on the military than we did to win World War Two. It may be valid spending, but what are the consequences?

As a result, the Canadian middle-class is quite possibly screwed.

Household debt is at a record. The national savings rate is zero. Over 80% of family net worth is in real estate. Houses are coming down in value. Gasoline and energy costs are at a record high. Family income has stagnated. Income taxes have not come down one penny since Mr. Harper took office. (The GST’s been cut, but that matters less as consumer spending dries.) Jobs are being lost. The high dollar’s killed our competitive advantage. Wealth is polarizing.

And this is just the start. The endangered species now is the middle class.

Meltdown? What meltdown?

On Friday, as noted below, BMO economist Doug Porter stated the obvious, that Canada is on a slow but inevitable track to repeat the US real estate experience. This, as you know, is the premise of my book released a few months ago, and even when I wrote it last winter, it was obvous the correction was coming.

The chart above, for example, shows the severe imbalance last month of listings and sales in Calgary, which not long ago was a market on fire. Now, obviously, sellers are bailing out as buyers await the inevitable - falling prices. I expect all major Canadian markets will correct by an average of 10-15%, and some areas will be clobbered with 30% declines by the end of 2008, or the early Spring of 2009.

Does everyone agree? Of course not. Just as there are climate change deniers, so are there housing deniers. The article below, from theMontreal Gazette, gives arguments why this is a great time to buy. Especially if you are a greater fool. — Garth

有影无踪 · 发表于 2008-7-4 21:30

legendcx · 发表于 2008-7-4 22:04

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