Monday, June 8, 2009

Underestimating the Pool


Whether it is the surreal strengthening of the Canadian Dollar, the sharp rebound of BC's real estate sales or the liquidity-driven stock rally, there seems to be this apparent contradiction between the gloom in the real economy and the exuberance being experienced in the market to know when to jump in.

The market has so quickly stabilized or so it seems, as a result of the following factors:

1) The irresponsible financial entities around the world have been pulled out of near collapse by the infusion of US and European tax-payers money. You do not need to print money to be deep in debt.

2) Interest rates around the world have been slashed to near zero to stimulate spending and free up credit lending.

3) Commodities (especially oil, gold and copper) has gotten a boost(inflationary pressure), and that has helped mining and oil producers. However natural gas for which provide the Province a huge % of it's revenue has continued to drop.

4) The normal seasonal bounce in housing sales that occurs in spring.


There are really quite a few indications that we are still in midst of a bear market.

My sources tell me that foreclosure numbers have jumped considerably in BC, and the reason why these numbers have not been publicized is because there is a 6 months redemption period in which companies or individuals in debt can try to find a way to repay their liabilities. To spell it out, sometime in September or October, the redemption period will be up, foreclosure news will explode and it is not hard to imagine a market correction once again.

While I marvel at some of the nearly completed RAV lines, I remember that soon there will be an overload of workers without new projects. Since most workers are renters, the rental market will most likely take a hit. If you need to renew a lease, you need to pick your timing well.

Employment is likely going to be weak for some time. The job-buying program of both the US and Canadian governments is yet to have any appreciable affect. Deficits are growing which warrants attention. Murphy's law suggests that there will be a correction coming, if so, then this is nothing more than the calm before the next storm.

Now, the doomsday philosophy is really based on the assumption that the supply of morons or suckers or gamblers will eventually run dry. Yesterday on the Vancouver Suns, Vancouver's landmark Bentall 5 building sells for $300 million. Well...... the pool may be deeper than I expected. Or perhaps, I did overestimate humans.

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