RIMland:From Garth Turners ” Greater Fool Blog”

RIMland

From Garth Turners ” Greater Fool Blog”

June 28th, 2012

Jim and Sheila are both engineers at RIM. They’ve been debating buying a house in Waterloo. Jim’s home town. “We’ve been watching this very closely,” Sheila told me when we met ten days ago, “and prices have been coming down. There are some great deals.”

No wonder. And beginning this weekend, there’ll be one helluva lot more motivated sellers.

As you know, Thursday was the middle of the end, or maybe the end of the end, for Research in Motion, once a Nortel-like Canadian wonderco, inventor of the iconic Blackberry. The company lost more than $500 million in just 90 days. It does not have the resources to launch a saviour product. Company stock lost about 20% of its value last night, on top of the 70% decline it’s already suffered. Worse, another 5,000 people – a third of its remaining workforce – will be axed. I have no idea if that includes engineers, but I bet.

RIM is a massive presence in the K-W area of Ontario. The impact of these job losses – high-value-added, high-wage, high-knowledge positions – is inestimable. The company is the city’s largest employer, with about 8,000 people (at least at noon on Thursday) on its local payroll. It owns the most offices of any company in town. It donates the most. It generates the most taxes. It’s become the region’s very future. And it’s about the only reason a decent house is tough to find for less than $450,000.

But this is not about RIM, K-W or Jim and Sheila. It’s about jobs.

This week telecommunications giant Rogers laid off a few hundred. The big newspaper chains are shedding employees like lint. The federal government sent out termination notices on Thursday to about 5,000 employees in 13 departments. The unemployment rate is stuck at 7.3% and 22,500 private-sector jobs vanished in May. Southern Ontario west of RIM’s head office is an employment wasteland. Meanwhile oil at $78 has brought the bankruptcy of dozens of oil and gas companies in Alberta and threatens the sands themselves. If it weren’t for about 26,000 people forced into self-employment last month, our national numbers would be even worse.

Of course it wasn’t rising interest rates or falling banks which ultimately leveled US housing and kept it pinned for the past six years. It was unemployment, which topped out about two points higher than our current level. When people lose confidence in their jobs, they don’t buy houses. In fact, they sell. Kitchener-Waterloo will learn that in a few months.

As you know, this spate of tough news comes just as the feds finally move to deflate a housing bubble their own policies helped gasify. Dropping the mortgage amortization maximum, outlawing cash-back down payments and raising borrower requirements will make houses less affordable and thereby reduce prices. Now this.

It all makes a joke of the news we continue to be fed. For example as RIM was falling on its sword, CREA was feting an increase in national house prices and sales – and forecasting a 4% jump in 2012 as a whole.  “National activity over spring months was stronger than anticipated,” CREA president Wayne Moen said. “This shows clearly how the continuation of low interest rates is keeping homeownership affordable and within reach.”

However rates don’t matter. I’m sure Wayne knows that, but he gets paid to spin.

Whether our housing market has a hard or a soft landing is yet unclear. But land it will. So far I’ve written 1,102 posts on how to get ready, which probably indicates I should get a life.

Anyway I have not heard from Jim and Sheila in the last few hours. Don’t even know if RIM has identified the people that will soon be ex-employees. But I’m sure they’re thinking a lot more about the discussion we had about house versus financial investments. Buying anywhere in RIMland right now would be a fail. Over the next year and beyond, the 401 leading out of town will be busy, and many families will understand what a risk it is to have the bulk of their net worth sitting in one, illiquid and unmovable object.

As I have said so many times, love liquidity. It will save you.

When Jim calls, by the way, I’ll ask if he dumped the vested stock in his company’s DPSP. When we met I told him to sell it the next morning. Not yet, he said. “We’re waiting for a rebound.”

Well, I try.

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COMMENT:

A few theories…

I posted an old Twilight Zone episodes a while back. The theme was a Factory owner who was keen on progress and wanted the  latest  innovations and technology. He had inherited the company from his father. One day he made a decision to lay off all his workers, as he had acquired technology that could replace every human employee, as his main aim was efficiency and profits at any cost.

Some of his more senior employees just looked at him in disgust at the human carnage he was creating…and reminded him that his father had cared for his workers.

This episode always remained in the back of my mind as I got older. I reflected on what “progress” actually was. At some point in time the critical mass of employment with real jobs would peak and “something else” would take its place, which appears to be jobs actually based on replacing human beings and thus increasing unemployment, all the while the global population increased.

It appears that over the past few decades, the focus was on technology and finance as industries continued to close down and move to offshore locales.

There appeared to be growth and vibrancy as these fields filled the void of the other job losses.

However, in reflection , I think the warning signs were there that this was becoming a major set up… a major Ponzi Scheme. We saw the Dot .Com Bubble burst…where common sense was out the window and people were hyping up stock basically on a hope and a prayer .

Since the 1980’s  we have seen continual litany of  corrupt banking practices and stock market manipulation. The global economy seem to be built on monopoly money, or money “created out of thin air”   that only exists in someone’s imagination.

As the Global economy Ponzi Scheme grew, it goes higher up the pyramid. Mergers and consolidation lead to concentration of power and less competition.

Now like a snake, those in power are “shedding more and more skin” in the guises of those who bought in and aided and abetted the system. RIM is a perfect example.  Its competitors , in such an industry where change occurs so quickly simply overtook RIM. This is never sustainable….it was always a false hope…and that ultimately a very few would reign supreme. Those who were soldiers in this latest battle ie IT types and Engineers, are simply chewed up and spit out, no longer needed.

What happened previously was simply allowing other companies to innovate…..play all their cards….then slowly kill them off.. and set up  a standard monopoly.

We have a highly educated population , but an increasingly collapsing economy .

Now what ?

That is the question…..or was the answer this = THE Master Plan drafted all along..to reach a crescendo then  pull the plug. Consolidation of such power is basically COMMUNISM, the New World Order.  We are left at the mercy of these Elites….either buy their products or perhaps they may pull the plug (ie Internet ?) to something we accept as a given. Ultimately we have been become addicted and dependent on technology via “choice ” or imposition(Smart Meters).

Perhaps review that Twilight Zone episode again…

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