Opinion

Even I Sensed Bubble Must Pop

But then, I trusted my gut, not a broker.

By Rafe Mair, 29 Sep 2008, TheTyee.ca

Housing Market Bubbles

Millions take a bath.

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I find I'm a proved expert in matters of high finance. This will come as much as a shock to you as it does to me and would, I'm sure, be to my old Econ 200 prof. Once I got to the part where the demand and supply curves met, setting the price, I was lost. Bewildered and dealing with esoterica I simply could not handle, I dropped out.

Over the years I've had to deal with public issues involving the economy and I must now confess, I often faked it. I would get the words right -- because they belonged to someone else -- but I hadn't the faintest idea what they meant.

Come to think of it, this isn't entirely true because as a cabinet minister in the Bill Bennett government, I dealt with, amongst many things, the Vancouver Stock Exchange and I recognized organized theft when I saw it. And I could recognize when the big boys got antsy. Prospectuses are the bullshit unscrupulous stock promoters use to lure, Lorelei like, the lambs to slaughter. The big boys got antsy when I proclaimed legislation that required new or altered prospectuses to pass through the securities department of my ministry as well as the VSE board of governors. The fact that the players went mad at the thought that someone other than themselves would look at these prospectuses demonstrated to me that truth in prospectuses was not a priority item on Howe Street.

I also learned, in a matter involving a real estate bubble called Abacus, that when a company couldn't make my deputy, Tex Enemark, and me understand what the hell they wanted to flog, that the public (who greedily often don't want to understand) wouldn't either. We refused the application and a few months later Abacus went broke leaving a lot of people, not British Columbians though, holding worthless paper.

Tending our fragile nest egg

Now back to Rafe, the economic genius.

Wendy and I are far from rich but we have a nest egg. It was invested with a salesman who, over the years, did very well for us. Then in early 2005 I got a tummy feeling -- Dad always told me to trust my tummy -- and I told my broker to sell everything and put it in treasury bills. He was aghast and, after pleading with us to come to our senses, reluctantly did what he was told. His superiors couldn't understand why this nest egg was in TBs and put heat on our broker. To shorten the story, he talked us back into the market -- the folly was ours not his. Shortly thereafter we took a heavy loss and I told him to sell again and that this was final. The result was that Wendy and I haven't lost a moment's sleep over the market from then until now.

What made me such an expert?

I explained it to my ex-broker whose eyes glazed over in disbelief as I enumerated my concerns.

  1. This was the longest bull market in history and as Isaac Newton discovered, what goes up must come down.
  2. When told that all would be well in the "long run," it cut no ice with me because then and more so now, I don't have a "long" run left.
  3. When advised that we would make very little, if any, profit out of secure investments, it was beyond the scope of our ex-broker's belief that we put preserving capital above all else, even making money.
  4. The president of the United States was and is a moron who had, amongst other things, got the U.S. into a war which had cost billions and would continue to do so.
  5. The United States was carrying a trade deficit over $700 billion, with no end in sight, the largest part of that deficit being with China, not necessarily a friendly country.
  6. The U.S. national debt was about $11 trillion. Using the usual one in 10 formula, this would give Canada a trillion dollar debt and no Canadian would stand for that.
  7. Enron demonstrated that no company was safe from gross mismanagement and there was a lot of that going around. The savings and loans scandal showed the same thing.
  8. Corporate executives were creaming the companies' income (not necessarily their profits), which amounted to three-piece-suit theft. This was world wide -- in Britain it was becoming common to see companies with substantial losses paying out huge bonuses to management and sales people.
  9. The president of the United States was and remains an idiot -- or did I mention that already?

A father's legacy

Taken all together, it seemed clear to me that there were no rules to speak of and those that existed didn't get enforced. The United States -- the elephant we, the mouse, live next to -- was in serious trouble. NAFTA had the unintended consequence of sending huge numbers of jobs to Asia and in particular to China whose naked ambition is to replace the United States as the number one economy in the world.

With a crash coming -- I thought so then and was proved right this month -- we wouldn't have time to get our money back.

Finally, Wendy and I asked this question: If we had our savings in cash, would we invest it in this market? If the answer to that was no -- and it emphatically was -- what the hell were we doing in it now?

I flunked Econ 200. I read balance sheets and learned analyses of the world of commerce with about as much ease and comprehension I would summon if asked to read the hieroglyphics in the tomb of an ancient pharaoh.

All I have to bring to understanding economic matters is a tummy.

Thanks, Dad.

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Rafe Mair's column for The Tyee appears every Monday.

18 Comments:

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  • dgrant

    3 years ago

    Some advice

    Rafe, just put your money in some low-cost iShares (index ETFs) and then sleep tight. Allocate it in such a way that you will be comfortable with it during the good times, but more importantly, during the bad times. Maybe 50% bonds, 50% stocks. Or maybe more bonds, based on what you've just told us? Whatever you do, pick an allocation and stick with it. Don't sell. Every time you sell, you incur transaction fees (on the sale and when you buy back in to the market). And every time you get out of the market and into cash/treasury bills, you stand a greater chance of worsening your return than improving your return, because overtime the market tends to trend upwards.

    Brokers are morons for the most part. Where your broker was right, though, was in trying to keep you invested in something other than cash/Treasury Bills. Where he was wrong was in having your nest egg in things that were clearly too volatile and caused you to lose sleep at night.

    My advice to all: don't try to time the market, stay invested, pick an asset allocation you're comfortable with and stick with it! Finally, minimize your costs by using low-MER investments like iShares instead of mutual funds.

  • Grumpy

    3 years ago

    The stock market and.............

    ..........all who extol the virtues are corrupt. The stock market is nothing more than a high end confidence tricksters game, designed to fleece money from people who want to make a quick buck.

    I treat Wall Street and those who work there con-men and guess what, recent events have proven this to be correct, because the failed businesses are conning $700 billion from the US Federal government.

    A crash is coming, as dirty and as foul as the '29 crash.

  • Cynic

    3 years ago

    T-bills are also a money

    T-bills are also a money losing investment because real inflation runs at about 8%. That said, they're much safer than index funds. The best place to invest money is in your own home, make it as comfortable and beautiful as you can, fill the basement with food, and be emergency prepared. The second best is to invest in life experiences like travel or education or community involvement. If you have a surfeit, give it to people who need it and will use it hopefully locally. Parking money is bad for the economy.

  • Fiat lux

    3 years ago

    The only businesses I've

    The only businesses I've ever invested in were my own, under my own control. Never "made and money" but survived.

    The only things worth buying are land, tools and equipment and the knowledge on how to use them. Period. The rest is only silly games to steal from others.

    I wrote on a World Bank economic forum about 10 years ago that the USA was bankrupt and will go down. Hue and cry from the American side, but agreements from other continents.

    Now the question: Is this a long standing plan for world dictatorship?

    The deregulation of the banks has flooded the world with worthless, imaginary currencies the corporate mafia have used to take control of all the resources. The big boys are now in position to cause a major crash and depression, and then force a desperate humanity to beg for global dictatorship, as it happened in Germany in 1933 and is now being set up in the EU, colonizing the Eastern parts as we speak.

    Ed Deak

  • brianhayes

    3 years ago

    Gee Whiz

    Rafe is telling us wisdom, a greater finance, whether rich or poor.

    "Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information? Where is the information we have lost in data?", said T.S. Eliot, in 1915!! "Where is the Life we have lost in living?"

    Dumby up on %s and recommendations. Maybe everything he's saying is goofy economics. Maybe not.

    But look! He knows Bush is an idiot. Give a guy some credit for his insight after all. :-)

  • Fiat lux

    3 years ago

    What I keep on wondering

    What I keep on wondering about is who are the bigger idiots, the politicians, or the people who vote them in?

    How are useless Reform fossils being reelected in union and ranching communities, when all they're doing is jumping up and shout "Yea!" on the orders of their bosses, selling off their constituents' jobs, incomes and farms to the international corporate mafia?

    Ed Deak.

  • gaulois

    3 years ago

    Time for the cronies to bail out to Paraguay

    I wonder if Bush's plane is getting ready to head over to his ranch in Paraguay. Like the high level Nazis did, right Ed?

  • Trent

    3 years ago

    I don't trust barbers, never

    I don't trust barbers, never have, never will. I mean, look at the racket they have going...every couple of months you fork over your hard earned cash so they can "cut" your hair. Why does hair even need to be cut?! They've created this illusion to keep us enslaved!

    On a more serious note...

    The financial markets are just a vehicle to keep money moving. It's not a perfect system, but like democracy, it's the best thing we have. It needs to be constantly monitored by policy makers to ensure that it doesn't become a pyramid scheme, which in the market's language is called "financial creativity".

    Rafe, good on you for heeding your intincts while you were in government. The whole mess in the US comes as a result of deregulation. However, your personal investments are a different story. You've put all your eggs in one basket now. That's just as bad as allocating everything to risky equities. Perhaps a blend of low risk assets would be more prudent at your age and personal risk tolerance level. There are other low risk investments other than Treasury Bills. Spread it around and you're protected if any one source takes a hit.

  • gaulois

    3 years ago

    Rafe is far too nice with Bush

    No credit for Rafe. Bush is a crook, not an idiot, i.e. upper crust C-student from Yale! The difference is huge.

    Check Vonnegut "Psychopathic personality" (PP) assessment" at "Custodian of chaos"
    http://informationclearinghouse.info/article13659.htm

  • Bobby Peru

    3 years ago

    Players keep on playing

    Most of you people on this site shouldn't be engaged in investment activities that are more suitable for professional investors. In fact, one of the first rules of investment is to invest in something you are knowledgeable and comfortable about. And no, the financial markets are not only a rip off game, there are real companies that are being financed producing real goods that truly benefit you. Such as the maker of the computer you are staring at right now.

    There are excesses in any market and the current one is just another part of the cycle. Alot of you are smug about your prescience now- fair enough, but the US market and institutions will survive because they are strong and most of all, Americans believe in their system. If the system really was going to hell in a handbasket, you'd see massive sell off in the US dollar as investors have no confidence in any USD asset. This is not yet happening. Or the prices of major commodities like oil being priced in, Euros, not US Dollars.

    Of course, the latter is unthinkable as Kuwait and Saudi Arabia and the rest of the Gulf States are protected from their enemies by US troops. In fact, there are about 150000 US soldiers on secret bases throughout the region. So if you think it through, it's unlikely with Iran next door that oil pricing unfavourable to the US and Canada will prevail.

    For most of you, your first long term investment should be your house. Buy one you can afford over the long term and even if you have overpaid, it'll be profitable over the long term. In fact, a house is more than an investment, it's a secure place to raise your family- more secure than paying rent.

  • G West

    3 years ago

    What kind of bs is this:

    Most of you people on this site shouldn't be engaged in investment activities that are more suitable for professional investors.

    You don't have a clue who posts or reads this site Bobby; this is just another example of why you're always in trouble.

    Those kinds of assumptions are untoward, unfair, condescending and, quite frankly, stupid.

  • lynn

    3 years ago

    Very well said, G West. ;-)

    Very well said, G West. ;-)

  • gassyandy

    3 years ago

    Barbers

    I agree, you should see me, I am a hairy guy
    give me a hit with hair.

    http://www.youtube.com/gassyandy

    don't trust barbers either...

    who in there right mind would walk into a shop where a guy waves a sharp blade around.

    Does he drink that blue stuff he puts the
    combs in?

  • anne cameron

    3 years ago

    anne cameron

    Ah, yes, the stock market...Murray Pezzim, Nelson Scalbania...

    hey, I've got three walnut shells and a dried pea...wanna invest in my game?

  • Frank

    3 years ago

    Bobby Peru

    "Most of you people on this site shouldn't be engaged in investment activities that are more suitable for professional investors."

    That's why those of us who were predicting this for the past year didn't lose any money Bobby, unlike the "pros".

    But then in fairness the pros don't have a clue, I recall how out of university one could become a "financial advisor" after a morning training session. By the afternoon you just had to follow your instructions and wear a suit and tell people you'd make them rich. The room was full of sales people, very few had any economic or financial education at all, but they knew how to sell, cars, tv sets, financial advice, it didn't matter.

  • jwstewart

    3 years ago

    "Over the years I've had to

    "Over the years I've had to deal with public issues involving the economy and I must now confess, I often faked it."

    I'm not surprised in the least. In fact I believe there's a lot of so-called leaders faking it at the moment.

  • Wygati

    3 years ago

    Time for some new (old?) ideas

    Either a crash has already arrived or a bigger one is one the way. Suffice to say that something has to change. Here we are in the middle of an election campaign and no one is telling us how they intend to get us out of this mess. New securities legislation? Infrastructure spending to keep the economy afloat? Public inquiries? Lessons learned from 1929? Tear up Nafta? Nationalize banks? Steve, Steph, Jack? Quit pretending it is all okay. What are your proposals?

  • alive

    3 years ago

    Parasites

    Wygati:
    The reason you get no satisfactory answers is that this particular "Monopoly" game has come to its end!
    There are now about 5000 players who between them own practically everything!
    The rest of us are allowed to pretend we have a role to play.
    All we are doing is hanging in while these super capitalists sit back and control every aspect of our lives!
    What exactly can a politician propose to make them be more benevolent?
    Maybe if we all get down on our knees and beg them, some more crumbs will fall off their table?
    The game is over folks!
    It is time to sweep every chip off the board and start over, and hopefully with better rules next time!
    You may not like the idea of a revolution, but the you tell me how to get 5000 parasites to back off!

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