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.


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!


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.


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.


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.


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?