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David’s a realtor. With redeeming qualities. He wrote me a long letter this week, containing a crucial question. Here is a portion:
Firstly my thanks for your continued and much appreciated blog. As a Real Estate Broker for over thirty years I have recommended your books, including “Greater Fool” to hundreds of people.
In 1989 I owned a six thousand square foot office building and employed more than thirty agents with about half a dozen staff. In 1990 many deals had failed to close and the market for property was as good as dead. Without sales my agents drifted away and without sales I could not support my office building. Eventually I sold it for far less than I paid for it and downsized to a much smaller building with a current staff of two, myself and my wife, who is also a broker. So I know what a real estate slow down looks like up close.
However the point of my discourse, apart from expressing my admiration for your writings, as well as your political and current career, is to question your reasoning for your continued optimism concerning the world’s economic future.
I have also read other authors who tell a dismal story of the end of cheap oil and all that that entails. All of the authors are educated, knowledgeable and articulate. They all generally predict a sharp economic contraction in the near future resulting from oil shortages which could become a catalyst for a breakdown in societal norms. My wife tells me I read too much.
Now I am aware that people have to sell books and that books which predict bad things tend to outsell those that predict nice things. Are they all doing it just for book sales?
So my question to you is; what do you know that is giving you the optimism in the continued good governance of Canada’s finances and its continued prosperity. (F and the Peckerettes is not a team name that really inspires confidence). I was born in Britain while the war was still raging and bombs were falling on London. People still went to work; they still went out for dinner. I agree that some did not come home at the end of the day but by and large people continued on their lives, after all I was born. Same as in the depression, times were tough but people still went about their lives, 75% still worked and paid their bills and taxes. These thoughts do give me confidence that society is cohesive and strangely difficult to disrupt. However I also believe that our current society has grown and prospered as a result of inexpensive energy derived from easy to find oil which was also easy to extract. It is that inexpensive component which is about to end.
I am not suggesting that things will go wrong and I am not suggesting that you are wrong in your prognostications and the others are right, I am just seeking greater clarity, at least as much as is possible.
You are, to my mind, a beacon of hope (like Obama ). Hope for financial normalcy, continued bank profits, safety and security, albeit with a bit of a slump in some areas of real estate, but by and large things will be OK. As a Grandfather I truly hope you are right. Thanks again for all your efforts.
To be clear, things will not turn out well for everyone. Often I’ve referenced the yawning, growing canyon between people with wealth and people with stuff. Countless families who this weekend are driving kids with new soccer uniforms in new cars from new houses, who have built a life on debt, will be hooped. It used to be that teachers, doctors, lawyers or leaders were respected. Now it’s the guy with the biggest Lexus living in a house with gates. He could be a drug dealer or, worse, an options trader. Nobody cares. Stuff rules.
This is leading to the destruction of the middle class, which was the finest creation of the past hundred years. The endless need to consume, now so obvious with real estate, has turned burghers and the merchant class back into serfs. As mild deflation thumps the housing market, billions in net worth will be lost. How we could have watched this happen in the US, and learned nothing, is a mystery.
So the wealth gap widens. It’s why I keep yapping on about balance, diversification and liquidity, trying to guide readers away from house lust and into preferreds, trusts, bonds, exchange-traded funds and other financial assets. In a low-rate, low-yield, low-growth world, real estate is finished. Liquid assets will rule. Cash will be king. It’s a shame so few get it.
David, society therefore faces trauma, turmoil and terror. The advice Boomer parents give their kids will ruin them. Millions of retirees expecting golden years will be shocked. Governments will be overwhelmed and pension plans will fail.
But at the same time, coming years will swell the wealth of those who can track the changing tides. Economies will slowly but relentlessly grow supported by a level of policy coordination previously unknown to the world. It’s just sad that most people – their wealth tied up in illiquid real estate and stooped under the burden of ever-more-expensive debt – will not be getting a share.
There will not be another 2008, at least not for a generation or more. No depression, no financial collapse, bank failures or hyperinflation. Paper money will grow more valuable, not less, as it buys more real estate, car or computing power. Stock markets will be as volatile and changeable as ever, and will neither soar nor crash. Just creep jaggedly higher on the back of earnings.
Corporate profits support and affirm this. Following the GFC, companies did the opposite of consumers – they paid down debt, shed costs, embraced efficiency, became more competitive and found new markets. Meanwhile everyone you know was gaga over Wolf stoves, Miele coffeemakers, Bosch dryers and the polished granite alters upon which to worship them. Of course, they did not have the income to support this, so they borrowed from the future. This will prove to be a biblical mistake.
Central bankers, have become the guardians. Their concerted, coordinated and blunt actions have ensured no systemic failures will occur, no financial institutions keel over and no equilibrium is lost. Europe is contained. America is struggling back. China will be tempered. Liquidity will be injected repeatedly, as we saw this week, until stability rules. What most of your doomer authors forget is that sovereign debt is unlike consumer or corporate debt. No homeowner or CEO has the power to tax.
Other things also give me the courage to say the world will carry on and opportunity spread. Like our connectivity, which has revolutionized human knowledge and adaptability. Technology and education are antidotes to extremism and tribalism, and one reason there’s been no global war in seven decades.
So, David, things will be okay for everyman – but not for everyone. Which makes the future just like the past.
2012-09-15 23:20:08
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