Have We Hit The Top?

[Spekulatius]

22 minutes ago, Gregmal said:

How much statin are you taking lol?

 

Totally OT:

Cholesterol intake has very little to do with Cholesterol in your blood.

 

By the way, Eggs last a long time even outside the fridge. In Europe we used to store them in the pantry since fridges tend to be much smaller there. I am pretty sure they were there for 3 weeks if not more.

We typically bought a tray of eggs:

Edited September 25, 2023 by Spekulatius

[thepupil]

6 minutes ago, Spekulatius said:

 

Totally OT:

Cholesterol intake has very little to do with Cholesterol in your blood.

 

By the way, Eggs last a long time even outside the fridge. In Europe we used to store them in the pantry since fridges tend to be much smaller there. I am pretty sure they were there for 3 weeks if not more.

We typically bought a tray of eggs:

 

 

In the US, eggs' protective coating is, by law, washed off. therefore eggs must be refrigerated in the US (and shouldn't be refrigerated in Europe). 

[Viking]

2 hours ago, no_free_lunch said:

 

Right now, it feels a little like early 2008.  Back then they were raising rates, home prices were shaky but still stable, the stock market was doing ok, just a little dip here and there.

 

I am watching Canada to see what happens here.  5 year mortgages (or less) are the norm and by most metrics we have higher mortgage debt levels, so we should see sooner the impact of rising rates.  Perhaps though, rates will push through to commodity prices and that will soften the blow but I think this Canada is a good bellweather.

The situation in Canada is frightening. The more i think about it, the more our situation is beginning to parallel the US in 2006 or 2007. The key is ‘higher for longer.’ If rates stay around current levels for the next year i think we will see the beginning of big problems in the housing market in Canada. The cracks are there already.

 

Higher for longer, if it happens, means our mortgage market today is just like the wacky mortgage market the US had in 2005-2007. People don’t see it… the real estate market here is definitely giving off ‘Big Short’ vibes right now. Maybe i need to go to a local strip club and do some proper research. I was listening to a local real estate podcast (the Tom Storey show) and the guest realtor they had on said repeatedly “we all know real estate prices only go up.” She sounded like a nice lady… reminded me of ‘its just a gully.’

 

The issue was crazy low teaser rates… these allowed people to buy a house to live in they could not afford. But why let a good thing go to waste? Many Canadians became real estate ‘investors’ and started buying multiple real estate properties as well.

 

The big difference in the US and Canada is the crazy low low teaser rates in Canada have been available for a decade. This has allowed fortunes to be made on real estate in a very short period of time. I have been one of the winners (although i now rent - i cashed out my winning ticket in 2021). Canada’s entire economy became focussed on one asset class: real estate (as a % of GDP). And Canadians are obsessed with real estate. Low teaser rates for a decade have blown a real estate bubble of epic proportions. 
 

In Canada when people buy a house it is usually done with a mortgage that has a variable interest rate (changes immediately when rates change) or a 5 year fixed interest rate. I think amortizations can be a max of 30 years. 
 

For 40 years, a variable rate mortgage was a winning horse - for these borrowers interest costs kept falling every year. During covid variable rate mortgages dropped below 1%. More risk averse Canadians take out a 5 year fixed rate mortgage. These also fell over 40 years and bottomed at 1.39% during covid.

 

As interest rates fell for 40 years straight, well house prices have done the opposite and gone straight up for close to 20 years. Guess how much house you can ‘afford’ if you pay under 1.5% on your mortgage? House prices in Canada experienced their blow off top in Feb and March of 2022. The increase has been epic. 
 

Today a 5 year fixed rate mortgage is about 6.2%. Variable rate mortgages are higher than this. ‘Higher for longer’ means any Canadians who have an oversized mortgage (there are more than a few) are screwed. So where is the carnage? Everything looks ok?

 

Most of the variable rate mortgages have a uniquely Canadian twist… they are called ‘adjustable’. If interest rates go higher the borrower can pay more in interest and less in principal - but the total mortgage payment does not change. To make the math work, the amortization period is extended. Lots of variable rate mortgages in Canada now have 40 or more year amortizations (yes, when 30 is the max) and some are as high as 70/years. Some of these mortgages are so far offside that the total mortgage payment is no longer covering all the interest costs - the mortgage balance is actually increasing for these loans. 
 

Here is where the story gets interesting. All mortgages in Canada will reset every 5 years (variable and fixed rate). That means about every year 20% of all mortgages will be up for renewal. This is when everything gets ‘trued up’ - total payment and amortization. Of course, 6.2% is NOT generally workable if you have a large mortgage. 
 

So ‘higher for longer’, if it lasts, is a death sentence for Canada’s housing bubble. But it will take another year or so to become more apparent.
 

Investors are starting to cry uncle. Since about 2015 most real estate purchases in Canada for ‘investing’ were already cash flow negative - even at the low ‘teaser’ mortgage rates. House prices were going up 6-8% per year. Being mildly cash flow negative was simply a cost of doing business.
 

At 6.2% today investors are getting taken out behind the woodshed - their monthly costs and losses have mushroomed in the thousands of dollars. The icing on the cake is, in Vancouver and some parts of Toronto, landlords can’t raise their rent much (Vancouver allowed a rent increase of 1.5% in 2022 and a 2% rent increase in 2023). And the price appreciation has stopped. 
 

So investors are screwed. But they are a hardy lot. And, after all, interest rates WILL come back down. Canadian housing ONLY goes up. What is a rational investor to do? Buy and hold. Hang in there. 
 

Well, losing thousands of dollars every month eventually works it magic. Like a splash of cold water on the face, ‘investors’ are starting to - well - run out of cash to burn. Not surprisingly, we are seeing higher rates hit the investor part of the market first. For sale inventory is starting to build - and about 50% of it appears to be from investors.
 

Where this gets interesting is where we go from here. If inventory continues to build and we start to see prices fall 10%. If you are an investor and you are deeply cash flow negative AND real estate prices start to correct lower… you are worse than screwed. Now you risk getting wiped out financially. Leverage is a bitch when it goes against you. 
 

Within the investor segment, the condo pre-sale market could get very ugly in the coming year. Lots of ‘investors’ put down a deposit years ago on a unit that they intended to flip at a much higher price once it was completed. This strategy was a license to print money for years. These ‘investors’ can’t now sell the unit when it comes to market as the selling price is going to be below their agreed to purchase price so they will lose their deposit (or more). And they can’t buy the unit either - they do not quality for a mortgage at 6.2%. Lots of people own multiple units like this. A legal shitstorm in the making.
 

For borrowers who live in their residence this whole thing gets complicated. Canadians are very resilient at finding solutions - so i am not sure how it plays out here. Other than mortgage payments are going through the roof for those carrying large mortgages. But it will take a few more years to fully play out. 
 

The big banks will work with mortgage holders. They will extend amortizations to take the sting away a little. The Liberal government will also likely try and do something. 
 

So perhaps we muddle through. ‘Higher for longer’ will be the key of how this plays out. But the storm clouds are forming. And it looks like it might actually pick up enough speed to become a hurricane…

Edited September 25, 2023 by Viking

[Ulti]

23 minutes ago, Viking said:

The situation in Canada is frightening.

Viking…. I’ m curious….How does this tie into Canada’s immigration policy (if it even does.)  If Canada allows wealthier immigrants and immigrants of high needs into the country, would this not cushion the RE market somewhat… And is this RE problem mainly tied to Toronto and Vancouver areas…( I’m an ignorant USA southerner )

[Viking]

24 minutes ago, Ulti said:

Viking…. I’ m curious….How does this tie into Canada’s immigration policy (if it even does.)  If Canada allows wealthier immigrants and immigrants of high needs into the country, would this not cushion the RE market somewhat… And is this RE problem mainly tied to Toronto and Vancouver areas…( I’m an ignorant USA southerner )

Your question has a couple of layers. 
 

1.) supply / demand. Record numbers of people coming to Canada matters (immigration/international students/foreign workers). I think it might be as high as 1.2 million people over the last year. Canada’s population is about 40 million. This has created a housing crisis - we simply do not have the housing today for this level of new residents to work. This is a political time bomb that has been ticking for a few years… and it looks ready to go off at any time…
 

But this level of new demand will work to keep real estate prices high.

 

2.) per capita GDP in Canada has been falling for the past 5 years. We have a sick economy (back to that housing thing). So the government (all levels) views immigration/international students as cash cows for all the money they bring into the country. The revenue from these groups are built into budgets of governments/universities. If they slow the numbers their budgets go further into deficit (they are already running record deficits). 
 

3.) My read is Toronto and Vancouver are at the epicentre. But the real estate mania is everywhere in Canada. In my old home town in rural BC (a 7.5 hour drive from Vancouver) a 1,400sq ft house on a busy street sold in 2022 for $500,000. Today listings there are through the roof (nothing is selling). Prices have come down about 20% from their highs in that market. Perhaps a canary in the coal mine. 

Edited September 25, 2023 by Viking

[rkbabang]

1 hour ago, Gregmal said:

How much statin are you taking lol?

None.  I've been eating eggs daily for well over a decade,  I'm 50 yrs old and my cholesterol is fine.  As @Spekulatius said dietary cholesterol isn't associated with excess blood cholesterol.  And it is an essential nutrient for brain function.  Eggs yokes are so packed with good fats, vitamins, minerals and cholesterols in a nice tidy tiny package, they are a superfood.  I like to make scrambled eggs with 3 whole eggs and 1 egg yolk to reduce overdoing the protein.  Egg whites are just protein without much nutritional value.  The value is in the yolks.

[mcliu]

1 hour ago, Viking said:

Most of the variable rate mortgages have a uniquely Canadian twist… they are called ‘adjustable’. If interest rates go higher the borrower can pay more in interest and less in principal - but the total mortgage payment does not change. To make the math work, the amortization period is extended. Lots of variable rate mortgages in Canada now have 40 or more year amortizations (yes, when 30 is the max) and some are as high as 70/years. Some of these mortgages are so far offside that the total mortgage payment is no longer covering all the interest costs - the mortgage balance is actually increasing for these loans. 

 

Three major Canadian banks have disclosed that about 20 per cent of their residential mortgage borrowers – representing nearly $130-billion in loans – are seeing their balances grow as their monthly payments no longer cover all the interest they owe.

 

https://www.theglobeandmail.com/business/article-mortgage-borrowers-td-bmo-cibc-homeowners/

[Parsad]

5 hours ago, rkbabang said:

None.  I've been eating eggs daily for well over a decade,  I'm 50 yrs old and my cholesterol is fine.  As @Spekulatius said dietary cholesterol isn't associated with excess blood cholesterol.  And it is an essential nutrient for brain function.  Eggs yokes are so packed with good fats, vitamins, minerals and cholesterols in a nice tidy tiny package, they are a superfood.  I like to make scrambled eggs with 3 whole eggs and 1 egg yolk to reduce overdoing the protein.  Egg whites are just protein without much nutritional value.  The value is in the yolks.

 

100% agree!  A couple of eggs in the morning, and it satiates my appetite.  My blood sugar is more balanced than if I just ate oatmeal, cereal or toast.  My brain function is better.  I don't eat again until hours later.  It's all the other shit we eat that compounds any cholesterol/blood pressure issues.  The sugars, starches, etc.  Cheers!

[wolverine890]

1 hour ago, Parsad said:

 

100% agree!  A couple of eggs in the morning, and it satiates my appetite.  My blood sugar is more balanced than if I just ate oatmeal, cereal or toast.  My brain function is better.  I don't eat again until hours later.  It's all the other shit we eat that compounds any cholesterol/blood pressure issues.  The sugars, starches, etc.  Cheers!

 

You could always try them raw... 

[bizaro86]

Live footage of RK/Parsad... 

 

 

[UK]

https://www.bloomberg.com/news/articles/2023-09-26/dimon-warns-world-may-not-be-prepared-for-fed-at-7-toi-lmzl7rao#xj4y7vzkg

[Castanza]

10 hours ago, Viking said:

Your question has a couple of layers. 
 

1.) supply / demand. Record numbers of people coming to Canada matters (immigration/international students/foreign workers). I think it might be as high as 1.2 million people over the last year. Canada’s population is about 40 million. This has created a housing crisis - we simply do not have the housing today for this level of new residents to work. This is a political time bomb that has been ticking for a few years… and it looks ready to go off at any time…
 

But this level of new demand will work to keep real estate prices high.

 

2.) per capita GDP in Canada has been falling for the past 5 years. We have a sick economy (back to that housing thing). So the government (all levels) views immigration/international students as cash cows for all the money they bring into the country. The revenue from these groups are built into budgets of governments/universities. If they slow the numbers their budgets go further into deficit (they are already running record deficits). 
 

3.) My read is Toronto and Vancouver are at the epicentre. But the real estate mania is everywhere in Canada. In my old home town in rural BC (a 7.5 hour drive from Vancouver) a 1,400sq ft house on a busy street sold in 2022 for $500,000. Today listings there are through the roof (nothing is selling). Prices have come down about 20% from their highs in that market. Perhaps a canary in the coal mine. 

 

Thanks for sharing your thoughts. 

 

Been following Canadian housing loosely for a few years now ever since my BIL built a beach cottage for ~200k all in then sold it to some guy from Toronto for ~600k barely 3 years later….

 

A LOT of people up there bemoaning how easy it is to flip houses. When your barber starts talking about real estate flips it’s time to pay attention. 

 

https://x.com/jonflynnrestats/status/1697757207574503482?s=46

 

Follow a few Canadian Relators on Twitter. Any you would suggest?  
 

 

[UK]

https://www.bloomberg.com/news/articles/2023-09-26/private-equity-is-piling-debt-on-itself-like-never-before?srnd=premium-europe#xj4y7vzkg

 

Private equity firms have been increasingly adding another layer of debt to their complex borrowing arrangements, raising concern among some investors about potential risks to the wider industry and the financial system. Hit by a drought of deals and dwindling cash, some buyout firms are starting to resort to backroom financing to help meet fund commitments or enable succession planning. The loans — backed by assets including the promise of future income — carry interest of as much as 19%, a rate that's more akin to the charges faced by consumers rather than corporate borrowing. Even a junk-rated company in the US paid 10% on a bond recently.

...

“The investor universe is unbelievably unaware of the underlying leverage throughout this entire ecosystem,” said New York-based Dan Zwirn, founder and chief executive officer of Arena Investors LP, an institutional manager overseeing more than $3.5 billion in assets. “That hasn’t hit the PE investors yet, but it’s becoming more clear for real estate investors,” he said, referring to the recent delinquencies in the commercial property sector.

[Spooky]

6 hours ago, UK said:

https://www.bloomberg.com/news/articles/2023-09-26/dimon-warns-world-may-not-be-prepared-for-fed-at-7-toi-lmzl7rao#xj4y7vzkg

 

Is there any more context for Dimon's statement?

[UK]

41 minutes ago, Spooky said:

 

Is there any more context for Dimon's statement?

 

Have not seen anything more. Might be just discusion of some hypothetical scenarious. 

 

Also link to some older article: https://www.bloomberg.com/news/articles/2023-09-20/dimon-says-fed-may-have-to-hike-more-to-fight-sticky-inflation

 

 

[changegonnacome]

 

In the same Dimon vein - the whole yield curve is shifting upwards

 

Wasn't about now the time when the Fed was supposed to be cutting rates.

 

The steepening at the long end......or an un-inversion/flattening by another means....is really the most interesting part of this period.........the yield curve shifting permanently upwards and resetting at a higher level is the kicker for assets prices.....a curve that looks something like 2.5% at FF, 4.5% at 10yr & ~5% at 30yr........is just a different world to the one we've been in the 2010's.

 

Reminds me of supply curve shocks in economics.....

 

[UK]

10 minutes ago, changegonnacome said:

 

In the same Dimon vein - the whole yield curve is shifting upwards

 

Wasn't about now the time when the Fed was supposed to be cutting rates.

 

The steepening at the long end......or an un-inversion/flattening by another means....is really the most interesting part of this period.........the yield curve shifting permanently upwards and resetting at a higher level is the kicker for assets prices.....a curve that looks something like 2.5% at FF, 4.5% at 10yr & ~5% at 30yr........is just a different world to the one we've been in the 2010's.

 

Reminds me of supply curve shocks in economics.....

 

 

Don't worry, just go long FFH then:)))

[SharperDingaan]

On 9/25/2023 at 12:48 PM, TwoCitiesCapital said:

 

This is where you and I disagree. The market is going to be just as bad as forecasting and just as emotional trading as it always has been. 

 

I hear you, but a few practical issues.

 

No matter how it is done, every forecast has a widening cone of possible outcomes; & the further out in time the forecast is, the wider the cone becomes (standard deviation). Beyond 2-3 years the +/- standard deviation becomes large enough to essentially render the predicted outcome useless.

 

As soon as you use history, you have assumed that the future will either repeat or rhyme; not a bad assumption in 'normal' times, but we haven't had 'normal' for 17 yrs (2007 Great Financial Crisis & beyond). OK, if you think the future will be as least as volatile as the past, but otherwise?

 

At the granular level, the use of history is the same as data mining; applying a data-set correlation > .85 outside of the data set; & hoping that it is still going to be reasonably predictive. It may be OK for the 3-4 month predictive life of a 'bot, but beyond that?

 

Like to like, for a BBB equity; do you have confidence in your prediction that the share price of the common will fall by more than the price of the 7yr duration bond (duration of the bond fund) of the same entity - if rates rise 250 bp within the next 12-18 months? You are confident, in your prediction that the equity index will be 15-25% lower at some point over the next 18 months?

 

i.e: If the bond was bought at par, the 250bp rise in market yield will reduce the price by $175 [ (0.025*7*1000/1000)], or 17.5% [175/1000]. If that rise in market yield causes the share price to drop by > 17.5% (a recession) the bonds are better.

 

For most people it's going to be a guess, & little more than a 'gut feel' based on whatever they have seen/heard over the last little while; hence the emotion, & influence from the daily media feed. The reality of course is that nobody knows; it's all just 'informed opinion', at varying degrees of confidence.

 

SD

 

 

 

Edited September 26, 2023 by SharperDingaan

[UK]

https://www.investing.com/news/stock-market-news/rob-arnott-sees-just-near-perfect-environment-for-value-stocks-432SI-3182976

 

“It is wonderful for people who have enjoyed the growth run and been light on value to have a third chance to rebalance and take advantage of bargains,” he said before his television interview.

 

“You don’t often get that. So I look at the current environment as being a just near perfect environment for value.”

[james22]

1 hour ago, SharperDingaan said:

As soon as you use history, you have assumed that the future will either repeat or rhyme; not a bad assumption in 'normal' times, but we haven't had 'normal' for 17 yrs (2007 Great Financial Crisis & beyond).

 

This.

 

We value investors have bored momentum investors for decades by trotting out the axiom that the four most dangerous words are, “This time is different.” For 2017 I would like, however, to add to this warning: Conversely, it can be very dangerous indeed to assume that things are never different.

 

https://wealthtrack.com/wp-content/uploads/2018/01/This-Time-Seems-Very-Very-Different-by-Jeremy-Grantham.pdf

 

When people say things are different, 20% of the time they are right. John Templeton

[rkbabang]

20 hours ago, wolverine890 said:

 

You could always try them raw... 

 

My grandfather used to stir 2 raw eggs into his beer first thing every morning.  He lived until age 89.

 

I like to make egg coffee, but I’m not sure they are raw anymore after being mixed into hot coffee.

[UK]

1 hour ago, rkbabang said:

 

My grandfather used to stir 2 raw eggs into his beer first thing every morning.  He lived until age 89.

 

I like to make egg coffee, but I’m not sure they are raw anymore after being mixed into hot coffee.

 

My grandfather and father used to do this too! I also remember some kind of version of this drink (egg liqueur) beeing made: https://www.recipesfromeurope.com/eierlikoer/. Also, besides normal eggs, we like quail eggs very much:)

 

Edited September 27, 2023 by UK

[brobro777]

All these eggs? Come on guys you're not Rocky training to fight Apollo

[Viking]

23 hours ago, Castanza said:

 

Thanks for sharing your thoughts. 

 

Been following Canadian housing loosely for a few years now ever since my BIL built a beach cottage for ~200k all in then sold it to some guy from Toronto for ~600k barely 3 years later….

 

A LOT of people up there bemoaning how easy it is to flip houses. When your barber starts talking about real estate flips it’s time to pay attention. 

 

https://x.com/jonflynnrestats/status/1697757207574503482?s=46

 

Follow a few Canadian Relators on Twitter. Any you would suggest?  

 

@Castanza I think the best person to follow to understand Canadian housing is a guy named Ron Butler (@ronmortgageguy). He is a mortgage broker. He also has a YouTube channel. He is old school and very opinionated... and he is very crusty (swears a lot). But he is pretty rational - so he is a pretty good counter balance to the realtors on Twitter. His outlook is probably too negative/bearish.

Mark Mitchell follows housing current events pretty well. He is on YouTube

 

 

I also follow Steve Saretsky (@SteveSaretsky). He is in Vancouver and that is my market. I find he is pretty good for a local perspective - and pretty balanced (for a realtor). Steve also is on YouTube and also likes to talk about Macro and Canada (The Loonie Hour)

 

Edited September 27, 2023 by Viking

[dealraker]

On 9/25/2023 at 9:49 PM, Parsad said:

 

100% agree!  A couple of eggs in the morning, and it satiates my appetite.  My blood sugar is more balanced than if I just ate oatmeal, cereal or toast.  My brain function is better.  I don't eat again until hours later.  It's all the other shit we eat that compounds any cholesterol/blood pressure issues.  The sugars, starches, etc.  Cheers!

Yes, yes, and more yes.