I Haven't Been This Excited About Going Against The Herd in Years!

[maplevalue]

5 hours ago, Parsad said:

Rosenberg comments on prices in North Bay, ON.  Cheers!
 

David Rosenberg on Twitter: "I'm going to change the Einstein definition of insanity to this: when home prices in North Bay, Ontario begin to look like a dotcom stock in 1999. There's a whole lot of pain, globally speaking, if (when) this housing bubble bursts. https://t.co/NTR4H2Z7WT" / Twitter

 

Terrific sarcastic comment on this tweet

 

Quote

 

 

Disagree.

1. North Bay is a world class city now. NYC, London, HK, North Bay, LA, etc it’s right in that list without skipping a beat.

2. They aren’t making any more land and it’s pretty scarce up there.

3. Immigration. I heard at least a dozen people moved there this year.

 

 

[Castanza]

What's the primary driver of home prices in Canada? Every time I go up there is seems like there is so much room to build. Even just outside of the bigger cities the urban sprawl doesn't seem that terrible. I don't see the same geographical constraints that some cities like NYC have. 

[RichardGibbons]

6 hours ago, Castanza said:

What's the primary driver of home prices in Canada?

I think it's primarily the combination of zoning, bureaucracy, ideology, and immigration.

 

Essentially, a huge percentage of the major cities are zoned to single-family homes. And, it's hard to change that. If you want to build anything else, you have to change the zoning. That means fighting in front of city council with residents who are worried about the neighborhood character changing. And to even get that day in court, would typically take a couple years, and it might not be successful.

 

And if you are successful, it would typically require paying the city hundreds of thousands or millions for neighborhood amenities. Essentially, the city believes that if, as a result of rezoning, the value of the property increases, then the city deserves to take the money created, rather than the owners of the property. So, there's substantial risk and unusually high expenses associated with any development that increases density.

 

More broadly speaking, municipal politicians are fairly ideologically-driven, typically not believing in market-based solutions. Though they're very concerned about affordable housing, if they could get affordable housing, but in doing so, some property developers would become wealthy, they wouldn't view that as an acceptable solution. One councilor in Vancouver, Jean Swanson, sees affordability as a crisis and cares a lot about the underprivileged, but for two and a half years has voted against almost every proposal for adding more supply (because the poorest wouldn't be able to afford that supply. She doesn't see it as a good thing that middle class will move into the new supply, freeing up less-expensive space for the poor, but rather a bad thing because average rental prices will increase.)

 

Finally, on top of these supply restrictions, Canada has relatively high immigration. But much of the country is a frozen wasteland, so about two-thirds of immigrants end up in Vancouver and Toronto, and 80% in Vancouver/Toronto/Montreal. So, you have constantly increasing demand and artificially restricted supply, leading to high prices.

[Parsad]

8 hours ago, Castanza said:

What's the primary driver of home prices in Canada? Every time I go up there is seems like there is so much room to build. Even just outside of the bigger cities the urban sprawl doesn't seem that terrible. I don't see the same geographical constraints that some cities like NYC have. 

 

Vancouver has similar constraints to New York.  Essentially, we have mountains to one side, Pacific Ocean on another and the U.S. border on the third side.  So as such, we either build upwards, higher density or east to the Fraser Valley.  Cheers!

[Castanza]

1 hour ago, Parsad said:

 

Vancouver has similar constraints to New York.  Essentially, we have mountains to one side, Pacific Ocean on another and the U.S. border on the third side.  So as such, we either build upwards, higher density or east to the Fraser Valley.  Cheers!

The one major Canadian city I haven’t been to

3 hours ago, RichardGibbons said:

I think it's primarily the combination of zoning, bureaucracy, ideology, and immigration.

 

Essentially, a huge percentage of the major cities are zoned to single-family homes. And, it's hard to change that. If you want to build anything else, you have to change the zoning. That means fighting in front of city council with residents who are worried about the neighborhood character changing. And to even get that day in court, would typically take a couple years, and it might not be successful.

 

And if you are successful, it would typically require paying the city hundreds of thousands or millions for neighborhood amenities. Essentially, the city believes that if, as a result of rezoning, the value of the property increases, then the city deserves to take the money created, rather than the owners of the property. So, there's substantial risk and unusually high expenses associated with any development that increases density.

 

More broadly speaking, municipal politicians are fairly ideologically-driven, typically not believing in market-based solutions. Though they're very concerned about affordable housing, if they could get affordable housing, but in doing so, some property developers would become wealthy, they wouldn't view that as an acceptable solution. One councilor in Vancouver, Jean Swanson, sees affordability as a crisis and cares a lot about the underprivileged, but for two and a half years has voted against almost every proposal for adding more supply (because the poorest wouldn't be able to afford that supply. She doesn't see it as a good thing that middle class will move into the new supply, freeing up less-expensive space for the poor, but rather a bad thing because average rental prices will increase.)

 

Finally, on top of these supply restrictions, Canada has relatively high immigration. But much of the country is a frozen wasteland, so about two-thirds of immigrants end up in Vancouver and Toronto, and 80% in Vancouver/Toronto/Montreal. So, you have constantly increasing demand and artificially restricted supply, leading to high prices.

Thanks for sharing, I figured it was something along those lines,  but also assumed there were some policy differences between there and the states. Sounds pretty familiar 

[Spekulatius]

5 hours ago, RichardGibbons said:

I think it's primarily the combination of zoning, bureaucracy, ideology, and immigration.

 

Essentially, a huge percentage of the major cities are zoned to single-family homes. And, it's hard to change that. If you want to build anything else, you have to change the zoning. That means fighting in front of city council with residents who are worried about the neighborhood character changing. And to even get that day in court, would typically take a couple years, and it might not be successful.

 

And if you are successful, it would typically require paying the city hundreds of thousands or millions for neighborhood amenities. Essentially, the city believes that if, as a result of rezoning, the value of the property increases, then the city deserves to take the money created, rather than the owners of the property. So, there's substantial risk and unusually high expenses associated with any development that increases density.

 

More broadly speaking, municipal politicians are fairly ideologically-driven, typically not believing in market-based solutions. Though they're very concerned about affordable housing, if they could get affordable housing, but in doing so, some property developers would become wealthy, they wouldn't view that as an acceptable solution. One councilor in Vancouver, Jean Swanson, sees affordability as a crisis and cares a lot about the underprivileged, but for two and a half years has voted against almost every proposal for adding more supply (because the poorest wouldn't be able to afford that supply. She doesn't see it as a good thing that middle class will move into the new supply, freeing up less-expensive space for the poor, but rather a bad thing because average rental prices will increase.)

 

Finally, on top of these supply restrictions, Canada has relatively high immigration. But much of the country is a frozen wasteland, so about two-thirds of immigrants end up in Vancouver and Toronto, and 80% in Vancouver/Toronto/Montreal. So, you have constantly increasing demand and artificially restricted supply, leading to high prices.

It is not just politicians, it is homeowners as well. I have yet to see a homeowner who welcome when single family homes are replaced by multi family homes or a commercial development. There simply is self interest at work.

Perhaps sharing economics in a smart way with the city and neighbors might help, but I doubt even that. The more expensive homes gets, the harder rezoning/ repurposing get’s ironically.

[Viking]

14 hours ago, Castanza said:

What's the primary driver of home prices in Canada? Every time I go up there is seems like there is so much room to build. Even just outside of the bigger cities the urban sprawl doesn't seem that terrible. I don't see the same geographical constraints that some cities like NYC have. 

1.) historically low interest rates. It is normal in Canada to go with a 5 year fixed mortgage (amortized over 25 years); this rate was under 2% last year and is currently around 2.4%. (If US had interest rates this low for years would it result in higher house prices?) My guess is this is the single biggest reason. 

- another related factor is central bank policies / flush of liquidity that is spiking all asset categories (real estate, stocks, collectables, bitcoin etc).
2.) speculation. Real estate has been going up lots and pretty much every year since 2000 (20 years and counting). It is viewed as a pretty much guaranteed winner. Lots of people i know own 2 or more houses. Momentum is huge. FOMO is real.
- My neighbour recently sold his 25 year old house; original owner; purchased $250,000 and sold for $1,335,000. Who wouldn’t want to get in on this money train?

3.) money flows: lots of offshore money (China, Hong Kong etc) and drug money sloshing into this market. Vancouver is such a small city it does not take much new money to spike demand and prices. No government wants to discuss this bucket; although the offshore bucket has been getting more attention.

4.) big tax advantage to own real estate: gains on primary residence is tax free

5.) people cannot walk away from their mortgage in things go bad; real estate market in Canada is VERY resilient. Canada did not experience housing bust in 2008-09. 

6.) covid impacts: families/work from home want space spiking demand for single family homes.

Edited June 12, 2021 by Viking

[ERICOPOLY]

What is the typical/average amount of mortgage debt to equity in the US today?  An amortized mortgage carrying a 3% rate is 40% paid off today if that mortgage was taken out when the housing market peaked in 2006.

Edited June 12, 2021 by ERICOPOLY

[Peregrine]

On 6/11/2021 at 9:36 PM, Spekulatius said:

It is not just politicians, it is homeowners as well. I have yet to see a homeowner who welcome when single family homes are replaced by multi family homes or a commercial development. There simply is self interest at work.

Perhaps sharing economics in a smart way with the city and neighbors might help, but I doubt even that. The more expensive homes gets, the harder rezoning/ repurposing get’s ironically.

 

This is the big factor IMO. NIMBYism exists everywhere. I don't think the situations in Toronto and Vancouver are all that different from other cities that's 1) attracting a lot of net migration; and 2) experience chronic obstacles to increase housing supply. 

[thepupil]

On 6/12/2021 at 12:58 PM, ERICOPOLY said:

What is the typical/average amount of mortgage debt to equity in the US today?  An amortized mortgage carrying a 3% rate is 40% paid off today if that mortgage was taken out when the housing market peaked in 2006.

 

https://constructioncoverage.com/research/where-residents-have-paid-off-homes#:~:text=According to Census Bureau data,to rise significantly during recessions.

 

it's surprising to me, but 38% of homes are owned free and clear, but looking at the data, a lot of that is on the lower end (example West Virginia has the highest amount of free and clear homes, but that's with a median value of $85K). 

 

Proud Maryland resident, where only 16% (the lowest in the country) don't partake in the leverage! 

Edited June 16, 2021 by thepupil

[thepupil]

https://www.corelogic.com/insights-download/homeowner-equity-report.aspx

 

there's also some good stuff here regarding home equity and typical LTV

[Gregmal]

https://www.cnbc.com/2021/06/29/home-price-gains-in-april-truly-extraordinary-sp-case-shiller-says.html

[thepupil]

based on anecdata, i think SFH RE in my area has peaked in price/frenzy. 

 

neighbor had to have house on market for 2 weeks and sell 5% below list!

they did overprice it a bit. probably would have gotten a higher price if they listed $100K lower than they did. (ie list at $1.1mm, attract multiple offers, sell at $1.2mm vs list at $1.2mm go cold for 2 weeks, sell at $1.15mm)

 

 

Edited June 29, 2021 by thepupil

[Gregmal]

Yea Ive seen some bit of a plateau in some places, but not a ton. Which is great because as long as things dont blow up(which I am not sure I see a scenario where that happens) then the homebuilders gonna build. Flood supply, equal lots of profit for builders. Lack of supply, means big application for existing owners. An opportunity in the market, made available to you by guys like the one linked in the OP...who havent been this excited to go against the crowd and will proudly be wrong for a long time. Their skepticism is my alpha. 

Edited June 29, 2021 by Gregmal

[muscleman]

I have been making a case for a repeat of the dot-com bubble top this year since last October but recently I think that the top has been postponed till next year.

I am fully invested right now and expect to ride on a historical asset bubble. But when it is about to burst, I am gonna run quickly.

[Spekulatius]

Maybe we can fold the 2001 tech stock crash and the 2007 housing crash all in one. That could be a lot of fun!

[Gregmal]

^Thats basically the gist. Monetary policy and government have created an environment that has and will inevitably continue to produce bubbles. From there its just about anticipating money flow. If the fundamentals are strong, the deck is even more stacked. Everything has setup perfectly for housing/certain real estate. Energy/commodities too. 

[nafregnum]

32 minutes ago, Gregmal said:

Energy/commodities too. 

 

Oh darn.  This is something I wasn't very aware of -- is there another thread or someone I ought to read more of to get a good understanding of what might blow up in Energy?  Do you mean a bubble in all energy, or just in "Green Energy"?

[maplevalue]

1 hour ago, muscleman said:

I have been making a case for a repeat of the dot-com bubble top this year since last October but recently I think that the top has been postponed till next year.

I am fully invested right now and expect to ride on a historical asset bubble. But when it is about to burst, I am gonna run quickly.

 

US 10Y real yield at 4% around the peak of the tech bubble vs. -0.85% now so this run could put 2000 to shame!

[Gregmal]

3 hours ago, nafregnum said:

 

Oh darn.  This is something I wasn't very aware of -- is there another thread or someone I ought to read more of to get a good understanding of what might blow up in Energy?  Do you mean a bubble in all energy, or just in "Green Energy"?

I dont know if there is a specific thread but theres been random talk on a few. Summary:

 

You just had a long and brutal winter in the space. Widespread, decade long period of layoffs, plant closures, and bankruptcy. For good measure covid crash buttfucked the remaining brave souls...negative oil? Who'da thought? So there was a mega washout. Now, supply/demand out of whack from covid shutdowns and supply chain issues. Now throw in rapid reopening, stimulus money, demand for travel, building/renovations, and consumer products. Add in for good measure all this stupid ESG stuff and very hostile government attitude towards production/drilling...less drilling going forward against big demand. Oh yea, and now theres an infrastructure spending bill lol. 

 

People focus on lumber and the like, and it's valid, but crude has surged and likely won't stop, HRC just touched $1800...Some of the stuff like lumber I expect to just see the big one off run and then settle at a still higher than before price. But other stuff is not IMO going to be transitory and when people realize this, look out. I dont know if Id call it a bubble, but super cycle is more appropriate. Bubble IMO is the stupid EV spac stuff. Green energy for the most part is dumb and not really profitable from a business perspective, at least for shareholders. Maybe solar panel stuff sure but generally speaking, I'd want to be really long some of the old economy energy/commodity stuff right now. 

[nafregnum]

Quote

 

You just had a long and brutal winter in the space. Widespread, decade long period of layoffs, plant closures, and bankruptcy. For good measure covid crash buttfucked the remaining brave souls...negative oil? Who'da thought? So there was a mega washout. Now, supply/demand out of whack from covid shutdowns and supply chain issues. Now throw in rapid reopening, stimulus money, demand for travel, building/renovations, and consumer products. Add in for good measure all this stupid ESG stuff and very hostile government attitude towards production/drilling...less drilling going forward against big demand.

 

 

Thanks a lot @Gregmal  I've been thinking similarly about Oil.  Good solid reasons demand should remain strong. 

 

I got unbelievably lucky about 4 years ago in buying a small position in Enphase (solar stuff) when I saw Dan Loeb had bought a chunk.  It turned out to be my first (and probably only ever) 100+ bagger.  Now I'm considering whether to sell and just put those winnings into Obsidian Energy because I think Enphase won't double from here within 12 months but I think I agree with @SharperDingaan that OBELF it has a fair chance of doubling from its current level.

[Gregmal]

Yea I am not an expert on energy/commodity but have been spending some time on the stuff for a few months now once it became obvious the tailwind. If you want to go multi bagger I think stuff like BKEP is interesting, as is EPSN. RIG has also had a ton of insider buying and is the definition of a high leverage bet. Dont know a lot about Obsidian other than the great stuff SD has contributed. You could also just buy OTM LEAPs on higher quality stuff as well. My preference at the moment is go big or go home type stuff because this isnt really stuff I want to own forever. Certainly wouldnt be investing in it for 10-20% annual returns. 

[SharperDingaan]

Depending on your risk tolerance, look at both CVE-T, and ESi-T.

CVE is generating 1B+ of FCF/quarter, will be selling non-core assets, repurchasing 10% of its shares (COP holding), and restoring its dividend over 2H 2021. Choice of shares or warrants. ESI has acquired 2 other drillers within the last 15 months, has one of the largest high efficiency drilling fleets in the business, supply for this type of rig is tight, and demand has already driven day rates up 2-3K. And this is before M&A, as buying reserves is currently both cheaper and faster than drilling for them.

 

SD

 

  

[nafregnum]

59 minutes ago, Gregmal said:

Yea I am not an expert on energy/commodity but have been spending some time on the stuff for a few months now once it became obvious the tailwind. If you want to go multi bagger I think stuff like BKEP is interesting, as is EPSN. RIG has also had a ton of insider buying and is the definition of a high leverage bet. Dont know a lot about Obsidian other than the great stuff SD has contributed. You could also just buy OTM LEAPs on higher quality stuff as well. My preference at the moment is go big or go home type stuff because this isnt really stuff I want to own forever. Certainly wouldnt be investing in it for 10-20% annual returns. 

 

16 minutes ago, SharperDingaan said:

Depending on your risk tolerance, look at both CVE-T, and ESi-T.

CVE is generating 1B+ of FCF/quarter, will be selling non-core assets, repurchasing 10% of its shares (COP holding), and restoring its dividend over 2H 2021. Choice of shares or warrants. ESI has acquired 2 other drillers within the last 15 months, has one of the largest high efficiency drilling fleets in the business, supply for this type of rig is tight, and demand has already driven day rates up 2-3K. And this is before M&A, as buying reserves is currently both cheaper and faster than drilling for them. 

 

Thanks a lot to both of you for these other names to check out -- since my "bet" is for recovery in oil, then maybe stretching it across a basket of these names will be a little less risky than if I plow it all into Obsidian (already took a 3% position there)

Edited June 30, 2021 by nafregnum
(clarifying sentence)

[SharperDingaan]

Keep in mind that objective, risk tolerance, risk management, and time horizon, matter a great deal here. If you opt for direct investment versus via an o/g ETF, you need to be very clear on these. 'Fuzzy' is to rely on luck, clarity is to build material wealth via calculated risk/return.

 

The companies with high EV/share torque (OBE, ESI, RIG, etc) will greatly outperform the more conservative names (CVE) in a rising oil price environment. But a CVE bought at todays low price, could very easily end up with an 8%+ cash yield, once dividends are fully reinstated. The drillers typically also pay a significant variable dividend as/when they book material FCF. ESI-T is also partly owned by FFH (2-5% investment position) 

 

Best of luck.

SD

Edited June 30, 2021 by SharperDingaan