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Published - Nov 4th, 2009
By Scott Nixon
How to invest — Author and former Member of Parliament Garth Turner spoke in Grand Bend last week, offering his opinions on the economy. (photo/Scott Nixon)
GRAND BEND — “I think it's getting better. I really do.”
That's how author and former Member of Parliament Garth Turner sees the state of the economy.
Turner spoke at the Oakwood Resort on Oct. 29, and offered his opinions on the global financial crisis as well as how people should invest their money in a time of such volatility in the market. Turner urged people to diversify their investments and not invest too heavily in real estate.
He expressed optimism about the future and said there is a lot of opportunity for investors. But Turner cautioned while the worst is over, there are still problems and challenges ahead.
Turner described current times as “scary,” with the economic crisis, H1N1 flu and job losses.
Turner said in a recent poll 59 per cent of Canadians said they'd be in trouble if they missed one paycheque.
He said much of the economy's collapse has to do with real estate and he gave examples of outrageously high realty prices in places like Toronto and Vancouver, and a ridiculously low price for a house in Michigan for $650.
Looking to the future, Turner said taxes will go up with the Harmonized Sales Tax. Gas prices will also increase.
“Most people have no idea what's going on” and are making bad investments, Turner said, but added the time to invest is now.
Turner, a two-time MP who has sat under both the Progressive Conservative and Liberal umbrellas, blamed most of the economic collapse on real estate in the U.S. — simply, he said, people were buying real estate at prices that were too high. And when they couldn't afford to make payments, they defaulted on their mortgages. Turner said after the Sept. 11, 2001 terrorist attacks, interest rates in the U.S. were dropped dramatically in an attempt to avoid a recession. That led to “a tremendous jump” in real estate prices, Turner said, explaining that “people put their money into the wrong assets.”
The economy has collapsed to the point in the U.S. where housing prices in many cities have dropped to 2003 prices.
“It's been amazing what's going on,” he said, expressing worry that the same thing could happen in Canada.
Turner also pointed to the Iraq War, the longest in U.S. history, and one that costs the U.S. $10 billion a month, as another factor in the financial crisis south of the border.
Once the crisis started, Turner said politicians were paranoid deflation would occur, and instead opted for bailouts and stimulus plans.
“Governments have spent money like there is no tomorrow.”
Deflation was avoided, and Turner in part gave credit to the sense of optimism under a new president, Barack Obama.
But there will be side effects to the bailouts, such as massive debt, Turner said.
Turner said interest rates will go up “big time” and that will be a concern for mortgages. Bond yields, equities, commodities and things such as oil and gas will also go up.
Turner also said there is a relationship between the strength of the economy and oil prices — when the economy is strong, oil prices will be high.
Turner said he thinks the U.S. dollar will remain the currency of the world, but predicted the Canadian dollar will rise above par with the U.S. dollar, perhaps as high as $1.10 or $1.15.
Exeter's Brian Mercer, a director and portfolio manager with Dundee Securities and the host of last week's event, said the current value of the Canadian dollar is more the result of the depreciation of the U.S. dollar, not the appreciation of the Canadian dollar. He said the dollar could exceed par with its U.S. counterpart within a year.
Turner also said the Canadian economy will outperform the U.S. by a wide margin within a few years.
However, Turner said incomes, bond prices, consumer spending and car and house sales will drop. He recommended against investing in housing or large manufacturing.
He said negative equity — when the value of a homeowner's property drops below the value of the mortgage they hold on it — is a huge problem in the U.S. and it could happen in Canada if we keep following U.S. realty trends.
Turner recommended investors be diverse in their investments. He also said the time to borrow money is now, as is the time to sell real estate. Turner encouraged people to speak to a financial advisor before making decisions.
“There's so much opportunity now, but you have to do it the right way . . . It's all about managing risk.”
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