Thursday, April 1, 2010

Who is the real Fool?

I am!

Let me tell you about the history of this blog. I started in 2007. We watched local RE reach crazy heights, then we charted the steady rise in inventory of 2008, and the crash that followed it.

I had a hiatus for health reasons and returned in March 2009, well into the correction and my first post was discussing when the bears should get in.

We were by then in the midst of the financial crisis, and housing was in 'no-bid' land. I posted on how the 15% + drop in prices and the zero 'emergency' rates had brought about the 40% price drop that we had all been expecting.

I expected a recovery and then another down-leg as the emergency measures were lifted or the recession moved unemployment up and buying power down.

Neither happened.

These emergency rates and all the increased Government spending were to make up for years of irresponsibility.

Debt that was piled on shaky assets and could no longer be serviced.

The answer to this, according to our central banks, was more of the same. Bring the interest rates down to insanely low levels, for an insanely long time, and then whine, as Mark Carney does, about how Canadians aren't saving enough, how they are borrowing too much and why is housing in a bubble?

What else would they expect?? Take a glutton to a buffet and wonder why they are gorging themselves to death.

It is not just RE. Look at all assets, they are back up to pre-crisis levels in many cases. The TSE is flying, gold hit new highs, and most of the rest are up there. Who would have thought it?

Certainly not me.

I thought they would act more responsibly and we would be at 2-3% by mid-2009, once they had allowed the banks to reap enough money from the steep yield curve.

However playing by the old (and failed) tactic of accommodating excesses seems to have won the day. With this we get:

1) Low savings - why should I save when I am getting 0.4% before tax and inflation is running at three or four times that.

2) A stampede into assets, leveraged up, on borrowed money. Isn't that what got us into this mess in the first place?

The really foolish US consumer over-extended themselves on debt for flat screens, and SUVs and over-priced homes and then couldn't pay back their debts, so the world spins out of control and the result is we are all doing it now!

Chinese, Canadian, European - we are all American now.

Ultimately though I am the fool, for believing our policy-makers would be more responsible this time.

Greenspan said there was no debt and property bubble repeatedly, then after it burst he said he couldn't have been expected to see the bubble, and even if he could, it wasn't his fault. With leaders like that, looking for responsibility was definitely foolish.