Chris Lau - Seeking Alpha

Monday, November 17, 2008

Book Review: Greater Fool (Part 1 of 2)
Subtext: Invest in Canada?

With the U.S. markets on the decline, every buyer out there is asking if the same will hold true in Canada. For my own interests, I will focus on Garth Turner's discussion about Toronto. His arguments that Canadian real estate is not immune to what is going on around the world use some of these points:

  • Majority of exports is to the U.S.
  • Majority of oil is exported to the U.S.
  • Canadian personal savings rate is similar to U.S. personal savings rate
  • 30% of condos in Toronto are investments (after 1989, owners rented condos at a loss)
  • mortgage payments account for a substantial amount of consumer expenditures

Turner discusses the role of the dotcom bubble and 9/11 in the U.S. housing bubble effectively. He also discusses the role of demographics over the next 10 years, and environmental issues as factors that will influence the real estate market in the future. I did not, however, find the latter two arguments to be very effective. Nevertheless, for $16 this book is worthwhile reading for anyone who wants to buy real estate. After all, $16 is far less for a buyer than a single percentage drop in the price of a home.

I previously visited the notion of a weaker real estate market back in June 2008. Since then, some things have changed for Canada:
  • Commodity prices collapsed (See TCK, AA, ABX)
  • Canadian dollar rallied
  • GM/F collapsed in share price - there are rumors that 10% of the workforce will be cut
  • Nortel cut jobs; its future is in doubt
From an international investor point of view, Canada represents 30% resources. This sector will rally about twice the rate of other sectors if the stock markets recover. It will also decline by twice the rate.

From a real estate perspective, the above factors are too great to ignore. The only positive is that the Canadian dollar is stronger. This should benefit the manufacturing sector.

So, let's simplify the investment strategy, because there are simply too many things to monitor (let alone the health of the U.S. markets).

Right now, trading is dominated by economics. Recession/"Depression", consumer spending, deflation, government debt, and government policy. If we roll up all of these factors, the gold sector comes to mind. It would appear to me that there will be numerous reasons to eventually buy into this sector. Note that gold producers will move more over the underlying commodity. My favorites are: Goldcorp, Barrick, and Kinross.

Stay tuned.

Another Long Idea
(Part 2 of 2)
Think poor. Think saving money.

What does the consumer NOT do? The consumer will avoid expensive ticket items (cars, LCD TV's, electronics, computers, items over $1,000).

What DOES a consumer do? Go thrift. Eat burgers, shop discount.

Yumm. Cheese-burgers (not the expensive big macs):

A dollar can go a long way:
Walmart might be everywhere, but so will shoppers looking for one-stop low-cost shopping:

Time to go to fewer yoga classes and to wear sweats at home with yoga videos (SELL):