B.C. sales figures rank dead last among provinces

Retail sales in B.C. placed dead last among the provinces in January in an underwhelming performance one economist suggests may be a blip.

B.C. was the only province in Canada to see a sales decline in January as month-over-month sales shrank by 0.2 per cent, Statistics Canada said yesterday.

Nationally, retail sales rose by 1.5 per cent, buoyed by Canadians' hunger for cars, clothes, building supplies and furniture.

Business Council of B.C. economist Jock Finlayson said B.C.'s sales figures are a bit puzzling given the province's strength in other economic areas such as the labour market.

"We have had quite strong retail sales until this report, so I wouldn't jump to a conclusion based on one month," Finlayson said.

"It could very well be a blip rather than a sign of any fundamental slowdown of retail sales."

REM: This may be a blip however I have one associate who works for a large furnitue distributor and he claims shipments to individual stores are down when compared to the same period over the last few years.

Market Numbers

Click on the image for a larger view.

REM: The numbers are up across the board. Any predictions for the market for the remainder of the year?

Greater Fool: The Troubled Future of Real Estate

He writes that a reckoning is imminent because we've been as greedy as Americans, who are enduring their worst real estate deflation since the 1930s. He takes issue with claims that our banks are prudent, arguing that zero-down mortgages and 40-year amortizations are useful only to speculators and people who can't really afford to be in the game.


He also cites recent reports that personal debt levels in Canada are at record highs and savings rates at record lows, leaving many short on options should hard times hit.


"An anti-real estate mood has swept America. Within months it will be here," he declares. He claims that suburban trophy houses in some areas of the GTA are lingering on the market and falling in value. He says the collapse will be widespread and long-lasting, in part because boomers will flood the market with houses to finance their retirements – especially since so few employees outside the public sector have much in the way of pension prospects.


His scenario gets scarier, if you fear that manufacturing jobs are in danger due to the strong Canadian dollar and the likelihood the U.S. will slip into recession. The logic is that it won't take many deeply indebted, freshly unemployed people to trigger a wave of desperation selling. That, in turn, would drag down property values for entire neighbourhoods, leaving many people with mortgages worth substantially more than their homes.


It's that situation that caused an estimated 1 million Americans to walk away from their homes last year, with predictions that twice that number will follow in 2008.
Frightened enough yet?


Well, unless you're already struggling to carry a huge mortgage with a long amortization on a large house on some car-dependent patch of suburbia, you can almost certainly relax. But you might want to include a read of Greater Fool as part of that relaxation – no matter what your circumstances are.


Wise investors diversify their portfolios, but by some estimates, most Canadian households have more than 80 per cent of their wealth tied up in real estate. And Turner is correct to point out that many, if not most, people are deluded by real estate mythology. Many believe it's always better to own than rent. Many think prices always rise. Many see real estate as a foolproof route to financial freedom, even though history has shown that at times real estate can be a great destroyer of wealth.


Turner is also correct to point out that economists employed by large real estate firms, banks and mortgage insurers tend to be quoted uncritically in Canadian media.

But try to find a respected Canadian economist who buys into Turner's pessimism. People at the University of Toronto's economics department, the Ivey School of Business at the University of Western Ontario and University of British Columbia's Centre for Urban Economics and Real Estate couldn't find one for us.


While most seem to think a gradual softening is likely after 10 years of constant price increases, a U.S.-style meltdown doesn't appear to be on anyone's radar.


"I think you will have a very tough time finding any economists who agree with Turner on this," says Tsur Somerville of UBC.



Read the entire article


REM: This book has been recently released. If you have read it, and would like to write a review on this book I will consider posting it on this site. All other comments and feedback are appreciated.

Central banks apply a costly Band-Aid

Harvey Enchin
The Vancouver Sun
Friday, March 14, 2008

World markets, including Japan's, rebounded Tuesday after an infusion of money from major central banks.

If there were any doubt that the world is in the throes of a financial crisis, moves by central banks in Europe, Canada and the United States this week confirmed our worst fears.
While their methods seem arcane -- establishing a "term securities lending facility," for instance -- their goal is painfully obvious: To avert a run on the banks and the failure of major financial institutions.

Such a calamitous outcome seems unthinkable sitting comfortably in Canada where the economy west of Thunder Bay still sizzles and the housing market crash south of the border has yet to depress local real estate prices.

But the key to what makes a capitalist economy work is also its greatest weakness -- leverage. Every time a financial institution initiates a transaction, it posts collateral to make good on a trade, explains Levente Mady, fixed-income strategist for MF Global, one of the largest financial intermediaries in the world.

When the housing bubble burst in the U.S., the alphabet soup of acronyms that represent derivatives of mortgage loans and other financial instruments were undermined and financial institutions no longer could be assured that the collateral offered to back a transaction was worth the value ascribed to it. In short, financial institutions didn't trust each other. And a financial institution unable to lend or borrow is toast.

To grease the gears of commerce, central banks do something mysterious; they inject liquidity into the system. It's a meaningless phrase to those outside the inner circle of economists, policy wonks, financial analysts, bankers, brokers and others who actually find this stuff interesting, but the latest move by the U.S. Federal Reserve illustrates how it is accomplished.

The Fed has given senior dealers -- the 20 banks and investment houses that deal directly with it -- an offer they can't refuse. In exchange for their illiquid debt, including mortgage-related securities, the Fed will lend them government-guaranteed securities, such as treasury bonds, which those financial institutions can then lend to other firms for cash. This follows similar earlier schemes, such as the Temporary Auction Facility that allowed banks to use mortgage-backed securities and other dubious structured investments as collateral at 85 per cent of their face value even though they are virtually worthless. The Fed began with a $30-billion program in December, raised it to $90 billion in January, bumped it up to $100 billion in February and doubled it to $200 billion on Tuesday.

This is in addition to the commitment by the European Central Bank, which has been engaged in this sort of activity for several months, to add about $45 billion to the several hundred billion previously pledged. For its part, the Bank of Canada has ponied up $4 billion in two tranches of $2 billion each but it imposes stiffer quality requirements than the American plans.

"If the Federal Reserve and other central banks weren't providing this liquidity there would be a number of very large players in big, big trouble," Mady says. Indeed, it was widely reported that the credit facility was timed to bail out Bear Stearns, a brokerage firm struggling with higher borrowing costs and mortgage-related losses that was deemed too large to be allowed to fail.
Mady blames the central banks for creating the now rapidly-deflating liquidity bubble in the first place, dating back to 2002 when interest rates were lowered to one per cent, or perhaps even earlier during the irrationally exuberant run-up in technology stocks.

The question that needs to be asked is whether some of the biggest global financial institutions are still solvent. If not, they will need to swap their dubious debt for securities backed by governments indefinitely. That's the bottom line of this costly program to shore up the balance sheets of financial institutions. Their bad bets will be covered by taxpayers.

It's difficult to fathom how these cosy arrangements between central bankers and their clients serve the public interest. Shouldn't financial institutions that make the wrong choices face more serious consequences than accounting writedowns?

Assuming the worst, that governments are paying the equivalent of hard dollars for paper worth pennies or less, the result could be a significant drain on governments' financial resources, forcing some into deficit (or increasing deficits of countries that already have them). That could mean higher taxes, reduced spending on social programs or both. The central bank swaps of good money for bad could also stoke inflation.

Meanwhile, U.S. consumers, who account for roughly 72 per cent of the American economy, are getting whacked. Many have descended into negative equity territory as house prices have dropped and credit lines were pulled. Barring some sort of intervention to relieve homeowners of their mortgage obligations, as many as two million foreclosures are expected this year alone.
Clearly, the liquidity injection is a Band-Aid that fails to address the problems underlying the global financial system's distress. The virus that has brought the world's strongest economy to its knees has to run its course.

Canada is not immune from the malaise. The manufacturing sector is already reeling and there's little reason for optimism with the Canadian dollar at or over par. Exports make up about 40 per cent of the Canadian economy and 80 per cent of our exports are destined for the U.S.

And, of course, the credit crisis has infected the stock market. Investors can try to second-guess the peaks and valleys of a volatile bear market but it's a mug's game for most of us.

The best defence, suggests MF Global's Mady, is to play defence. Looking back a couple of years from now, a government of Canada bond that secures principal and yields 2.75 per cent annually might seem like a good deal.
henchin@png.canwest.com
© The Vancouver Sun 2008

Household spending up

Statistics Canada; Vancouver Sun

Published: Tuesday, March 11, 2008

Household spending in 2006 continued to show the effects of the strong resource economy in the West. Spending growth in Alberta surpassed all other provinces by a wide margin, and B.C.'s increase managed to beat the national average.

REM: Times were good. I wonder how the pocket book is feeling now after all that frivolous spending in 2006? Financial hangover?

Income Security and Stability During Retirement in Canada

Statistics Canada

March 10, 2008
Past research has shown that the Canadian pension system is relatively effective in helping seniors to stay out of poverty. However, the extent to which the pension system enables individuals and families to maintain living standards achieved during their working years after retirement (income security) is less well understood.

To help fill this knowledge gap, we employ 20-year longitudinal data to track individuals as they move from age 55 through their retirement years. We use various measures of an individual's family income to study four main issues: change in income levels through retirement; the role that various income sources play in this change; variation in replacement rates through time and between poorer and richer
individuals; and, finally, the degree of long-term stability in individual incomes.

For workers with average incomes, family income falls after age 60, declines until age 68, and then stabilizes at approximately 80% of the income level they had at age 55. In contrast, low income individuals (those in the bottom income quintile) experience little change in income as they move from age 55 through the retirement years, largely because of the income maintenance effects of the public pension system. They experience high levels of individual income instability in their late 50s and early 60s, but income instability falls dramatically after retirement. Individuals in the top quintile experience substantially larger income declines in retirement so that income inequality within a cohort declines as the cohort ages.

More recent groups of retirees are experiencing higher income levels than earlier cohorts, largely because of higher private pensions. Replacement rates have changed little among cohorts, however. Whether recent gains in income levels will persist in future cohorts is unknown since pension coverage has been falling among younger workers.

Metro Vancouver Housing Starts Spiked

By Derrick Penner
Vancouver Sun

Monday, March 10, 2008

VANCOUVER -- Metro Vancouver housing starts in February spiked almost 100-per-cent higher than the same month in 2008 thanks to a flurry of condominium projects in Vancouver and some main suburbs.

Builders started work on 2,446 housing units, according to Canada Mortgage and Housing Corp.'s February report, some 96 per cent more than the 949 units begun in February 2007.

And in a continuation of the affordability trend, multi-family starts outnumbered single-family-home starts by a ratio of almost eight to one.

"With apartments and townhomes being relatively less expensive than single detached housess, the demand for multiple-family homes will remain high in 2008," Richard Sam, a Canada Mortgage and Housing market analyst said in a news release.

Multiple-family starts totaled 2,174 units in February, compared with 949 in the same month of 2007. Single-family-home starts of 272 were nine-per-cent lower than the 299 started in February 2007.

For the first two months of 2008, the 3,778 housing starts are 47-per-cent higher than the 2,575 units that Canada Mortgage and housing recorded in 2007.
© Vancouver Sun

REM: Add to this 1,085 condos listed for sale on Craigslist and another 5,278 on MLS for a total of 8,809 condos on the market in Metro Vancouver.