A few interesting articles for your reading pleasure

Let’s start with the laughable:

Actor’s money tip: Buy, don’t rent!

Actor and writer Terry Chen performed in films including The A-Team, I, Robot and Almost Famous. Chen, 35, was born in Edmonton and splits his time between Los Angeles and Vancouver”

Clearly this makes him an investment guru worth listening to.

“I met somebody who told me, very early on, when I was 18 or 19, not to pay anybody else’s mortgage.”

“For some reason that advice stuck with me. The benefit in renting is you have flexibility, but in the long run if you are going to be paying rent you may as well be paying your own mortgage.”

But what if the cost of home ownership is double the cost of renting the same house and you instead take that money and invest it even in short term government bonds?  And what if real estate is significantly overpriced by any measure of fundamental value?  I’m sure he’s crunched all these numbers.  He just doesn’t want to bore us with them.

“I have purchased and flipped about three properties in about the last ten years. At this point I have another large loft space in downtown Vancouver. I think the idea or goal for me now is to sit on the property I have for as long as I can and not sell.”

“Have you learned any financial lessons the hard way?”

“Absolutely. Playing the stock market. There have been certain times where I got a lead from a friend or source and tried to investigate it….I have lost tens of thousands in the stock market . . . I am less and less inclined to throw my money at (the market) these days.”

Got it.  All real estate = good.   All stocks = bad.  Dude should stick to acting.  You can’t make up advice this bad!

On to other more informative articles:

Are we better off renting?

A very interesting article out of the UK where they are beginning their secular shift in terms of their views of renting and buying.  The days of the ‘lowly renter’ social stigma are numbered.  Some people (evidently not actors) are actually taking the time to rationally weigh out the benefits of renting.

“For generations, we’ve aspired to be home owners. But evidence shows we’d be better off renting – both individually and as a nation. In Germany and Sweden, the rental market is credited with making people wealthier and happier, and with creating more attractive cities.”

“Ours is not an exceptional case. The recession and the stagnation of the housing market have, over the past three years, contributed to the fact that Britain is increasingly becoming a nation of renters.”

“Although house prices are falling, they still remain out of the reach of the average earner, particularly now that banks and building societies are tightening up their mortgage regulations. This year, 67% of households in the UK are owner-occupied, down slightly from the all-time high of 71% in 2003. By 2020, that figure is forecast to slip even lower to just over 60%.”

“Fifteen years ago, Andrew Oswald, a professor of economics at the University of Warwick, was one of the first to note that countries with high rates of home ownership (such as Spain, where 89% of households are privately owned) seemed also to have high rates of unemployment. “I argued that that would ossify your labour market and economy,” explains Oswald. “You need labour mobility in an economy, with workers who are able to drop into the right kind of job slots, whether they pop up in Glasgow or Bristol. I continue to worry about the possibility that home ownership slows down people’s ability to move around.”

“Countries with a higher proportion of renters also have a higher GDP: Switzerland has a GDP of £46,719 per capita, compared to the UK’s £27,915.”

Oh heck, the whole thing is good.  I’d end up reposting most of it if I tried to capture all the pertinent points, so just read the thing!


Assets getting whacked!  Bond yields moving higher.

Just as the coordinated move in all asset classes over the past few months has me dumbfounded, so has the coordinated move lower over the past week.

It may well be that the expectation of QE2 buoying markets did a lot to actually buoy markets leading up to the announcement.  Now that trade is unwinding.

Of particular note is the fact that the 5 year GofC bond (on which fixed mortgage rates are based) has seen a steady rise in rates and a fall in bond prices over the past month. The rates on the 5 yr are around 2.25%, up from around 1.9% in mid October.

This will be particularly troublesome for homeowners in need of refinancing if this trend continues, but I’m far from convinced that it will.  I think this is likely the winding down of some front-running trades from those seeking to profit from central bank initiatives to drive bond yields lower.  I’m still quite happy holding the bulk of my house portfolio in short term bond etfs like XSB, CLF, and CBO.


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18 Responses to A few interesting articles for your reading pleasure

  1. jesse says:

    Keep up the great posts. Good luck with the bond play!

  2. Toronto says:

    nice work bud…keep it up…!

    what kind of yield do these bonds give?

  3. LRM says:

    Really, what is up with interest rates on bonds. The UST is also seeing the yield turning up sharply even though just this morning Fed member Dudley was on CNBC restating the goal of QE to lower rates to make refi of mortgages more attractive and inprove loan rates for businesses etc. http://dshort.com/articles/current-treasury-yield-snapshot.html
    How can such an important policy have such a clear goal and produce a chart like this?
    I have been following Rosenberg , Shilling ( http://finance.yahoo.com/tech-ticker/of-course-the-fed's-latest-plan-won't-work-says-gary-shilling–we're-still-deleveraging!-535610.html) and Mish and I note that you have these as favorites. Rosenberg has recently suggested that long UST are the best place for fixed income portion of asset allocation. Can you clarify your preference for the short end of the bond market. If the Cdn economy moves towards a slower growth and RE prices decline as you expect, would you expect to see BOC move to lower rates and thus a greater chance for capital gains on the longer bonds such as XLB. In the Shilling video he makes a pretty compelling case for the long bond. Is the CDN economy going to maintain a similar yield curve to the US even though the FED is manipulating the bond market to a greater extent than BOC?
    I follow your site daily and appreciate your efforts to provide unbiased info on the markets and economy . Thanks for your work

  4. vreaa says:

    Get ready for the next deflationary wave.

    The Chen piece is priceless.
    Obviously, I’ll have to archive it as a ‘anecdote’. Thanks for the lead.

  5. mac says:

    The UK is beginning their secular shift in housing?


    Scroll to House Price Stats Greater London.

    Depending which source you quote, Greater London House prices are up anywhere between 3.5% and 9% in the 3rd year of this spectacular English “secular” downshift. You haven’t been better off renting if you live in London. Even through their nationwide real estate “collapse”. And that could happen here: here being Vancouver & maybe even Toronto. Could. It’s a word worth considering when you read bear blogs for financial advice.

    It could take 10-25 years for London to “unwind”, especially when prices go up, instead of down or stay flat? How come bear blogs can never even consider the idea that prices could stay flat for a decade, complicating the financial decision to buy or not, depending on your financial situation.

    If London is shifting, it probably has just as much to do with a bubble in entitlement spending, the unwinding of government debt and even the end of cheap oil and gas in the N. Sea than it does with a simple house price bubble. For those who bought many years ago, ie: boomers, they may elect to hold on tight until age and illness forces them out. What’s that? Another 10-15 years before yours and Garth’s predictions come true?

    And you’re advising priced out renters to pay rent for possibly another 10 to 15 years? Life’s tough when actors make better financial decisions than the average “smart” bear.

    • “And you’re advising priced out renters to pay rent for possibly another 10 to 15 years? Life’s tough when actors make better financial decisions than the average “smart” bear.”

      You’re delusional! If the average person can no longer afford the average house, what does that tell you about the prospects for continued price increases. Does that boil it down simply enough for you or should I draw a picture with crayons?

  6. mac says:

    Well, Ben congratulations. You’re a typical bear and no smarter than all the others who have come before you with charts and graphs demonstrating how the real estate market will collapse, as it went up in 10% increments year after year.

    All bears react the same way to any alternate points of view. NO! They have closed minds and like to pretend there’s only one way for things to unwind, there’s only one path to investing in real estate… don’t do it. It’s like a plea to the “greater fools”. Please stop buying.

    And who are these greater fools? Could they be children who have begun inheriting a massive intergenerational transfer of wealth which will be ongoing for the next few decades? Could they be foreign investors taking money out of countries whose capricious governments they fear? A group so large with so much economic promise that they turn what used to be “Canadian” cities into global ones where they stash their cash in their favoured asset for a long time horizon unperturbed by fluctuations that would bother the locals? Could they be just regular Canadians mindlessly taking advantage of ongoing low interest rates forced on us by our neighbour’s monetary policy? A situation eerily similar to what’s gone on in Sweden for years vis a vis the EU, yet you comment that renting in Sweden has been a path to wealth? What planet are you on?

    Of course the answer to all these questions on behalf of bears is: do you need crayons so I can draw it in pictures? But pictures, charts and graphs, like the points in this blog, are well-tread and worn out. We’ve seen them all before and for 10 long years. If this blog is aimed at being insightful, maybe fresh insight is required? NO?

    Readers Beware: When you get your financial advice for FREE, it’s worth every penny you pay for it.

  7. mac says:

    There you go, Ben. Mind snapped shut.

    • Not at all.

      Let’s see whose mind is snapped shut.

      As you note, houses have increased at a 10% annual clip while incomes have increased at roughly 3%. So with the average house in Canada at 330K and the average household income at 70K, given the obvious sustainability of the current situation, in 10 years houses will be worth almost 900K while incomes will be 90K. If interest rates are 5%, well below their long-term average, the 800K mortgage required for the average first-time homebuyer will consumer almost 65% of after tax income.

      I see how you believe that this is sustainable.

      You underestimate the value of my advice. It is worth at least double the price of admission. And as for you, you’re not off the hook. You can’t just run away with your tail between your legs as you mask defeat with a clever quip. I expect a guest post. I’m looking forward to you shattering my reality.


  8. mac says:

    Did I say current prices are sustainable? I’m merely trying to float the idea that prices might go sideways and prices may not collapse at all or decline very much in the centre of Toronto and Vancouver. All the reasons I stated above may play a part. But those reasons are either a) discounted altogether by you or b) met by a defensive scoff or c) challenged by your pathetic machismo when faced with an alternate point of view which we’ve seen ad nauseum on every other bear blog. To your credit, you have so far refrained from calling me a realtor or suggest I go out and buy a house right now. The only two remaining macho positions for you to take.

    For the record I am bearish on real estate and agree with much of the bearish reasoning but not the certainty, which has been a fool’s game for these 10 years. To suggest not being surprised to see real estate prices go down 50%, as you have in previous posts, without even considering that they may decline far less or stay flat as wages rise over time is typical bear blog blather.

    I have no intention to prove myself to you as you wish. And I am surprised, but not entirely, by your defensive reactions. Upon reading your blog, you seemed like a reasonable person but your reaction puts you in the angry bear camp. So typical of the last 10 years and soooo very far from insightful. More like redundant.

    But don’t worry, all the nutters from the Vancouver Bear blogs are on their way over here. They too find your perspective fresh as they get to read the same things they’ve been saying to each other for 10 years, in your voice.

    They’ve flogged each other for the past 5 years as predictions have failed to materialisze. And soon, when the spring inventory numbers come in, they’ll come to a frenzied climax along with them, telling each other how they’re about to pick up a Westside SFH for 400K! (I’m not making this stuff up.) You can get excited along with them, if you choose, or you can use your superior intellect, as you insist on proving it to all and company, to help Vancouverites (and Canadians) actually make astute financial decisions with the what is left of their fast-diminishing buying power and with what’s actually happening in their out-of-reach cities. How about that Smart Bear? Could there be a way to invest, survive and have a foothold in RE owned for primary purposes or is it all wait it out until Armageddon, then you can feast on the carcasses? Twenty years of delayed correctness is bad advice.

    • Ah….a rational response. How nice.

      “Upon reading your blog, you seemed like a reasonable person but your reaction puts you in the angry bear camp.”

      I’m not angry at all. How exactly would you have me interpret your first comment:
      “Life’s tough when actors make better financial decisions than the average “smart” bear.”

      Seems the first inflammatory comment was uttered by you.

      Been nice chatting. Too bad you’re not interested in the guest post. Seems you may have something to say.

  9. mac says:

    How is calling out an actor for dumb financial advice not equally inflammatory? Just because he’s not here?

    15 years ago that “dumb” (you don’t come out and say it but imply it) actor bought real estate presumably in LA and Vancouver, where he lives. And he did it 3 times. And now has stopped flipping. That’s pretty smart even for an “actor”.

    Now this Chinese-Canadian investor-actor believes in holding on for the long-term. Is it because he loves real estate? Is it because he’s young? Is it because he’s Canadian? Or is it possible he has insight into a “mythic” extended community whose long-term view of real estate may be different than the average Canadian’s? It’s possible his story gives us insight into something else other than how stupid he is.

  10. The guy implied that all real estate is a good investment while all stocks are a bad investment. That’s foolish advice. Give it a rest.

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  12. vreaa says:

    mac -> see scenarios 4 and 5:
    Yes, a ‘muddle through’, or an ongoing precedent setting bull is possible; bears just don’t think it’s very likely.
    Bears do differ, but I personally weight the chances of an ongoing bull trend low (3%) and the ‘small pullback/muddle through’ a bit higher (15%).
    I still think that there is a far higher chance of a very significant price crash. Prices are more than 2 times overvalued.

    Why not take up Ben on his offer of a guest post?
    Lay out your thesis and your guesstimates re future action.

  13. VJGoh says:

    Interestingly, some of the best investment advice I ever got was to remember that a house isn’t an asset, it’s a liability. Because a (primary) residence only pays out when you sell it, an increase of equity doesn’t mean much; it’s all imaginary money. You can leverage that imaginary money, but you have to do it fast. I’m not sure what makes people believe that houses are different from other parts of the economy – subject to cycles and rises and falls – but if you’re going to look at your home as an investment, at least consider that you’re going to have limited cycles where your home is up and other cycles where your home is down. Even if the long-term trend is for your home to be up overall (is that even true? Beyond keeping up with inflation, I mean), wouldn’t it be smarter to take that equity, roll it into something short-term that returns dividends, and then immediately pay that money back in at the first time of trouble? Then you walk away with some profit and your home investment is safe.

    This actor’s advice is a bit ridiculous on several levels. He basically says that he’s no good at the stock market, so it’s not possible for anyone ELSE to be good at it either. It’s like saying that he can’t drive a car, so it’s impossible to drive a car. It’s obviously false.

    Of course, when you’re an actor with his kind of resumé, you don’t really have to worry as much about your investments as regular folks do. :/

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