The challenge

Okay, dogs, here’s the question: could you find $400 a month, if you had to?

Apparently 82% of Canadians cannot. A bank survey this week discovered a hundred dollars a week is beyond the capacity of the vast majority of people – they spend virtually everything they earn. No surprise that 79% of the folks CIBC queried said they worry about not having enough money to retire on. Which they should. They’re pooched.

This is what happens when people pay stupid amounts of money, and many multiples of income, to get a house. Insane real estate prices have bred swelling rents, low vacancy rates, elephantine debt and what’s obviously turning into a potential retirement crisis. Young adults are straining to afford leases or dangerously over-reaching to buy property. Boomers are sitting on small mountains of windfall equity, but immobilized by not knowing where to go, with scant liquid assets and crap pensions. Employers in T.O. or YVR can’t find talent, because kids can’t stay. Real estate is our addiction, our obsession and our disease. It’s killing financial stability.

So, what does Ottawa do?

“All Canadians need and deserve housing that is safe and affordable,” the prime minister said on Wednesday as he committed $40 billion to a national housing program. Nice words. But “all Canadians” ended up being the 6% of people that social agencies say are under-housed. Over 300,000 families will eventually be receiving $2,500 to pay their rent. Many billions will be spent building about 100,000 units of housing with lease costs geared to income. At least 25% of the $40 billion in spending will be gender-based going to “to projects for women, girls and their families.” Homelessness will be targeted.

Worthy goals? Sure. Everybody deserves a roof.

But forty billion is a pile of money, and spending it won’t bring property prices down or boost the incomes of families trying to get some. Giving lower-income people free housing money is generous, but might end up putting more pressure on rents.

Meanwhile, mortgage rates are rising (the Fed indicated again this week that the next US hike comes in a few weeks), and borrowing rules are tightening. This means even as real estate values inexorably decline, the financial burden of buying and owning will remain about the same. Insurance premiums and property taxes are rising almost everywhere. AirBnB is sucking off rental inventory. Taxing scant empty houses or mythical foreigners has done nothing but allow politicians to look like they care.

Nope. Ain’t working.

So here’s our challenge. As the Number One blog in Canada on real estate bitching, financial debauchery, hormonal behaviour and breed prejudice, we have a duty to set T2 straight – before any of the $40,000,000,000 is actually spent. Are there better ways to deflower housing so average families can once again afford average homes? Raise rates? End mortgage insurance? Nix the capital gains exemption? Bigger down payments? Thirty-year loans? What?

Canada needs you, blog dogs. This could be the defining moment of a generation. Or at least until Thursday night. Every comment will be sent directly to the prime minister. Trust me. I know where he lives.

Up, up, up

Tuesday rush hour, at the foot of Bay Street outside Union Station, downtown Toronto.


Around the time of Y2K, which most Millennials never heard of, investors went goey for tech. Nortel exploded (before it imploded). The NASDAQ surged daily. Kids with skateboards and cool URLs went public with profitless companies and made millions. Then it all blew up.

The tech bubble bust. Science and technology mutual funds – then an absolute rage – lost 80% of their value. Investors who had gone all-in, believing dot-coms and the Internet would become the backbone of modern life, were crushed. Panic selling in late 200 and early 2001. Then came Nine Eleven to finish things off.

Now we know the techies were right. Seventeen years ago it was inconceivable every single person on the sidewalk would have a smart phone, that Uber would replace taxis, AirBnB supplant hotels, landlines become relics, Russia use Facebook to throw the US election or something online called Amazon be one of the biggest companies in the world. And, hey, let’s not forget about yesterday’s blockchain bubble blog.

So what did people do wrong in the first tech-fueled equity romp when they got all sauced up with hormones and hype? Two things. They engaged in massive speculation, bidding up the value of companies with visionary ideas, epic burn rates and no earnings (did someone just say ‘Tesla’?). Investors were swept along on vision and promise, not profits and dividends. They paid a massive price. They will again.

Second, they lacked balance. Thinking diversification was for people dumber than them and only old ladies bought bonds or blue chips, they passionately put 100% of their investment bucks into one thing (did I just hear ‘Bitcoin’?). When the herd was moving in the same direction, it was euphoric and thrilling. When reality arrived, so did the losses.

All this seems relevant at a time when tech issues have been propelling stock markets to new highs. Happened again Tuesday. The Dow, S&P and Nasdaq all soared. Even the limp old TSX has been catching up, and also sits at a pinnacle. As I mentioned days ago, the same has taken place in Japan, Europe and with emerging markets.

The obvious question: another bubble? A rerun of 2000, or even 2008?

Last time I said it was irrational to expect a 20% market correction just because an index had reached a new summit. Comparisons with Y2K or the credit crisis (or 1929, 0r 1987) are meaningless without context. This time loads of tech-based companies are making money. Look at Apple ($45 billion profit in three months) or Google ($22 billion profit). Amazon is trashing department stores and just bought a supermarket chain. Practical, real-life, broad-based applications of devices, products and services using online platforms have created wildly successful corporations. Share prices have soared. Investors collect dividends. These are valid businesses.

So the Dow looks vertical mostly because companies are making money. Corporate profits are advancing double-digits. There is more to come.

The advance will also come on the shoulders of a humungous US corporate tax cut (35% down to 20%), full employment in the US, and the beating-down of anti-global populism in Europe. The world economy is growing at 3%. Bankers worried about deflation two years ago are now raising interest rates to quell inflation. Never again in the life of you or your children will there be 2% long-term mortgages.

This is a world in which you should expect growth to continue, and be reflected in financial assets. But as markets move higher, spurred by entrepreneurs and execs who have figured out how to make passion also make money, there’ll be corrections, dips, shocks and surprises. The higher they go, the more violent the moves.

So we seemed to have figured out the tech thing (with some notable bubble companies and commodities). Now you need to understand balance. It’s a hard lesson to grasp when everything’s going up. Not when they fall.

The point of a 60/40 portfolio is to have two-fifths of your money in stuff that’s less volatile, pays a predictable income stream or is negatively correlated to the more excitable equity markets. No, 40% should not go into bonds – only some. The best choice right now (for a portfolio large enough to have several positions) is 10% in short government bonds, 6% in corporates, 3% each in high-yield and provincial debt, plus a little cash and about 15% in preferred shares. The prefs turn out a 4% tax-advantaged dividend plus increase in capital value along with rates. The bonds stifle volatility and have a history of rising when stocks are falling. Of course, do all this through ETFs, to spread the risk.

So far this year a balanced, diversified portfolio is ahead about 9.5%. Tesla stock is up 66%. Bitcoin is ahead 700%.

Sexy isn’t everything. Look at me.