# Does Canada ride out the storm



## sags (May 15, 2010)

Canada is sure facing a growing number of big problems.

Garth Turner discusses some of them on his blog today, accompanied by some rather dismal statistics.

http://www.greaterfool.ca/

Low oil prices.

Rising trade deficit.

Rising unemployment.

Record level of personal debt.

Rising inflation for imports due to falling dollar.

Low savings rate.

Weak job creation.

Low GDP growth.

And there are lots more.......................

The question I pose to the great financial minds on CMF.

Is there anything the government can do at this point to address these problems, or do we simply ride out the storm as best we can ?

When I say "we", I mean it collectively as Canadians and specifically the Government and BOC. 

There are certainly things we can do as individuals, but I am not convinced that macro events wouldn't overwhelm personal preparedness.


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## carverman (Nov 8, 2010)

sags said:


> Canada is sure facing a growing number of big problems.
> 
> Garth Turner discusses some of them on his blog today, accompanied by some rather dismal statistics.
> 
> ...


I'm not a financial mind. just a practical one, and this is my opinion based on some of the issues you mention..

From GT's blog:+



> But we also lost 19,000 factory jobs last month, the most in four years, largely in Ontario. That’s a surprise, given the fact the decimated loonie was supposed to make our manufactured exports more competitive.


Yes, obviously there is more to the underlying problems we are facing than just dropping the BOC prime rate a quarter basis points.
Why are the US based subsidiaries slowly pulling out of Ontario?....such as Kelloggs? Their last box of CANADIAN MADE cornflakes was made back in Dec5/14 , when three production workers signed the inner liner of the last box..
*"This is the VERY last box of Canadian produced cereal for the Canadian Market from Kellogg's London Ontario Plant, Friday Dec 5/2014."*

http://www.cbc.ca/radio/asithappens...in-last-cdn-made-frosted-flakes-box-1.2981856

What prompted this decision to *shut down yet another US invested entire plant* when Ontario is running a big deficit right now, and we have a Liberal provincial gov't that is driving an 'out of control bus" heading down a steep slippery slope... filled with pot holes of inflation, gov't mismanagement and waste, higher taxes for everything..(ie: the increases on personal licences and licence tags this year), and problems dealing with industry?

In the last two years or so, another food producer, Heinz, also pulled out. Others have pulled out as well.
http://www.cbc.ca/news/canada/windsor/heinz-closes-leamington-plant-740-people-out-of-work-1.2426608

*What is the fundamental problem here?*.we have lots of corn and tomatoes produced here in Ontario and we Ontarioans have to eat? We have willing workers and a market that still eats some corn flakes,
and consumes some ketchup and juices and soups...although that market may have changed over the years.

* So what is going on?.*.. is it that the market for their products have changed here?
or 
are the US based manufactures shrinking their investments here for other reasons, to protect their own profit margins... and workers in the US and elsewhere? 

*In other words..is Canada, especially Ontario... become 'too expensive" to even produce food? *

Now on *"Record level of personal debt"*

I was stunned to learn that in hot real estate markets such as Toronto,"MILLION DOLLAR MORTGAGES' are becoming the "norm" for a lot of those that can still afford them. 
But CMHC will only protect the lenders to the maximum of $1,000,000.



> Canada Mortgage and Housing Corp. says it will no longer offer mortgage insurance for homes that cost $1 million or more, starting July 31, even if the buyer has made a deposit of 20 per cent or more.


http://www.thestar.com/business/201...n_milliondollar_homes_condo_construction.html


Hard to say what is going to happen in the next years, but I see some "unravelling at the seams" going on already.
Taking out huge mortgages that may be affordable now..is like buying stocks on margin....and we all know from history what happened in 1929.


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## My Own Advisor (Sep 24, 2012)

I find it hard to believe a $1M mortgage is becoming the norm, in Toronto, or anywhere for that matter.

I could be wrong...

If that IS true, I can't imagine how folks are able to secure these mortgages...there is no way on earth you could get me to mortgage that amount.


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## carverman (Nov 8, 2010)

My Own Advisor said:


> I find it hard to believe a $1M mortgage is becoming the norm, in Toronto, or anywhere for that matter.
> 
> I could be wrong...
> 
> If that IS true, I can't imagine how folks are able to secure these mortgages...there is no way on earth you could get me to mortgage that amount.


Apparently on detached single homes, it is becoming the norm..

http://business.financialpost.com/2...-bank-of-canadas-flirtation-with-lower-rates/
Assuming that the buyers of these houses have the necessary 20% down and the financial resources to qualify..
a 25 year-10 year fixed term @ 3.84% will require monthly payments of $4,139.
Assuming the buyer intends to live in it as a principle residences and not flip it after 1 year or so, 
in 25 years of these levels of mortgage payments, the buyer would have paid back nearly 442K in interest alone. 

The banks will get richer no doubt, but the buyer stuck with this kind of mortgage will also have higher property taxes assessed based on the selling price of the house, as MPAC will look at the most recent selling price to calculate the assessment, if there is one.

So in 10 years (2025), this could inflate push the resale prices out there, meaning that those 1 million dollar single homes could be on the market for $1,500 million... the same house that sold for 1 million in 2015. 

Not too many out there can afford these kinds of mortgages, so it will affect the real estate market with more supply than demand (similar to what oil is experiencing now)...and that will lead to a price adjustment in the market at some point.


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## Spudd (Oct 11, 2011)

According to Garth Turner, people are taking sub-prime mortgages to borrow the 20% downpayment, to be able to qualify for the mortgage on the million+ house. 

The rule is that if the house price, not the mortgage, is > 1 million, then you need 20% down.


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## carverman (Nov 8, 2010)

Spudd said:


> According to Garth Turner, people are taking sub-prime mortgages to borrow the 20% downpayment, to be able to qualify for the mortgage on the million+ house.
> 
> The rule is that if the house price, not the mortgage, is > 1 million, then you need 20% down.


That is scary financing. Taking on a second mortgage to afford the first mortgage. it's like a house of cards...doesn't take much to collapse it when people owe more than they can repay, and the economy/jobs works against them. The banks are protected by CMHC but the subprime lenders are not. 

Wasn't this kind of subprime lending scheme, the prime reason behind what triggered the economic crash in the US in 2008?


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## cainvest (May 1, 2013)

My Own Advisor said:


> I find it hard to believe a $1M mortgage is becoming the norm, in Toronto, or anywhere for that matter.


It definitely wouldn't be the average here in Winnipeg, we'd be less than half of that. I gather living outside of the city of toronto would save someone a significant amount.


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## sags (May 15, 2010)

We can't compete with low wage countries and it makes me wonder why we ever tried.


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## sags (May 15, 2010)

The subprime 2nd mortgage is set at around 10% interest rates.

BC has warned their credit unions they have too much exposure to people who have subprime 2nd mortgages attached to their property.

This may not end well for BC credit unions.


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## sags (May 15, 2010)

cainvest said:


> It definitely wouldn't be the average here in Winnipeg, we'd be less than half of that. I gather living outside of the city of toronto would save someone a significant amount.


That is true.

Outside of the GTA..........say a couple of hours away, home prices are considerably less.

The problem with many of those areas where home prices are affordable is there are no jobs except government and public service jobs.

I traveled through a small city the other day in Southern Ontario. It was badly hit by manufacturing plant losses.

Just driving around, it looks like a city in decay. 

Old buildings getting older, with nothing new going up. Run down homes and neighborhoods and a downtown that has a lot of storefronts boarded up.

A SFH can be purchased there for under $200,000.............but there is no reason for people to move there anymore.


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## Eder (Feb 16, 2011)

I read Garth Turner from time to time as well...for fun click on a few of his blog posts from 2010...


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## carverman (Nov 8, 2010)

sags said:


> A SFH can be purchased there for under $200,000............*.but there is no reason for people to move there *anymore.


And this is so true in "one mill towns" such as a couple in Northern Ontario that have shut down and put all of the workers on the unemployment list. An unemployed worker or the homeowner with no income cannot afford to improve their homes or buy even buy new commodities, so the town as a whole suffers as well.



> The Marathon Pulp mill pays about $1.2 million of tax annually to the town, (the mayor) said. Council will be meeting to discuss the long-term impact of the closure on the municipal budget, he said.


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## cainvest (May 1, 2013)

sags said:


> Outside of the GTA..........say a couple of hours away, home prices are considerably less.
> 
> The problem with many of those areas where home prices are affordable is there are no jobs except government and public service jobs.


Its a tradeoff, lower home prices for higher commute time ... you don't have to work in the small town.


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## m3s (Apr 3, 2010)

sags said:


> We can't compete with low wage countries and it makes me wonder why we ever tried.


Germany does

I read somewhere Germany profits more from an iPhone than China or USA. Regardless, they have a strong economy with very high wages and high taxes. They don't have resources, they have intellect.

Canada should focus on creating highly educated people, not binge drinkers with student debt and a fancy piece of paper.


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## none (Jan 15, 2013)

One of the cheapest long term investments a country can make is the education of it's population. The payoffs are massive, of course, you don't see theses pay-offs for a couple decades which makes it a hard political sell. 

I would be all for government funded post secondary education up to the Bachelor or trades diploma. It seems logically inconsistent that we collectively agreed we'd pay to grade 12 for the past few decades because we saw it's value but refuse to pay for longer now even though the bar has moved.

I would like my son to have the same advantages that I and my parents did (which I hack together via an RESP).


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## none (Jan 15, 2013)

I asked on Garth's blog how this should affect the potato asset allocation but no answer.

I 'thought' I saw this coming over a year ago but I've been a housing bear for years so I exchanged 50% of my net worth into US$ at the time and invested heavily in the US which has worked out really well for me. I say 'though' because it could have all been luck, who knows? Confirmation bias and all.

So my potato is pretty light in Canada now so because the future is unknowable so I just rebalance as necessary and ignore this? That sounds right to me. Thoughts?


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## cainvest (May 1, 2013)

none said:


> One of the cheapest long term investments a country can make is the education of it's population.


Of course this only works if the higher educated people stay here and can find good paying jobs.


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## crazyjackcsa (Aug 8, 2010)

That's the trick isn't it cainvest. Otherwise you have a lot of really educated people working any job they can find.


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## Fraser19 (Aug 23, 2013)

crazyjackcsa said:


> That's the trick isn't it cainvest. Otherwise you have a lot of really educated people working any job they can find.


I recall a friend of mine was traveling though Europe. I believe he said that when he was in Finland there were people working with a masters degree working at McDonalds. Now I have not been there, but I do believe that all education is free in Finland. I could not imagine how discouraging it would be to get a masters degree to work at McDonalds.


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## mrPPincer (Nov 21, 2011)

Really? I don't see the problem.

#1 free education (from said student's perspective)
#2 you're in all likelihood bunping elbows with other highly educated people
#3 I've heard Mcdonalds is a great place to learn leadership skills & team management
#4 lots of time to let your mind work and hatch out new plans because why?.. back to #1, no student debt

Am I wrong on this?


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## mrPPincer (Nov 21, 2011)

About the brain-drain thing, we have that anyways, and possibly always will, because the US education system is.. what it is.

The other side of the coin is we could theoretically..? be doing a reverse brain-drain by bringing in people for a superior education experience here, just a thought.


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## Rusty O'Toole (Feb 1, 2012)

"The question I pose to the great financial minds on CMF.

Is there anything the government can do at this point to address these problems, or do we simply ride out the storm as best we can ?"

That's the wrong question. One of the main reasons we are going down hill is we believe it is possible for the government to fix the economy through some slick trick. It isn't.

Another problem is we seem to believe work is for suckers and actually producing something someone wants is a disgrace.


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## cainvest (May 1, 2013)

crazyjackcsa said:


> That's the trick isn't it cainvest. Otherwise you have a lot of really educated people working any job they can find.


Or leaving for the countires that have the high paying jobs in their field ... seen that happen first hand a number of times.
If we don't have or get companies here they require the highly educated there is no place for them to work. There, something for the gov to do, get those types of companies to come to Canada (and stay here).


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## supperfly17 (Apr 18, 2012)

cainvest said:


> Or leaving for the countires that have the high paying jobs in their field ... seen that happen first hand a number of times.
> If we don't have or get companies here they require the highly educated there is no place for them to work. There, something for the gov to do, get those types of companies to come to Canada (and stay here).


I am still puzzled as to why the TSX is still doing so well considering oil prices, record debt, etc.


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