Tuesday marks the dawn of the fifth year since the wheels came off. It opens in typical fashion. More volatility. Another political-economic slugfest. A chorus of doomers wailing the end is nigh, while most people just want to get by. What will 2013 bring, and what should you do about it? Here are ten things to start with.
Oh good. Another crisis. The year could well open as America goes over the fiscal cliff. Markets will roil as the politicians screw common sense and Tea Party zealots choose chaos over compromise. When they lose this fight they’ll start another over the debt ceiling. The results are predictable – weeks of turmoil and wild swings on Wall Street. Just as happened in 2011, it will be another buying opportunity. In September you will so wish you’d bought those equity ETFs in February. More below.
The condo virus spreads. As headline-grabbing as it was in 2012, the collapse in the condo market has barely started. In all major markets, Toronto, Montreal, Vancouver, Edmonton and even testo-drenched Cowtown, projects will be cancelled, sales will melt and prices fade. But this is old. The real impact will be the chill that spreads to the SFH market in 2013, as armies of potential move-up buyers are trapped in their cement boxes in the sky. If you have a house to sell this Spring, in a middle price range and not in a traditional demand area, may God help you.
Born in the Seventies? Too bad. A grovely economy with imperceptible job growth, erasing white-collar positions and ongoing devaluation of a university degree – plus nine million desperate Boomers – means it sucks to be under 35. Get used to it. This is just the start. Plumbers are the new lawyers, and people smart enough to get MBAs should realize that borrowing money to start a business makes way more sense than investing in another degree. The contract IT guy who keeps the office online is the one who will get the Porsche first.
Fix your mortgage, now. When Mark Carney sails off in June look for the BoC to get way more interested in normalizing interest rates. Quarter-point hikes starting on October will be a modest start, but now that two-thirds of people have locked in to longer-term mortgages it’s the bond market you should worry about. Billions come up for renewal in 2014, and even more in 2015, when a five-year loan will be twice today’s 3%. If you have a VRM, lock it in by September and go long. If you have a renewal coming up later this year or in 2014, blend and extend.
Bonds’ big baggage. Carefully study what most people do. Ask the other daddies at the rink what they’re putting in their RRSPs this year. Probe TNL@TB for her withering market insights and rapier recs. You’ll soon see that the Number One pick of most Canadians in woozy times is a bond fund, ‘because they’re safe.’ Wrong. A torrent of money will come roaring out of bonds and back into equities once it’s clear where corporate profits and US growth are taking us. Bond prices have only one way in which to move. More proof you will never, ever fail being a contrarian.
Why stocks are risky. Big S&P companies earned $1.75 trillion in the latest quarter, up about 12% from the same time a year earlier. These firms, in general, have paid down debt, become more efficient and productive (that explains unemployment), expanded markets and are sitting on mountains of cash. The biggest risk with stocks in 2013 is not owning a mess of them, preferably through well-diversified ETFs. Look for another year of double-digit gains, increasing dividends and preferential tax treatment. If you choose the orange guy’s shorts, however, expect negative returns after tax and inflation. And learn what ‘risk’ means.
Sell the ammo and tunafish. As this pathetic blog so richly demonstrates, a significant number of losers spend more time worrying about what happened in Zimbabwe, the US money supply or debt-to-GDP ratios than they do about their immediate lives. Big mistake. There will not be another 2008 in this generation as Europe has a further year of stabilization, the US economy grows, unemployment falls, American house prices and sales rise and corporate profitability augments. Hoard all the silver and toilet paper you want – at least one of them will be useful.
Strategy one: avoid tax. The feds and provinces have added more debt in the past five years than in the previous fifteen. Cutting the GST on the eve of a recession, for example, was a colossal mistake, helping achieve one mama of a deficit. With an aging population and more consumer debt than ever, Canadian families are vulnerable to what comes next: tax increases. Property tax, sales tax, user fees, clawbacks, surtax and bracket creep will inevitably follow on last year’s OAS attack. It’s not so much what you make, as what you keep. Tax avoidance is hot. I predict this blog will be full of it.
Why F will cave. In 2013 it will become apparent in Ottawa how much of a housing gasbag the government created, and how klutzily it was addressed. Just dropping mortgage amortizations by five years was enough to trigger a sales crash and plunge housing starts. Tossing CHMC insurance on million-plus homes and outlawing cash-backs was apparently overkill, as a staggering Vancouver will prove. Furiously lobbied by their developer friends, the feds will declare the housing market ‘fixed’ and throttle back. But the patient will still be dead.
The year Boomers bloat. If you think you’re sick of us now, just wait. In 2013 half a million people turn 60 in Canada for the first time ever. In fact in each of the next seven years another half million hit the same age – again, unprecedented. The greatest impact will be on the housing market since the majority of these people lack pensions or retirement nesteggs. Of necessity, many will sell, downsize or rent, ensuring a flood of listings and a glacial economy. Smart Boomers will exit now and embrace a balanced portfolio they can soon turn into an income machine. Dumb Boomers will check on the GICs, then drive their Kias to Costco.
Happy new year. Don’t blow it.