Saturday, January 30, 2010

My last post till late Feb

Ok folks - you have heard me state several times that a rebound in prices past the highs of late 2007/early 2008 would put our 'bubble bursting' graph into doubt. We are there, however... seems like we may have a little reprieve. My technical analysis friends, tell me that there is such a thing as a divergent high.

First you get a 'momentum high' as prices get driven up-wards by panic buying, then you get a scary drop, followed by another zoom up- but this time it is a 'divergent high'. Which means that while prices move up again, things don't smell as fresh.

The divergent high usually happens as the powers-that-be try to sustain the bubble by what-ever means necessary. It is driven by late-comers, bears throwing in the towel and the last few buyers left behind.

In stock terms that would mean the second high comes with lower volume, and just a few star stocks participate in the final climb up, while the majority were flat.

In real estate terms, we could argue that we have just had the divergent high.

1) Much lower list/sales than the previous high. check.

2) Limited participation. Check. We have the West-side making new highs (how's median prices of $1.78 Million sound?)- but the Valley, Okanagan and even East and North Van are stagnant or dropping:

So the rebound has been much more narrow. The OK is nowhere near it's all time highs. But Down-town Vancouver is pretty close, even though there is more inventory and lower list/sales that the previous high. A clear divergence.

Daisy chains

Vancouver, in fact Canada as a whole, is one of the few areas in the world, along with China were RE prices have been on a continued up-swing despite the recent credit events.

You have read me state several times, that many assets seem to be linked at present.

Gold, oil, stocks, commodities, non-US RE have all moved up in lock-step. The driving force has not been increased use, or a sudden jump in population but zero interest rates and a return to speculation.

The zero interest rates are not for borrowers BTW, who still pay 4-7%, but for savers who get next to nothing. The goal is very simple, to allow banks to mint money and repair their balance sheets (6% - 0% = 6% which is a very large spread historically), and to force savers out of money market funds and back into more speculative investments or better still- to just spend the money and keep the consumption orgy going strong. It has worked.

Though commodities such as copper have seen a drop in use and large increase in storage, they have been bid up close to recent highs. Even Chinese pig farmers have been buying up stocks-piles of commodities as investments:

Ok, so what does this have to do with Vancouver RE. Well we are linked in a daisy chain of assets to these speculators, since we have one of the most speculative RE markets in the world. Nothing compared to China which has seen 40-60% annual rises in some of it's major cities. Some say that bubble is about to burst too:

We have started to see risk-fear returning to the stockmarket, and when it happens, things drop quickly. Look at oil or gold or our own TSE -a 9% drop in just two weeks:$TSE&p=D&b=5&g=0&id=p60710887103

So what does this all mean. Not a lot :)

It means that we should look outside Vancouver to see how our RE will fare. We need to watch the Chinese stock market, the S and P, the TSE , gold and oil. They are all moving together and a slide in one is likely to auger a drop in the others.

More than that is impossible to forecast. Why? Because we do not have free markets anymore. If a fat-figered trader at a major bank losses money on an illegal trade the market will drop hard, but if the government decides the tax-payer will pick up the tab, then speculation returns very quickly.

It happened in France, when one trader lost an astounding $7 Billion and brought bank stocks down 6% world-wide - the US FED quickly cut rates and the French Government arranged emergency loans and back-stops.été_Générale_trading_loss_incident

In the US, the government bailed out AIG to the tune $200 Billion for foolish, negligent and perhaps criminal (an insurance company should not sell more policies than it can cover) trading.

The bubble has to be inflated at all costs, even mortgaging the future to do so.

The Owe-limp-pix

You all know I was 100% against this wasteful, unnecessary, corporate, nationalistic shin-dig. Why did the proponents want the games again?:

1) To pump RE even more and enrich developers
2) To inconvenience locals, many of whom are fleeing the town.
3) To leave us a legacy of debt.
4) To allow our City councillors to try and negotiate with Wall Street sharks for money and get fleeced.
5) To attract more low and semi-skilled jobs at a time of boom from RE construction, digging more holes and filling them with concrete so that we can have a complete collapse after the Olympics and have to retrain all these people for more sustainable careers.

Ok now that we have that out of the way, I have to say I want the games to be a success.

Unlike some permanently-negative bears, I want to see the games go as well as possible, with as little added costs for bringing in snow by helicopters. Oh and I do want us to win Hockey gold (coz it is our game) and hope we don't have riots if we do or don't.

Why? Because the more it costs, the more we are all - buyers and sellers, Vancouverites and Canadians, going to be on the hook for it and have less money for daycares, and schools and affordable housing which are things worth going into debt over.

And we have to keep those nickles handy for the CHMC, if RE turns sour, or maybe one of our banks gets carried away with gambling, sorry I mean trading and needs help in the future.

Have a safe and healthy Olympics and I will see you at the other end.