Juggling Dynamite

You have to hand it to them, bankers the world over are nothing if not consistent.  It’s just some countries have started arresting them, while others are so far still offering them plum spots, government influence and accolades… This too must pass.  See: Brazilian Banking Star is arrested.

“André Esteves once joked that the initials in his investment bank, BTG Pactual SA, could stand for “Better Than Goldman.” His arrest has investors and clients wondering if its best days are behind it.

The 47-year-old Brazilian billionaire is the chief executive, controlling partner and driving force behind the Latin American country’s biggest independent investment bank.

Mr. Esteves rose from a working-class background in Rio de Janeiro to run BTG ’s precursor, Pactual, sold it to UBS Group AG for $2.6 billion and then bought it back and built it into a global player.

Now, he has been caught in a widening corruption probe with hard-to-predict consequences.”

This is precisely the discussion we have been having at our weekly coffee group for a couple of years now…

The credit bubble has enabled a massive build of large, expensive homes all over North America–especially in Canada–and other countries like New Zealand, Australia.  It’s not just that market prices are outrageous (enabled by 30 years of falling interest rates and rising debt), it’s also the insurance, taxes, cleaning, repairs, yards and other upkeep costs.  While people are physically able they may do lots of the maintenance themselves.  While still working, they may not mind hiring services to help.

But once retired few will want (or be able, see: The high cost of low interest rates on savers) to expend big outlays to maintain their house; let alone a house, a cottage and a ski chalet.  With most of these properties currently owned by the age 50-70 category, the obvious question becomes, who in the world will buy all these high-end properties from the boomers and at what price?

For those who think this won’t become an issue for years yet to come, it might be time to think again.  See Canada’s housing market faces looming demographic bubble:

“Older boomers are putting their houses up for sale, but they aren’t getting the offers they expect. So they take their houses off the market. Meanwhile nearby houses built on spec are selling at sharp reductions, as builders — and their backers — are forced to sell to get their money out.

“The baby boomers thought they had lots and lots of time,” Macbeth says, but the decline of the Alberta resource sector suddenly moved everything forward.

Rabidoux foresees something similar coming in Ontario, but the relative decline will depend on what kind of house and where it is located.

“You drive through the countryside, and in the middle of nowhere you’ve got this sprawling, 4,000-square-foot brand new house,” he says. “They’re everywhere.”

Rabidoux expects those rural monster homes will be some of the hardest to sell as boomers age and no longer want the responsibility of managing such properties. For the generation coming after, he thinks those houses will be impractical and unaffordable at current prices.”

Over the next 5, 10 and 20 years, the big demand push will no doubt be for smaller, more efficient, green, easier to maintain, but still luxury amenities, housing. That’s a no-brainer. But in order to move there, boomers will still need to sell their current monstrosities. A lack of able or willing move-up buyers is the problem. Perhaps renovating today’s large single family properties into multi-family units will be part of the solution.

The most valuable commodity on earth is fresh water. Depleting finite water supplies to extract less critical commodities is short-sighted and unsustainable. This reality will increasingly dictate our policies and procedures.  It’s quite literally adapt or die.

The future price of copper and the growth of companies that produce it could hinge on a single precious resource: water.

Mining the important industrial metal requires huge volumes of water to control dust and separate copper from the earth. But a seven-year drought enveloping Chile, the world’s largest producer, is forcing big miners to curb output and pitting them against small communities like this one high in the Andes.  Here is a direct video link.