Nicole Foss on Canadian real estate: “We are in a massive bubble”

Nicole Foss, author of The Automatic Earth made an appearance on the Keiser Report.  I am a faithful reader of her site as it provides an interesting dialogue about credit creation and destruction.  She has written some interesting pieces about the dynamic of debt-based money in our system.  While she is far, FAR more bearish than I am, her writings are extremely interesting nonetheless.  In this interview, she discusses the Canadian real estate market.  Being a Canadian resident, she had a lot to say…and none of it is good.  She paints a far scarier picture than I do.

Let me first say that although I am a deflationist, I’m not an uber-deflationist in the same camp as Ms. Foss.  Her writings are incredible and her ability to construct an argument is impecible, but I still have a hard time wrapping my head around a deflationary depression at the scale that she believes we’ll experience.  I sure hope she’s wrong anyways.

By way of a short biography, Ms. Foss is writes under the name Stoneleigh over at TAE. She and her writing partner have been chronicling and interpreting the on-going credit crunch as the most pressing aspect of our current multi-faceted predicament. The site integrates finance, energy, environment, psychology, population and real politics in order to explain why we find ourselves in a state of crisis and what we can do about it. Prior to the establishment of TAE, she was editor of The Oil Drum Canada, where she wrote on peak oil and finance.

Foss runs the Agri-Energy Producers’ Association of Ontario, where she has focused on farm-based biogas projects and grid connections for renewable energy. While living in the UK she was a Research Fellow at the Oxford Institute for Energy Studies, where she specialized in nuclear safety in Eastern Europe and the Former Soviet Union, and conducted research into electricity policy at the EU level.

As far as Max Keiser goes, I think he is an interesting character.  He certainly is anti-bank, which I like.  But he’s also a bit too conspiracy theory-ish for me, and I question his motives in a lot of the things he does (the JPM silver gate for example).  Nevertheless, he certainly is interesting to listen to.

Here is the full clip.  Fast forward to 13:40 for the bit on real estate.  I’ve transcribed some of the conversation below.

“Real estate is peaking as we speak”

“We are in a massive bubble and there will be an enormous comeuppance. Canadians are tremendously in debt.”

“We are going to be playing catch-up to the downside (with American real estate)”

“I could see real estate falling 90%”

Holy crap!  I’m not predicting anywhere near that type of collapse, but God help us if she’s right.

-Ben

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15 Responses to Nicole Foss on Canadian real estate: “We are in a massive bubble”

  1. paradox says:

    I think she is right about many things regarding Canada, I am not so sure though about 90% real estate price decline.
    I lived in many countries before Canada and I can agree 100% with her on one point : Canadians are in denial big time.
    I am amazed by the amount of self congratulory propoganda that canadian media churns daily at the unsuspecting canadian that goes unchallenged. Goverment dominates most aspects of life in this country, it is a shame.

  2. Sam says:

    LOL – was that an episode from the Royal Canadian Air Farce???

  3. Fish10 says:

    Ben unfortunately (IMVHO) with that 90% drop call she under-mines the rest of her argument.

    At 90% all Canadian banks are BK, so is the CMHC and Canadian Gov and the LAST concern will be having enough cash to buy.

    Her analysis at reaching the 90% is based on ‘available buyers’ not much of an anlysis.

    I am a bear- but pleeze!

  4. Agreed. I don’t see the sort of decline she’s predicting. Not at all! The post is not an endorsement of her position but is instead meant to generate some good discussion. As with any of these predictions, you ‘eat the meat and spit out the bone’. Foss makes some great points about the psychological denial we see in Canada. I also happen to think that the debt deflation dynamic she describes in her writings are highly plausible, though not taken to the extremes she describes.

  5. jesse says:

    I think she was misinterpreted. She was saying, I think, that was a worst-case. Dunno, Ben. If that’s what it takes to be interviewed, get your name on the call list!

  6. rp1 says:

    I liked her points about the environmental destruction at the end. The 90% call is crazy because we would devalue before we ever deleveraged that much. You might get 90% off for a house near a tailing pond however. It will be a glorious opportunity for mad scientists hoping to breed an army of mutants.

  7. John in Ottawa says:

    I stopped reading TAE well over a year ago. Great writing over at that site, but I just don’t wish to live in a constant state of emotional depression.

    They are part of the peak oil evangelism crowd. The basic message of the peak oil crowd was that, as we fall over the edge of the Hubbert curve, we will enter an Armageddon like scenario where oil depletion will rapidly destroy civilization throughout the world. A Long Emergency.

    The folks over at the Cambridge Energy Research Institute had an opposing view that we would enter an undulating plateau. A slow, up and down, decent trend over a long period of time.

    For several years, the peak oil crowd over at the Oil Drum considered CERA to be complete fools and their undulating plateau theory to be a NWO conspiracy to lull the masses into complacency. Today, peak oilers have co-opted the undulating plateau argument.

    The undulating plateau argument is simple and demonstrable. Because the rate of oil supply is now constrained and falling, every time the world economy tries to ratchet up to former lofty levels, the price of oil will be driven up to levels that will send the economy back into recession. Demand destruction will reduce the level of oil consumption back to a point where the rate of production can keep up with demand. As Ben likes to say, rinse and repeat.

    In the IEA’s Annual Report (about $600 if you are interested in getting one) this year, they finally report that the peak rate of conventional crude production occurred in 2006. Prior to this year’s report, they were predicting this wouldn’t occur until 2035. Conventional crude is the stuff that comes out of wells in places like the Middle East and Alberta. Tar Sands and Natural Gas Liquids are unconventional crude. They still don’t see a peak in the aggregate total production of all forms of crude until 2035. For instance, the peak rate of production from Tar Sands may not occur for another hundred years and oil from the Tar Sands may still be produced from the Sands hundreds of years from now. It just won’t be used for burning.

    As no oil can be produced as quickly as conventional crude, Peak Oil occurred in 2006.

    For background, Peak Oil, that is the peak in the rate at which oil can be produced, occurred in the United States back in 1970. Plug that piece of information into what you know of changes to the global economy since then.

    Make no mistake, this is all deflationary (quite aside from what may or may not occur with specific fiat currencies as even gold will deflate under this scenario) and very worrisome to me over the next thirty years, my time horizon. Without a new source of very cheap energy (fusion), we have, in my studied opinion, already experienced the peak of world productivity.

  8. Paul says:

    @John in Ottawa
    “I stopped reading TAE well over a year ago. Great writing over at that site, but I just don’t wish to live in a constant state of emotional depression.”

    Great writing John, but I stopped reading after that bit. I don’t wish to get all annoying commenting about how we’re just like all other living organisms on this planet.

    Regards,
    Paul

  9. The Masked Avenger says:

    Interesting reference to Garth Turner and the evils of the T-D Bank using collateral mortgages rather then conventional mortgages. Despite the inference made that this is a new tactic to fleece Canadians the fact is this has been a common practice in the financial industry for many years. I doubt that there has been a collateral mortgage issued by any FI or Credit Union for at least 10 years. This is what has lead to the huge increase in HELOC’s. I doubt this is brand new to the T-D Bank as well. There is no problem moving your mortgage at maturity. Registering a new mortgage costs less then $500. A new appraisal may be becessary but that cost and the mortgage costs will likely be picked up at least in part by the new lender. Sorry, no conspiracy at work here!!

  10. pascal says:

    Max Keiser goes.. But he’s also a bit too conspiracy theory-ish for me, and I question his motives in a lot of the things he does… : Your work is good and i think if you dont know that what you are living in they economies are not plan in advance , crissis, depressions, your always gonna have a hard time to figure , when and why those thinks happen. Start with this honorables and respected man. Norman Dodds. 1 of 6 parts

    And to make sure you get it in advance next time, Bob Chapman, is the Man.
    http://theinternationalforecaster.com/

  11. Tony from Calgary says:

    Ben,

    Like that you took the middle ground on this one – weighing in with your opinion, but giving credit where credit is due (Nicole and her writing partner are pretty good, if not interesting, writers to say the least). I really do enjoy Garth’s blog, but I thought it was a bit hypocritical for him to come out swinging about Nicole’s predictions when he himself has been labled such a “kook” in the past.

    Anyways, between your three blogs plus Mike “Mish” Shedlock’s writings, I hope I’m getting a fairly balanced (minus MSM) view of the ever-changing world economy.

  12. mac says:

    Mish/Garth/Ben do not make up a balanced view, even when positioned against the evil MSM…what would that be in Canada… the CBC & CTV?

    If you’re going to feature doomers, Ben, why not feature some from the other side? That would be refreshing. Why not get one of those Dow 38000 nutters from BI to guest post or write to James Altucher or somesuch?

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