Tuesday, May 29, 2007

fly like a loon



How about that dollar? It has taken wing. It is up about a half-cent today (93.17 cents US) on hints from the BoC that it will be raising the rate to keep inflation in check. We keep hitting new 30 year highs. The last time our dollar was this high, Talking Heads had just released their first album, and Stevie Wonder was "it" (I wonder how many that are buying condo's have heard of either). We were also moving into recession.

I think that the timing is pretty safe - the economy is over-heating, house prices are, um, nuts, lumber is already in the toilet, and other economies are slowing down - which will mean less demand for commodities in general. Oil fell 2.8% today as well. It has to happen sooner or later.

The Canadian dollar is at a 15 year high against the Yen, a 6 month high against the euro and is showing strength against the most traded currencies. The big banks raised mortgage rates 0.3% today as well.

What does it mean? I think that we will see housing inventory surge, sales slow markedly, increasing unemployment, less commodity sales, less tourism, and hopefully - a return to some semblance of sanity.

This excerpt from Bloomberg

Canada's Dollar Reaches 30-Year High on Hint of Rate Increase

By Kim-Mai Cutler and Haris Anwar

May 29 (Bloomberg) -- The Canadian dollar rose to a 30-year high after the central bank said it may raise borrowing costs to restrain inflation. Short-term government bond yields surged.

The Bank of Canada suggested it may raise overnight rates in the ``near term'' to curtail inflation, though it held the benchmark lending rate at 4.25 percent for an eighth meeting. It last raised borrowing costs 0.25 percentage point in May 2006. Benchmark two-year bond yields climbed the most in almost 23 months to 4.58 percent, the highest since March 2002.

``This is more hawkish than what the market was expecting,'' said Marc Levesque, chief North American strategist at TD Securities in Toronto. ``The Bank of Canada is squarely telling the market that it's going to hike and the Canadian dollar has clearly gotten a kick off the back of that.''

The central bank, departing from earlier statements describing inflation risks as balanced, said there is an ``increased risk'' that inflation will persist above the 2 percent target. The statement added that ``some increase in the target for the overnight rate may be required in the near term to bring inflation back to the target.''

Ten of 15 economists surveyed today by Bloomberg predict the central bank will raise rates at its next meeting, July 10. Last week, two of 19 forecast such an increase. (Gee, psychology can turn pretty fast...)

23 comments:

Ken said...

educate me a little, i'm young and dont really know how the real estate market works, but all this talk about a bubble burst or slowing down.

when does everyone think it'll happen? next year? 5 years?

solipsist said...

ken - I haven't got a clue how it works. Seems to me it isn't.

Some say it's a bubble because it is over-inflated, and is expected to lose air - sooner or later.

The market is slower than last year, but faster than 5 years ago.

to everything there is a season,
and a time to every purpose under heaven...


To get more erudite information than I can give, check out the links on the main page. They pretty much cover it between them.

Anonymous said...

I was interested to see what the high Canadian dollar would do for things like our local film industry. Googled around, and sure enough...it's not only movie shots that will be effected but mining, forestry and even tech.

It's still too early to guess the timing and scope of the real fallout...but it's already in the works.

solipsist said...

"it's not only movie shots that will be effected but mining, forestry and even tech."

And...gasp...tourism.

Ah, well, those California Zinfandels ought to be cheaper. Do you think they will be? I don't.

I wonder if marijuana exports will suffer. That will really kill the local RE market.

Anonymous said...

The Americans have stopped coming. My RE agent even admitted it.

sansan said...

solipsist said: I wonder if marijuana exports will suffer. That will really kill the local RE market.

Hear, hear! Ken, this is not only a bubble, it's potentially a smoke-filled one...

Anonymous said...

"Ah, well, those California Zinfandels ought to be cheaper. Do you think they will be? I don't."

That's OK. I've been on forums and noticed some Californians want to covet our Ice Wines. They'll just have to pay more for them.

And if they want to come as 'tourists' with nothing more than an RV that's already filled with food from home - take all the local fish they want, and leave only camping fees; we will have less of them.

Tsk tsk and boo hoo.

Sam said...

OT, but the California zins won't be noticably cheaper, nor will any other wine. This is because a decent Rioja that here in the UK costs £3 (about $6.60) or €4 on the Continent costs (I'm only guessing as I haven't been in BC much) $20 in BC due to $14 in tax added on. This ignominious policy on alcohol will surely continue as it's such a lucrative cash grab, and because BC residents and Canadians in general seem too complacent about it to force change.

patriotz said...

"Complacent"? I'm all for it. Much better to tax consumption then income, and much better to tax non-essentials than essentials.

No I don't drink much.

Anonymous said...

"This ignominious policy on alcohol will surely continue as it's such a lucrative cash grab, and because BC residents and Canadians in general seem too complacent about it to force change."


A large percentage of what we pay for gas in BC is taxes and surcharges.

Luckily, BC in general, and Vancouver in particular, are the centre of the universe and the best place to live with the best weather so we're used to taking it in the ear. As well-behaved 'droids, we're even proud of it.

We probably have more land per capita than most people on earth, but we can be convinced that the stuff is scarce and will pay ridiculous prices for it. Some will even suggest that a 500 sq.ft. shoebox is just right...and 600 sq.ft. is way too cavernous.

Taxes? We're way too slick to be bothered with such inconsequential details.

Anonymous said...

>"Complacent"? I'm all for it. Much better to tax consumption then income, and much better to tax non-essentials than essentials<

patriotz: You speak as if we *aren't* taxed on income or what you call essentials. We're getting nailed in every category and it's not like anybody asked our opinion about it.

Unless there was a voter referendum about what we agree to be taxed on - I must have totally missed it.

patriotz said...

Look, Mr. Tax Protestor, we have democratically elected (and may I add, right-wing) governments in City Hall, Victoria, and Ottawa. They have a constitutional mandate to levy taxes.

You think you're paying too much taxes. OK, so just what do you think the government is spending too much money on? Everybody thinks the government spends too much money - but nobody thinks the government spends too much money on them, or on their own pet projects.

solipsist said...

Unless there was a voter referendum about what we agree to be taxed on - I must have totally missed it.

But, there was... Everyone filled there gullets with MSM bullshit about how how corrupt Glenn Clarke and his cohort were, and voted in the Lieberals - who are really the Social Credit (as in Van Der Zalm).

The scumbags (with developer Campbell at the helm) proceeded to bring in the Olympics, and the commensurate RE boom (which Campbell's development buddies loved), and we are left with an unlivable city.

Same thing at City Hall.

I got so sick of people bitching about the NDP, decks, and casinos at the time. All I could scream was: "you fricking idiots!"

And here we are...

Slots at the race track (thanks Larry Campbell - you fricking sell-out for a Senate seat). The scumbags in Victoria voting their own raises, and musing on lifting the moratorium on off-shore oil exploration, making words like "gold", "silver", "medal", "games", "winter", etc., trademarks that us ordinary mortals are prohibited from using.

Yeah, that's democracy.

Just as in the run-up in RE prices, we have no one to blame but our collective selves.

You fricking idiots.

(don't mind me - I've had too much California Zinfandel, which has not dropped in price yet.)

Anonymous said...

"Look, Mr. Tax Protestor, we have democratically elected (and may I add, right-wing) governments in City Hall, Victoria, and Ottawa. They have a constitutional mandate to levy taxes.

You think you're paying too much taxes. OK, so just what do you think the government is spending too much money on? Everybody thinks the government spends too much money - but nobody thinks the government spends too much money on them, or on their own pet projects."



Whew, where to begin? First off, I'm not a 'tax protestor'. I'm old enough to understand the futility of protesting anything. No more marches.

And where do I think the gvt. is spending too much tax money? The largest component of tax money goes to rollover the debt. Paying interest and compound interest on monies already borrowed. Those $$$ could have issued directly from the federal government itself - it has a constitutional mandate to do that, as well, but choses not to.

As for 'pet projects', I don't have any of those either - other than to live in a reasonably sane and peaceful world. And we know how heretical that is.

Things that are important to people: environment -clean air/water, sustainable oceans and forests; workers' rights, equality of law for women, children, minorites, disabled etc., affordable housing, accountable government...in general, human interests...all are laughably referred to by MSM as 'special interests'.

There is one, and only One Special Interest, and that is Corporatism. One agenda with absolutely no schisms.

I don't buy into the bogus left/right political dichotomy. It's a distraction that facilitates peoples' faith in the democracy story. And it is just that, a story.

patriotz said...

The scumbags (with developer Campbell at the helm) proceeded to bring in the Olympics

Actually it was Glen Clark who brought in the Olympics. And his motives were just the same as Campbell's - to put money in his friends' pockets at the taxpayer's expense.

I must admit I have a bit more in common with Clark's friends than Campbell's, though - they make a living doing actual work rather then being glorified casino croupiers.

Patiently Waiting said...

The NDP had many years to live up to their rhetoric about affordable housing. They failed to add family-oriented, decent, affordable housing. The fact that so many families are living in dank basement apartments is partially the result of NDP failures.

The bubble may have started with the Liberal government, but that was more of a co-inkydink than anything. Sure they welcomed it but they did little to cause it. We the bubble is global. OTOH, the NDP wasn't really responsible for the economic downturn during the last years in office.

The facts are neither of our political parties will pass laws to discourage speculation because existing homeowners are more likely to vote and contribute. Neither will cool the real estate fever and demand better housing because it creates jobs and makes some influential people rich. Neither will address affordable housing because it simply isn't a priority for the right people.

solipsist said...

Thanks for straightening me out vis-a-vis who ushered in the Olympic idea.

For the record, I am non-partisan. I thought that Clark was unfairly farked by the Liberals and the MSM, and the ensuing Liberal landslide was the knee-jerk result. Of course, Clark was exonerated after the fact, and here we are.

I agree that Clark had as little to do with the economic woes of his time as Campbell has with the current boom.

I just have a particular dislike for Campbell and his minions.

Carol James is a twit, and I can't say that I would like to see her as Premier. I very much liked Mike Harcourt.

Patiently Waiting said...

solipsist:

I agree:

Harcourt: Not that bad at all
Clark: Very bad, though not as bad as some said.
Campbell: Very bad yet very fortunate
Vander Zalm: Looks better years later, but still kinda sucked.
Bennett: Not that bad at all
Barrett: Too young to remember but I'm thankful for the ALR. For that reason alone, I admire his foresight.

patriotz said...

The facts are neither of our political parties will pass laws to discourage speculation because existing homeowners are more likely to vote and contribute. Neither will cool the real estate fever and demand better housing because it creates jobs and makes some influential people rich. Neither will address affordable housing because it simply isn't a priority for the right people.

Couldn't have said it better myself. As long as J6P thinks paper gains on his house are making him better off, no party will ever introduce or advocate a policy intended to put a lid on the price of housing.

In fact the RE boom/bust cycle which has afflicted Vancouver since 1980 is bad for most people. It's bad for people who work in construction because they don't get steady work. It results in poorer house quality than if houses were build at a more measured pace. It's bad for businesses outside the RE sector because it makes it difficult to hire qualified people, who can expect to buy a decent house in the saner parts of the country. It's bad for the consumer sector because a disproportionate number of buyers get in near the top of a cycle and have to carry a huge debt for decades.

And who benefits? The occasional J6P who gets out of Dodge and moves to somewhere cheaper at the top of a cycle. The RE industry players and shills who get higher margins than if the market were more stable. And the deep pockets who have the smarts and resources to buy low and sell high.

Anonymous said...

As the loonie rises higher Canadians shop across the border more. This takes money out of the local economy.

With the higher loonie, Americans have no reason to shop in Canada any more.

Cracks in the "bullious" economy?

solipsist said...

"Cracks in the "bullious" economy?"

Soon to be the "bilious" economy.
bilious

Patiently Waiting said...

patriotz, what I find most amusing and frightening about this boom cycle is all the kids caught up in it.

Instead of worrying about a 30K student loan like my age-group was at 23, many 23 year-olds today are happily taking on 300K mortgages. Some mini-Casey Serin's are much deeper than that.

When the dust settles, we'll have a whole generation that won't want to hear the words REAL ESTATE let alone invest in it. Maybe that will be the end of our boom/bust cycles for a few decades.

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