Friday free-for-all!
It’s Friday August 10th and this is your open topic discussion for the weekend: Some stuff I’ve noticed this week:
- Markets tumble in Asia
- Wage pressures raise inflation fears
- A Widening Credit Squeeze?
- Bank of Canada moves to calm money markets
- Vancouver housing market still hot.
What do you see? Post your thoughts and links here.
RSS 2.0 comments feed. Both comments and pings are currently closed.
August 9th, 2007 at 11:12 pm
August 10th, 2007 at 10:32 am
A misfire?
09:18 EST Friday, Aug 10, 2007
The European Central Bank, Federal Reserve and Bank of Canada all signalled their willingness to come to the aid of financial markets.
And so they should, because that’s part of their job.
But in seeking to calm the jangled nerves of investors, they may have inadvertently made a bad situation worse.
Not that they had much choice in the matter.
Faced with a credit squeeze that pushed overnight interest rates sharply higher, the European Central Bank injected $130-billion (U.S.) into the banking system. Underlining the severity of the problem, it was its biggest cash infusion yet, and about 37 per cent more than it provided the day after 9/11.
The move came after Paris-based BNP Paribas halted withdrawals from funds that had invested in subprime U.S. mortgages, saying the sudden evaporation of liquidity for the securities “has made it impossible to value certain assets fairly regardless of their quality or credit rating.”
The ECB was only trying to help, of course. But it may have ended up fanning the flames.
“The ECB is treating this like an emergency; it might make traders even more afraid,” Peter Lynch, chairman of private equity fund Prime Active Capital in Dublin, told Bloomberg News.
The Federal Reserve Board did its part by adding $24-billion in temporary reserves to the banking system - its biggest liquidity injection since April. The Bank of Canada said it also stood ready to help.
“In light of current market conditions, the Bank of Canada would like to assure financial market participants and the public that it will provide liquidity to support the stability of the Canadian financial system and the continued functioning of financial markets,” it said in a press release.
In other words, nothing to panic about, folks. Everything’s under control.
The response from investors? Sheer panic.
On Wall Street, the Dow Jones industrial average plunged 387.18 points or 2.8 per cent to 13,270.68 for its second-biggest drop of the year. In Canada, the benchmark S&P/TSX sank 280.18 points or 2 per cent to 13,478.01, with heavily weighted financials absorbing some of the worst blows.
“Central banks are trying to calm things down, but … by reacting this way they may give people the impression that they know something the rest of us don’t,” said David Kelly, economic adviser at Boston-based Putnam Investments.
“The real question that investors need to ask is, what does this mean for the economy? Because if it doesn’t really stop economic activity, if it doesn’t stop hiring or buying or building a plant or exporting or importing, then this will be a relatively short-term financial event.”
Still, investors appear to be preparing for a worst-case scenario. Which is what, exactly?
According to John Johnston, chief strategist for Harbour Group at RBC Dominion Securities in Toronto, it’s that credit dries up and the U.S. economy - huge chunks of which function on borrowed money - goes into recession. That, in turn, could pull down the rest of the world.
Not that he sees that happening. “A more realistic case is that it’s a credit event that dings the economy but doesn’t send it down,” he said.
Until the subprime smoke clears, investors will be left wondering whether central banks have the problem in hand, or whether they’re desperately trying to forestall something bigger and scarier.
“That is the question,” said Stewart Hall, market strategist at HSBC Securities Canada. “Do we get concerned about this because all of a sudden there is a severe tightening in credit that has compelled the central banks to come in and provide liquidity? Or do we take the more optimistic route and say this is the way it’s supposed to happen, this is a large part of the reason we have central banks, to help out when things get particularly tight?
“I put myself more in the camp of optimism.”
August 10th, 2007 at 10:33 am
August 10th, 2007 at 10:34 am
over here in Ireland there has been no need for slick marketing for condos as the people have been camping out just to buy an overpriced flat during the last several years.
there were even panics breaking out last year as the prices rose from the front of the queues to the back!
oh how feel for those suckers now.
August 10th, 2007 at 12:38 pm
IMO the banks know that mortgage foreclosures are just getting started. The credit crunch has a long way to unwind yet.
August 10th, 2007 at 1:10 pm
August 10th, 2007 at 1:59 pm
What hasn’t started? Subprime meltdown? Won’t happen in Canada. Stock market turmoil? Happening now. Real Estate collapase? Hasn’t really started in the US other than a few high profile markets.
August 10th, 2007 at 2:08 pm
August 10th, 2007 at 2:43 pm
Essentially it just raises the cost of doing business for many companies. This has a net negative impact on the economy as a whole which can be just a blip or can trigger a recession or depression.
On the RE front it makes mortgages more expensive and the creditors more reluctant to lend money so people will have a tougher time getting approved.
August 10th, 2007 at 3:16 pm
“Vancouver’s resale market is a prime example of strong growth, fuelled by the city’s low unemployment rate, higher incomes and rising net migration into B.C., she said.”
Robyn, Why don’t you give us the numbers?
How much net migration? How much have incomes grown?
In God we trust, all others please bring data.
August 10th, 2007 at 4:26 pm
The liquidity freeze? What’s happening is a credit tightening that is inconsistant by market. It will affect people differently in different regions. Any thing else is either a wild ass guess or wishful thinking depending on if you are “invested” or not.
August 10th, 2007 at 6:08 pm
Somewhat peculiar that excess liquidity caused the problem, and now the central bankers are thought to be firing up the printing presses again.
But perhaps not, my wild ass guess is that they are trying the old “moral suasion†tactic.
Central bankers must surely realize there is so much hidden and underreported inflation, that they cannot cut rates.
It won’t be long now before inflation, and stagnation come to co-exist again.
Tick Tock, Tick Tock
August 10th, 2007 at 7:17 pm
garyincalgary asked
is subprime alive in canada
go there to read the answer
vancouver is mentioned
latest post..under comments
wow..all the bubbles..your in a massive one as are we in calgary
i can hear the hiss though
good luck vancouverites
your bubble will burst
keep poking the pins in it
when you get sick of that
kick it in
its close now
mortgages are getting sooooooooo tough to get
August 10th, 2007 at 7:22 pm
albertabubble.blogspot.com occasionly
we are fighting what you are
irrational exuberance and
money hungry hogs
that dont want to work
nah..they want free money
that rennie must drive you guys ballistic
fight on
the crash is closer then many think
August 10th, 2007 at 10:08 pm
Enjoy your posts over at the Alberta bubble blog. Occasionally, you guys have some push-n-shove matches going on over there. lol
If anyone wants to exam a bubble, then this mildew rain-city really takes the cake. I’m envious of other places that think they’re in a bubble. Vancouver is probably on of the most unhinged places in the western world.
Hopefully, we will follow the same trajectory as Calgary, and especially, Edmonton … waiting as this mess unwinds
August 10th, 2007 at 11:28 pm
Best of luck to all.
PS; I do not post much but very much enjoy the daily banter. Thanks to all posters for keeping this a spirited conversation!
August 11th, 2007 at 12:49 am
Would that be the same Ireland where 1 in 7 houses is now vacant?
Yes, you too can be the proud owner of yet another empty property!
August 11th, 2007 at 1:22 am
Most of my money is in GICs. Has been for several months. Its my safe harbour in the storm.
I expect to see 2003 prices in two or three years, perhaps lower. There have already been reports of declines of over 30% from the peak in some bubble markets in the US. And its just beginning. 30% off the peak is when I consider buying.
August 11th, 2007 at 2:11 am
Price Reduced: 07/31/07 — $595,000 to $495,000
Price Reduced: 08/03/07 — $495,000 to $395,000
Price Reduced: 08/09/07 — $395,000 to $349,000
Now that’s what I call a MOTIVATED seller!”
From thehousingbubbleblog.com, about a house in Florida.
When will we see this in Vancouver?
August 11th, 2007 at 5:54 am
Wait until the defaults that come out as the result of interest rate renewals.
August 11th, 2007 at 7:34 am
You forgot to mention the Olympics, which once televised across the world, immigration will increase to several million a month, and I just skimmed through, but somewhere between the fear injection, and the need to act now, before one is “priced out for ever†from the best place on earth, there must be a line or two in there on how we are running out of land.
August 11th, 2007 at 8:00 am
Friends’ relatives are getting back into the local market (after selling about a year ago). Only this time they are only buying uncompleted presales. Why? They don’t want to bother renting it out because they say there’s no way they can cover the mortgage with rent.
So, for them, the best way to play the market these days is with a call option play. All they could lose in the end is the presale downpayment. Who says property markets aren’t sophisticated.
August 11th, 2007 at 9:14 am
Of course not; prices won’t be that high. (No smiley because no joke.)
My money’s in GIC’s and PC Bank 4% savings account. Safe harbour.
August 11th, 2007 at 12:37 pm
The Fed chairman feels the pain of subprime borrowers and the Street, but he’s got his priorities
Finally a guy with balls
August 11th, 2007 at 2:47 pm
I have to say I’m surprised at the Fed’s ability to keep walking this “inflate - but not too much” tightrope. They’ve managed to avoid deflation (#1 but mostly unstated goal) yet still keep short term interest rates at a reasonable discount to “real” inflation (#2 but more public goal) for far longer than I would have expected.
Without a second body blow to the system, it is entirely possible the broader markets will muddle through the current mess, allowing current real estate bubble will deflate slowly.
BTW - those of you looking at GICs and money markets as a safe harbor should read the terms of your investment very carefully. Many of those allegedly cash-friendly investments have significant exposure to non-agency MBS and other debt instruments of dubious reputation.
August 11th, 2007 at 4:19 pm
I’m not the most financially astute person, but the ‘G’ in GIC tells me that unless the bank itself goes down, the GIC is as safe an investment as there is. That’s why it has the lowest returns. No?
August 11th, 2007 at 4:57 pm
August 11th, 2007 at 5:29 pm
All that said, if safety is a concern I personally would definitely take a GIC from a Canadian bank over a broker’s money market fund.
It’s a complicated world out there…
August 11th, 2007 at 6:44 pm
“The average house price should be no greater that 5 times
average earnings (According to the bank of England and the
old central bank of Ireland). Average Industrial wage =
32,000 euros and therefor house price = 32,000 * 5
house price = 160,000 euros.
Average house price in Dublin say 400,000 euros this means
that the house price must drop at least 50% to come back
into proper valuation. Also markets are called mean
reverting which means that all markets eventually revert
to the mean (average) this includes stock markets, bond
markets, property markets etc.”
I don’t know about the validity of the 5 x average earnings, but can you imagine how far Vancouver prices have to fall if this ratio is universally applicable?
This renter says bring it on PLEASE!
August 11th, 2007 at 7:33 pm
Ah. The ole’ soft landing scenario. I was so hoping that would happen. Yeah, it’s entirely possible. I believe that will happen … even if millions of others don’t
August 11th, 2007 at 7:49 pm
housing bears
The WSJ article link is printed in its entirety, but it we already know how the story goes.
Eventually, the wolf does show up.
August 11th, 2007 at 10:30 pm
I was checking out prices for 2 bedroom condos for a couple of months, but haven’t seen any advertised that had price changes last month or this month. there were a few in june, mostly going down in $10k increments, but sometimes up.
“satv is a troll”… ha ha ha.. that just cracks me up.
August 11th, 2007 at 10:57 pm
August 11th, 2007 at 11:39 pm
Yep. It’s in Asia, too. Which of course runs completely contrary to the “we’re special!” theory for our local run up.
August 12th, 2007 at 8:07 am
KNOWS HOW 2 PARTY…
My money’s in GIC’s and PC Bank 4% savings account. Safe harbour.
depend on what amount in bank/annually compunded interest rate. government takes half of that if you have just one property all is yours.what about rent you paying,moving expenses time by time,owner restrictions etc,etc.still if you happy thats good ,but how long can you manage moving and paying increasing rent. then beat your head for bubble no bubble what a life without house and wife.
satv is troll said……
there must be a line or two in there on how we are running out of land.
hey robsnumber,
vancouver was out of land since 3 decade,what we got now for new projects is parking lots, and warehouse conversions.our developer earn some respect their engineering art work convert 50 parking into almost 500 for single projects+units.
ultersman said……..
I don’t know about the validity of the 5 x average earnings, but can you imagine how far Vancouver prices have to fall if this ratio is universally applicable
ultersman,
you can get some idea from chicago ,but metrocity or states all over the world have 0% chances because amenities,in door/outdoor activities,night life etc.etc.no other state or city can beat them .you must count some name like chicago,new york,new delhi,hong kong,central london,paris,bombay,worlds best vancouver.I might missing few more.and for your kind information vancouver will be known as metro vancouver starting sept,2007.
Manhattan,
congratulations if that was your first purchase ,all is yours and you don’t really have to waste time again to think -think-think.post your comment too often otherwise market represent only one side of coin here.
tulip mania said……
Robyn, Why don’t you give us the numbers?
How much net migration? How much have incomes grown?
In God we trust, all others please bring data
tulip mania,
Robyn know you will abuse those immigrant, I can tell you the great source international immigration is common but there is one more thing is to add there was a word about 2016 olympics in california ,but recently chicago took over.so california who was getting ready to kick start suddenly got depressed .so they decided to join Vancouver along with Alberta ,and washington.do not start any joke on california and washington.
************condo party
Now let me welcome everybody to the vancouver west
a place that’s untouchable like elliot ness
The track hits ya eardrum, like a slug to ya chest
Pack a vest for your jimmy in the city of sex
We in that sunshine state with a bomb ass hemp beat
The state where ya never find a dance floor empty.
And pimps be on a mission for them greens
Lean mean money-makin’-machines servin’ fiends.
I been in the game for ten years makin’ rap tunes
Ever since honeys was wearin’ sassoon.
Now it’s ‘2010′olympics
And they clock me and watch me
Diamonds shinin’
Lookin’ like i robbed liberace.
It’s all good, from diego to tha bay
Your city is tha bomb if your city makin’ pay
Throw up a finger if ya’ feel the same way
Dre puttin’ it down for
vancouver condo.
vancouver condo…knows how to party.
vancouver condo…knows how to party.
In the citaaay of b.c.
In the citaaay of good ol’ watts
In the citaaay, the city of b.c.
We keep it rockin! we keep it rockin!
vancouver condo rocks
that song was edited from california-love to vancouver condo-from2pac-2-pack2.
August 12th, 2007 at 10:45 am
“The Winnipeg Sun from Canada. “It has smashed records, defied expectations and baffled buyers. But experts say Winnipeg’s sizzling housing market won’t cool off any time soon.â€
“Wes Schollenberg, president of the Winnipeg Realtors Association, said…the association looks set to reach a record annual sales total of $2 billion for 2007. ‘We’re shooting for $2 billion and we don’t expect any drop-off,’ said Schollenberg.â€
What’s so sad about the rocketing house prices in Winnipeg is that here’s yet another city in Canada that once offered its youth the ability to buy a home and raise a family.
The “housing miracle” takes hold and one generation “wins” and the remaining now enter that weird world where owning a SFH to raise a family beomes a fantasy.
Hopefully this market goes bust before Winnipeg loses its one attractive feature.
August 12th, 2007 at 11:35 am
It has nothing to do with irrationality, hype, or low interest rates It’s about fundamentals.
My God, those poor suckers that are buying into this fraud. Imagine, if you will, trying to unload a house in Winnipeg when this market turns.
Many will walk away,
August 12th, 2007 at 3:08 pm
August 12th, 2007 at 4:11 pm
August 13th, 2007 at 8:24 am
Of course it won’t.. everyone wants to live in the ‘Peg
August 13th, 2007 at 9:23 am
In Victoria, prime locations,
I am seeing many homes over $600,00 selling $10,000 under asking. Homes over a million are coming down at least $50,000 and homes in the 1.7 range at least $200k under asking. I am linked up to the Private client services.
The Peg. Everyone makes fun of the Peg. You are all mean. Just kidding. Anyway, I am just sick. My cousins 24 year old daughter has just over-paid for a 2 bedroom house with her boyfriend. She is employed for the summer with the government and used her 3 pay cheque stubs for the mortgage. She won’t have a job after September.
Ex Winnipeger
August 13th, 2007 at 9:33 am
Common-law relationship gave no rights to house rules court-cbc.com
August 13th, 2007 at 11:12 am
RE always goes down… they aren’t making mortgages anymore……
i’m willing to bet this will put a kink in your plans for world domination….
August 13th, 2007 at 12:16 pm
Ben Stein’s 1984 warning
August 13th, 2007 at 12:32 pm
Anyone care to speculate which is the next hammer to fall?
As always, the reward goes to those that are patient and prudent … NOT to the greedy and foolhardy who views risk as merely something that the experienced throw in to ruin the fun.
The market is projecting more problems to come. Even with the large injection of liquidity and great news from CIBC, financials opened high on the day with a close lower than what has occured for some time.
Leverage is a 2 edged sword >>> in an upmarket, it’s great. In a downmarket … it’s going to slice you in half! (Finance 301)
August 13th, 2007 at 12:42 pm
Globe and Mail:
Central banks soothe markets again with injections
13/08/07
By David McMahon and Krista Hughes
NEW YORK/FRANKFURT (Reuters) - Central banks in the world’s leading economies pumped extra money into the financial system for a third straight trading day on Monday, but in far smaller amounts as investor nerves steadied over the dangers of a credit squeeze.
The European Central Bank lent out an extra 47.67 billion euros ($65.29 billion) in overnight funds, its smallest amount since lending rates shot up last Thursday on fears European banks faced huge exposure to risky U.S. mortgage debt.
Rest of article …
August 13th, 2007 at 12:52 pm
Fundamental reasons for the upwards move seems similar in every cycle when the real reason is psychological in nature. Once that clicks in one’s head, they’ll understand the game!
The article is precious!
August 13th, 2007 at 2:19 pm
The more things change the more they stay the same.
August 13th, 2007 at 2:40 pm
August 13th, 2007 at 2:56 pm
Breaking News (Globe and mail):
Credit crunch hits Canadian firm
Canadian Press
Monday, August 13, 2007
TORONTO — Canada’s Coventree Inc. became another victim of the U.S. subprime mortgage crisis on Monday when the specialized financial services company reported that it has been unable to fund the repayment of $250-million in notes that were to mature Monday.
Coventree, which did its initial public offering late last year, saw its shares fall by $4.48 or 34.5 per cent to close Monday at $8.50 on the Toronto Stock Exchange after a trading halt on the shares was lifted. The stock had been issued in November at $10.75 for total proceeds of about $41-million..
Continue Reading …
August 13th, 2007 at 6:19 pm
August 13th, 2007 at 6:26 pm
How would a credit squeeze likely affect things here. Actually my concern is that that as the market deteriorates, central banks will make the decision to keep rates low and let inflation go in an attempt get out of this mess with relatively little pain. If that happens then as a renter/saver, I lose out. If that is a likely scenario, wouldn’t I be better off going and getting a big fat mortgage now?
August 13th, 2007 at 6:40 pm
They can’t hide inflation for ever; eventually we would become the Argentina of the North.
August 13th, 2007 at 7:12 pm
Mortgage rates have two components, the riskfree bond rates and the spread. The MBS bruhaha concerns the latter. From what I gather, the secondary market has become illiquid, which means that the mortgage originators cannot sell off their risk and will think twice about who they give a mortgage.
The fed may or may not lower short term rates. They are between a rock and a hard place, as there are inflationary pressures as well. Also, not that long term rates may rise even when Fed lowers.
As for Vancouver, as I have suggested, I don’t think Vancouver lenders are compensated for their risk, even with 25% down. If lenders start to voluntarily excercise caution, appreciation is finito.
August 13th, 2007 at 7:29 pm
1. The tighter standards will cause foreclosures which will drop prices and so on. The falling prices will reverse the wealth effect and could hurt the U.S. economy, which will hurt Canada and China’s economies. IMHO China is in a bubble of its own, and looking for a trigger.
2. China’s bubble status is so precarious that financial instability alone can cause a sudden stock market collapse. This could happen tomorrow, next year or never.
3. The negative press related to subprime COULD provide sufficent negative sentiment that the Vancouver housing market turns the corner an dthe exodus begins.
August 13th, 2007 at 7:48 pm
foreign equity locusts are now a footnote in history…..
August 13th, 2007 at 9:18 pm
http://tinyurl.com/2qucvy
Tick tock, tick tock.
August 13th, 2007 at 9:59 pm
There are way to many random variables to even begin to make such predictions. We know it is coming, and that the more time goes by, the closer it is.
It would be nice to know exactly when, but overall it is more important to know the magnitude of future direction than the exact timing of the inflection point.
August 14th, 2007 at 12:53 am
Here’s a really easy question to answer: “When is RE indisputably overpriced?”. Answer: when it yields less than fixed income.
All other assets must yield more than fixed income, long term. (I mean capital assets that have a yield, not gold or collectibles). If they don’t, supply will simply overwhelm demand.
August 14th, 2007 at 7:09 am
Does anyone either than mortgage peddlers (bank economists) and real estate foolish bulls actually believe the Fed can fix the problem?
The Central Banks abused monetary policy to the point they no longer have control.
While the Fed was pushing short rates up, the long yield kept on heading down.
What makes anyone think that if the Central Bankers, with a few hundred million dollars from tax payers, can fix a multi trillion dollar problem?
The smart money has left the building.
August 14th, 2007 at 7:57 am
Does anyone either than mortgage peddlers (bank economists) and real estate foolish bulls actually believe the Fed can fix the problem?
The Central Banks abused monetary policy to the point they no longer have control.
It’s funny bordering on lunacy, but “experts” and analysts continue to feel that mathematical models and computer algorithms can predict human psychology. This “credit squeeze” problem was exactly that.
Spreading the risk across many financiers globally was supposed to contain any fallout, but they underestimated the conservativeness of financial institutions in granting credit in light of risk and market turmoil, and they underestimated market participants fear.
Again, it’s a question of WHEN before the crunch hits the streets of vancouver and evaporates demand.
So…will the Olympics shore up demand … hehehe …Oh, I think our water, mountains, Whistler will definitely keep the money flowing in … NOT!
August 14th, 2007 at 8:58 am
August 14th, 2007 at 9:11 am
8/14/07 8:57 AM
water,mountains,and whistler does not shake the market every week.for first time buyers real estate is best secure item to purchase because if market crash you still hold your unit to reside,otherside does not pay you shelter after crash.
and that side does not depend on w.m.w. I have heard that depend on china.
fresh apple will encourage you to buy that, rotten will divert you to walk away.
when investing is mandatory in mental state,every body like to swim.
we keep it rockin
we keep it rockin
we keep it rockin……countinue.
August 14th, 2007 at 10:16 am
If you’ve got a mortgage and your investment property is not positive cash flow and on top of that, your job is fully tied to the market … you better hope that you don’t lose your job. Otherwise, it’s default time!
Regardless of whether the house is a “real” asset, key is whether you can hold on to it.
August 14th, 2007 at 10:19 am
Then the wise will say, “See, I told you so”. Remember, GREED and FEAR … drives prices! Not the rational and prudent!