Friday, February 20, 2009

Thriving in the Recession(Depression)

The downturn many of us here had predicted, but no one particularly wished for, at least in the schnadenfreude way, is here. The deniers are still in huge numbers, but with every day of falling markets, fall in prices, canceled sales orders, interviews that do not convert and bills that do not get paid, their numbers will dwindle.
One of the good things that came out of this blog was that it prevented at least a handful of people from jumping on the Alberta real estate bandwagon during the last two years.

Having saved yourself of making a stupid blunder then (and assuming you didn’t change course, like a blogger who is mentioned here frequently), what are you doing now?

Here’s what I’m doing?

Saving lots of money. As usual. Our expenses are fixed at around $3500 a month or so and we make a lot more than that. After taxes, rest is all savings. We plan to continue to do so.
Continue to diversify the sources of income. We don’t rely only on regular employment income. We have significant business income (two different side businesses) along with interest income. We are always looking to add more streams and make existing ones grow so that our reliance is not great on a single source.
Keep on tithing. That’s what we will keep on doing, especially in bad times when a lot of people will be in need of help. Of course, it doesn't mean giving money only to your church, but to any non profit that you think is going great work. Or to food banks. Of course, this is a purely selfish thing to do as it saves goblets of cash, come the tax time. If our income increases even in this market, we’ll proportionately increase our contributions to this end.
Staying fit. The doom and gloom should never be internalized. This is a personal lesson from the dot cum bust era. It should be studied and examined and decisions made accordingly. One of the best ways of remaining positive is by working out regularly. I try to run 5 to 6 miles every day or do some other aerobic exercise for at least one hour. It will hopefully keep me away from the grips of Big Pharma in the latter years. In the short term of course, my energy levels are high, attitude positive and productivity improved.
Volunteering. And that means doing things beyond writing good blog posts and posting useful links to help people. It means, trying to help other people with your valuable skills and time. And trying to make some difference.
Not wasting time on TV-I haven't watched TV in a long time. Everytime I travel and see TV programming for a while in a hotel room, I feel so good about the decision of not having cable TV in our home. Not only does it save us several hours in a day, but it also helps us save $50 to $100 in cable TV bill. Plus, it keeps your materialistic desires in check and helps you keep all the propaganda at bay.
Not Depending on Government Bailouts or Help- Believe in the old fashioned capitalistic way. Watch out for your interests and protect your interests. Do things that make sense to you. Don't get influenced by the mass media.
Start looking for investment opportunities. This may not be the right time, but the right time will soon arrive. Keeping the cash handy for investments is a good thing, but zeroing in on the asset classes you would like to buy will be helpful too. Whether it’s commercial real estate, apartment buildings, dividend paying ‘boring stocks’, strip malls or anything else, clearly define the criteria by which you will define the investments and establish valuation levels that will make you comfortable, irrespective of the short term market fluctuations. And that will certainly mean looking beyond the valuations in play in the last two decades or so. I’ll post more on this once I have more time.

What are you doing?

Sunday, February 15, 2009

Painful Lessons

In the feel good world of Canadian news, employers have taken a big clue from the politicians. Instead of laying off hundreds or thousands of employers in one go, most employers, at least in Alberta, are laying off people in smaller batches of 30 to 50 every day. Engineering firms are the primary culprit. Others are likely to join them in this 'non sensational', 'feel not too bad' way of laying off people.
I ran into three friends during the last week who work for engineering companies. The story is the same everywhere. EPC companies have vacated 'floors and floor's of engineers who used to work on the energy industry projects. His own concern was, "How would they pay their mortgage?"
Good question. But asked a bit too late.
During the last three years, the overwhelming attitude in Alberta (or indeed worldwide) was that bad times had been defeated forever. Much like those talking about the 'End of History', the idea of conquest of the business cycle proved a bit premature.
In several parts of Alberta, new immigrants or those who recently moved to Alberta, got themselves into huge mortgages, driven by the propaganda of the usual suspects (realtors, realtor associations, banks, mortgage brokers, newspapers etc). Most of these people have not seen even one real business cycle. That is, they have never tasted the pain that usually follows any huge boom. The bigger the boom, usually the bigger the bust is, especially if there were speculative elements built into the boom.
I had first hand experience of this while working in the IT industry during the dot com bust. But that bust was confined to a specific sector of the economy and was 'cured' by the magic potion of cheap credit, which at that time, had already been in good circulation. The central bankers merely increased it dosage to extreme levels and ended up creating a cure far worse than the disease.
Thousands of engineers are in the process of getting laid off in Alberta and lot of these engineers have huge mortgages to pay. These are all well paying jobs, with a good multiplier effect. The pittance of EI will not even cover the basic mortgage for most of these people, increasing the chances of bankruptcy and foreclosure.
Not to mention the case of all speculators who have multiple properties and were so far insulated by the relatively good rental market. The rental market is becoming softer everyday (the layoffs have something to do with it) and will pressure a lot of these speculators.

Until a few decades ago, people's hands would tremble before they committed themselves to a 20 or 25 year long mortgage. Now, it's just become a no brainer activity and an absolute essential thing to do as most people try to keep up with Joneses.
The real meaning of paying $2000 to $3000 to your banking masters, no matter what-rain or shine, health or sickness,good times or bad, strong economy or weak, fruitful employment or despairs of unemployment- over a really long period of time has been lost. For people have forgotten that the borrower is a slave to the lender. When times are good, not too many borrowers recognize this (Even though more than half of their pay cheque goes on to pay the interest over their deprecating assets such as cars and houses), but when the pay cheque stops, the reality begins to sink in. Too bad, in this day and age, you have to be a heretic to not have a mortgage when you can easily afford to.
The real estate complex has been incredibly successful at luring people by all means- fear, deceit, greed and specious economic reasoning. Buy now or be priced out. Smart people buy houses. Renting is throwing money away. Houses have appreciated at over 7 per cent per annum since the dawn of civilization.
As job losses mount and foreclosures increase and new employment opportunities continue to dwindle, a whole generation of people is about to get painful lesson on the basics of economics. That those in the media lie. Realtors lie. Bankers lie, cheat and swindle. They lie because they are in the business of selling their services and lying comes as a part of their training.
If you- the individual or the family-does not take care of affairs on your own by being economically literate and proactive, you will keep on getting painful lessons.
Once this fresh generation of 'suckers' get their lessons, speculation in real estate will freeze for a decade or more. Until the next generation of freshly minted (by immigration, emigration or from our glorious education system) 'suckers' is ready to take their place and the story begins again.

Friday, February 6, 2009

Weekend Open Thread

  • As almost every realist knows, unemployment situation is getting grimmer by the day worldwide. Specifically in Canada, we shed over 129,000 jobs last month. That's a huge number. More than the specific economic damage these numbers do to the economy of the region, the bigger damage is done to the psychology of the consumer who will put off purchasing big ticket items, heck even small items. The regions west of Thunder Bay seem to be holding on the best so far. But for how long? Once the gravity of global slowdown is fully priced in to the commodity markets, the bust here will rival that of the manfucating towns of the Central Canada or even worse.
  • The US fared far better than us on Per capita basis, losing 'only' 598,000 jobs. This way we have lost more than twice the number of jobs than the US last month.
  • The Official Unemployment rates in both Canada and the US are at 7.6%. How quickly have we caught up with our southern neighbour. I can't help but reminiscence the conversation I had with Honda Car Dealership Manager a few months ago when she said, "But this is an American problem. Our economy is strong here." Hopefully by now she has waken up to the reality that few are insulated from this global slowdown and by every characteristic this looks like a totally different beast. Much different than any other recession most people have seen in their lives.
  • What is the way out? People are waking up to the reality that almost everyone whose opinion they thought they could trust, has been lying to them. The elected demagogues, real estate agents, central bankers, economists, company CEOs, mainstream media and almost anyone with any shred of authority. Before this is all over, people will trust themselves more than they trusted 'Suzzanne' or their friendly neighborhood mortgage broker.
  • We need to watch out for ourselves. It's a very simple thought, but too many people have forgotten what it means to take care of their own affairs. A little paranoia is not bad, as Andy Grove used to say 'Only the Paranoid Survive.'
  • We need to excel at our own jobs so that in a globalized workforce environment, we can offer more value while in Canada than those in other parts of the world. This is most relevant for the 'information workers', that is all those whose jobs can be taken offshore with a click of mouse. We need to have huge savings so that we can ride out the downturns in a better way, without expecting too much from the government. To give you some perspective, some of my friends save over 75% of their net income. They do make comfortable six figure incomes, but I think it's got more to do with the attitude towards savings than with the specific dollar amounts that people make.
  • Almost every idiot urging you to go out and spend is doing so to promote their agenda. Real value and real economic activity is created by real savings and not by debt. We have had almost no savings in this part of the world for the last decade or so. Wtihout real savings, there cannot be meaningful investments and no real job growth. Speculation driven investments in commodities and real estate disappear sooner or later leaving very few real jobs. But I doubt if too many people in the right places will suddenly develop an urge to do anything about this. Instead, they will push people to take on more debt, annihilate more of their savings on bad home upgrade projects and push them further into perpetual wage slavery, albeit at wage rates with an equilibrium point determined by third world level wages.
  • Talking about the specifics of Alberta real estates seems almost a detail in the midst of the global turmoil. The prices of almost everything are way too high across the province. They will fall. Unemployment will rise and so will the foreclousres. Those buying at this time either 'must buy' (not sure who they are) or they are incredibly naive. Or they still have faith in what the Bank of Canada governor who believes in magical second quarter turaround. May be in next life, due to accumlated bad karma, Mark will be born as a realtor association economist that believes in a perpetual second half rebound.
  • And while, the economy is going to hell, bankers are fleecing billions and potentially trillions in dollars from the tax payers, Canadian are expressing outrage at a 60 year old woman giving birth to twins. No wonder fleecing the masses is trivial-it's too easy to distract people from the real issues! In 21st century, it's more than bread and circus- it's bread, circus and drama!
  • Have a good weekend everyone.
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