What a lead-up to C-Day!
Blackberry misses earnings and sales targets, reloads and blows its foot off. Stock tumbles 25%. Barrick and Kinross are slammed by plunging gold. Their corporate debt tumbles to junk bond status. Retailer Rona punts a thousand workers as it darkens 11 mega-stores in key locations. As Alberta struggles back from billions in flood damage, Obama all but kills the Keystone Pipeline. In BC the Libs campaign and win on a ‘debt free’ platform, then table a budget increasing the debt by $14 billion. And mortgage rates increase. Twice.
Then there’s the economy. It seriously needs the Phillips Lady. Growth in April almost wasn’t – up 0.1%, which is an annual rate of barely more than 1%. Slowdowns in construction, production, oil and gas – as CIBC eggheads put it, “the second straight month of deceleration.” Growth for the quarter that ends just before Canada Day will be well less than 2%, and we have not yet seen the impact of the Alberta floods or tumbling commodity values.
Says BMO economist Doug Porter: “We suspect that this nasty combo could cut June GDP by as much as 0.5 percentage points.” That means Q2 growth for the economy could be just 1.5%. For the entire year, Porter is guessing we might achieve 1.6%.
Let’s put this in context. As gold collapsed in recent days, this pathetic blog was overrun by America-haters who want the US$ to crash so they don’t look like such idiots for having all those nuggets, coins and bars buried among the azaleas. They made a big smelly deal of the most recent revision of US GDP numbers from 2.4% to 1.8%, suggesting we all need to hoard Starkist and Huggies.
Hmmm. This is how TD Economics reads it: “We can finally say that this is an exciting time for the U.S. economy. Buoyed by improving balance sheets, consumers have a newfound sense of optimism. In spite of tax hikes, they have increased their spending. Home prices are rising across the country and housing construction has followed suit. After several years of deleveraging and restraint, private demand is on the cusp of shifting into a higher gear. The improvement in economic prospects has led to speculation that the Federal Reserve may finally be ready to ease off the monetary pedal.”
As much as I think the overfed economists at BMO, CIBC and TD wear their party panties too often, they’re absolutely right about the growing chasm between the Canadian and American conditions. It’s something to mull over as we blow each other up this festive weekend.
You can’t change the economy, of course, but you sure can alter your life within in. A good place to start is with real estate, which is at considerable downside risk these days. The impact of higher mortgage rates should not – repeat, not – be underestimated. Already applications for new home loans were crashing, and the events of June pretty much finished demand off.
Five-year fixed mortgages at the banks have traveled from 2.89% to 3.49% – equivalent to more than a half-point goosing by the Bank of Canada – while those 10-year loans at 3.69% (a screaming deal) are now pushing 4.3%. That may not sound like a nuke-level increase, but it comes just months after 30-year mortgages were trashed and CHMC insurance removed from any property listed over a million. This is like Bruce Willis being stabbed, kneed, shot and then dragged behind a bus. So much for a soft landing.
The smartest among us will learn a few things from the past few weeks. Central banks can do squat, and interest rates still rise. Good assets (like real estate investment trusts and preferred shares) are worth buying when they temporarily tank. Diversification works. ETFs are more predictable than a few stocks, for example, while having too much exposure to Canada is dumb. People who confuse gambling with investing get creamed.
The rest of this year will be a memorable ride. Get ready. Smug won’t help you.