Juggling Dynamite

My family have started playing a car game as we drive around. When we drive past new property listings we each take a price guess while one of the passengers looks up the listing to name the winner. Even with an informed understanding of location and features we often under-estimate current asking prices by 20% or more. Even an hour north of Toronto, the most basic houses with a single car garage and 2 bathrooms are routinely listed in the $500 to 800K range. Those in older neighborhoods, that have been renovated, are commonly north of 1m. We have seen this movie in other countries the past 8 years and the outcome has always been eventual mean reversion of -25%+…Toronto’s condo market seems to be at the leading edge of ‘greater fools’:

“While Toronto’s housing boom rolls on, some of the housing itself is falling apart.

Canada’s biggest city has more than 100,000 units under construction as developers and investors seek to cash in on condo prices that are up 25.7 percent in the city over the past five years. The trouble is, many buildings are so poorly constructed that some residents fear that the money-spinners of today could become the slums of the future.”

Read more here: Canada condo boom rolls on as buildings fall apart

At the same time, U.S. luxury home builder Toll Brothers CEO Douglas Yearley, says his company considered expanding into Toronto’s condo market but was scared off by the high number of investors buying real estate in the city: 60 to 70% of condo buyers in a Toronto survey said that they didn’t plan to live in their homes: “We saw a lot of people buying with no intention of living there – they just planned to flip,” Mr. Yearley said. “When you have a lot of flippers, that’s when a bubble comes.” See:  ‘Flippers’ and bubble fears.

JP Morgan missed its lowered guidance this morning and set aside another billion for upcoming legal costs. More like “illegal costs” because it’s their illegal conduct that has caused these expenses. It has slowly been getting harder for the big banks to make their usual fixing, front running, double-dealing, cheating, profits over the past couple of quarters. This clip offers a good discussion of the rampant abuse at banks globally and the range of criminal investigations yet to be concluded. There is much more to come.

Bloomberg Contributing Editor Bill Cohan and Bloomberg’s Eric Schatzker discuss banking industry and Jamie Dimon’s return from sickness to helm JP Morgan. Here is a direct video link.

Reality dawning for blind believers: central banks cannot drive the world economy. Forecasters in the public and private sector have been ridiculously optimistic and financial markets have been rising on reckless leverage and wishful thinking…

Mohamed El-Erian, a Bloomberg View columnist and former chief executive officer of Pacific Investment Management Co., talks about the outlook for the U.S. and global economies, Federal Reserve policy and market volatility. Here is a direct video link.