Stormy Weather - Any shelter in a storm?

Those of us who grew up on the west coast know all too well that when the weather gets really nasty, when you're out on a boat on the ocean, that it's a good time to head for a safe harbour. Preferably one where you can get out of the wind and waves, behind a solid breakwater if possible.

Well, the world economy is certainly going through a major storm these days, with the storm centred in the US Financial services meltdown as a result of the mortgage crisis.

Some investors are choosing to move to cash investments, others to precious metals, like gold. Both of these strategies are a little like adding ballast to the boat, stabilizing it but not really helping you get where you want to go. Holding cash or near cash investment is a sure fired way to go backwards against inflation and shrink your capital base. Holding gold is probably as high a risk as holding stocks right now... after all stocks are at historically low values and gold is at the top of its cycle of prices...

Actually the ballast in the case of gold might actually sink your ship... to carry the metaphor further.

Anyone who follows this blog knows that I am a big believer in mortgages and Mortgage Investment Corporation investments, because of their inherant stability and underlying security. Like all investments mortgages do require diligent review and careful allocation of funds, in addition to common sense lending (something not practiced in US backed subprime mortgage market previously).

But mortgages do represent a relatively safe harbour in an economic storm, with security based on something that every investor can understand... a home where the borrower has something real to lose in the way of equity.

AIG Bailout - Will they sell AIG Canada?

AIG Canada is one of the most secure investments in the AIG universe with strong Canadian government guarantees behind it. If the US government managed its mortgage industry the way that the Canadian government has, the US wouldn't be in the total mess that it is...
Both McCain and Obama are promising to increase regulation of the financial services industry after this mess.... sounds all too familiar... the leaders promised the same after the Savings and Loan screw up... leading to this???

I think it is unlikely that the US government will make sensible changes in the rules... in an environment with such strong state rights... including the right for any state to make stupid.

Price and Volume Changes in Canada

Headlines in the local papers in Vancouver this week were screaming about a decline in prices on sale of homes in Greater Vancouver of approximately 4% since the spring, and an increase in new listings of an alarming amount.

Excuse me. One of the things that drives markets, of course, is media speculation about the current trends in the market. Sometimes it seems to me that there are those in the media determined to create a real estate crisis even in the absence of one. New statistics from the Canadian Real Estate Association indicate a decline in the volume of sales from last year to this year, along with a significant increase in new listings. But the numbers hardly indicate a crash in the market across Canada, or even in British Columbia, with an increase in average sale price to the end of July of about 8% over the past twelve months.

I caution anyone thinking of buyer or selling to be careful and think for themselves.

Anyone who thought that the real estate boom of the past few years would continue indefinitely, without pause, hasn’t been around very long. It has already been a very long positive market, and it is time for a market pause or even correction. The question at the end of a long boom is how severe the correction might be.

I leave you with this thought. Residential vacancies in Greater Vancouver are less than 1%. Unemployment is at just over 4%, and is stable, despite rapidly increasing populations. Does this sound like a bubble? So when prognosticators tell you that the market here is going to hell, take their opinions with a grain of salt.