History of Economic Bubbles

This is a most interesting info graphic


Economic Bubbles: The History, Causes, and Effects

Historical Financial Bubbles Infographic - Featured Illustration

You don’t need to be an expert to understand what economic bubbles are and how they happen. The simplest definition is the rapid and unrealistic inflation of asset prices without any basis in the intrinsic value of the given asset.

Despite the fact that financial bubbles (also known as speculative bubbles) are not rare, people repeatedly fail to recognize speculative trading as it’s happening. Too often, those involved only identify these risky activities in the autopsy. Once the bubble bursts, it’s already too late.

One of the crucial reasons for this is that bubbles are often driven by strong emotions, blurring people’s ability to make rational decisions. When gung-ho traders who are willing to take huge risks start operating in that environment, you have a recipe for disaster.

Investors’ greed (believing that someone will pay more for something than they paid themselves) is accompanied by strong feelings of euphoria (“wow, this investment will be so profitable, let’s buy!”), but also anxiety. Buyers go into denial when prices start to fall (“this is just a temporary reversal, my investment is long-term”). Then, finally, panic sets in, causing a domino effect: everyone starts to sell, ultimately leading to a crash.

A bubble burst can have a devastating effect on the economy, even on a global scale. The most recent example is the Great Recession after the market crash in 2008. However, depending on the economic sector or industry, bubbles can also have some positive effects.

Just consider the dot-com bubble, which forced the information technology industry to consolidate. Although people lost a lot of capital at the time, that money has since been invested many times over in infrastructure, software, servers, and databases. Pretty much every American house and business is now connected to the internet, which has changed how we live and work for good.

The best way to prevent an asset bubble from happening is strategic, common-sense investing. Unfortunately, humans don’t always act sensibly. Bearing that in mind, chances are economic bubbles will continue to occur in the future.

To help you notice these patterns early, we at Fortunly have created an infographic detailing how some of the biggest financial bubbles in history have formed and then burst. Check it out to make sure you don’t fall victim to the hype of “the next big thing.”

Very cool
Mark Herman, Best Calgary Alberta Mortgage Broker

Variable rates to hold steady for 2019

Here is the latest on changes to the Prime rate for variable mortgages. The news is good as Prime is now expected to stay the same for the balance of 2019!


  1. Variable rates can be locked in at any time for what the rates are on the day you lock in on.
  2. The maximum payout fee for is 3 months of interest

Rate hike disappears over the horizon

Apr 22, 2019
from First National Financial LP

The likelihood of a Bank of Canada interest rate increase appears to be getting pushed further and further beyond the horizon.

The Bank is expected to remain on the sidelines again this week when it makes its scheduled rate announcement on Wednesday.

A recent survey by Reuters suggests economists have had a significant change of heart about the Bank’s plans.  Just last month forecasters were calling for quarter-point increase in the third quarter with another hike next year.  Now the betting is for no change until early 2020.  There is virtually no expectation there will any rate cut before the end of next year.

The findings put the Bank of Canada in line with the U.S. Federal Reserve and other major central banks.  World economies have hit a soft spot largely due to trade uncertainties between China and the United States.

This is good news for variables

Mark Herman, Top Calgary Mortgage Broker

Inverted Yield Curves, Impacts on Prime Rate Changes and Variable Rate Mortgages


For the 2nd time in 50 years the “Yield Curve” has inverted – meaning that long term rates are now lower than short term rates. This can signal a recession is on the way.

This Means …

  1. Alberta will look better comparatively to Canada’s hot housing markets which should finally cool down.
  2. Canada’s Prime rate increases look to be on hold until Spring. This makes the variable rates now look MUCH Better. There were 3 rate increases expected and these may not materialize – making the VARIABLE rate look better.
  3. Broker lender’s have VARIABLE rates that range between .1% and .65% BETTER than the banks do. If you are looking at variable rates we should look further into this in more detail.


  1. More on the predictions on rate increases
  2. WTF is an inverted Yield Curve – lifted from “the Hustle”


  1. Predictions on Prime

Three interest rate hikes in 2019 — that’s what economists have been predicting for months, as part of the Bank of Canada’s ongoing strategy to keep the country’s inflation levels in check. But, according to one economist, that plan may have changed.

The BoC held the overnight rate at 1.75 percent yesterday, and released a statement a senior economist at TD, believes hints that the next hike may not come until next spring.

“We no longer expect the Bank of Canada to hike its policy interest rate in January,” he writes, in a recent note examining the BoC’s decision. “Spring 2019 now appears to be the more likely timing.”

Meanwhile the Canadian rates and macro strategist at BMO, puts the odds of a rate hike in January at 50 percent.

“While the Bank reiterated its desire to get policy rates to neutral, the path to neutral is clearly more uncertain than just a couple of months ago,” he writes, in his most recent note. “Looking ahead to January, the BoC will likely need to be convinced to hike (rather than not).”


  • https://vimeo.com/279581066
  • This video is from my colleague Dustin Woodhouse and he perfectly presents the story on the variable. He also ONLY works in the BC Lower Mainland; if you live there HE should be doing your mortgage, if you don’t WE should be.

2.      WTF is an ‘inverted yield curve,’ and what does it mean for the economy?

For the first time since 2007, the 2- to 5-year US Treasury yield curve has inverted. Historically, this has served as a somewhat reliable indicator of economic downturn, which means people are freaking out, which means…

OK, hold up: What exactly is a yield curve, and why is it inverting?

‘Lend long and prosper’ (so say the banks)

In short, a yield curve is a way to gauge the difference between interest rates and the return investors will get from buying shorter- or longer-term debt. Most of the time, banks demand higher interest for longer periods of time (cuz who knows when they’re gonna see that money again?!).

A yield curve goes flat when the premium for longer-term bonds drops to zero. If the spread turns negative (meaning shorter-term yields are higher than longer maturity debt), the curve is inverted

Which is what is happening now

So what caused this? It’s hard to say — but we prefer this explanation: Since December 2015, the Fed has implemented a series of 6 interest rate hikes and simultaneously cut its balance sheet by $50B a month.

According to Forbes, the Fed has played a major part in suppressing long-term interest rates while raising short-term interest rates.

Yield curve + inversion = economic downturn (sometimes)

The data don’t lie. A yield curve inversion preceded both the first tech bubble and the 2008 market crash.

Though, this theory has had some notable “false positives” in its lifetime — so it’s not exactly a foolproof fortune teller.

Heck, IBM found the size of high heels tends to spike during hard times. As of now, the experts who believe the sky to be falling remain in the minority.


There is lots to digest in the data above. Please feel free to contact me to discuss in more detail.

Mark Herman, 403-681-4376

Top Calgary Alberta Mortgage Broker


Numbers on why this recession is not that bad

All recessions are tough – but the sky is not falling. Below is one of the better articles we have seen on why this one will not be that bad.

Mortgage Mark Herman,

Calgary Alberta mortgage broker for home purchase and mortgage renewal.

Only two recessions in Calgary since 1987 and both more severe than 2015 forecast


Calgary Housing Affordabilty IMPROVES!

This short version of the article should provide some confidence that the sky is not falling in Calgary and we will recover.

Mortgage Mark Herman, Best Calgary mortgage broker for home purchases and mortgage renewals

Housing affordability continues to improve in Calgary market

Owning a home in Calgary at market price remains more affordable than it has been on average since the middle of the 1980s, says a new report released Monday by RBC Economics Research.

But the latest Housing Trends and Affordability Report said movements in oil prices are likely to exert a stronger influence on the market direction in the short term.

“Alberta’s housing market is still feeling the impact from the oil price shock,” said Craig Wright, senior vice-president and chief economist, RBC. “That said, the dust began to settle this spring, and we saw a gradual recovery in confidence, which helped rebalance demand-supply conditions. Home re-sales started to turn around, and sellers no longer rushed to list their properties.”

The RBC Housing Affordability measures, which capture the proportion of pre-tax household income needed to service the costs of owning a home at market values, fell slightly in Calgary for both two-storey homes, to 31.9 per cent, and bungalows to 32.4 per cent. The measure for condos stayed relatively the same 19.5 per cent.

RBC’s Housing Affordability measure for the benchmark detached bungalow in Canada’s largest cities was: Vancouver 88.6 (up 3.0 percentage points); Toronto 59.4 (up 2.1 percentage points); Montreal 36.0 (down 1.2 percentage points); Ottawa 35.4 (unchanged); Calgary 32.4 (down 0.4 percentage points); Edmonton 32.5 (down 0.4 percentage points).

“With home resales beginning to turn around and sellers no longer rushing to list their properties in the spring, there was evidence that confidence slowly returned to the Alberta market in the second quarter following the hard blow delivered by the oil price plunge in the previous two quarters,” said the report.



How the US may start to raise interest rates

This bite of an article is as interesting and as funny as US interest rate increase articles can be.

See why it is better to have your mortgage broker follow this stuff for you then to read it yourself!

Mark Herman, Top Calgary Alberta mortgage broker for home purchases and mortgage renewals

Bill Gross, the former Pimco “bond king” … believes the Federal Reserve could – and should – raise interest rates in September and then hold off on another rate hike for at least six months, a strategy he calls “one and done.”

The strategy adheres in principle if not specifics to numerous messages conveyed recently by influential Fed policy makers, including Fed Chair Janet Yellen, who have said rates will rise “gradually” after the initial rate hike is announced.

“The Fed … seems intent on raising (short-term interest rates) if only to prove that they can begin the journey to ‘normalization,’” Gross wrote in his September Investment Outlook. “They should, but their September meeting language must be so careful, that ‘one and done’ represents an increasing possibility – at least for the next six months.”

Gross, who has been calling for higher interest rates for months, suggested the Fed may have missed its opportunity to raise rates earlier this year when markets were rising steadily and the U.S. economy seemed to be humming along nicely.

In recent weeks, global turmoil has rocked U.S. markets, leading to volatility that pushed all three U.S. stock markets into correction territory last week. A strong bounce-back this week has raised optimism that the downturn was temporary but also led to concerns that markets could be in for a volatile run.

Any mention now by the Fed of returning interest rates to a more normal level of say 2% “cannot be approached without spooking markets further and creating self-inflicted ‘financial instability,’” Gross wrote.

from Fox Business – I know it’s Fox but it’s true: http://www.foxbusiness.com/economy-policy/2015/09/03/bill-gross-fed-likely-eyeing-one-and-done-hike-strategy/

Calgary Housing Market Still Strong

Below is an article that notes Calgary’s home prices are still supported.

Mark Herman, top Calgary mortgage broker for purchases and mortgage renewals

Calgary’s housing market is not under threat of a correction despite a downturn in the local economy, Canada Mortgage and Housing Corp. said in an analysis Thursday.

Its assessment of 15 metro markets lists Calgary as “low risk” while Toronto, Regina and Winnipeg were rated “high risk.” The review considered four factors — overheating; acceleration in house prices; overvaluation; and overbuilding — as of the end of March.

“The low price of oil has affected many different sectors of the economy, affecting employment and income growth, and increasing the unemployment rate. Weaker labour market conditions have also slowed migration to the region,” CMHC said of the Calgary-area market.

Meanwhile, Vancouver — one of the country’s priciest real estate markets — was deemed low risk, even as home prices there continue to soar. The benchmark price of a detached home in metropolitan Vancouver hit $1.1 million in July, up 16.2 per cent from a year ago, the Real Estate Board of Greater Vancouver said last week.

… Statistics Canada said Thursday that new home prices in the Calgary area rose 0.1 per cent in June.

“Higher land prices were largely offset by builders reducing prices because of market conditions,” the federal agency said. Prices were up 0.7 per cent year-over-year.

In its latest report, the Calgary Real Estate Board said the average MLS sale price for July was $476,446, down about 1 per cent from a year ago while the median price of $435.000 grew by 2.35 per cent. The benchmark price, which CREB identifies as a typical property sold in the market, was largely unchanged at $455,400.

With files from The Canadian Press



Alberta sky is not falling

The graph below shows the expected Alberta GDP growth rate for the end of 2015 and 2016. The numbers are still positive – just not as high as they were before.

If the Calgary to Edmonton corridor was a country it would have the 2nd highest growth rate in the world after China.

Now these numbers are back to earth, things will continue as normal as oil slowly works it’s way back to about $70 a barrel.

Mark Herman, Top Calgary, Alberta mortgage broker

Click on the chart to see it larger.


Calgary housing market a low overall risk of price delines

All the hot air about Calgary housing being over-valued looks to be hot air as CMHC’s report notes below.

Mark Herman, top Calgary Alberta Mortgage broker for renewals and new home purchases

Calgary housing market a low overall risk: CMHC

Data on why oil prices collapsed

Below is the entire Forbes article and link it.

Summary is there was too much oil and the prices came down. Prices should slowly go back to about $70 a barrel – which is just fine. This is great news!

Mark Herman, Top Calgary Alberta mortgage broker for mortgage renewals

The Facts Behind Oil’s Price Collapse


The dramatic drop we have seen in oil prices over the last few months has many economic forecasters worried about future growth. The problem with declining oil prices is that too much of a good thing can turn frightening. Someone who goes on a modest diet and loses five pounds over the course of a month might be elated. Someone who loses 75 pounds under those same circumstances would worry they have a serious illness. Conceivably, the precipitous fall in oil prices could mean that the global economy’s health has started to fail. While that would account for the drop in oil prices, most leading indicators do not confirm that economic diagnosis.

Tight monetary policy typically plays a major role in economic downturns, and global policy is still incredibly supportive for the economy. Economic weakness in Europe and Japan have certainly contributed to the falling price of oil and have underscored fears about global growth. Yet a profound economic downturn seems very unlikely, even in those areas. World economic growth certainly has been, and remains, historically sluggish. Even so, the current and prospective levels of global economic growth do not seem to warrant the drastic change in the price of oil we have witnessed.

If change in the demand for oil does not account for the decline, dropping prices must reflect increased supply. It is often difficult to have a clear understanding of the total supply of oil, since many of the world’s large suppliers are not transparent about what they produce. Some question whether increasing supplies of oil from Libya or Iran may have contributed to the slide in oil prices. But few world producers have enough spare capacity to significantly alter the balance of supply and demand. While pivotal global producers have likely played a part in the price drop, the dramatic revolution in the technology of oil production provides a better explanation for the change in oil prices.

The technology of hydraulic fracturing, or “fracking,” and other technologies that allow us to access previously inaccessible energy reserves has enabled the development of significant new supplies in North America. According to the U.S. Energy Information Administration (EIA), U.S. production has risen roughly 45% over the last four years, while Canada now produces approximately 25% more than it did four years ago. Together, Canada and the United States produce some five million more barrels of oil each day than they did in 2010. In a market where a shift of one million barrels of oil per day is thought to have a significant effect on the price of oil, the productive capacity added in North America has been staggering. Total world demand has grown about 4% since 2010, which works out to about 4 million barrels of additional demand each day. North American oil production has therefore grown about 38% faster than total global demand. With that sort of dramatic shift in the supply and demand for oil, it is not surprising that oil prices have come under pressure. The energy revolution has also had a major effect on the production of natural gas, which means that the pressure on oil prices is even greater than the figures for oil alone suggest.

Yet the development of new reserves would not be expected to drive the price of oil down as quickly as prices have fallen over the last six months. Oil prices should have deteriorated more gradually, as new projects slowly came to full production. While the long-term supply-demand balance has shifted significantly as a result of new technologies, the long-term dynamics do not fully account for the speed of the price drop. Many believe that the politics of oil production account for the sharp decline of prices over the last year.

While world demand has grown 4% since 2010, the EIA shows that OPEC’s share of world supply has risen only 2% and the crude oil they supply is up only modestly. In the past, Saudi Arabia has helped maintain higher oil prices by reducing their own output when global excesses developed. In recent months, however, the Saudis have refused to reduce their production. Part of their strategy may be to force Russia and other large producers to share the cost of limiting production. But Saudi Arabia also faces a long-term problem. As North America and other parts of the world develop new sources of supply, the Saudis will have less influence over the oil markets. Saudi Arabia may therefore be willing to sell their oil at a lower price in order to slow the development of new energy resources.

Much of the new oil coming online is more expensive to develop. At the current price of oil, many of those projects no longer make economic sense. Projects are typically not cancelled immediately, but if prices remain low for an extended period of time, many higher-cost projects will be shelved. Supposedly, too, many recent projects have depended on heavy debt financing. Lenders are less likely to lend aggressively if prices remain low. Lower prices hurt all producers over the short term. But the Saudis may think they will have a much stronger long-term position if lower prices slow the development of new projects. That gives the Saudi Arabia significant incentive to allow, if not engineer, a large drop in oil prices.

If the strategy of lower oil prices is to limit new production, oil prices probably do not need to remain this low to accomplish the goal. Many think the industry will begin shelving projects if prices remain low for six months or more. After that happens, oil prices can probably rise modestly without bringing a host of higher-cost projects off the shelf. Energy analysts think the overall supply and demand for oil will allow for stable prices at around $70 a barrel. At that level, energy costs will remain below their highs of the last few years, but above where they are now. The economic impact of $70 oil will be substantial, but not as great as the effect the price of oil will have around the current level.

Economists and other analysts often compare falling oil prices to a cut in taxes because it leaves consumers more discretionary money to spend. Lower energy prices clearly leave consumers more to spend, but they also hurt other parts of the economy. It is the balance between the winners and losers within an economy that determine whether the net effect is positive or negative for the economy as a whole. While some global economies will clearly benefit from lower oil prices, the net effect in the United States will likely be less positive.

To weigh pros and cons, we first need to determine net oil usage for the economy. Although the United States now produces far more of the oil it uses, we still import about 7,200 barrels of oil per day, according to the U.S. Energy Information Administration. If the long-run price of oil falls to $70 per barrel, that means the United States would save approximately $108 billion over the course of a year relative to the $110 per barrel oil cost of oil that prevailed over the last two years. The U.S. Department of Commerce estimated that the domestic economy produced $17.4 trillion of goods and services in 2014. Based on that estimate, a $108 billion reduction of imports should add about 0.7% of potential domestic growth.

There is a risk, however, that what people save on imported oil may not translate directly to spending in other areas. Some of the money saved on energy may go to reduce debt or increase savings and so would not produce the additional consumer spending that some are assuming. That may have been part of the reason that December retail spending showed a significant decline in spending on gasoline without a corresponding increase in other areas. At minimum, spending may not increase in other areas as quickly as energy spending declines. According to a recent report by the Ned Davis Research Group, earnings for companies outside the energy complex have historically accelerated about one quarter after oil prices trough. Perhaps consumers simply wait until the savings on energy provide enough funds to make larger purchases in other areas. Even if consumers do eventually spend energy savings, however, it may not drive faster U.S. growth. Many consumer goods are imported, so some consumer spending would not add to domestic growth.

The U.S. economy has also benefited over the last few years from enormous capital spending on new energy resources. Any reduction in capital spending caused by lower oil prices would be an offset to other increases in domestic spending. The American Petroleum Institute (API) reported in 2012 that the oil and natural gas industry invested $292 billion in new energy projects, improvements to existing projects, and enhancements of refinery and other downstream operations. In that same report, the API also noted an IHS Global Insight study that estimated $87 billion in U.S. capital spending on unconventional energy resources that same year. That spending would certainly not grind to a halt if energy prices remain low, but recent developments in North America have tended to focus on reserves that are harder to access. Sustained lower prices, therefore, may prompt U.S. developers to shelve more costly projects. . With that much capital spending exposure, it would not take a large loss of capital spending to offset a significant share of the $108 billion in estimated savings on imported oil.

A similar analytic framework would also apply to other economies around the world. Large net consumers of oil, such as Europe and Japan, should benefit. Europe imports roughly twice what the United States imports, according to the U.S. Energy Information Administration, while Japan and China import about the same amount as the United States but have smaller economies. Many of these economies have struggled to grow faster, in part because they were heavily pressured by the escalating costs of energy. Lower oil prices in the short run, and the potential for slower price increases in oil prices over the next few years, should improve economic growth for countries that consume more oil than they produce.

Countries that produce a lot of oil, however, such as Russia, many Middle Eastern countries and some countries in Latin America, will almost certainly suffer. Longer term those countries may benefit if lower prices discourage development in the United States and Canada, but reduced prices have obviously cut the economic growth that energy production provided those economies. Most other countries have not spent as heavily on energy exploration and development as the United States and Canada, but any reductions would cut growth even further.

For the world as a whole, as in the United States, confident estimates of large economic effects due to the falling price of oil seem overstated. Instead, the reduced costs of oil for consuming nations should be offset by lost oil revenue and capital spending in other countries. For that reason, the net effect of falling oil prices on total global economy should be relatively modest.

Investors are therefore probably best served to worry less about the impact of lower oil prices on overall growth and focus more on who will benefit and who will suffer. Many countries that spend heavily on imported oil have struggled economically in recent years. Europe and Japan have both posted very low rates of economic growth but have imported large amounts of oil. Lower oil prices could have a meaningful positive impact on those economies.

Some emerging economies would also benefit. China, India and other large emerging economies stand to benefit from lower oil prices. A number of important emerging markets, however, sell large amounts of oil. Russia’s economy is heavily dependent upon energy sales, and many of the Latin American economies are also leveraged to oil prices. In terms of overall proportions, energy production plays a larger role in the total economic picture within the emerging markets than in the developed international markets.