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Moving up, across, or down the property ladder - Ten Costs to Consider PDF Print E-mail
Written by Dustan Woodhouse   
Saturday, 28 June 2014 07:12

Short Version

Purchasing a Property should be a calculated move, lacking in surprises.

Be aware that although your mortgage may be 'portableboth yourself and the property must still must re-qualify under today's more stringent lending guidelines.

If you are contemplating an upsize, lateral move, or a downsize, please read on and budget accordingly.  In particular if you are contemplating downsizing in an effort to save money, as often the costs cancel out the 'savings' for years to come.

Long Version

Ten Costs to Consider;

1.  Realtor Fees - Engage a full service, local, skilled Realtor in both your purchase transaction, and your sale transaction.  A quality Realtor will save you thousands, possibly tens of thousands on both the buy side and the sell side.  Often they will be a voice of reason cutting through your own cloud of emotions.

As a seller budget approximately 3.5% of your home’s value.  More if under 500K, less if over 500K - in addition a sellers bonus is increasingly common on higher-end homes.

As a buyer there are NO Realtor fees, once again a quality Realtor working exclusively for you (the Buyer) can save you thousands, tens of thousands, and most of all can save you from yourself.

2.  Fixing all of the little things that need doing.

Approx 0.5% of the value of your home.  one of the best steps you can take is to order a complete home inspection prior to listing the property.  This way you are able to head off any unwanted surprises that a future buyers home inspector may come up with.  most importantly the repair work can be completed in advance on your own terms.

3.  Legal Fees for transacting the sale.

There were legal fees to purchase the property, there will be slightly lower fees to process the sale of the property.

4.  Movers.

Even when you are leaning on friends and rewarding them with pizza and beer, there is still a cost to this.  Time, money, and or favours costing your additional time and money in the future.  For a professional Quote click here.

5.  Time off of work, meeting LawyersRealtors, Home Inspectors, and handling the wide variety of details around relocation.  Often vacation days are expended for something that does not resemble a vacation.

6.  Mortgage Penalties - although nearly every mortgage is 'portable' it is vital to be aware that due to sweeping changes in approval guidelines the current lender may or may not be willing to approve the current mortgage being relocated to another residence.  The lender may have issues with the property you choose (Self-managed Strata, Small Strata, Co-Op, remediated Grow-op, etc.).  In addition they may no longer be able to approve your mortgage based on reported income or credit status.

The question to ask is not 'is my mortgage portable'. The question to be asking is; 'Do I still qualify for the mortgage amount that I was approved for 2, 3, 5, or 10 years ago, or has a program been eliminated impacting me?

7.  Property Transfer Tax on Purchase. click here for a PTT calculator.

8.  Potential increases to home insurance.  A wide variety of variables can trigger insurance premiums to rise on an older (even a less expensive) property depending upon location and various construction methods.  (Poly B piping being a major concern)

9.  Legal fees on purchase.  One should budget approximately $1,100.  ***The majority of my clients qualify for an 'All-in' $775.00 flat fee.  A true bonus for First Time buyers in particular.

10.  Increased transportation costs.  Do not neglect the cost of operating a motor vehicle over a 10, 20, or 40 km longer daily commute.  The social cost of spending a greater amount of time commuting is also very real and worthy of consideration.

Three examples with approximate costs outlined.

A. The Move Up Buyer

Perhaps income is expanding, perhaps the household is expanding, perhaps both of these things are expanding.  As the recent spring market has shown, Vancouverites love to move, just give us something resembling an excuse to do so.

A. The Move-Up Buyer

Moving up from a $450,000 condo/townhouse to a $750,000 detached home with a basement suite.

1.  $15,750.00 Realtor Fees

2.  $2,250.00  Fixing the little things that need doing.

3.  $850.00 Legal Fees for the sale.

4.  $1,500.00 Movers.

5.  $500.00 Time off of work meeting Lawyers, Realtors, and handling the wide variety of details around relocation.

6.  $0.00 Mortgage Penalties (reasonably low risk in this scenario, although it is always prudent to have a conversation with your Mortgage Broker prior to listing for sale, let alone entering into binding contracts).

7.  $13,000.00 Property Transfer Tax on Purchase. (no taxes are paid on the sale)

8.  $1,800.00 Potential annual increase to home insurance. (Strata fees may be eliminated, but this is something those fees were covering, ongoing maintenance being another)

9.  $1,100 Legal fees re purchase.

10. $400.00 per month increased transportation costs.  Fuel, insurance, maintenance, depreciation.

This is a grand total of $34,950.00  in hard costs alone, which are effectively deducted directly from this client's net worth.

There is also the increased monthly cost of $550.00 in property insurance and transportation.  Arguably another 1% of the value of the property should be budgeted for in annual maintenance costs as well.  ($7500 divided by 12 equals $625 per month)

Perhaps the increased monthly expenses are offset by the income from the basement suite of $1,200.00 per month.

However, in this example the clients also increased their mortgage by $300,000 (Possibly more if less than 20% down payment triggered CMHC fees).

Debt servicing the $300,000 mortgage increase would cost another $1200 per month, or $1425 per month if less than 20% were put down.

Bottom line; stepping up to detached home is a ~$35,000 expense.  With $1200 per month coming in from a suite, there is still an additional ~$1200 per month over and above that added to costs.

Important considerations.

B. The Lateral mover

Moving for the sake of moving.

In this example we'll use the case of clients neither increasing nor decreasing their mortgage or property value.  Perhaps they're buying a home a few blocks away, which they've always had an eye on.  Perhaps they are empty-nesters downsizing square footage-wise and making a move from the suburbs into the downtown core.

A $750,000 purchase and sale price will be used for the mathematics.

1.  $23,250.00  Realtor Fees

2.  $3,750.00  Fixing all of the little things that need doing.

3.  $850.00 Legal Fees for the sale.

4.  $3,000.00 Movers.

5.  $500.00 Time off of work meeting Lawyers, Realtors, and handling the wide variety of details around relocation.

6.  $3500.00 Mortgage Penalties (An allowance for a 3 months interest penalty as we increasingly see various challenges for clients attempting to port a mortgage to a new property)

7.  $13,000.00 Property Transfer Tax on Purchase.

8.  $0.00 Potential increases to home insurance.

9.  $1,100.00 Legal fees on purchase.

10. $00.00 per month in increased transportation costs.

A grand total of $48,950.00 in hard costs.

In this scenario it is unlikely the clients have either an increase or decrease in monthly costs, although in certain cases they may be slightly downsizing by moving into a property that no longer has basement suite rental income.

3. The Downsizer

Mortgage-free retirees are not anywhere near as sensitive to the following expenses.  For such clients it is a matter of simplifying life and perhaps liquidating some equity.

This entire post was inspired by conversation with younger families trying to downsize.

Often young families in their mid-30s or early 40s with young children who took too large of a step too soon without realizing all the costs.  Perhaps one spouse has decided to stay home with the children, perhaps a career trajectory has stalled and income has flat-lined unexpectedly, perhaps there have been other issues which have negatively impacted the clients ability to afford their current residence.  In any event there is often a belief that reducing the mortgage by 300K will be a game-changer for them.  Unfortunately, it rarely is.

We will use an example of clients making a move from a $750,000 detached home with a basement suite down to a $450,000 condo/townhome.

1.  $23,250.00 Realtor Fees

2.  $3,750.00  Fixing the little things that need doing.

3.  $850.00 Legal Fees for the sale.

4.  $3,000.00 Movers.

5.  $500.00 Time off of work meeting Lawyers, Realtors, and handling the wide variety of details around relocation.

6.  $3,500.00 Mortgage Penalties - It is far more likely that clients in this scenario will incur a prepayment penalty of some sort, once again we use a minimal amount.  As prepayment penalties for even a partial reduction can easily be $3500.00 per $100,000.00 reduction in mortgage amount. (triple the amount used in this example)

7.  $7,000.00 Property Transfer Tax on Purchase.  ***in this scenario, there is the possibility of getting away with a property transfer tax exemption.  Assuming one adult individual in the household still retains their first-time homebuyer status.  (this touches on one of the key strategies we use in our office to preserve first-time homebuyer status for at least one party in a pair of First Time homebuyers)

8.  $0.00 Potential increases to home insurance.  A decrease in home insurance costs will likely be offset by strata fees.

9.  $1,250.00 Legal fees on purchase.  Slightly higher closing costs are shown as the subject property is likely strata, which tends to involve higher costs.  Without a new mortgage being placed our ability to work a special deal on these fees is also limited.

10. $400.00 per month in increased transportation costs.

A grand total of $43,100.00  in hard costs.

The goal of this move may be to reduce monthly expenses.  i.e. reducing a current mortgage balance by $300,000.  And such a mortgage reduction will represent a cashflow savings of somewhere between $1200 per month and $1425 per month.

However this is potentially offset by an increased monthly commuting cost of $400.0 as a less expensive property typically finds one further from their place of employment.  The nature of this move may also represent the elimination of $1,000.00 or more in basement suite income.

It is important to factor in that ~45% of the monthly payment being eliminated is principal paydown of the existing mortgage - a forced savings plan of sorts.  In addition to this $5400 per year reduction in 'savings' via mortgage paydown, also sacrificed is a conservatively estimated 1% gain on the difference in value of the property, or another $3000 per year. (A detached home is almost without exception notably more resilient to market declines than a Condo/Townhome)

Not to mention the immediate $43,100 reduction in net worth.

There are additional variables to consider as well.  Aside from the economic impact of making a move there is a very real social impact as well.  How far one moves from their current social circle, from family support, from a community they have been a part of for years is not to be taken lightly.

Taking a step back and recognizing that much of the decision-making process around moving is driven by emotion, far more than logic, is worthwhile.  Often emotions are used to justify decisions as being logical, logic rarely justifies emotional decisions.

Take some time and put pen to paper and analyze the very real upfront costs and monthly changes that a move entails prior to planting a for sale sign in your front yard.

Step #1 - have a conversation with your Mortgage Broker about current Qualifications, your Realtor will thank you for having that conversation first as well.

Thank you.

Dustan Woodhouse

Follow-up on Sunridge Gold PDF Print E-mail
Written by Peter Grandich   
Friday, 27 June 2014 09:28

Just when I thought I was beginning a much-needed mini-break, news came out that Sunridge Gold executed their shareholder agreement with ENAMCO. As stated earlier today, there seemed to be nothing stopping what they said several days ago about getting it done before months-end.

The fact that it’s done is a relief after an unnecessary concern about timing of it that created doubt and lots of aggravation for yours truly.

Given SGC has never “excelled” at promotion, I don’t think we’re going to see an avalanche of buy orders from the moment the stock starts trading again. But having said that, it is extremely good news and sets the stage for either internal growth into production, being taken over, or some sort of strategic relationship. Any or all of this should greatly enhanced shareholder value unless an unforeseen significant drop in copper and zinc prices, and/or troubles in Eritrea.

I’m extremely prejudice and bias when I say I think anything below $.30 is undervalued given where we now stand.

Now please, allow me to go back to what I was doing before I was interrupted.


Meet The Four Horsemen Of The Geopolitical Apocalypse PDF Print E-mail
Written by Ian Bremmer via John Mauldin's Outside The Box   
Friday, 27 June 2014 09:28

four-horsemen-apocalypseIan Bremmer, NYU professor and head of the geopolitical consulting powerhouse Eurasia Group, consults at the highest levels with both governments and companies because he brings to the table robust geopolitical analysis and a compelling thesis: that we are witnessing “the creative destruction of the old geopolitical order.” We live, as his last book told us, in a “G-0” world. In today’s Outside the Box, Ian spells out what that creative destruction means in terms of events on the ground today.

As Ian notes, the most prominent feature of the international landscape this year has been the expansion of geopolitical conflict. That expansion is gaining momentum, he says, creating larger-scale crises and sharpening market volatility.

Hold on to the reins now as Ian take us for a ride with the “Four Horsemen of the Geopolitical Apocalypse.” (For more information about the Eurasia Group or to contact Ian Bremmer, please email Kim Tran at  This e-mail address is being protected from spambots. You need JavaScript enabled to view it .)

We’ll follow up Ian’s piece with an excellent short analysis of the Iraq situation from a Middle East expert at a large hedge fund I correspond with. Pretty straightforward take on the situation with regard to ISIS. This quagmire has real implications for the world oil supply. (It appears that the Sunni rebel forces are now in complete control of the key Baiji Refinery, which produces a third of Iraq’s output.)

Back in Dallas, it’s a little hard to focus on geopolitical events when seemingly all the news is about ongoing domestic crises. But the outrageous IRS loss of emails doesn’t really affect our portfolios all that much. What happens in Iraq or with China does. There’s just not the emotional impact.

One domestic humanitarian crisis that is brewing just south of me is the massive influx of very young children across the US-Mexican border. When this was first brought to my attention a few weeks ago, I must admit that I questioned the credibility of the source. We have had young children walking across the Texas border for decades but always in rather small numbers. The first source I read said that 40,000 had already come over this year. I just found that to be non-credible, but then with a little reasonable research it not only became believable but could be a bit low – it looks as many as 90,000 children will cross the border this year.

What in the name of the Wide Wide World of Sports is going on? First of all, how do you cover up something of this magnitude until it is a true crisis? When the administration and other authorities clearly knew about it last year? (The evidence is irrefutable. They knew.)

I am the father of five adopted children. In an earlier phase of my life, I was somewhat involved with Child Protective Services here in Texas. It was an emotionally difficult and heartrending experience. (One of my children came out of that system and three from outside of the United States). I have no idea how you care for 90,000 children who don’t speak the language and have no connection to their new locale. Forget the dollar cost, which could run into the tens of billions over time. These are children, and they are on our doorstep and our watch. You simply can’t ignore them and say, “They are not supposed to be here, so it’s not our responsibility.” They are children. Someone, and that means here in the US, is going to have to figure out how to take care of them, even if it is only to learn why they try to come and figure out where to send them back to. And frankly, trying to to send them back is going to be a logistical and legal nightmare, not to mention psychologically traumatic to the children.

Maybe someone thought that waiting until there was a crisis to let this information slip out (and we found out about it because of photos posted anonymously of children packed together in holding cells) would create momentum for immigration reform. And they may be right. But I’m not certain it’s going to result in the type of immigration reform they were hoping to get.

I have to admit that I’ve been rather tolerant of illegal immigrants over the course of my life. There are a dozen or so key issues that I think this country should focus on, but I’ve just never gotten that worked up about illegal immigration. The simple fact is that everyone here in the US is either an immigrant or descended from immigrants. It may be, too, that I’ve hired a few undocumented workers here and there in my life. As an economist, I know that we should be trying to figure out how to get more capable immigrants here, not less. What you want are educated young people who are motivated to create and work, not children as young as four or five years old who are going to need housing, education, adult supervision, healthcare, and most of all a loving environment where they can grow up.

It is one thing for undocumented workers to come across the border looking for jobs or for families to come across together. It is a completely different matter when tens of thousands of preteen children come across the border without parents or supervision. They didn’t get across 1500 miles of desert without significant support and a great deal of planning. This couldn’t be happening without the awareness of authorities in Mexico and the Central American countries from which these children come, and if this is truly a surprise to Homeland Security, then there is a significant failure somewhere in the system.

And if it was not a surprise? That begs a whole different series of questions.

This is a major humanitarian crisis, and it is not in the Middle East or Africa. It is on our border, and we need to figure out what to do about it NOW!

I don’t care whether you think we need to build a 20-foot-high wall across the southern border of the United States or give amnesty to anyone who wants to come in (or both), something has to be done with these children. It is a staggering problem of enormous logistical proportions, and we have a simple human responsibility to take care of those who cannot take care of themselves.

And on that note I will go ahead and hit the send button, and let’s focus on the critical geopolitical events happening around the globe. Iraq is a disaster. Ukraine is a crisis. What’s happening in the China Sea is troubling. It just seems to come at you from everywhere. Even on a beautiful summer day.

Your stunned by the magnitude of it all at analyst,

John Mauldin, Editor
Outside the Box
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

(From Ian Bremmer)

dear john,

we're halfway through 2014, and the single most notable feature of the international landscape has been the expansion of geopolitical conflict. why should we care? what's the impact; what does it mean for the global economy? how should we think about geopolitics?

my thoughts on the topic, looking at the four key geopolitical pieces "in play"–in eurasia, the middle east, asia, and the transatlantic.


i've written for several years about the root causes of the geopolitical instability the world is presently experiencing. a new, g-zero world where the united states is less interested in providing global leadership and nobody else is willing or able to step into that role. that primary leadership vacuum is set against a context of competing foreign policy priorities from increasingly powerful emerging markets (with very different political and economic systems) and a germany-led europe; challenges to the international system from a revisionist russia in decline; and difficulties in coordination from a proliferation of relevant state and non-state actors even when interests are aligned. all of this has stirred tensions in the aftermath of the financial crisis: instability across the middle east after a stillborn arab spring; a three-year syrian civil war; a failed russia "reset"; rising conflict between china and japan; fraying american alliances with countries like brazil, germany, and saudi arabia.

and yet geopolitical concerns haven't particularly changed our views on global markets. each conflict has been small and self-contained (or the spillover wasn't perceived to matter much). geopolitics has been troubling on the margins but not worth more than a fret.

that's about to change. though perceived as discrete events, the rise of these geopolitical tensions are all directly linked to the creative destruction of the old geopolitical order. it's a process that's gaining momentum, creating in turn larger-scale crises and broader market volatility. we've now reached the point where near- to mid-term outcomes of several geopolitical conflicts could become major drivers of the global economy. that's true of russia/ukraine, iraq, the east and south china seas and us/europe. in each, the status quo is unsustainable (though for very different reasons). and so, as it were, the four horsemen of the geopolitical apocalypse.


the prospect of losing ukraine was the last straw for a russian government that has been steadily losing geopolitical influence since the collapse of the soviet union over two decades ago. moscow sees nato enlargement, expanded european economic integration, energy diversification and the energy revolution as direct security threats that need to be countered. ukraine is also an opportunity for the kremlin...for president putin to invigorate a flagging support base at home.

putin intends to raise the economic and military pressure on kiev until, at a minimum, southeast ukraine is effectively under russian control. the ukrainian government's latest effort in response, a unilateral week-long cease fire in the southeast, was greeted with lukewarm rhetoric by putin and rejected by russian separatists in the region, who escalated their attacks against the ukrainian military. meanwhile, thousands of russian troops recently pulled back from the ukrainian border have now been redeployed there, bolstered by putin ordering 65,000 russian troops on combat alert in the region.

the choices for kiev are thankless. if they press further, violence intensifies and russian support expands, either routing the ukrainian military, or taking serious losses and requiring direct "formal" intervention of russian troops. if they back off, they lose the southeast, which is critical for their internal legitimacy from the ukrainian population at large. all the while the ukrainian economy teeters with much of their industrial base off line, compounded by russian disruptions on customs, trade, and gas supply.

the growing conflict will lead to further deterioration of russia's relationship with the united states and europe: gas flow disruptions, expansion of defense spending and nato coordination with poland and the baltic states, turbulence around moldova and georgia given their european association agreements this week...and "level 3" sectoral sanctions against russia. that in turn means a serious economic downturn in russia itself...and knock-on economic implications for europe, which has far greater exposure to russia than the united states does.

for the last several years, the major market concern for europe was economic: the potential for collapse of the eurozone. that's no longer a worry. the primary risk to europe is now clearly geopolitical, that expanded russia/ukraine conflict hurts europe, in worst case pushing the continent back into recession.


like so much of the world's colonial legacy, many of the middle east's borders only "worked" because of the combination of secular authoritarian rule and international military and economic support. that was certainly true of iraq–most recently under decades of control by the baath party, beginning in 1963. saddam hussein's ouster forty years later by the united states and great britain, combined with the dismantling of nearly all of the military and political architecture that supported him (in dramatic contrast to, say, the ouster of egypt's hosni mubarak) undermined iraq's territorial integrity. since then, iraqi governance could still nominally function given significant american military presence and military and economic aid. once that was removed, there was little left to keep iraq functioning as a country.

sectarianism is the primary form of allegiance in iraq today, both limiting the reach of prime minister nouri al maliki's majority shia government and creating closer ties between iraq's sunni, shia and kurdish populations and their brethren outside iraq's borders. extremism within iraq has also grown dramatically as a consequence, particularly among the now disenfranchised sunni population--made worse by their heavy losses in the war against bashar assad across the largely undefended border with syria. the tipping point came with the broad attacks by the islamic state of iraq and syria (isis) over the past fortnight, speeding up a decade-long expansion of sectarian violence and ethnic cleansing between iraq's sunni and shia. the comparatively wealthy and politically stable kurds have done their best to steer clear of the troubles, seizing a long-sought opportunity for de facto independence.

the american response has been cautious. domestic support for military engagement in iraq diminished greatly as the war in iraq continued and the economic and human costs mounted. obama repeatedly promised an end to the occupation and considered full withdrawal a major achievement of his administration. there's little domestic upside for taking responsibility in the crisis. obama's position has accordingly been that any direct military involvement requires a change in governance from the iraqis--initially sounding like a unity government and increasingly evolving into the replacement of prime minister maliki. the pressure on maliki has gained momentum with shia grand ayatollah ali al-sistani calling on the iraqi prime minister to broaden the government to include more kurds and sunnis.

but maliki, having successfully fought constitutional crises and assassination attempts, to say nothing of decisively winning a democratic election, is unlikely to go. isis poses a threat to the unity of the iraqi state, but not to maliki's rule of iraq's majority shia population, which if anything now stands stronger than it did before the fighting. and maliki's key international sponsor, iran, has little interest in forcing maliki into compromise as long as there's no threat to baghdad: they see themselves in far better strategic standing with a maliki-led iraqi government where they exert overwhelming influence, than over a broader government where they're one of many competing international forces. further, even if maliki were prepared to truly share power with iraq's kurds and sunni (something made more likely by the informal "influence" of 300 us military advisors now arriving in baghdad), he's unlikely to see much enthusiasm responding to that offer. the kurds are better off sticking to nominal (and a clearer road to eventual formal) independence; and sunni leaders that publicly find common cause with maliki would better hope all their family members aren't anywhere isis can find them.

absent american (or anyone else's) significant military engagement, the iraqi government is unlikely to be able to remove isis from leadership and, accordingly, reassert control over the sunni and kurdish areas of the country. that will lead to a significant increase in extremist violence emanating from the islamic world, a trend that's already deteriorated significantly in recent years (and since obama administration officials announced that cyberattacks were the biggest national security threat to the united states--a claim president obama overturned during his west point speech last month). since 2010, the number of known jihadist fighters has more than doubled; attacks by al qaeda affiliates have tripled.

the combination of challenging economic conditions, sectarian leadership, and the communications revolution empowering individuals through narrowing political and ideological demographic lenses all make this much more likely to expand. that's a greater threat to stability in the poorer middle eastern markets, but also will morph back into a growing terrorist threat against western assets in the region and more broadly. that creates, in turn, demand for increased security spending and bigger concerns about fat tail terrorism in the developed world, particularly in southern and western europe (where large numbers of unintegrated and unemployed islamic populations will pose more of a direct threat).

the broader risk is that sunni/shia conflict metastasizes into a single broader war. isis declares an islamic state across sunni iraq and syria, becoming ground zero for terrorist funding and recruitment from across the region. the saudi government condemns the absence of international engagement in either conflict and directly opposes an increasingly heavy and public iranian hand in iraqi and syrian rule. the united states completes a comprehensive nuclear deal with iran and declares victory (but doesn't work meaningfully with teheran on iraq), steering clear of the growing divide between the middle east's two major powers. the gulf cooperation council starts to fragment as members see opportunity in economic engagements with iran. iranian "advisors" in iraq morph into armed forces; saudi arabia publicly opposes isis, but saudi money and weapons get into their hands and an abundance of informal links pop up. militarization grows between an emboldened iran and a more isolated, defensive saudi arabia. that's when the geopolitical premium around energy prices becomes serious.

east/south china sea

ukraine and iraq are the two major active geopolitical conflicts. but there are two more geopolitical points of tension involving major economies that are becoming significant.

in asia, it's the consequences of (and reactions to) an increasingly powerful and assertive china. the growth of china's influence remains the world's most important geopolitical story by a long margin. but, at least to date, china's growth is mostly an opportunity for the rest of the world. for the middle east, it's the principal new source of energy demand as the united states becomes more energy independent. for africa, it's the best opportunity to build out long-needed infrastructure across the continent. for europe and even the united states, it's a critical source of credit propping up currency, and a core producer of inexpensive goods. that's not to argue that there aren't significant caveats in each of these stories (or that those caveats aren't growing--they are), but rather that overall, china has been primarily perceived as an opportunity rather than a threat for all of these actors, and so it remains today.

for asia, a rising china has been seen more clearly as a double-edged sword. the greater comparative importance of the chinese economy has translated into more political influence (formal and informal) for beijing, at the expense of other governments in the region. meanwhile, china's dramatic military buildup has fundamentally changed the balance of power in asia; it's had negligible interest elsewhere.

china's military assertiveness has also grown in its backyard. in other regions, china continues to promote itself as a poor country that needs to focus on its own development and stability. in east and southeast asia china has core interests that it defends, and it is increasingly willing to challenge the status quo as its influence becomes asymmetrically greater.

that's been most clear with vietnam, where china first sent one oil rig to drill in contested waters directly off vietnam's shore--accompanied by several hundred chinese fishing vessels. they announced last week that they are repositioning four more. unsurprisingly, the vietnamese response has been sharp--anti-chinese demonstrations, violence, increased naval presence in the region, and coordination with the philippines.

none of that creates significant political risk on its own: vietnam isn't an ally of the united states and so engenders less support and response from washington than the philippines or japan...which is precisely why beijing has decided that's the best place to start changing the regional security balance.

but tokyo feels differently. the japanese government understands that a rising china is longer term a much more existential threat to its own security position in asia, and it isn't prepared to wait to raise concern until its position weakens further. so prime minister shinzo abe has declared his security support for vietnam. for america's part, obama has jettisoned the official "pivot" to asia. but the administration continues to believe that america's core national security interests, now and in the future, are in asia; and if china significantly escalates tensions in the east and south china seas, the united states is not likely to sit as idly by as they have on syria or ukraine.

the good news here is that--unlike with the countries driving the tensions in eurasia and the middle east--china has solid political stability and isn't looking for international trouble. but the realities of chinese growth, coupled with strong leadership from japan and (over time) india, along with the persistence of a strong american footprint are contributing to a much more troublesome geopolitical environment in the region.

the principle danger to the markets is what happens if the chinese government no longer holds that perspective. president xi jinping's commitment to transformational economic reform has been strong over the first year of his rule, and he has gotten surprisingly little pushback from the country's entrenched elites. but the uncertainty around china's near- to medium-term trajectory is radically greater than that of any of the world's other major economies. should significant instability emerge in china, very plausible indeed, china's willingness to take on a far more assertive (and risk-acceptant) security strategy in the region, promoting nationalism in the way putin has built his support base of late, would become far more likely. and then, the east and south china seas move to the top of our list.


finally, the transatlantic relationship. advanced industrial economies with consolidated institutions and political stability, there's none of the geopolitical conflict presently visible in the middle east, eurasia, or asia. geopolitical tensions have long been absent from the transatlantic relationship, the great success of the nato alliance. for all the occasional disagreement in europe on us military and security policy both during the cold war and since (the war in iraq, israel/palestine, counterterrorism and the like), european states never considered the need for broader security ties as a counterbalance for nato membership.

but the changing nature of geopolitics is creating a rift between the united states and europe. american global hegemony had security and economic components, and it was collective security that had been the core element holding together the transatlantic alliance. that's no longer the case--a consequence of changing priorities for the americans and europeans, and an evolving world order (russia/ukraine a major blip, but notwithstanding). the transatlantic relationship is much less closely aligned on economics.

it's not the conventional wisdom. most observers say that, after bush, american policy looks more european these days--less militarist, more multilateralist. but actually, us foreign policy isn't becoming more like europe, it's becoming more like china. it's less focused on the military, except on issues of core security concern (in which case the united states acts with little need to consult allies), while american economic policy tends to be unilateralist in supporting preferred american geopolitical outcomes--which is seen most directly in us sanctions behavior (over $15bn in fines now levied against more than 20 international banks--mostly european) and nsa surveillance policy (with no willingness of the us to cooperate in a germany requested "no spying" mutual agreement)

transatlantic economic dissonance is also in evidence in a number of more fundamental ways: america's "growth uber alles" approach to a downturn in the economy, compared to germany's fixation on fiscal accountability. europe's greater alignment between governments and corporations on industrial policy, as opposed to a more decentralized, private-sector led (and occasionally captured) american policy environment. a more economy-driven opportunistic european approach to china, russia and other developing markets; the us government looking focused more on us-led/"universalist" principles on industrial espionage, intellectual property, etc.

as the g-zero persists, we will see the united states looking to enforce more unilateral economic standards that the europeans resent and resist; while the europeans look to other countries more strategically as counterbalances to american economic hegemony (the german-china relationship is critical in this regard, but that's also true of europe's willingness to support american economic policies in russia and the middle east). all of this means a much less cooperative trans-atlantic relationship--less "universalism" (from the american perspective) and less "multilateralism" (from the european perspective). more zero-sumness in the transatlantic relationship is a big change in the geopolitical environment; a precursor to true multipolarity, but in the interim a more fragmented and much less efficient global marketplace.

* * *

so that's where i see geopolitics emerging as a key factor for the global markets--much more than at any time since the end of the cold war. there's some good news and bad news here.

the good news is none of these geopolitical risks are likely to have the sort of market implications that the macro economic risks did after the financial crisis. there are lots of reasons for that. a low interest rate environment and solid growth from the us and china--plus the eurozone out of recession--along with pent up demand for investment is leading to significant optimism that won't be easily cowed by geopolitics. the supply/demand energy story is largely bearish, so near-term geopolitical risks from the middle east won't create sustained high prices. and markets don't know how to price geopolitical risk well; they're not covered as clearly analytically, so investors don't pay as much attention (until/unless they have to).
the bad news...that very lack of pressure from the markets means political leaders won't feel as much need to address these crises even as they expand, particularly in the united states. this is another reason the world's geopolitical crises will persist beyond a level that a similar economic crisis would hit before serious measures start to be taken to mitigate them. these geopolitical factors are going to grow. now's the time to start paying attention to them.

* * *

every once in a while, it's good to take a step back and look at the big picture. hope you found that worthwhile. i'll surely get back in the weeds next monday.

meanwhile, it's looking like a decidedly lovely week in new york.

very best,

From intel sources:

Dislodging ISIS Will Be a Difficult Task

The ISIS advance toward Baghdad may be temporarily held off as the government rallies its remaining security forces and Shia militias organize for the upcoming Battle for Baghdad. There is a rather clear reason why the ISIS leader has renamed himself Abu Bakr al-Baghdadi, meaning the Caliph of Baghdad . ISIS will at a minimum be able to take control of some Sunni neighborhoods in Baghdad shortly and wreak havoc on the city with IEDs, ambushes, single suicide attacks, and suicide assaults that target civilians, the government, security forces, senior members of government, and foreign installations and embassies. Additionally, the brutal sectarian slaughter of Sunni and Shia alike that punctuated the violence in Baghdad from 2005 to 2007 is likely to return as Shia militias and ISIS fighters begin to assert control of neighborhoods and roam the streets.

Even if Iraqi forces are able to keep ISIS from fully taking Baghdad and areas south, it is unlikely the beleaguered military and police forces will be able to retake the areas under ISIS control in the north and west without significant external support, as well as the support of the Kurds.

ISIS and its allies are in a position today that closely resembles the position prior to the US surge back in early 2007. More than 130,000 US troops, partnered with the Sunni Awakening formations and Iraqi security forces numbering in the hundreds of thousands, were required to clear Anbar, Salahaddin, Diyala, Ninewa, Baghdad, and the "triangle of death." The concurrent operations took more than a year, and were supported by the US Air Force, US Army aviation brigades, and US special operations raids that targeted the jihadists’ command and control, training camps, and bases, as well as its IED and suicide bomb factories.

Today, the Iraqis have no US forces on the ground to support them, US air power is absent, the Awakening is scattered and disjointed, and the Iraqi military has been humiliated badly while surrendering or retreating in disarray during the lightning fast jihadists' campaign from Mosul to the outskirts of Baghdad. This campaign, by the way, has been remarkably and significantly faster than the U.S. armored campaign advance to Baghdad in 2003 . The US government has indicated that it will not deploy US soldiers in Iraq, either on the ground or at airbases to conduct air operations.  Meanwhile, significant amounts of US made advanced armaments, vehicles, ammunition, and diverse military equipment have fallen into ISIS jihadists’ hands .

ISIS is advancing boldly in the looming security vacuum left by the collapse of the Iraqi security forces and the West's refusal to recommit forces to stabilize Iraq. This has rendered the country vulnerable to further incursions by al Qaeda-linked jihadists as well as intervention by interested neighbors such as Iran. Overt Iranian intervention in Iraq would likely lead any Sunnis still loyal to the government to side with ISIS and its allies, and would ensure that Iraq would slide even closer to a full-blown civil war and de facto partition, and risk a wider war throughout the Middle East.

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Another Bullish Signal for Gold PDF Print E-mail
Written by Robert Levy - Border Gold   
Friday, 27 June 2014 09:24

The Financial Times reported this week that central banks around the world are in the process of repositioning their portfolios as they pare back their exposure to US treasuries. They are doing this ahead of the US Federal Reserve ending Quantitative Easing (QE) this fall. Their rationale is that without the US Fed acting as the biggest single buyer of US government debt, excess demand for US treasuries will not be absorbed by the market at elevated prices, and thus will lead to higher interest rates. This should insatiably create a demand for gold, and the demand is from those that need to hedge exposure to US currency and US debt.

And so continues the threat of financial instability for global markets. Contrary to this though, the theme on Wall Street for the last few weeks has been on the abnormally high reported levels of investor complacency. This is gauged by the VIX (commonly referred to as the fear index) touching its lowest level in seven years, which was right before the financial crises of 2007. And this is exemplified by the fact that the major US indices have not made a move one per cent or wider in either direction in a single trading session in the last two months. To some, this is unsettling and continues to prompt calls for that overdue correction in equities.

But looking longer term or perhaps examining the implications of what a diminishing appetite for government debt by the world’s largest money managers means is what is a greater concern verses a lull in the markets. Tighter monetary policy is prompting central bankers, pension funds, and large scale investors that traditionally steer towards fixed income to allocate more capital to riskier assets such as equities. This chase or reach for yield, that many of the world’s brightest thinkers have precaution of is taking place. Riskier assets, and at times less liquid assets will have trouble offering the consistency and performance that some of these funds, like pensions, seek to achieve.

The other caution though that stems from this is the potential of these large scale investors losing the flexibility of their liquidity. Arguably, this would more be a threat to the stability of global markets, but according to the IMF, as 62 percent of all central banks investments were held in dollar based assets last year, it was undoubtedly the utility of the greenback as the world’s reserve currency that offered this convenience. The uncertainty going forward is determining the effect of the end of the dominance or reign of the dollar.

And this is again where precious metals play a role. The greatest risk to financial markets is how the US treasury market preforms when its biggest buyer, the Federal Reserve, is no longer in its role as a never ending buyer of US debt. It in part served this role in order to support a market of suppressed long term rates. The belief is that the demand and rush for equities will keep their prices trading higher as all types of investors continue to raise their exposure to risk assets. Unfortunately, this continues to tell a story of the stark differences between the financial markets and the underlying economy.

One will have to budge.

All investments contain risks and may lose value. This material is the opinion of its author(s) and is not the opinion of Border Gold Corp. This material is shared for informational purposes only. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.  No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission.  Border Gold Corp. (BGC) is a privately owned company located near Vancouver, BC. ©2012, BGC.
Classroom teachers vs BCTF PDF Print E-mail
Written by Michael Campbell   
Friday, 27 June 2014 09:11

I personally have never met anyone who doesn't value good teachers. What teachers should be clear on is that the vast majority of the public makes the distinction between the BCTF and classroom teachers. 

But if you want outrageous decisions.....


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Mark Leibovit
23 July 2014 ~ Michael Campbell's Commentary Service

We intruded on Mark Leibovit's summer break and asked him for...   Read more...