Monday, January 31, 2011

Imperial Oil makes $799 million in 4th qtr profit Harper wants to give them a tax break

In these troubling economic times its nice to know that those in need have a friend in Prime Minister Stephen Harper. Imperial Oil (you probably know them as ESSO) only managed just shy of $800 million in profit for the last 3 months of 2010. (Globe and Mail Story)

It warms my heart to know that the Conservatives are just itching to help companies like this out. What are the likes of Ignatieff and Layton thinking in calling for the government to beef up social programs to help Canadians hurting from our tough economic times???

Esso and other gas stations are always hiring, and there's always Tim Hortons or Wal*Mart!

Minimum wage jobs with no benefits, this is Stephen Harper's Canada folks.

Get used to it.

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Saturday, January 29, 2011

Corporate tax cuts or health care? Canada's choice

I'm sure Stephen Harper will take exception, but if things play out the way many are anticipating, then this will be the question facing Canadians in a spring election:

Do Canadian voters want continued funding for health care and other federal social programs, or would we prefer to see profitable businesses pay less in taxes.

Of course Harper and his minions will be hard at work telling voters that we can have our cake and eat it too. That the government can continue to lower taxes, continue to deliver on social programs, and do it all while restoring fiscal balance and eliminating the deficit.

If you believe that then you probably believed Harper when he said he'd leave income trusts tax exempt. And you probably missed Harper's record setting performance in stacking the senate when he said he wouldn't. Oh, and let's not forget our Prime Minister's assurances about never going into deficit and how Canada would avoid a recession.

Yeah right.

Stephen will be hard at work trying to convince us hosers that by lowering corporate taxes employment will increase. Its the old "trickle down" argument that keeps proving false time and time again, because wealth accumulates and consolidates at the top. Actually "trickle" might be an appropriate word, because while billions will be diverted from Ottawa's coffers and government programs, no doubt a few pennies will 'trickle' down to working stiffs.

Just look at our incredibly profitable banks. Does anyone in their right mind think line ups will shrink for a teller if the big six are paying less in taxes? Bonuses to senior executives would certainly rise, to say nothing of dividends to share holders.

But increased employment???

The increased profitability would likely put merger plans back on the front burner, which would mean consolidation and fewer jobs.

Harper has repeatedly stated that sustainable funding for Health Care is a priority. But can we trust him on this?

Killing our national health care system would make Harper's old masters with the National Citizens Coalition happy, that organization was founded to combat Ottawa's efforts to bring quality medicare to all Canadians back in the sixties . Who contributes to the NCC??? Uhm, we don't know...they don't divulge that information. They call on government to provide greater accountability and transparency but don't think they should be constrained by the same ethical standards.

So, what'll it be? Health care of corporate tax cuts? That's the issue folks, if I lived on Bay Street then Harper would be my man. Being from Main Street though I'll be looking elsewhere.

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Sunday, January 23, 2011

- Mortgage Financing - Flaherty wanting props for fixing mess he created

Canada's finance minister Jim, "Mr. Magoo" Flaherty finally took steps to fix a problem he created, that of lax lending regulations surrounding the real estate market and mortgage financing.

Everyone likes to talk about how "Canada is different", that our banks didn't engage in the kind of shady financing practices which helped tank the US housing market. They conveniently forget 40 or 35 year mortgages with no money down, or the habit many fell into of using their homes as a credit card...refinancing as more and more newbies rushed into the housing market pushing prices up beyond where they went at the height of the US bubble - higher when you compare average home prices as a multiple of average annual earnings.

I'm on a training course down east, but still couldn't miss this news. No more 35 year mortgages and refinancing to a max of 85% of a home's value, long overdue Mr. Flaherty. The loose lending practices you initiated are going to come home to roost, but at least you've finally mitigated some of the damage this Conservative government caused by injecting steroid proportion liquidity to the housing market.

In the near term I won't be surprised to see a mini bump in the market as buyers rush in to grab up a 35 year am instead of waiting and seeing their buying power reduced by 7% or so.

Its all a matter of supply and demand as any 1st year student of economics knows. If these pending changes bring in more buyers than the available supply can handle we might see bidding wars in the near term. Unfortunately (for sellers) after the changes take place I don't see their being sufficient demand given the weak economic recovery, downsizing baby boomers, rising energy costs and the ballooning trade deficit brought on by the soaring loonie.

Flaherty and his Conservative friends have been able to paint themselves as competent managers of the economy by goosing the marketplace with cheap money, a dangerous drug that will cause serious withdrawal problems when the tap starts getting squeezed with these mortgage financing changes and higher interest rates.

I don't think Harper's Tories are stupid, far from it...just very opportunistic. As such I won't be surprised to see a snap election call within the next couple of months if the opposition parties decide to keep Harper in charge of the sinking ship.

Make no mistake, we're taking on water, but its below decks so not many are noticing....YET.

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Saturday, January 8, 2011

Life in the army, heading back to base

After a very enjoyable Christmas holiday season with my kids and family, its back to work Monday. Since joining the CF in March of this year at the ripened age of 43, (now 44 and counting) I've had lots of readers commenting on posts about my experiences at basic and asking what's now in store.

After completing BMQ (Basic Military Qualification) or boot camp if you will, I was posted in Ontario where I am awaiting training in my trade...communications. While waiting the CF keeps members busy with various taskings. I was sent to CFB Wainwright for a month in the fall to take part in a training exercise involving the next rotation of soldiers going to Afghanistan.

Here's a youtube video giving a description of the exercise, it was also reported on TV and in major print media.

I've also been to CFB Meaford for a Soldier Qualification course, learning to survive in the field and how to safely handle various arms. I still have a long road to haul before I'm qualified in my trade and eligible to be deployed.

With Canada extending the mission in Afghanistan I'm hopeful of having the opportunity to serve there. I want to see things with my own eyes, as opposed to hearing the biased opinions of those who've never been there.

I will be writing still, however expect this blog to be sporadic at best. Very best for the new year everyone.

Thursday, January 6, 2011

Real Estate industry terrified of proposed changes to mortgage financing rules

Over and over again we're being told how, "Canada is different". While other countries (most glaringly the United States) have suffered serious erosion in the value of real estate, Canada has largely dodged the bullet...SO FAR.

We don't have "no money down" mortgages is a familiar refrain.

Well...that is if you're willing to ignore 5% rebates offered by the big banks which allow those with zero savings to finance 100% of a home purchase. Want to purchase a $300,000 house and don't have $15,000 for a piddly 5% downpayment...not even in an RSP? No worries, in Canada you can stil buy a home without tappinig into any of your non existent savings.

Can't borrow enough for your dream home over a 25 year amortization? No worries, we'll make it 35 years and you can qualify for even more money. Afraid of a bidding war with other no money down first time buyers? Don't be!!! Go in 30 or 40k over the asking price, you don't want to miss out!!

$Kaching$ $Kaching$ $Kaching$

Every $500,000 home sold represents $25,000 in real estate commmisions at 5%. Mortgage brokers, RE lawyers, home inspectors, moving companies, builders, financial institutions...real estate is a multi billion dollar industry and the players want this party to go on as long as possible.

Those not completely lacking in common sense know the free drinks won't last forever, but let's keep the tap open while we can. The only thing that will change is the size of the hangover, but who thinks about a hangover when they're on their fifteenth drink?

So what are the proposed changes being bandied about?

Canadians are too indebted, that's reality. So our elected officials are talking about bringing back some of the lending rules our parents and grandparents had to live with.

-Scrapping 35 year ams which many are using to qualify for fatter mortgages. Amortizing a mortgage that long basically means renting debt for 15 years anyway.

-Raising down payment requirements. Imagine expecting those taking out a mortgage to have some skin in the game instead of allowing them to play with 100% (or damn close) of other people's money?

That's it, just two little changes and the Real Estate industry is in attack mode. Garth Turner's Blog of yesterday's date has a screen shot of a CREA letter the author claims to have obtained from friends in high places. (SEE IT HERE) The letter exhorts members to contact their MPs to protest any changes.

Here's another calling such moves "Draconian" (SEE IT HERE) by a mortgage broker.

Whether changes come or not everyone knows that no party lasts forever, and when people get as drunk on cheap money as we've become, a hangover is coming. Changes like the ones being advocated will only serve as aspirin, but aspirin does help a bit.

Tuesday, January 4, 2011

Are Canadians smarter than Americans? Will we ignore warnings of a housing bubble too?

As early as 2005 some market analysts and economists in the U.S. came to the realization that the explosive growth in residential real estate prices stateside represented a bubble. After the dot com melt down anyone around the age of 30 and above knew the risks. Bubble markets happen when everyone and their uncle rushes in to buy a hot commodity...

Its musical chairs with real $$$ on the line. People fall all over each other to grab a particular asset, with the expectation that there will be a never ending stream of new players entering the game pushing prices even higher. That's what the dot com paper tycoons thought, as did the guys buying oil at $140...there will always be more people coming along.

Then the music stops and many get caught selling at prices well below what they paid. "Next time I'll be smarter", they say. "Next time I'll get out when the herd is excited".

I think we're already at the tipping point myself. According to what I'm reading 70% of Canadians own their's a National Post reference from back in October saying home ownership was at 68% and heading for 70.

If you've ever read a stock chart THIS MIGHT LOOK FAMILIAR. Remember the Nortels, Worldcoms and Enrons, to name just a few of the bubble market high flyers of the late 90s? Prices surged on heavy volume, they pulled back...then came the "Judas" or sucker rally, and then the inevitable collapse.

It can't happen in with residential homes can it? I mean, you don't HAVE to have a stock portfolio, but everyone needs a place to live. That is true, but it doesn't mean you have to own a piece of paper representing hundreds of thousands of dollars in debt to a bank either....people can and have lived in rental accommodation for years.

I will grant that many, (indeed most) Canadians prefer to own a home instead of renting. But does that mean that there will always be a steady stream of buyers, especially when our population is rapidly aging and our economy is struggling? I don't think so, and others are sounding the alarm bells as well.

Sure, tons of buyers have stampeded into the market to avoid the HST and to cash in on all the cheap money banks are tossing around. But as we move into the spring market of 2011, how many buyers will be left for people who've held off putting up a For Sale sign during what traditionally is the best time of the year for sellers?

In an earlier post I cited a few sources warning Canadians of a housing bubble in this country:

Who says Canada has a housing bubble? Lots of people

I'll add this blog to the list, as it was the inspiration for this blog entry:

Financial Insights

Like our neighbours to the south, Canadians have been getting ample warning about the storm clouds that are gathering. Sadly, just like the U.S. we have plenty of naysayers trying to keep the herd calm, confident and continuing to borrow at record levels to spur the economy.

Here's Ben Bernanke, chair of the U.S. Federal Reserve pooh poohing concerns about a weakening US economy and the prospects of American houses representing a bubble. We've got our share of fiddle playing Nero's here too, just pick up any newspaper with lots of real estate advertising.

Monday, January 3, 2011

2011's biggest story, concern over falling house prices

With my first blog entry of the new year it seems fitting to take a look back at the year that was.

According to google analytics, in 2010 this blog had over 8,000 page views with over 7,000 being unique. Hardly earth shattering, but probably equivalent to the readership of a small weekly newspaper. Of course I wasn't doing as much writing in 2010 given that this was the year I joined the Canadian Forces, a well ripened 43 year old recruit surviving the rigors of basic training.

I wrote a bit about my decision to join the military, and on my experiences in boot camp. The most read blog post in 2010 on that topic was:

A 43 year old looks to join the army, and go to Afghanistan

That entry was visited a total of 386 times, which ranks as the fourth most read for the year.
The most read posts on this blog, in order, were:

1. Canada's real estate bubble...poised for collapse 973 page views

2. Why put your child in French Immersion? Points to ponder 681 page views

3. Abortion in Canada Legal – Right Up Until Time of Birth 535 page views

And rounding out the top 5, after my musings on middle age and joining the army, came another entry on teaching students French, ou l'enseignment en français si vous préferiez: Should French Be A Mandatory Course? It had 327 page views.

All those posts were from 2009, but a lot of the traffic comes from search engines, almost half at 3,672 visitors.

Looking both ahead and back, I'm not surprised that fear over the inevitable bursting of our bloated real estate bubble topped the list. With reports constantly coming out about how indebted we Canadians are, a significant correction in pricing to many people's most valued commodity is certainly worrisome. All it's going to take of course is an increase in borrowing costs. That will happen as soon as our rock bottom interest rates begin inevitably climbing.

In July of 2009 I posted this:

Canada's real estate bubble...poised for collapse

It included this quote near the end:

"If you wish to question my predictions, that's fine. I'll just ask that you wait until January of 2010, bookmark this post if you wish. In the near term markets can be volatile, no matter how fundamentally flawed a particular commodity may be. Even a lousy hockey team can go on a 5 or 6 game winning streak. But that doesn't mean they're going to make the playoffs. Talk to you in January and beyond..."

The herd is slowly waking up to reality, it always takes time. I'm sure I'll have more to say on this topic as 2011 rolls along.