SharperDingaan

Actually, it does not miss the expenses; we just do not like what it says. Utilities. Rent + utilities = Condo fee + property cost + utilities. Utilities are on both sides of the equation and are therefore irrelevant for comparison purposes. If you use more of the utilities than the average person, and are not paying for it – good for you. You have a foolish landlord. Maintenance, grass cutting, property management, capital repairs, etc. Your condo fee pays for exactly that, and the landlord includes it in the rent he/she charges. If you bought a condo and have been assessed for additional reserve funds – too bad for you. You simply under-contributed in prior periods, and are making up for it today. Transport, cost of living, etc. These are side-by-side houses. Whether you rented, or bought, the costs would be the same under each option and are therefore irrelevant for comparison purposes. Principal & savings. Reduce the $4,200/yr to zero, and the maximum the renter would pay is $19,797/year – or $1650/month if the place is unfurnished. If you can buy and finance for less than $1650/month you would do so. Don’t much care if the property value could go down – it is cheaper than renting every month; the property value could also go up as well. So … the equation is really rent = condo fee + ppty tax + mortgage interest. Buy new and the condo fee is minimal, buy in an area where there is a lot of new build and ppty tax is minimal (as the new development is paying for upgrades), buy when times are tough because interest rates will be low, and buy when rents are high. Yes there is lots of rental property. But the property’s that have been fixed up cost more than $1650/month to rent, and are old. The property’s that have not been fixed up you would not want to raise a family in – unless you had to. So buy new, live better, and put up with the 3-4 months of delay that it may take to build the place. There should be a stampede of buyers for new build high price condos in newly developing satellite towns, accessible to the urban core. There should also be bitching about the additional commute time. Exactly what we are seeing, and hearing, in the GTA. Your biggest risk is a rapid rise in the variable interest rate, as a 100bp rise increases your cost/month by $400/month. But so what; does anyone really think that in today’s global economy we are going to see a rapid rise in rates anytime in the foreseeable future? And if we did - does anyone really think that the BOC would not be doing everything it could to mitigate it? Yes it is a risk, but not enough to paralyse. So … everything we are seeing, really is very rational. We just do not like what it is telling us. SD Book1.xlsx

This is what folks are missing. Assume you could rent a townhouse condo in a typical Toronto or Vancouver dormitory satellite city for 2K/month + utilities. Alternatively you could buy it for 629K. If you choose to buy - the condo fee will be 300/month, the mill rate 0.007, and the variable rate HELOC mortgage rate will be 2.50%; there will be no principal repayment. Crunch the numbers, and compared to the rent option; the house buyer can afford to pay 16K/year in interest. At 2.50% this would support a mortgage of roughly 640K, and release 11K of equity. If your banker wants a 25% down payment (158K), that 16K/year becomes 11.8K of interest and 4.2K of SAVINGS/year reinvested as principal repayment. If the landlord can charge more than 2K/month, or the mortgage rate is less than 2.5%; that savings, or equity release, would be even more. Every $100/month you pay above 2K/month; reduces principal by 1.2K/year, or releases an additional 48K of equity. If you believe that house prices will rise over time, the landlord will have a very tough time raising his rent. If you believe that interest rates will significantly rise sometime soon, the landlord will suddenly find rent increases easy amidst a sea of new resale listings. Most folk recognize that houses are hard assets that grow, over time, at the inflation rate. Most folk also recognize that the global financial crises is not likely to end soon, and therefore variable rate mortgages are unlikely to rise significantly. And just about everybody knows that the further you are from the urban centre - the lower the cost of living is; a $200/month cost of living saving would reduce principal by 2.4K/year, or release 96K of equity. That down town condo was not designed for 3, couples need the space, and that move out to the satellite cities is not a big risk. We just don’t like that we have to move. SD

You might want to revisit your ‘investment’ analysis ASSUME that BOTH house buyer and professional landlord are WISE speculators. Both would be using a HELOC to finance the purchase, and paying only interest. Both would have the minimum down payment, and the maximum CMHC mortgage insurance. Both will immediately walk away if a net loss on sale exceeded their down payment; it is why they bought the CMHC insurance. And, as both have an asymmetric pay-off structure, both will seek the most volatile housing markets possible; Vancouver and Toronto. The professional landlord charges rent to earn a profit; either monthly revenue > costs, or net sales proceed less purchase cost > intervening net cumulative loss. Strategies of charge profitably on ‘normal property’ and hold forever; or undercharge monthly and trade ‘bubble property’ frequently. If the professional lives > 6 months in the bubble property, he/she gets to promote it every day (assessing timing), liquidity advantages, cheap rent, and a tax break when the property is resold. Standard handbook stuff. Are YOU doing what that professional does? If you are not; it would be cheaper to buy versus rent the property from him - and keep the profit. Most folk have a much lower risk tolerance than a speculator. If you insist on paying P+I every month; YES it will be more expensive to buy versus rent – but that extra cost of P, is SAVINGS growing in your property and not cash growing in the LANDLORDS pocket. Folk get uncomfortable when the average housing market risk tolerance, in their area, is > their own risk tolerance. The solution is a simple sale and move to some other area that puts you back into your comfort zone. Disrupt your mental and financial health, or temporarily disrupt your family life. I don’t want to hear it, is not an option. Your choice. SD

The plus side is that 6 months of door knocking will be excellent sales training for whatever it is that you ultimately choose to do. You will learn persistence, how to deal with rejection, and how to close, and it will be a sh*t job; but at 6 months, you will need to make a decision. It will be very evident if sales is your thing. If it is; the smart thing would be to enroll yourself in an on-line MBA program, and find yourself an industrial sales job. You can always train a sales person, but it will not go anywhere if that sales person does not have a natural glib tongue. If it is not your thing, it was just 6 months. You walk away with a solid appreciation of just how difficult sales is, and it will repeatedly come back to benefit you later in life. SD

The assumption here is a swap of SALES in the real estate business, for SALES in the financial advisory business. The question is are you any good at sales, & if you are – why are you settling for a business where the pay is not great, and merit counts for less than it should. In most main street firms, the best sales person in the firm is usually in the top 3 highest paid of the firm. And the more industrial the firm (drugs, machinery, mining equip, arms, manufacturing, etc.), the more they usually earn. They all have an MBA, most will also have some kind of technical undergrad and speak multiple languages, and quite a few will also hold a relevant designation. They just do not wear Brooks Brothers, or Armani. A business that has to sell the glamour, is usually a sub-par business. SD

Yes there is risk, but it is minor. China is communist state. Residents have only what the state allows them to have, and the state can take away the bank accounts, cars, and domestic real estate at any time. They CANNOT take away whatever residents have stashed overseas. A resident can either repay their Canadian mortgage from a Chinese source, or repay from sale of Canadian real estate. If the Canadian property was bought at 3M with 1M down, & never traded, it need only sell for 67% of cost. But … if the resident had been successfully trading Canadian property, and had interim gains to offset against, they could afford to sell the Canadian property for a lot less. It means that residents are best served if they trade within a collective bubble, start their trading as early as possible, and stay close to the herd. Exactly what we are seeing. Yes the bubble WILL eventually burst, but who does it really affect - ordinary Vancouverites are not those buying the luxury condos. It is about permanently getting funds out of China; and it is a lot safer, & more utilitarian, than simply depositing funds in an offshore account. SD

I hear you, but I also know there are very different segments within every market. There will always be the foolish who will over-leverage and blow themselves up. Most folks just do not get why anyone would knowingly buy a condo at an inflated price, when they know it could be worth cents on the dollar tomorrow - even when you are pretty sure that you may well be the bag-holder at the end. But talk to anyone who has had to flee a country with nothing, or been trapped in a country, and the answer becomes abundantly clear. Your life, a safe bolt-hole, and a marketable grubstake are the keys; you simply accept that you will be a distressed seller, and have no expectation of getting full value for the asset. Example. Canadian kids have been so successfully vaccinated against measles and polio for successive generations, that most people now have never seen an all-out death from one of these diseases. They were called child killers for a reason, and hard deaths were routine. But because we have not seen it - we dismiss it. In grandpas time there was no vaccine …. SD

The price has risen because demand for Vancouver real estate has consistently exceeded the supply over the last 14 years. The Hong Kong handover ceremony was 1997, and it came with a number of transitional provisions expiring 2000. As those provisions expired, Hong Kong funds began to flow out, and were initially spread over a number over of markets. As the investment results developed, Vancouver (and Toronto) captured a growing market share of the rising flow, and local real estate prices have risen accordingly. Yes there is price risk, but it is minor. The Hong Kong gate will not remain open forever, but when it closes; it will be sudden, absolute, and will stay closed for a very long time. If the price of the condo collapses 70% it really does not matter – what matters is that you got the funds out, it is in a safe place, and your family has options. Price risk declines significantly, the more you can make on the Canadian property during interim flips. Concentrate the recycled and new inflow on select markets, and you can generate a reliable bubble of rising prices. Sell into the bubble for a gain, reinvest the proceeds in other Canadian real estate, and when the door closes – you will not be one of those down 70%. Everything to this is exceptionally rational; it is just not what most Canadians are accustomed to. It is also not that unusual, re foreign investment in London (UK), New York, Paris, Milan, etc. SD

A few things you might want to keep in mind … Big house, no cash. No one forced you to buy more shelter than you need. You did it in the hope of a near-term flip to some other sucker at a higher price, and ... there is no possibility that you may be that sucker. Foreign investment. Canadian real estate is a very good deal versus global comparatives, and bought primarily to hedge against adverse change. Look forward 30 years - and to most folk, it is pretty hard to see why Vancouver would not trend towards what Hong Kong used to look like prior to the hand-over. Foreign buyers are simply being prudent, and astute. Negative yield. In today’s world, a high net worth person, depositing CHF into a Swiss Bank for safekeeping - has to pay the bank around 0.25-0.50% to take the money. Or, they could simply buy an A list condo in Vancouver for cash - and pay a property manager to keep it rented, as an alternative store of value. Rent the condo for 3-4 months/year to cover taxes and condo fees, and flip it again for a gain as/when you need the money. SD

The man offered a cheaper way to deliver better quality drugs - just WHAT was so wrong with that ? 1. Scandavian countries rountinely offer pharmacy grade narcotics to drug addicts, at fixed prices, & in some cases - even tax the product; no different to buying groceries from a Wallmart. It is OK for a government to do this, but not an individual? 2. More of the raw materials to make the product came from legal labs. Apparently the wrong people were making the money? 3. Product was distributed on-line via pickup, versus the street. We would rather have the gangs & associated viloence? 4. Crime was paying less than it used to. Crime, like every other industry, has disruptive change as well - but this is bad? 5. Unemployment went up. It would seem that a job as a criminal, is better than no job at all? Yes, his system was co-opted by criminals - but the underlying deliveries continued (though of lesser quality). But just maybe - the money trail couldn't be tracked as well as it used to be, and therefore the system had to go. We need a scapegoat; and as the lowest body on the pole, it's him. If he had been a corrupt global bank (riging LIBOR, etc) - there wouldn't be a scapegoat. Ultimately, the man wasn't special enough - because he didn't rat on the others. SD

Some general observations .... Folks move on. Yesterdays daily poster becomes a weekend poster as he/she moves on with life and does other things. Does not mean no interest, or that the board is not monitored; just less frequent posting. Poster concentration in the same ideas, and securities. Nothing wrong, or unexpected to this; infrequent posting is actually the preferred state, and highly defensible. But ... if you post multiple times/day - you look like a LIBOR market rigger. Cheerleading/bullying. Comes with the territory, but group think is destructive when no other views are tolerated. We collectively get the highest & best use out of the board, when opposing views are forcibly argued in constructive ways - by roughly equal parties. The value-add is how you choose to apply it to a position - should you choose to do so. Ability to post. The skilled folks you would like to hear, often cannot post - because of restrictions that come with their position. A general post on generic 'investing' has a very different take than a post on a specific security. Put somebody on the spot, and the outcome is zero posting by the very people that you would like to hear most from. The obvious solution is to post the set of rules by which we all post, and enforced monitoring of those rules. Paying a board membership fee to fund a paid monitor, just turns the board into a private club vulnerable to inside trading abuse; keeping the board exposed to the disinfectant of public scrutiny is the best protection that we can all have. SD

Bitcoin is just 1 of roughly 6000 digital currencies as at Sep 2014. Nothing special to it other than notoriety. Bitcoin is designed with a finite number of coin in mind, but it is not really practical. New coin is created by miners; but their incentive to remain honest depends on getting paid more in new coin - than they could make from re-proofing their recently spent coin, & respending it. Limiting the supply of new coin, destroys the distributed security. Almost all of Bitcoin use is speculative, not transactional; hence it trades on headlines, not functionality. Nothing wrong with that, so long as you realise that you are really trading liquidity. Selling when everyone wants in, & buying when they want out The next Apple will not be until a Google puts it on its applications suite. SD

For those of you with an interest in block chain and crypto-currency technology, the below link takes you to primer material from the Bank of England. http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2014/qb14q3.aspx The Innovations in payment technologies and the emergence of digital currencies .pdf The economics of digital currencies.pdf SD

I hear you, and I thought the Phd in pictures was spot on! Going by my advisor, I am quite probably the worst doctorate (finance) student ever, and far too commercial for the rarified air of academia. I take it to be an auspicious observation! In my eyes, the biggest finance innovations over the last decade have been the anti-fragility of Taleb, and the block chain. Both are dirty words in many parts of academia. Not invented here. It is probably going to be many years before the masses accept crypto-currency. It is also highly likely that it will be predicated upon successful intermediate implementations elsewhere. As with all currencies throughout history, it will ultimately be managed by central banks. In its present form, block chain capacity constraints preclude its use as a widespread crypto-currency. The highest and best industrial use of the existing technology will very likely exploit its traceability virtue, and be in the food or drug industry applications where transactional volume can be segmented, and is relatively limited. A drug industry application might be 1 chain tracing components through to product manufacture, and a 2nd chain tracing movement of the product by batch, from factory through to end user. All very unsexy. The highest and best arts use of the existing technology will very likely also exploit its traceability virtue. An auction house, or art gallery application, might use 1 provenance chain per significant painting (ie: Mona Lisa) tracing ownership from painter through to current owner. Again, very unsexy. In all these potential applications block chain does not do anything that is not already being done; it just does it differently, and cheaper. The cost per transaction also declines, and system security improves; the more industry adopts the technology. Each successful application, strengthens the case for crypto currency, and its next generation. The underlying concern is the unemployment this technology would create. However, given the growing shortage of working age youth in the west, I do not think it is the problem many fear it is. My interest is in the industrial and arts applications, via the next MicroSoft. Unfortunately, my background in capital markets, tends to push me to the crypto currency applications. All said - you cannot commercialize, until you know exactly how it works … which is apparently the antitheses of the rarified air of academia! ... I also concur that the whole OT chain should be moved. SD

Opinions differ. Agreed the block chain inefficiency is its security, but it is so process intensive that it cannot grow. To get widespread acceptance it has to grow, & do it almost exponentially. The current architecture will not do it - and that is the problem. In todays 2G architecture we need distributed security. Change the architecture to Hub & Spoke, house the hubs at central banks &/or the major financial bodies (IMF, ECB, etc.) - and arguably we get movement again, and even better security. 3G. Even if you put the ultrafast CRAY computers behind the Hubs, they are still limited (though not for a long time). How we deal with it will be the 4G iteration. SD

Cost. There is zero net new benefit to how anybody already does things - and there does not have to be; it just has to be competitive. In practical terms you would simply charge cost, and spread that cost over the total global transaction volume, to drop it as low as possible; you would then split the transaction cost 50% between both buyer & seller. As with music - charge nothing for the new song but a lot for the concert ticket. Nothing per transaction, but a lot for the cyber currency account itself. A vendor currently pays 1.5-3.0% of the transaction (visa card), &/or 25c (debit card) per transaction. In many cases the card holder pays $100/yr + card insurance. If it costs each side 3c/transaction (generous) & $50/yr per cyber account, we will not have plastic for very long. Zero net transactional benefit to the buyer & seller, but now it comes at a far lower cost. The industry moat floats on how well the industry can dissuade would be users, & how strong an R&D option it can get over the tech development process. No different to a manufacturer investing in various platform options so that they can handle future business needs. SD

Agreed that as at today, block chain IS inefficient, and that IS a problem - but it is NOT a show stopper. The solutions mechanics are routinely applied in other applications. SD

Block chain security derives from storing data over a very large network, & independently checking the existing integrity of the block chain against other distributed data points, prior to adding another transaction to the chain. It is easy to alter a specific copy of the block chain, but to successfully change the systems version of that block chain - I have to alter EVERY copy of that block chains data, EVERYWHERE. The bigger and more distributed the network, the harder that is to do - & the more secure the block chain. Save a copy of the block chain in a secure location, plus add a reference call-up - and that block chain massively shortens. The existing charge card business case rests on the economy of scale of existing entrants. It is too expensive for a new competitor to enter by building from the ground up, & there is too low an industry ROE to support entry by acquisition. As long as the only way you can do your transaction is through either via cash, or plastic, the banks have little to worry about - because to get your cash or plastic, you have to go through them. ie: they control the distribution. BitCoin was essentially an app, that could be accessed by any device. You identified who you were, could see your BitCoin balance at any time, & transacted in Bitcoin. You got the BitCoin by either buying it in cash, or selling goods & services denominated in BitCoin. In the early days almost everybody bought BitCoin for cash as they did not have any; hence it looked very much like a game. Once it got going though - cash purchases were far less prevalent, & transactions entirely within the cyberspace, the norm. In the later days it was possible to borrow small amounts in BitCoin to pay bills. You were able to pretty much do what you could already do with a charge card - albeit not very well. For a proof of concept, 2G application - most would say it did very well. Dad & grandpa use cash & credit cards, younger folks use debit - & many don't even carry cash. You also cannot get a bank account, or any kind of tax slip denominated in crypto currency - so very cool, & very attractive to almost everyone working under the table - or illegally. Every sci-fi movie in the last 30+ years has also indirectly pushed crypto currency; nobody EVER saw the characters use physical cash to pay for anything - its always by debit or credit through some kind of device. Charge card command over the distribution channel is waning, & it is only a matter of time until it is gone entirely. If I attach a P/E of 22x to todays earnings, I am also saying that I expect todays oligarch earnings to continue pretty much as is - for the next 22 years. It is NOT going to take 22 years for a viable & robust crypto-currency to take root in NA - therefore these multiples can only compress going forward. For the charge card share prices to go up, they need earnings growth to far outstrip the future compression rate; an unlikely sustainable occurrence. SD

The best way to research Blockchains is to google .. & go from there. Agreed that what is out there is very promotional, but there are 1-2 good research papers which give the rough mechanics. You will not see anything application related, but you will see who is working on it - & who is backing them. ie: The UK, Level 39 incubator. We routinely use digital currency already - every time we pay with plastic or a debit card. Crypto currency in NA is still alien, but in Europe it is much more accepted. More importantly, it is largely only the cool places (Berlin bars, etc.) that currently accept it. To sell a new drug you sell to the cool people first - & then trickle it out to the masses. Not unlike the speakeasy during the prohibition era. The various payment/clearing systems we currently have do the job, but are largely at their limits; horse & buggy net benefit as compared to the standard gas guzzler benefit we all enjoy today. They are also captive to their oligarchs, & beyond innovation because there is no net benefit to disrupting the status-quo. To make gains here you have to chaotically disrupt the game, then replace it with a better & cheaper technology overnight. And with such a big prize going to the winner, there are going to be lots of wolves eying the sheep. Continuous improvement can only take you so far, & every year the gains diminish; every now & again it is time for a new game, & the US is very good at it. This type of thing is also routine & nothing unusual; the early history of US mortgage securitization being a recent example. SD

Two, simple, banking examples where this is game changing. Securities clearing: Change the currency unit to a CUSIP number (unique security identifier) & add front-end digital interfaces. You have just eliminated most of the trade confirmation & settlement process, cut the staffing component by at least 50%, & transformed the custodianship business. If you are not already in this business, you have no choice but to invest heavily in the option - or lose your market share. Payment clearing: When both buyer & seller use the digital currency, you have just eliminated the need to use the clearing system at all. And as the transaction cost is minimal, every store front merchant has a very strong incentive to move to digital, & move off the clearing system. Widespread job loss, collapse in Visa fees, & permanent value destruction. If you wished to enter banking today; you would do it as an entirely digital business with NO brick & mortar, & very few staff. To get your customers you would target the zombie banks, & offer the regulator a standing option to transfer accounts at zero cost. Retain just 10% of the transferred accounts & you have attained critical mass. SD

Every IT system in the world backs up the days transactions every night & adds them to a master file. The data is typically screened on the way in through a series of buffers to remove the viral threats, then stored in isolated silos; that progressively re-test under tighter criteria, & eventually merge over time (hours to days to weeks to months to years). Static data, isolated, & very hard to corrupt. Intraday transactions are typically stored in buffers, until they back up to the master file. Nothing prevents more frequent back-up, & nothing says the backed up file has to immediately go to the master file. Store the intraday transactions in multiple servers & you have distributed security; change the backup frequency, & you change the security level. Most IT systems (telephone) take data strings, store by component, & reassemble via an algorithm. Nothing prevents storage of multiple versions of components over random servers, & then testing the copies against each other to verify veracity - prior to back up. Routine, automated, tick & bob - that computers are extremely well suited to. Hard to reliably corrupt. This is the simple 3G type stuff - & nothing that we do not know how to routinely do already; processing power is not a problem. SD

Some last comments, & we will leave at that. Agreed the current structure is processing intense, but it is not a big leap to materially & rapidly reduce it. Your local telephone exchange already does a version of this, routinely, digitally - & every day of the week. It would be a good intermediate process iteration, but it is not especially efficient. Its notable that the Canadian banking lobby has just recently begun to strongly push the consumer protection side of any financial transactions that may occur on Google - via a blockchain application. Not the kind of thing you would expect of confident bankers. SD

We think of blockchain in terms of currency, because Bitcoin was the first poster-child application. The technology is actually better suited to applications where cheap & reliable traceability is a dominant concern. The food processing, drug manufacturing, & provenance (diamonds, art, etc.) applications - that we are currently very far away from. As blockchain itself is easy to isolate; multiple, & segmented designer crypto currency is no big deal. The currency used to buy coffee, groceries, etc. is not the currency that drug dealers, weapons merchants, or states would use. It is also not the currency that would be used to settle day-to-day business to business transactions. Not because it couldn't be done, but because each application has different requirements. The currency application is very much in the central banking interest, & increases the effectiveness of monetary tools by orders of magnitude; but it would also be incredibly disruptive to banking as we currently practice it. Not an immediate threat, but it is coming. The first internet site as we commonly know it, was created in 1993 or thereabout; 28 years later, can you imagine anything where there is NOT an internet site to go to. We do not wish to hijack the thread; but merely point out that the advantage WEB had way back when - WAS WAY BACK WHEN. In investment parlance this thing has basis risk, & the risk comes with exponential growth. All it needs is for something like a BITGOLD, and a western central bank guarantee, to take off in an India or Africa - where a women's wealth is stored in the jewelry she is wearing, & saved for in little bits. SD

You might want to do some digging into Blockchains ... how they work, features, where they have been used. It is a game changer - right up there with how the internet and computers fundamentally changed the way we do business. The VISA moat is nowhere near what it used to be. This technology has the power to replace the clearing function of all banks at a fraction of the cost, & eliminate all notes, credit & debit cards overnight - with a more secure & better alternative. The distribution channel would be through a Google or Apple, & you would use your smartphone as your wallet. It is worth studying the often cited example of a bill replacement, & thinking along the lines of how many processed foods today have traceability from field to plate. We can do the same thing with a bill - from the source that issued it, through every transaction that bill has passed through - life to date; time in each hand, type of hand, size of transaction ... everything a central banker would love to have - & a bill that is totally FX neutral (no need to ever change from currency X to currency Y & incur the FX conversion costs & risks) http://en.wikipedia.org/wiki/Bitcoin#Block_chain http://en.wikipedia.org/wiki/Blockchain.info http://www.theguardian.com/technology/2015/may/13/nasdaq-bitcoin-blockchain Re disclosure, I am currently doing a research thesis on the currency replacement side of BlockChains. The BitCoin was a proto-type & a simple 2G version of what can be done; the 3G & developing 4G versions are truly game changing. SD

I am probably a very good example of the combined approach, and hold all 3 of the mentioned letters. When you have that combination you don't want to be the analyst, or even the PM - you want to be the CFO. You also don't want anything to do with public companies, & stay out of the limelight. At times ... those dark spaces are pretty crowded! SD