Viking

The report says “Moody’s Analytics predicts interest rates will rise through 2020, which could push mortgage rates back up to around 6 per cent from the current five-year rate of around 4.4 per cent. But the absence of “significant” house price declines should reduce the risk of mortgage debt “deteriorating” over the period, the report concludes.” Actual 5 year fixed mortgage rates in Canada currently are 3.25-3.5%. If they rise 1.5% to 5% over the next 18 months (and remain at that level for any length of time) my crystal ball says we will likely see significant price declines. Too many people at the margin are carrying far too much debt and when it has to be refinanced at rates 50% higher they will be toast. Once the turn in prices happens, it could get ugly if it spreads into the broader economy.

Retail milk prices across Canada are pretty much impossible to compare. Some regions had government actually set retail prices (not sure if they still do in Atlantic). In most other regions milk is used by retailers as a loss leader (sell at or even below cost to match a large competitor). I am not sure if milk is used as a loss leader in most US markets. If you want to really compare prices in Canada and the US you need to look at the price FOB the retailer (to understand impact of supply management). Canadians clearly pay much more for a basket of dairy products than US consumers. Look not just at 4L milk. Look at a variety of products: 2L milk, 250ml milk, sour cream, cottage cheese, butter and cheddar cheese. Dairy is sold to both foodserice and retail customers. I would prefer to see a system in Canada where there is more competition and better prices. To stop the smaller farms from disappearing then we can cut them a cheque for ? to earn an adequate return each year.

It looks to me like the many significant changes that have been implemented in the mortgage market over the past 8 years have been needed. Too late? We will see. However, i do think today as far as mortgages rules go we are far from where the US housing market was in 2006 (in terms of regulation). Perhaps we can say the regulators have been caught napping a number of times; however, over time they have addressed a number of issues as they became more obvious. I agree Sharper, it is very difficult for regulators to be early. It would be like playing a game of whack a mole, not knowing with alot of guessing involved.

Quote from RBC report on the Canadian housing market; released today. The Bank of Canada continues to increase interest rates. I think we are getting close to an inflextion point. Either economic growth slows, which would then reduce the need for more interest rate increases. Or, as mortgage rates continue higher, house prices start to come down. “To carry a home bought in the second quarter of 2018 would have taken up 53.9% of a typical household’s income. This is up sharply from 43.2% three years ago Blame interest rates for the rise in ownership costs in the past year… Unaffordability is off the charts in Vancouver, Toronto and now Victoria. Interest rates have a big impact in these high-priced markets… It’ll probably get worse. We expect further interest rate hikes in the period ahead. This is poised to drive ownership costs even higher across Canada. Household income increases will soften the blow for buyers.”

Obtuse, here is what i use to see what is going in my part of Vancouver (called the Fraser Valley). http://www.fvreb.bc.ca/stats/ I continue to believe that we have a housing bubble in Vancouver and Toronto. I have been wrong for many years and may continue to be wrong :-) The US had a housing bubble and it popped; this does not mean what happens in Canada is the same (why we have a bubble and what may eventually pop it). One key to me is interest rates. If mortgage rates in Canada continue their march higher higher interest costs will eventually start to bite.

Cigar, if Canada has a housing slowdown or worse the country will be in deep trouble. Real estate has been the road to riches for many. Calculated Risk says to watch inventory closely. When inventory in the US started increasing dramatically (in 2006 I think) he called the top in prices. I am watching inventory in my area and while it has been increasing and is elevated it doesn’t look concerning yet. However, if inventory continues to increase substantially over the next year then perhaps we will see prices start to crack. If the the Bank of Canada continues to raise rates this will also be a risk given how much debt many families have. Interesting times :-)

The US and Canada are very different countries (neither are perfect). Fit is important. Pick wisely. Eyes wide open. Lots of immigrants coming to Canada are happy with their decision (but not everyone of course).

For a young person i think the best book to start with is Peter Lynch and One Up On Wall Street. Exceptional advice for a young investor. A solid framework for how to look at investing in stocks. Lots of humour. If a young person reads this book and it does not motivate them to want to learn more then perhaps they should just buy index funds (and be a passive investor). If they are keen to learn more then i would have them read: 1.) chapters 8 and 20 from Intelligent Investor: to learn about Mr Market, Margin of Safety, if you are a passive (index) or aggressive investor 2.) watch youtube videos on Buffett: lots of great advice, including buy quality, concentrate (if you know what you are doing) 3.) A Random Walk Down Wall Street by Malkiel; this book gives a great overview of everything a young investor will face (technical analysis etc) from the investment industry. It is like a university course with real world mixed in. Not that i agree with Malkiels conclusions; rather i love the canvas he paints in the book. Just finshed re-reading it and it is a great education.

I like quarterly reporting and find it very valuable. I find it takes listening to 3 or 4 earnings calls to get a good handle on management. What do they say? Do they walk the talk? Etc. Moving to reporting 2X per year would make this more difficult.

Interesting read. Makes sense Trump will do everything he can to ensure the US economy runs hot until after the next Presidential election in 2020. I am watching the fall elections in the US to see if the Democrats can get control of the House of Representatives; if they do Trump may not make it to 2020. https://www.calculatedriskblog.com/2018/08/merrill-return-of-political-business.html

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/your-returns-in-2016/msg285229/#msg285229 http://www.cornerofberkshireandfairfax.ca/forum/strategies/what-do-folks-think-or-do-while-markets-are-at-highs/msg325599/#msg325599 http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/your-current-cash-weighting/msg23739/#msg23739 http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/all-the-negative-news/msg24148/#msg24148 http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/big-warning-sign/msg22442/#msg22442 http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/top-picks-for-the-new-year/msg13668/#msg13668 For someone that's been fully invested for 5 years you seem to post often about holding lots of cash and being worried about the macro picture. Pretty much all throughout your forum career from what I can see, in fact. Alwaysinvert, thanks for the trip down memory lane :-) In broad bresh strokes, i had large cash positions in 2010-12. My concern was that we would slip back in to Great recession part 2. Fortunately i changed strategies about 5 years ago and have been close to fully invested since. The one big exception was a few months after Trump was elected; i moved to 100% cash for a short period of time as i was quite concerned with what he was saying and doing. Fortunately (after deciding Trump would not be blowing up the world) i moved back to fully invested. And yes, earlier this year i expressed concerns regarding higher rates and the winding down of QE. I did raise some cash but returned to 100% fully invested too quickly. I am slowly learning that i need to keep a higher cash balance and to be much more patient when putting my cash to work. And, yes, it can be quite difficult to follow how a person is actually invested based on their posts as the trail will be incomplete (as it is missing important information). Best of luck :-)

Ajc, my current strategy is pretty simple. I am now getting more cautious with my overall portfolio. I am holding larger cash positions (selling on strength like we have seen the past month or so). This will allow me to take advantage of sell offs when they happen. For the past 5 years i have been pretty much fully invested most of the time. No more. I expect at some point in the not too distant future (the next year or two) i will get quite cautious and likely move my portfolio mostly to cash. I am watching the economic data out of the US closely for when it starts to turn down. Looks good right now but storm clouds might be forming. I will be happy to earn a little less while i sit amd wait for the next big down draft in stocks :-)

I decided to bring this topic forward and start WFT as its own topic.

Yes, very well done. Thanks for posting :-)

I ran a fianancial literacy club at my kids high school last year; we did 10 sessions and it went quite well. Most importantly, I learned a great deal about how to teach to teenagers. You might find some of the material on my web site useful (it is oriented to Canada). I initially called the club the Money Club but was asked by the school to change the name to Financial Literacy Club (a parent complained). www.wgssflc.ca I will be running version 2 of the Club In the fall and will be making lots of changes to the web site (especially the information on investing). The changes will be coming later in August. A great Utube station to look at is the Financial Diet; two young women, one was a fianancial train wreck and the other was very good. Lots of good videos on credit cards (and how easy it is to get messed up). Let me know if you have any other material, web sites etc that you think are especially good for teenagers. :-)

LC, the last 5 years have not been all that kind to the big banks: 1.) tens of billions paid out in fines 2.) exceptionally stringent regulation were imposed by regulators; costs to comply were very large 3.) banks were required to build up/hoard capital (with minimal dividends and stock buybacks) 4.) interest rates in US fell to generational lows (grealy reducing net interest income) 5.) constant fear US was about to slip back into deflationary spiral Since the Trump election, the last 20 months have been kind to the banks. 1.) no more massive fines (small ones, yes) 2.) we have passed peak regulation; will be reduced in coming years 3.) era of capital hoarding has passed; capital returns now are at or exceeding 100% of earnings 4.) interest rates are now on a solid path of increasing with benefits flowing through to net interest income 5.) US GDP growth is solid, with forecasts of 3-4% real growth for Q2. Given how worried everyone is right now, I am guessing US growth will surprise to the upside in the 2H 18. As much as I may not like Trump the man, I think much lower taxes, much less regulation, solid GDP growth and a pro US trade message will result in a stronger US economy and job growth. You are right, the nest 5 years will be different. My guess is what happens will likely be quite different from what people are talking about today. Inflation rising more quickly than expected may be the real threat that few people are talking about right now. What if the US economy continues to deliver solid growth for the next 4 or 5 years... many experts are predicting a recession in late 2019 or 2020.

If It's not asking too much, what other stalwarts do you have? Throughout this year I've intermitently been on brk, google and davita, accordingly to the price fluctuations, but I don't see them the same way I see brk... Thank you. Ps: added brk today. 18% of the portfolio now. Rolling, my favourite group right now are the large US banks (surprise, surprise). For the past couple of years I have viewed them as turnaround plays. However, I now view the big US banks as more like stalwarts. As an example, you can buy BAC today at $29. It will earn about $2.55 in 2018 and close to $2.90 in 2019. 100% of earnings will be returned to investors for the next few years (2% dividend and 8% stock buybacks). It will grow top line by about 4% and bottom line by about 15% for the next few years. Under Trump US GDP growth may actually accelerate. The Fed will continue hiking rates. Mobile banking is dramatically lowering costs. Operating leverage continues quarter after quarter. Deregulation has legs. Do I expect 30% per year from my big US bank stocks? No. I will be very happy with 15-20% returns. Like shooting fish in a barrel. :-) PS: I do think at some point in the next couple of years investors are going to fall back in love with bank stocks where they will bid up the PE multiple. When I see This happen I will be happy to sell and wait in the weeds for the next fat pitch.

Over the years I have held BRK as a bond substitute. I have held it for short periods of time (sold it after it has run up 6 or 8%). Rinse and repeat. We will learn over the next couple of years if the bond bull market is officially dead. If we are indeed in a rising interest rate environment (i.e. if Gundlach is correct with his prediction that the 10 years US treasury could rise to 6% in the next 3 or 4 years) then at its current price BRK looks like a solid buy for portfolios as a substitute for part of their bond holdings. Peter Lynch, in his book One Up On Wall Street, when analyzing stocks he suggests dropping them in one of 6 buckets; BRK to me would be classified as a stalwart. Solid company, well managed, slow grower. With a lower expected return. He would have some stalwarts in his portfolio to provide protection as they typically sold off less than other holdings. After purchase, if the stock ran up in price (and hit his sell price target) he would sell and buy another stalwart that was out of favour with Mr Market and on sale. Pretty simple but very effective over time.

What I really like about Gundlach is his presentations run about 1 hour long and he goes into a fair bit of detail to explain to listeners why he thinks what he thinks. It is a great way to educate yourself on how the big funds think and work. And it is free :-) He just held a webcast (June 12) and I can’t wait to listen to it (I missed the live version and it always takes about a week to become available as a replay): https://doublelinefunds.com/webcast-schedule/

Cardboard, pre-Trump, I would have agreed with your comments. I worked in the dairy business for many years and understand the subsidies and the hidden tax it represents on consumers. Until Trump is gone there is no way I would want to make big changes to dairy, egg or poultry industries. Change is needed. However, we also need a trade partner we can trust and where the new agreement will be honoured and respected. If we have learned anything from Trump in his first 18 months it is that he cannot be trusted and that it is highly unlikely he will honour any agreement that is ultimately reached. He changes his mind on important issues more frequently than most people change their underwear. I also think Trump may be good as a change agent for many things. The benefits (and weaknesses) of free trade are better understood and more openly debated today. There are losers; and we can’t just assume they magically shift employment into growing industries (as most economists assume). I wonder if the MeToo movement is also due in some way to Trump (people getting so pissed of with his behaviour). There are many more examples like these two of where Trump may help create a more balanced discussion (than what existed before).

I wouldn't be so quick to declare a victory because the converse is also true. If you are looking to produce an export good why in your right mind would invest in production in the US. If you produce a mixed good that you sell domestically and abroad why would you invest to expand production when you could be hit with retaliatory tariffs at any moment? Also even with tariffs why would a company invest in US production in an area where it's at a comparative disadvantage when a few years from now this lunacy can go away? For example why would a company invest in aluminium capacity when in the near future it's at risk of competing with Quebec aluminium who's cost it has no hope of matching? Furthermore, don't you put American exports at risk when you tax their materials? Aren't Airbus planes gonna be cheaper than Boeing if Boeing has to pay 10% more for aluminium? What about autos? Those things use A LOT of aluminium these days. If demand goes down for these products won't there be layoffs? What about the industries that are targeted by retaliatory tariffs? Harley is already doing layoffs. Won't those get worse when Europe slaps tariff on its products? Is this what victory looks like? So much winning... Why would a company today want to build a plant in the US today? Lower taxes, lower regulation, cheap energy to name a few.... Part of our challenge in Canada is Federally/provincially we are moving in the opposite direction: higher government spending, higher taxes, more regulation, higher energy costs (can’t approve a pipeline to get oil to market)... I am normally pretty agnostic/optimistic but I do see clouds on the horizon.

Canada is certainly in a difficult position. It has integrated/hitched its economy to the US for decades; worked well for both countries for many years. Trump is turning everything on its head. And Trump has already won. Who in their right mind is building a new plant in Canada to service the US market? Can you imagine the discussions in the various board rooms right now on this topic? Trump wanting a 5 year sunset clause is another step; the threat alone will ensure most businesses take a pass on investing in Canada. Hard to see how this does not get much worse, absent Trump being removed from office. Fall elections in the US become even more significant; if Dems can’t take back control of the House of Reps then Trump will continue down his merry path.

Here was my response in the other thread.

Spekulatius had a great comment about competition and banks. His comment is copied below. How brand loyal are you to your financial institution. When is the last time you make a change? Bank account? Line of Credit? Credit Card? Mortgage? Investment Accounts/Advisor?

spekulatius, you discuss many things that I have been thinking about. My read is most people are actually very loyal to their financial institutions. Branding matters and is a big deal. Most people likely use different financial institutions for different products; however, once they set up all their accounts (direct deposit, paycheques, pay mortgage, pay bills, request cheques etc) they are very unwilling to take the time to do it all over again with another institution. They also likely have built personal relationships with people at their branch and will value these. They know where the ATM’s are located etc. And there is also a pretty steep learning curve for most people to learn and use all of the electronic functionality that is becoming available (smartphone, tablet and PC); passwords have been set up. Unless they are upset, most people will not want to start over with a new financial institution. It is very time consuming to do the research, pick a new provider, complete all the paperwork to transfer accounts, etc. It might sound simple but my personal experience (making changes) is it is quite stressful and time consuming. I think most people go with the flow. Unless something happens where they get angry with their current provider my read is most people stay with what they know. Apple is a great example of this. It has taken me and my family many, many years to learn the functionality of our iPhone, iPad, Mac, Apple TV. Other products are cheaper and have solid functionality. Doesn’t matter. For electronics once people learn an ecosystem and they are happy it takes a big reason to get them to switch. I think banks and their electronic offerings will be the same... it will make banking more sticky. Here is my personal history and how long I have been with my 3 different financial institutions: - primary chequing accounts - 20 years (Bank A) - primary savings account - 20 years (Bank A) - line of credit - 20 years (Bank A) - credit card - 20 years (will be moving in the next year) (Bank B) - mortgage - 8 years (Bank B) - investment adviser - 20 years (although I did move from full serve to discount) (Bank C) Scale is also becoming even more critical for banking. The 4 big US banks will be spending much, much more money and so should be able to build and provide the best digital experiences for users. This will be key for investors to monitor moving forward. The only think that would cause me concern is if Amazon, Apple or even Google decided to enter banking in a big way (with a full suite of products). However, I don’t think it is imminent given the regulatory burden that it will put on their total business.