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If You Don't Know History You're Destined To Repeat It

You know what?

There's always money to be made.

Sometimes it's easy to make money ... think Tech Stocks in 1999.

Boy, that was fun, wasn't it?

And think the Real Estate market from 1999 to .... well, that party is still going in Canada isn't it.

And sometimes it's harder to make money. Think the Real Estate market in Toronto from 1990 to 1994. And think the Stock Market from 2007 until 2010.

This week Nick and I were in Downtown T.O. meeting with a really bright investment advisor.

Young guy, but already experienced and smart, really smart.

You know why?

He knows his history better than his peers so when stocks were tanking in 2008 he was already looking at alternative investments.

He focused in on quality Real Estate via Real Estate Investment Trusts (REITs) and he plays the bond market rather aggressively.

Remember, there's money to be made in any market.

His parting words to us were ... "Today it's all about cash flow."

We almost had a heart attack.  He understood that but it seemed he was implying that idea was big news to some of his colleagues.

Some of you may know that we're students of financial history because knowing what has happened in the past gives us insight and confidence in our decisions today.

For example, in the late 1800's there were canal bubbles and railroad bubbles.

Before that George Washington had his own financial bubbles on his hands when gold money was being debased to fight wars.

This week we wanted to share two charts that should be interesting to any savvy real estate investor.

We speak with many investors who think interest rates below 5% are normal.

They forget that in the early 1980's you were paying 16.5% for a mortgage or higher.  And if you had a mortgage renewal at that time you would be in for some serious pain.

Can you imagine having signed a mortgage in 1978 for 7% and then 5 years later being faced with renewing it at more than double?  Sheesh.

If you were financially stretched at the time then getting a mortgage for more than double your initial rate would be disastrous.

But wanna know something cool? My father-in-law locked up some GICs at 18% (yes, 18%) during that same time.

Some people were suffering others were profiting.

Remember...

There's money to be made in any market.

18% Guaranteed Investment Certificates? Are you kidding me? Where do we sign-up?

Now, here's the fun part.

The Bank of Canada recently raised rates three times this year. Is this the start of a massive string of rate hikes or a temporary blip?  Media screaming of stalling real estate.  Economists and politicians screaming of a stalling economy.  Condo developers screaming of unprecedented demand.  What the heck is going on?

Tough call right? Well, let's go further back in time.

The rest of the world is LASER focused on Canada and CMHC right now.  Canada has steered through these last few years with grace and part of the reason has been the structure and relationship of Canadian banking with the government-controlled CMHC.  It's unlike Fannie and Freddie in the U.S. and it's unlike even the setup in more conservative northern European countries like Norway.

So where are we headed over the next few years?  Where is real estate headed and how does it compare today to the early 1990's?  We'll be giving a big update on our own beliefs at the Rock Star Inner Circle Member Event coming up next Thursday at the Mississauga Convention Centre.

All Rock Star Inner Circle Members and their guests are invited.

Until next time ... Your Life! Your Terms!

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0 comments on “If You Don't Know History You're Destined To Repeat It”

  1. Quote: "Notice anything strange from 1935 to 1955?"

    Policies were less developed then and the financial system was quite different. Part of this period includes the depression when it is understood monetary policy was less aggressive than it should have been. The later period includes the Second World War, when the economy was driven by public war efforts and prices were controlled, goods were rationed and wages controlled. Much of the make population was in the army.

    Cheers,

    Danny

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