“I have family …

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“I have family in Germany. You know what happens with apartments there? They stay even or go down in value. Over there, homes are for shelter, not some Tom Vu get rich quick scheme. You want to get rich there, you build the best cars, trains and cranes, not ‘marketing systems’ like Bob Rennie and Brad Lamb. “ (greaterfool 7/31/13)

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These things never really end well…

There has been a lot of hyped up talk this year about the looming housing “Armageddon” and massive asset bubble that experts, economists and politicians alike have been warning of for quite some time now. Scenarios of Armageddons and US Style crashes are very unlikely in Canada… however, reading through the myriad of opinions on the matter it is actually hard for the average lame person to really get a grasp of what is actually on the horizon.

Adding to the confusion is the fact that mixed messages are abound everywhere… media organizations that on one day may report of real life problems with the over indebtedness and over investment of Canadians then reports on the next day completely contradicting articles on the same matters.

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The same goes for Canadian financial institutions and the mortgage/real estate industry, inaccurate and unreliable stats and figures coupled along with poor perspective and quite frankly almost fraudulent guidance to the general public. I’ve written about the dangers of running with the crowds and relying on data that you don’t fully understand, these are exactly the kinds of human behaviors that those who make a living making money off of the greater fools rely on.

So why are there so many mixed messages out there? Why does one economist from one organization have a complete opposite opinion than the economist from the bank? The answer is actually quite simple, the man from the bank has a vested interest in maintaining continuously appreciating assets… even when he knows that those assets are way over inflated and destined to correct.  In fact, just like normal everyday people he is likely to also hold a mortgage with the bank; the man from the bank is exposed to the exact same kind of risk as the general public and of course wants to do everything he can to avoid fueling the flames of the inevitable!

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In addition to this, said economists’ employer (bank) also happens to be the organization that stands to lose greatly with the risk of defaulting mortgage borrowers etc, what do you think his bosses tell him his duty is? Tell the truth of the matter or present the data and message in a way that calms and re-assures everyone that everything is OK. So the message here is pretty easy to understand if you could put yourselves in their shoes why their messages would differ from that of others.

There are three important pillars (in my humble view) that comprise and support the Canadian Real Estate market these days and over the next few weeks we will explore each one and why a likely collapse in anyone of those pillars will be the catalyst to a very real and widespread correction to Canadian housing markets in many regions. For those of you that liked to read on ahead in school here’s what I will be looking at:

#1 The CMHC – Automated appraisal system (EMILI) and the fraudulent abuses of it

#2 Bank of Canada’s interest rate policies 2009 to present – The inevitable rise in mortgage rates

#3 Market Supply & Demand – Baby Boomers forced to “cash out” sooner or later and the lack of a generation of buyers to fill their void.

Wise taxi driver says:

The 4 am taxi to the airport is probably the worst part of my job.. it usually marks the start of the daily ritual of airport lines, flight delays and stale air while I cross the continent, never mind the eclectic overnight shift cab driver who is hopped up on caffeine and shooting his mouth off the whole ride in.

This trip was different though, I had the most interesting conversation about the most peculiar thing that has gone overlooked and unscrutinized by society for far too long now.

What is the deal with the automated checkout? When did it become such an integrated part of all of our large retail outlets? How many low skill / entry level jobs have they replaced and what are the consequences of this on society?

We all hate them.. at least I do, they never work exactly as efficiently and quickly as I am sure the inventors of them envisioned. They do one thing very well though, they make tons of money for those who already have tons to spare and they do all of this at a certain human cost. Essentially they have replaced human check out employees; each machine removes the hourly minimum wage fixed operating costs and replaces it with a onetime initial capital investment that pays itself off in a relatively short period of time.

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This all sounds pretty cool.. robots and technology changing the way we live our lives and making things “easier” and more “efficient”. But have we really considered the flip side to this trade off? Let’s have a look.

The typical “superstore” seems to have an average of 8 of these machines pumping $$ into their coffers and kicking customers out the door. If I consider my local area here in the Okanagan, I count 7 of these superstores in my immediate area that I might shop at. So we have a total of 56 machines that have replaced the jobs of up to 56 people who would have otherwise been employed.

These sorts of low skill / entry level jobs are actually really critical components to our society, they provide essential sources of income to many of the most vulnerable people who often live on the fringes of society and rely on every single penny of income they receive.. Without any sources of income these members of society are forced to turn to our social system to support themselves and their families, compounding the issue further is the loss of tax contributions and social program contributions that these individuals could otherwise be making if they had a job.

A rough ballpark average welfare check in Canada is around $1500 per month for a single individual. So by my calculations it is costing society around $84000 / month now or a little over one million dollars annually to support these individuals who could otherwise be working.

The population of West Kelowna is 31000 today, so if we say 75% are tax payers then effectively it costs everyone living here $43 per year to enjoy the benefits of the 56 “self-checkouts”. This is just in my small town in the Okanagan!

We haven’t even looked at the other social benefits that these individuals are entitled to, but what is very clear now is that the social costs of replacing humans with machines that pump corporate profits at the expense of the rest of society needs to be considered quickly, especially before we raise the debate on Canadian unemployment numbers etc.

If we can’t even get it right with the easiest ways and means of ensuring easy access to employment for Canadians then how can we ever begin to deal with the rest of the larger issue?

Have you CONSIDERED the DATA?

I’ve been on a rant apparently.. I have offended a few, my opinions do not align with the mainstream and therefore MUST be irrelevant!

Information these days seems to be a commodity that is traded and priced to the highest bidder… it is that bidder who then determines said information’s face value to the rest of the world. If you own the information, you control it’s value.. and I would imagine that you would want that information to WORK FOR YOU!

I have written recently (here) about the dangers of running blindly with the crowds, without having the knowledge and ability to see outside of the box and to analyze and interpret raw data by yourself.. The majority of the general public don’t have the time, smarts or energy to consider data and information, they don’t have the tact and skills to be skeptical of what is thrown before them constantly every second of every day! This phenomenon is what those who profit on the fools rely on, they operate on the fact that WHATEVER they decide to present to society and the public the MAJORITY of the public will accept it.. not only accept it in the sense like “OK, yea” the majority accept it as FACT!

This is where people fail in life without even knowing it.. this is where society and public lose and the SMART win.

The manipulation of data is an asset to those who manipulate it ten times more than being able to compile and share that data in itself. Data is the foundation of information, must I explain?? With raw data, we can have raw information.. we can leave it there and let the rest of the world decide for itself what that raw data and information means, but I’ve detailed in the past how unintelligent LARGE groups of people generally tend to be.. so in order for the data/information to MEAN SOMETHING it is refined into a product that is finally passed onto the general population. It is this step of refining the raw data into usable and easily understood information where the clowns of the world fool the rest!

The EXACT same set of raw data may be manipulated in any way, the same set of data may argue for both pro AND con at the same time.. how? It’s all in the presentation.. and of course the clever wording.

Example, the recent end of the boom of Canadian Real Estate has not been good news for many.. in fact the mere mention of a “downturn” or “correction” gets destroyed instantly by those who rely on an exploding housing market to make a living. Mortgage Brokers, Real Estate Brokers, Construction companies, Home Depot, Rona etc.. you get the picture. In fact roughly 25% of Canada’s economy and jobs are directly or indirectly connected to our housing market, if this market tanks so do hundreds of thousands of jobs. Predictably this scares the hell out of politicians, political parties, policy makers, trades people, your local used house sales men and mortgage brokers alike. The base of housing markets are people BUYING and BUYING and BUYING.. the more they BUY the HIGHER house prices go which in turn fuels more BUYING and of course jobs for everyone else involved with the construction, sales and financing of houses. So, 25% of Canada’s economy is fueled by BUYING and BUYING.. who cares that people can’t afford what they are buying today.. as long as they BUY the next fool will also BUY. This whole system is short sighted and a disaster waiting to implode on itself.

*Disclaimer* I do not have any negative stance or opinion against home ownership, my views are more geared towards unsustainable and illogical ownership

But the BUYING must go on, and people buy based on what everyone else is doing for the most part.. and everyone is buying based on the information being spoon fed to them. Who is feeding this information when it involves home buying? The Canadian Real Estate Association or CREA, they are solely responsible for feeding the majority of the information that (unintelligent) Canadians use to base their opinions.. all of this information is filtered out to the public via media outlets, newspapers, magazines, advertising and your local real estate office. They get all of this information from the raw data they collect. So what happens when the raw data you are collecting starts to go sour and turn against you? You manipulate the crap out of it to suit your needs.. remember how stupid the public is? They take ANYTHING for face value! So late last year when housing sales and housing prices started to plateau and drop in various markets across the country the CREA had to get clever, how can they run their circus on negative information?? Lets have a look at a few recent headlines!

Ottawa, ON, June 17, 2013 – According to statistics released today by The Canadian Real Estate Association (CREA), national home sales improved in May 2013, building on gains recorded in the previous two months.

“BC home sales rose 6.7 per cent from May, on a seasonally adjusted basis, with June being the fourth consecutive month of increasing sales activity,” said Cameron Muir, BCREA Chief Economist. “Since February, home sales across the province have climbed by 23 per cent, on a seasonally adjusted basis,” added Muir.
So.. according to the national and provincial real estate associations, real estate is IMPROVING! We see key words like “Home Sales Climb” and “Increasing Sales Activity” these are $$$ signs in the eyes of those who present the data and information in this way, these sort of headlines to the general Average Joe mean subconsciously that the housing market is great! Remember that the general public doesn’t really THINK?
Other words stuck in between the manipulated information are things like “Seasonally Adjusted”.. what is that? Well that is a way of taking RAW DATA and “adjusting it” until it goes from negative sales to POSITIVE SALES.. the RAW DATA has been manipulated to work in the favor of the PRESENTER of the data..
What about those headlines though? Sales Increasing.. Sales Climbing.. In both of those cases the sales numbers were compared to the month preceding it.. fair enough.. a legitimate increase in sales.. however it does not reveal the fact that those months that the sales have been increasing from were some of the WORST months of sales in recent Canadian history in many markets.. and the fact of the matter is the sales are WELL BELOW the running 10 year averages. But that sort of data and information does not look good in a headline from an organization who relies on BUYING BUYING BUYING.
With the CREA and local real estate offices blasting excellent increases in sales etc.. all with the intent of re-igniting unsustainable buying and further levels of indebtedness then there’s only one direction the market could end up.. far far worse off than anyone could ever imagine.. Just ask Spain, Greece, Portugal or even our neighbors to the South.
This graphic here shows some promising gains and increasing on sales activity nation wide.. For the quick fool who looks at it and sees the increasing bar graph for Q2 2013 thing are looking nice, goes hand in hand with the Realtors recommendation to BUY NOW! The graph does not include the 10 year preceding.. a vital range of information and data to consider when purchasing Real Estate as an investment.
https://i2.wp.com/creastats.crea.ca/natl/images/natl_chartA01_hi-res_en.png
Interesting to see the raw data on 2013 mortgage applications.. they have literally evaporated into thin air, see here:
Monthly Volume Report for Mortgages
Applying for a mortgage is the first step in buying a house, these numbers show those who are initiating the first step are drying up rapidly.. this is all going hand in hand with the rapid increases in mortgage rates and bond market explosion. Read about that here:
I’ve used the Real Estate market here as probably an unfair example of data and information manipulation at its finest. The truth is data and information manipulation is EVERYWHERE.. The same way that mutual fund salesman sell us junk products based on “past results” which clearly disclaim that “past performance does not guarantee future results”
The point is, if you are a fool you will absorb anything and everything that is thrown your way without any second thought… and by doing just that you risk placing yourself on the “loser” side of that line that separates the winners from the rest.
Have you considered the data?

Extraordinary Popular Delusions and the Madness of Crowds

I have never found success these days by running with the masses, popular opinion and beliefs. The most intelligent and successful individuals in today’s world are those that have turned left while the whole world was turning right..

Those that think and act opposite to what the rest of society is doing at any given moment will more often than not find themselves capitalizing on everyone else losses.

In his 1841 work Extraordinary Popular Delusions and the Madness of Crowds, Charles Mackay identified a common thread of individual and collective idiocy running through such follies of the past as alchemy, witch-hunts, prophecies, fortune-telling, magnetizers etc..

Is anything different with today’s greater society as a whole? Absolutely not.. except instead of the common delusions of the 1840s, people today are disillusioned more and more by their own financial and social lives.

I wrote last week about how large populations and groups of people as a whole are stupid, illogical, disillusioned and ultimately in the end unsuccessful. Individuals whose minds think separately from the greater fools will always win, and it is those minds that are able to manipulate those large populations into doing and acting in ways that profits the manipulators at the expense of the rest.

This sort of idea plays itself out in real life over and over again.. it is engrained in human nature. Simple examples include the lead-up to the US Housing Bubble crashing where bankers and mortgage industry insiders started to recognize that millions of mortgage loans were junk and were doomed to fail from day one, absurd amounts of money lent to people who would triple the size of their houses overnight.. down payments financed through lines of credits and in often cases no real secure form of job or income. These bankers realized fast that the point of implosion was fast approaching, they packaged up “junk mortgages” and re-named those packages “mortgage back securities” and marketed them to the fools and idiots of the masses who had no idea what they were but they were SOLD on the promises, spreadsheets and upward-pointing arrows on fancy graphs that seemed to promise fool proof returns.. it was the trendy thing to do at the time, in fact many of the same people who were lent money in those junk mortgages in the first place were buying into mortgage backed securities..essentially they were buying into their own stupidity.

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We all know how that played out in the end.. Who won and profited by thinking as an individual and not running with the fools?? Those unethical bankers and mortgage insiders.. as filthy as it sounds it makes a striking point, those that think and act opposite to the majority more often than not profit while the rest lose.

What does any of this have to do with us? Canadians? Well a lot.. we are all subject to the same type of “greater fool” brainwash and entrapment that the winners and profiteers of society lure us into… remember those commercials not too long ago heavily marketing gold as a safe haven to the next “Financial Armageddon”? How many millions of people bought into gold while it was at/near its highest historical levels solely due to what some modern day vacuum cleaner salesman on TV was telling them? How many people bought because “everyone” was doing it? Those of you who are in the know with gold know how far it has plummeted in recent months back to its normal levels, the profiteers were again those that thought and acted against the flow of fools.. sold while everyone was scammed into buying while it was at record highs.. the rest lost.

How many modern day vacuum cleaner salesmen are peddling are streets these days now selling us over priced, poor quality, cookie cutter real estate? How many of these high school graduate marketers and “industry professionals” are pushing products on consumers that are consuming in many cases 80% of some peoples take home pay? How far can this society full of fools, illogical thinkers, disillusioned minds and madness go before it finally collapses on itself, and once again draw that definitive line in the sand separating the losers from the winners.

By the way, you as an average Canadian individual owe $1.60 in debt for every $1.00 of income you make. I assume you passed grade school math and understand what that sort of ratio entails.

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Beware of the winners that will eventually make their profits off your debt. Beware of the Delusions and Madness of Crowds.. are you in the crowd?