The inevitable

door-sign-modified

“At some point it will become clear, even to the “America is BOOMING” crowd that the Fed’s next move will be a rate cut. The double-talk and excuse making will be a thing of beauty.” — Omniscient blog dog

Will interest never go up again?

That’s the meme among the moisters, doomers and the dearly-indebted who’ve convinced themselves the cost of money will not rise because (a) the government would never dare, (b) everybody would be screwed, (c) housing would crash, (d) the economy would seize up, then croak, (e) the US is a failed state about to be run by (pick one) a criminal or a psycho and (f) it’s, like, unfair – that’s not why we elected Justin!

Well, guess what. Rates will go up. It’s absolutely inevitable. The only uncertainty is the schedule. Here’s a likely scenario: the US Fed hikes on December 14th, then twice during 2017, and more frequently thereafter. Remember, the average tightening cycle by the US central bank involves 10 to 12 increases and lasts up to four years.

As for Canada, the central bank here follows the Fed lead 93% of the time, and ditto for the bond market. Given our flaccid economy, there could be a lengthy lag between them and us, but it’ll come. If you’re pickled in epic levels of debt (recall that four in 10 buyers of $1 million+ houses in Toronto have debt equaling at least 450% of income) you have a unique window of opportunity to get ready. If you ignore it, good luck.

Here’s why central banks in both countries will surprise you.

First, it’s been eight years since anything was normal. Almost a decade of in-the-ditch rates succeeded in avoiding the deflation and depression that threatened us in 2008, but with unintended consequences. The effectiveness of cheap money (in stimulating growth) has worn off. Inflation has crept back into the picture. Assets bubbles have formed (look no further than Canadian real estate). Governments, corps and especially households have become indebted as never before. In fact a whole new generation has grown up with no fear of borrowing. Low rates now threaten to turn into a negative, rather than a positive.

This means rates must rise. If not, inflation will advance, putting pressure on wages and prices. Asset bubbles could inflate then erupt, with dire consequences. And should conditions worsen, central banks would be unable to lower rates as a temporary stimulus, since they’re already close to zero.

Second, unelected central bankers are running the global economy because too many weenies, populists and milquetoasts hold political office. Low rates alone cannot blow wind into an economy, nor can spending cuts and balanced budgets work when deflation threatens. There’s a role for government in days like these, to spend big on infrastructure, job creation and public assets. T2 got elected on exactly such a promise, for example. Thus far, nothing.

So long as central banks continue to shovel out nearly-free money, governments are less likely to enact fiscal stimulus (as opposed to CBs’ monetary stimulus).

This brings us to Brexit, Trump and the anti-globalization sentiment now sweeping western society. Both US presidential candidates are promising massive spending, so it’s a certain bet the pressure will be off the Fed starting in 2017, making rate hikes far more likely. But there’s more.

Trump would build walls insulating America from its neighbours, rip up established trade agreements (like NAFTA) and withdraw from foreign alliances. Make America Great Again is code for getting a country which is more homogenous, nationalistic and independent. Britons voted themselves out of Europe for the same reasons. And all of that is intensely anti-global and anti-free trade.

Why does this matter to the cost of your mortgage?

Because free trade and porous borders, outsourcing jobs and filling Wal-Marts with crap from China has helped keep inflation low, prices falling, wages depressed and supported the cheap cost of money. Brexit will change some of that. Trump’s changing more. And across Europe there’s a growing tide of rightist emotion that will push the agenda ahead.

The bottom line, as stated here yesterday, is that we probably at, or close to, the bottom in terms of the cost of money. It’s seriously naïve to think the Bank of Canada will slash its key rate further, or to believe the Fed won’t resume its stated course of normalization. No, rates aren’t going to back to levels of a decade or two ago. But they will be doubling.

If that stresses you, then get on it.

154 comments ↓

#1 inflate - inflate on 09.29.16 at 6:20 pm

Renters are also going up against bidding wars in TO…. WTF..??? I thought renters were the safe ones???

#2 ole Doberman on 09.29.16 at 6:21 pm

Double the rate half the house price?

#3 JSS on 09.29.16 at 6:23 pm

“There’s a role for government in days like these, to spend big on infrastructure, job creation and public assets. T2 got elected on exactly such a promise, for example. Thus far, nothing.”

In Canada, due to our weather, we really only have a 5-7 month window in order to execute capital construction projects. So this year is lost. What the feds should do is have a ton of tender-ready projects available for construction execution no later than first week April.

Otherwise, be prepared to pay lots more for the same project during winter construction, and pay for heating and hoarding, and lower productivity.

#4 Doug t on 09.29.16 at 6:24 pm

No rate hikes ahead – we are in a no growth period and it’s gonna last quite awhile – just like Japan the last twenty five years – FLAT stagnant and no rate hikes – get use to it.

Rage against the machine

#5 Rob on 09.29.16 at 6:26 pm

“Make America Great Again is code for getting a country which is more homogenous, nationalistic and independent.”

None of those things are bad

#6 the other white meat (pork) on 09.29.16 at 6:27 pm

I’m not moist, no debt, and not believing a word about interest rates until I see it. Sorry, after hearing it for years while watching rates fall and the price of housing skyrocket, I’m inclined to believe that the GT crystal ball is broken.

Why do I read this blog every day? Mostly to learn about investing without losing my shirt and to listen to savers whine about how the central bankers flushed them down the toilet. I don’t think it was a conspiracy at all, just a massive screw up in 08 that got us to where we are now. No one wants to face the music so the game continues until the asset bubbles explode.

I hope they do raise interest rates. The markets will soil the bed like they did last time, and I will buy a few ETFs that I’ve had my eye on. Until then I will enjoy the circus down south.

#7 Kham on 09.29.16 at 6:28 pm

I found a typo! “Rwemember”
Other then that, loved the read. Thanks Garth!

#8 Sheane Wallace on 09.29.16 at 6:29 pm

http://www.huffingtonpost.ca/2016/09/28/canadian-dollar-value_n_12236476.html

As I said many times: loonie to plummet further.

Caused exactly by the housing bubble and capital miss-allocation.
-growing budget deficit
-growing budget deficit
-idiots ruling BOC and CMHC

Accompanied with zero/soon to be negative interest rates and declining bond yields! Sure….

Cheers

#9 Sheane Wallace on 09.29.16 at 6:30 pm

-growing budget deficit
-growing trade deficit
-idiots ruling BOC and CMHC

#10 Marcus on 09.29.16 at 6:33 pm

Germany’s largest, Bank, Deutsche Bank” may well “collapse” tomorrow, Friday, September 30, 2016. The German government has no plans to bail out the bank and its demise could wipe out Banks in the US and other countries worldwide due to it’s Trillions in derivatives exposure!

According to the insider:

System downfall tomorrow. A collapse of this bank is unavoidable now, and it wipes out everything immediately.

Wolfgang Gerke, President of the Bavarian Finance Centre, the German bank sees in a serious imbalance.

“This is absolutely not about Peanuts. We will experience real shockwaves. The Bank is in real trouble, “Gerke said the Thursday edition of the” Passauer Neue Presse “.

This is as good as a death sentence. It is insider info (presumably from the DB itself), after the financial collapse is to take place on 30 September.

MORE: A “run” is taking place against Deutsche Bank in Germany as citizens rush to take out money . . . but they are being systematically delayed. At least on Depositor ordered 2,000 Euros transferred out yesterday via wire transfer. At close of business, Deutsche Bank had still NOT sent the money. When challenged, the bank claimed they needed to verify all the information. The Depositor now says he feels they no longer have liquidity and cannot pay depositors.

UPDATE 12:58 PM EDT —

Germans are being quietly told that ALL BANKS in Germany will close on October 1, ALL ATMS, Credit and Debit Cards are likely to be “unavailable” for unknown duration! ! !

European Central Bank Chairman Draghi refused to talk about Deutsche Bank today, saying It is not his fault the bank appears to be in trouble.

German Insider:

There is panic in DB now. A lot of People withdraw money, close accounts. One guy says he transferred 25’000 Euro and the bank called him back if the amount and transaction is correct and true! Still has not sent the money!

Monday markets in the west are going to be very interesting to say the least.

#11 MF on 09.29.16 at 6:33 pm

Haha that post is undeniablly from Mark M. I dont think he is saying rates can never go up as much as he is saying the CB are incompetent liars, which many agree with.

#122 Carlyle on 09.29.16 at 2:58 pm

You are forgetting that T2’s base is single mothers, pot heads, and anyone else who has messed up their lives. These people now want to A) blame everyone else. B) take from those more successful.

MF

#12 Gregor Samsa on 09.29.16 at 6:34 pm

If they hike rates on December 14, the stock markets are toast. That is the central banker dilemma.

The markets are now completely de-coupled from economic reality, but it’s important to realize that traders know and accept this. All they now care about is what the central banks will do. If the central banks indicate rate cuts and QE, then it’s full steam ahead with the buying. If the central banks indicate rate hikes and tightening, then it’s run for the exits.

#13 DVala on 09.29.16 at 6:36 pm

Anything “free” looses it’s charm soon. Such is the case with the almost “free” money these days.

#14 German Banking Trouble ? on 09.29.16 at 6:38 pm

Today on CNBC there was a discussion on Deutsche Bank and it was reported that they have 16 Billion Euros in assets and 162 Billion Euros of debt. Just read on BBC business that Commerzbank ( Germany’s second largest ) is laying off 9,600 and suspending it’s dividend. It will be interesting to see what Mrs. Merkel will do to stop the bleeding .

#15 everythingisterrible on 09.29.16 at 6:39 pm

The central bankers have run out of road and are scratching their heads as what to do next. The world economy is barely growing and the Financial sector has learned nothing since 2008 with Deutsche bank teetering on the edge. The Fed might raise in December just to save face, but that will be it.

#16 suburban coyote and pup on 09.29.16 at 6:45 pm

Love ya Garth, but think you are dead wrong re rates doubling any time soon. North American if not global deflationary cycle with demographics as a key factor. QE ,cheap oil and creative accounting by govts have masked this. I’m gonna reread David Foot Boom, Bust Echo 1996.

Onf51

#17 Smartalox on 09.29.16 at 6:46 pm

@JSS:

There may only be 5 to 7 months of weather that’s conducive to construction, but plenty of time during the rest of the year for planning, design, logistics, sourcing equipment.

There’s more to infrastructure than keeping the tradesmen busy.

Projects are slow to move because the financing isn’t in place yet.

#18 Ray Skunk on 09.29.16 at 6:47 pm

The only thing that stresses me is the fear of my landlord coming to his senses and selling this place while the property value going is good.

Hoping his greed wins out and he holds for the long term.

#19 AR on 09.29.16 at 6:48 pm

You say housing is a bubble, Trump says stock markets are a bubble. Seems like no matter what, both will crash when rates go up. I suppose the stock market will recover sooner? Because it’s underpinned by actual companies making money and has some relation to P/E ratios.

Might be helpful to discuss why we aren’t headed the way of Japan. With perpetually low growth and a stock market and interest rates that never recovered. Can you explain why the global picture different than the Japanese picture?

#20 DoomandGloomer on 09.29.16 at 6:49 pm

All this ridiculous consumer debt.

Everyone having a big party. Living the high life.
Big houses. Fancy cars. Expensive restaurants. What a farce.

Think you can stay high on booze and drugs without suffering a hangover or withdrawal symptoms?

Here’s what’s coming boys and girls:

https://www.youtube.com/watch?v=fV4l5w0ZpcY

History repeats itself. Enjoy the ride!

#21 suburban coyote and pup on 09.29.16 at 6:54 pm

update 905, so I got a lowball offer on pending infill lot…asked to see local examples of builders prior work. Did 6 drive-bys….needed a barf bucket after looking at this guys houses. Unbelievable mishmosh of materials, styles. Think Mccrap mansion meets the tudors. Abomination for the eyes….my neighbours would hate me.

Onf51

#22 Mark M. on 09.29.16 at 6:59 pm

The “Omniscient blog dog” is me, and Garth you are not accurately reflecting the views of most of us who have doubted the Fed’s ability to tighten for years.

Of course, rates will go up soon, and quite substantially. In fact, I think they’re going higher than even you believe, but not until the bond market demands it.

When will that happen, who knows? Until it does, the Fed will pursue the only policy central bankers all over the world are pursuing: lower rates, negative rates and stimulus.

Just today, Janet Yellen said that if needed, the Fed could buy stocks and corporate bonds to stimulate the economy. Imagine, this “recovery” you’ve been touting is so robust that the head of the central bank is talking about buying stocks and corporate bonds on what we are to believe is the eve of a continuation of rate tightening.

The central argument is this: the central bank measures you praise for delivering “strongly positive gains” in the stock market is the same policy that’s driven up real estate prices. It is the same policy that has corporations and governments issuing negative yielding bonds; the folks buying them are planning for a “greater fool” to emerge.

You’ve mistaken a bubble for a recovery, and it should be evident by now in the constant promise of a normalization of interst rates that never materializes.

If we are to believe your narrative, there are another 9 to 11 rate hikes coming over the next three to four years. Which means no recession or downturn in that timeframe to disrupt the course and reverse the trajectory. I think even the most supportive blog dogs know that is impossible.

#23 Nodebt on 09.29.16 at 6:59 pm

Garth when you look at your crystal ball when will a 5 year locked in rate be 6%?
Thx
Nodebt

#24 TheSpangler on 09.29.16 at 7:02 pm

Hasn’t Japan had extremely low interest rates for 20 years?

#25 WillD on 09.29.16 at 7:05 pm

Anti-globalization is the response to the disappearance of middle class jobs. And who profited from globalization and free trade? Corporations – check. Millions of poverty stricken people in the 3rd world who benefited from the jobs that multinational corps brought. However, the middle class in Western countries did not benefit. The jobs left. And they still had to pay duty on their cross border purchases as the trade was never free for them. What they did gain was a couple of decades of low cost products. And now that the writing is on the wall, the anti-globalization movement is rising. And it is unstoppable. The chicken has come home to roost.

#26 greyswan on 09.29.16 at 7:05 pm

Central bankers and Immigration Canada decision makers in both departments are not elected!
Old stock Canadians have been ignored by the UN lobby
for years…time for change…..out with the establishment.
…..Brexit!!

#27 Pete on 09.29.16 at 7:09 pm

Interest rates and subprime lending has been with us since nine-eleven (far more than just 8 years) and it has been the only thing keeping the whole farcical economy afloat. A way to instigate and justify these subprime lending practices, without alerting the whole world to the real peril of the western world’s economy, was one of the driving forces behind the events of that fateful day.

#28 Jose Martino on 09.29.16 at 7:14 pm

#Kham:

I found a typo: “then”

:)

#29 Long Branch Apprentice on 09.29.16 at 7:14 pm

We’ve heard the same story about 4 rate hikes this year, then 3, then 2, now 2 in 2017.

BoC’s next move will involve Poloz getting out the scissors. How else is the trade balance going to be shored up? Oh right, through our booming manufacturing sector that has been helped oh so much by NAFTA.

No wonder people from Rust Belt towns hold Liberals in such utter contempt and disgust.

How’s that knowledge economy working out?

(Loud fart ripping sound)

#30 The Long Game on 09.29.16 at 7:16 pm

Yawn….

A couple of quarter point increases spread over 4 years means nothing. The amount of rent you will spend, offset by dismal balanced portfolio returns, vs lost equity from 4 or 5 more years of renting will only hurt the renter in the long run.

As we have seen, even the most conservative projections of fed rate increases can be half a decade or more off. So think about that the next time you are doing the rent vs buy calculations.

Can you wait a decade for prices to fall and rates to increase back to a point where you should have bought in 2008-2016? Do you really think that you will be ahead as a renter in 5 or 10 years? Think again…

#31 If rates double...then a mess on 09.29.16 at 7:22 pm

If mortgage rates double, then a mess to afford.

$500K mortgage, 25 yr amort, with a rate increase from 2.5% to 5% results in a payment increase of about $670/mo or about $8,000/year more.

Yup, that would make me refinance now. If even a bit of that MNP Consumer Debt Sentiment Survey is correct, then the above would be catastrophic to a lot of Cdns financially.

Agreed, whether Hillary or Trump gets in, both plan to spend like crazy (like T2 plans to) and that will force t-bill rates up and thus mortgage rates. Most economic analysts south of the border are saying the same thing.

Hope today’s July GDP is good and starts the 3rd Qtr as a turnaround Qtr for the Cdn economy. If not and the negative 2nd Qtr results continue, we are in for a recession and inevitable job losses.

Add to that RE markets softening or crashing, Cdns will be in for a wealth destroying ride since half of their wealth in is their homes and that will take a long time to recover from. Rising rates will only add to the misery of cash flow.

bsant54

#32 Deutsche Bank is safe on 09.29.16 at 7:25 pm

famous last words.. batton down the hatches

cost of money will increase with or without rate hike

all those spec. condo deals in Canada will be scrutinized.. doesn’t matter if there’s a hole in the ground yet

#33 odious herodias on 09.29.16 at 7:34 pm

#5 Rob – AMEN !

#34 Dick on 09.29.16 at 7:35 pm

It ain’t just real estate that’s gonna get hit when rates get hiked. Walking through Toronto the other day, and wondering to myself: who the hell owns all these luxury vehicles? These peeps are paying easily a grand a month for their Q7s and their XC 90s. Probably have 5 year+ amortization periods, too.

Me? I got a screaming good deal on a Kia Sportage. A very highly rated car, and fits three hockey bags in the back.

#35 Not a big deal on 09.29.16 at 7:35 pm

Inflation has been been kept low by junk from China. It has been kept low by advances in technology. The only reason it is made in China is to keep fat profits in the hands of investors and bankers on Wallstreet.

#36 Not a big deal on 09.29.16 at 7:36 pm

Sorry my mistake: “Inflation has NOT BEEN kept low by junk from China”

#37 Let's Get House Horny on 09.29.16 at 7:37 pm

In days of yore when the world was a much saner financial realm to live in raising interest rates to quell speculation or put a lid on asset price inflation was the norm, and it always worked well.

That was yesterday folks. Today we live in financial bizarro land where all the fundamentals of investing have been turned on their head and financial repression has turned all of us into risk takers.

Too much debt in the world Garth for rates to rise the way you prescribe. Way too much debt. We have the whole world drowning in debt – 50 % more now than in 2008. Corporations are borrowing like no tomorrow gorging on debt, buying back their own shares and enriching those at the top, but at the same time destroying their capital base.

Raising rates when we have borrowed so much will destroy what we have left of a financial system. It will not happen – between a rock and a hard place. There are no longer any safe options left.

If interest rates double from here in a relatively short time then we are all screwed. That represents a doubling of interest payments on a debt pile that is almost unfathomable and definitively unprecedented in history.

No matter which way we turn we are screwed.

I do not believe in rainbows and unicorns and neither should most who visit this blog.

#38 Ace Goodheart on 09.29.16 at 7:40 pm

RE: “This means rates must rise. If not, inflation will advance, putting pressure on wages and prices. Asset bubbles could inflate then erupt, with dire consequences. And should conditions worsen, central banks would be unable to lower rates as a temporary stimulus, since they’re already close to zero.”

Been saying this for a long time. However whether rates rise or not, there will still be inflation. Governments have two choices, neither of which is very appealing: Either: A) tax the crap out of everyone and pay off runaway debt or B) print money.

We already know what is going to happen. Governments who tax everyone to death, never get re-elected.

RE: #1 Inflate Inflate:

“Renters are also going up against bidding wars in TO…. WTF..??? I thought renters were the safe ones???”

I own a rental building. It had two rent-able units, with a third coming online after renovations. The two were yes actually rented in application – wars. There were a lot of people trying to rent from me.

The third was a little more interesting. The existing tenants got wind that the third unit was completed and available. That day I had a large number of applicants. I had not yet listed it for rent. I was actually cleaning up the remainder of the construction debris. It rented immediately, again in the usual application -war with multiple people trying to get in.

There appears to be a housing shortage in Toronto. It appears to be getting worse. They are building more housing in the form of condos, but there are more people looking to rent and to buy, than there are units available.

#39 Happening now on 09.29.16 at 7:46 pm

A friend of mine who is a realtor in the west side of vancouver says that things have really slowed down since the 15% tax…all $$$ is now heading to Kelowna as they have a UBC campus there ….interesting to see if this is really happening ???

#40 Joe Manufacturing on 09.29.16 at 7:47 pm

All these rate hike teasers are getting old. I am calling no rate hikes for years.

GDP increase is stagnant (goo.gl/7uBiXk) and will remain so until the 4th industrial revolution (goo.gl/dhJdrF) which is quite a few years away. Until then, enjoy the status quo.

#41 Say What? on 09.29.16 at 7:48 pm

Honestly Garth, I’m not trying to impune your intelligence, as you are wont to do with others (like me) when they don’t agree with you, but really, are you delusional? What you say will happen with rates will NOT happen for many of the reasons you listed. Another huge reason is that the US economy has become a Ponzi scheme and the supposed recovery is not real.

#42 maths are hard on 09.29.16 at 7:48 pm

Interesting all the talk of “negative rates”, i.e. many government bonds like Germany now produce negative rates, you have to pay to hold them to maturity, and now they are even talking that savings accounts could go negative as well, in other words you have to pay to put your money in a bank beyond the regular fees. It’s like we are back to paying your bank to vault your “allocated” gold.

However, we are close to the limit for this “negative interest” theoretical bull crap. There is a “zero limit” even if it’s slightly negative for some entities. So Germany and the US may be able to get a negative rate because people place a higher risk value on the safety of their money than the interest rate (safety always adds to the perceived value of the bond). But your mortgage will never go negative interest. The bank will never “pay” you to borrow. Even if German bonds go to negative 10%, your mortgage will always be about where it is now or higher. So Garth is right about the direction, the bottom is in. He hasn’t been real good on the timing, but calling both the direction and the timing is hard, so give him a break. He’s right about one thing: Mortgages will never be cheaper than they are right now. This is the bottom. How long it will last is anybody’s guess but this is the bottom for interest rates.

It’s easy to prove with a little though experiment. Let’s say the bank got to the point where they were willing to lend to you at a negative interest rate, in other words they will pay you to borrow. If you then take out a loan at say negative 5%, why not borrow a million? That’s $50,000 a year coming straight at you. You can live on that, or retire principle (although why you would I’m not sure). You can buy a million dollar house and it pays for itself in 20 years! (just don’t retire principle until you’ve accumulated all the money).

Simply put, retail interest is as low as it can go and it won’t go much lower. Negative interest rates are only for risk free bonds and you are not risk free. If the bottom isn’t truly in, we are close.

#43 The real Kip on 09.29.16 at 7:50 pm

There will be no Fed rate increase in December and certainly no Bank of Canada rate increase in all of 2017.

Poloz would probably be happy if the puppet Yellen did increase rates so he can do nothing but watch the spread grow wider between the USD and the CND which would help Canadian exporters.

#44 CJBob on 09.29.16 at 7:50 pm

“When experts are wrong, it’s often because they’re experts on an earlier version of the world.” – Paul Graham

#45 nonplused on 09.29.16 at 8:01 pm

I think the people that argue rates can never go up again fall into a few categories:

1. They are swimming in debt and know a significant increase in interest rates, and at this point that means mortgages going to 4%, would make them insolvent and they would lose their house.

2. They aren’t making as much money as they are spending and HELOC’s bridge the gap.

3. They’ve really gone long stocks with a lot of margin and realize they would be wiped out if rates rose.

The Fed is aware of all these issues, so when rates start to rise it will be ever so slowly and ever so gently to give people time to adjust. Unfortunately it only takes a few noisy natives in costume to drive the whole heard of buffalo over the cliff.

#46 Smoking Man on 09.29.16 at 8:04 pm

Im going with Ww3 before a rate hike.
USA is out of control I Syria and Russian boarders.

Mabey that’s plan B if Trump starts surging in the polls.

#47 Debtslavecreator on 09.29.16 at 8:06 pm

The rates will rise at some point within 3-5 years and it will be as a result of the sovereign debt crisis that we are in the early stages of.
Greece, Spain, Puerto Rico, etc are just the top of the first
Next: Italy , France and Germany and the rest of the periphery along with Japan

Then Canada and finally the US

Yes rates will rise but not because of an improving economy but due to defaults and the fear of defaults of debt as the weak economy and extreme debt loads finally meet the day of reckoning

#48 Cory on 09.29.16 at 8:09 pm

#30….”Can you wait a decade for prices to fall and rates to increase back to a point where you should have bought in 2008-2016? Do you really think that you will be ahead as a renter in 5 or 10 years? Think again…”

Another one trying to justify their mistake in buying using cheap money.

We’ve been renting for years and we’ve never saved more money as a result which we invest for a return vs. paying interest indirectly on our own money (fractional reserve banking) on a mortgage. Renting has almost always been better than “owning”. Especially now and for the past decade at least. Using your capital to earn a return is a far better proposition than paying interest for something that produces nothing and only costs capital even with a renter renting the owners shack. i.e. I’d rather be a creditor than a debtor.

People need to include all costs not just a buy and sell price. But this rarely occurs.

#49 WallOfWorry on 09.29.16 at 8:15 pm

Yup…rates have to go up sometime. But US can’t support higher rates with GDP growth at 1% and timing is such that they are due to enter a recession. No chance that the Fed hikes in a way that triggers a recession. I could see a Dec rate hike as they try to save face but the reality is they should have raised at least once this year if not twice. I think you suggested that they “blinked”. Now they will use the Europe banking contagion as the reason why they can’t raise in Dec and the before you know it they will be buying stocks to keep that asset bubble propped up. Maybe time to man up Garth and acknowledge that we live in a period of fixed markets?

#50 crowdedelevatorfartz on 09.29.16 at 8:17 pm

@#24 The Spangler
“Hasn’t Japan had extremely low interest rates for 20 years?”
+++++++++++++++++++++++++++++++++++

Yes.
And a crushing devaluation of their real estate, stock market and economy.
Deflation for 20 years.
Careful what you wish for…..

#51 common sense on 09.29.16 at 8:19 pm

Just a question….who is going to pay for the fall out when and if they EVER raise rates?

Who? And don’t look at responsible me….

#52 WallOfWorry on 09.29.16 at 8:25 pm

#45…nonplused: “I think the people that argue rates can never go up again fall into a few categories:”
******************************************

You are kidding right? Instead of your categories how about this one: Rates haven’t gone up in 10 years, we see over $13 T in negative rates, with central bankers globally bloating their balance sheets through stimulus measures. Yikes!

#53 Smoking Man on 09.29.16 at 8:29 pm

The dangers of this pathetic blog. It mind warps you. Heck even James wasn’t as insulting as normal yesterday. That boy is losing it.

Two day bender starting now at Seneca then meeting Gog at the general store..

Wondering should I get him a Nictonite tee shirt, then Doug and Ryan will want on too. Then the amazons. The kid selling ice cream.

Got to think this through.

They got some kind of 90s show going on tonight. No idea what it is. But I’ve never seen such a high concentration of old and young hotties with painted on jeans. Sadly I’ll be too Smoked in two hours when they start coming down the escalators to be able to engage in any form of a meaningfull discussion.

I gave our tickets away, so my drinking would not be interpreted.

Now I sort of wish I went…

#54 Stop Being Naïve on 09.29.16 at 8:30 pm

I love how everyone uses Japan as the go to for frozen interest rates. Nobody ever seems to mention one of our dollars is equal to 77 of theirs.

#55 Senta on 09.29.16 at 8:31 pm

Agree – Interest rates have to go up. One big reason is pensions for government workers. A retired gov worker with a $50 K pension per year (indexed) is worth about 2 million at present. If the govt increases the interest rate by 1% the burden falls to 1.5 million.

#56 The Technical Analyst (aka A Canadian Abroad) on 09.29.16 at 8:36 pm

Wow, so much doom and gloom tonight… just remember, when ANY asset class goes down (Housing) another will go up.

That’s why it is CRITICAL to be DIVERSIFIED. Sell what’s high, buy what’s low.

#57 DRew on 09.29.16 at 8:39 pm

” I had gone back to Vancouver after 15 years of being away. I met with a Chinese friend for lunch. He had immigrated to Vancouver from Hong Kong in the early 90s and had been selling real estate for the past 15 years. I asked about returning to Vancouver to purchase real estate where the price of a single family home is over one million dollars.

“I wouldn’t suggest it”

I couldn’t believe it. Why? Everyone wants to live here.
He told me that much of the buying was from subprime mainland Chinese buyers with ninja loans. Many applications are “as fake as a chinese knockoff” with the owners never living in the purchased homes and income docs forged.
You will see some of the CDN banks have caught on and now insist on verifiable domestic income.
The down payments come from shadow banking in China, while the majority of the loans are underwritten by Canadian Banks. As long as housing keeps going up all is fine, but when it starts going down, these buyers will be no where to be found, leaving the Canadian Banks on the hook.

Vancouver, Toronto, New York, Melbourne are the main targeted cities with limited supply and the ability to move prices . How many of these loans are on domestic bank books, and what does mean for the global economy?”

#58 I'm stupid on 09.29.16 at 8:45 pm

#10 Marcus

I bought 10k shares of db. That’s how certain I am that they won’t go broke. These is called a buying opportunity, I’m not saying to gamble everything you have on db stock 1-3% is worth the risk.

#59 parksville senior on 09.29.16 at 8:47 pm

Pretty good post, except to mention that we have had eight years of tepid recovery because the crazy goldbug Republicans and (Canadian) Conservatives refused to invest in our infrastructure—if it went “Boom” good, if you could drive your car on it-“bad” as with schools, hospitals and all.

The US midwest is a basket case of impoverished middle class but they are doubling down again-interesting to see how it turns out.

Seems as if you can fool some of the people all the time after all!

#60 Robert on 09.29.16 at 8:49 pm

Central banks have been aggresively quantitatively easing (devaluing and depreciating) currency for the past 8 years at least. The boom in equities and housing markets seems to have been market players transferring gains from currency bubbles into tangible assets. As long as governments continue to employ the Weimar manoeuvre to “stimulate” economies, the game will drag on. Using depreciating assets (dollars, renminbi), or better still, borrowing large amounts of a depreciating asset to purchase appreciating assets (Toron-couver RE) seems like a no brainer. As long as banks and CMHC are allowed to keep pumping, Provincial and Federal Revenue ignore illicit RE capital gains there is no disincentive. The fearsome 15% YVR tax has simply shifted locations, the circus has moved on. While YVR tumbles a bit; players take their gains and move on to pillage adjacent communities. Better to join the party than be a dispossessed renter in a bidding war for a mouldy basement suite.

#61 46 and 2 on 09.29.16 at 8:57 pm

DELETED

#62 Ret on 09.29.16 at 9:00 pm

More money for poorly thought out, one and done infrastructure projects?

Really, it is just about currying favour and vote buying from construction unions, developers and concrete companies with taxpayer money.

Spare me the, “it trickles down to the popcorn vendor,” line of nonsense.

At the end of the day, you have fixed some sidewalk cracks and maybe a leaking roof on a school that will probably close in two or three years.

Nothing will have been done to improve the long term economic outlook for the country.

#63 Shane on 09.29.16 at 9:01 pm

So Rates double in Canada then they go from 0.5% to 1%. I don’t think they will let that happen here.

#64 Barb on 09.29.16 at 9:03 pm

The possibility of a Trump victory is frankly frightening.

Democracies generally only last 200-300 years.
Death knell?

#65 Bram on 09.29.16 at 9:04 pm

#131 Braj on 09.29.16 at 5:42 pm
What inspired you to buy that stock amongst it’s competitors? Otis, thyssen krup etc.? That’s a fantastic return..

I got lucky.
I doubt competitors are on TSE, by the way.
(Stayed on TSE as I don’t like RBC Direct’s currency conversion fees, and my NYSE/NASDAQ holdings already exceed my TSE holdings.)

Found SIS with simple stock screen.
Looked for cheap profitable and growing companies on TSE and it popped up.

My stock screener typically looks for:
– 60M+ market cap
– low price to book
– low price to sales
– low debt to assets
– high operating margin
– decent dividend yield
– high revenue growth
sometimes I look at earning growth as well, but earnings are manipulated by accountants.

I then look at results, and if I understand the company business model, and if I think their business is future-proof, I buy.

#66 Bjfrom burnabee on 09.29.16 at 9:09 pm

I’m new to this board, can anyone tell me what a party wall is? I bought a half duplex in vancover and I’m being told I need a party wall agreement? What the hell is it? Thanks
BJ

#67 Sideshow Rob on 09.29.16 at 9:09 pm

Rising interest rates ain’t gonna happen any time soon. It takes a logical non insider to see that. I have said for some time, the very instant you see Japan raise rates, we will follow within 25 years.
Be that as it may financial people and Fed insiders will still call for it. Heck they may even believe it. But they all forget to mention one thing. The big Douche is going to fail. Soon. As in within 6 months. Maybe even this weekend. The central banks will be powerless to stop the fallout this time. It will be 10 times worse than the Lehman moment. It’s coming. We all know it. Rates will be forced down again. Stuff will soon get real.

#68 common sense on 09.29.16 at 9:15 pm

#58 I’m Stupid

Smart buy…They will more than likely get saved somehow and shares will explode upwards….

Can’t let a major bank fail at any cost can we?

#69 palebird on 09.29.16 at 9:17 pm

#30 A couple of quarter point increases spread over 4 years means nothing.

Wow some people here are completely tuned out. Do you know who Deutsche Bank is and what is happening right now? Do you have any idea of the ramifications of such events on our insulated little world? Open your eyes.

#70 Smoking Man on 09.29.16 at 9:18 pm

DELETED 5

#71 Basil Fawlty on 09.29.16 at 9:22 pm

We already have asset bubbles in stocks, bonds and real estate.

Middle class and working class people have a right to be PO’d over the current state of affairs, as most of the trillions in bailouts have gone to the top .01%. Not to mention the free trade mantra of a better life for all that has been pure baloney, as good jobs are offshored and debt is used to maintain living standards.

World credit has increased $60T since 2007 and interest rates are going negative to support it. Thats the trend, not rate increases.

Look out below if Duetch Bank fails. They are the planets largest derivative holder at $40T Euro. There is counter party risk across the globe.

#72 };-) aka Devil's Advocate on 09.29.16 at 9:26 pm

BINGO ! ! ! Right on Garth! Now THAT is material I can buy into and agree with wholeheartedly.

Like I say… “SHIFT happens, learn to ride the tide. };-)

#73 Brian Ripley on 09.29.16 at 9:27 pm

“And all of that is intensely anti-global and anti-free trade.” ie” Brexit, Trump (Garth)

Before the 1st Clinton Trump debate I posted a chart comparing the change in manufacturing wages in Canada, the U.S. and Mexico since the 2008-09 crash, here:

http://www.chpc.biz/history-readings/canada-us-mexico-wages

Canada and U.S. manufacturing wages up – Mexican down and look at the difference… Mexican’s charge a tenth of the rest of North America.

I suggest that Canadian students better learn how to write software if they want a job that enables one to live and work in Vancouver or Toronto, because this ain’t your father’s Oldsmobile anymore.

If we face the fact that Canadians don’t want to compete with the global labour market, then we better start reinventing what work and the workplace is in Canada. In Calgary, office space vacancy rates are surging. I suggest that is just potential housing for low paid service workers.

Writing software can be done anywhere and does not need to be located in congested urban areas.

There is lots of room in small-town-Canada. The Government should start providing incentives for its own institutions and the private sector to move out of the high rent jurisdictions.

We have a big land mass and a small population. Why we do we only have 2 cities that are coveted?

#74 Smoking Man on 09.29.16 at 9:31 pm

#64 Barb on 09.29.16 at 9:03 pm
The possibility of a Trump victory is frankly frightening.

Democracies generally only last 200-300 years.
Death knell?

……..

Vs unelected globalists who hide in the shadows, hiding free alien energy, I’m going with transparency.

https://youtu.be/lDUwXFvTJfA

#75 };-) aka Devil's Advocate on 09.29.16 at 9:36 pm

I especially like your second point:

“Second, unelected central bankers are running the global economy because too many weenies, populists and milquetoasts hold political office. Low rates alone cannot blow wind into an economy, nor can spending cuts and balanced budgets work when deflation threatens. There’s a role for government in days like these, to spend big on infrastructure, job creation and public assets. T2 got elected on exactly such a promise, for example. Thus far, nothing.”

The fed has no business in monetary policy and ultimately the free market forces behind the bond market will dictate interest rates anyway. Where our government should be focusing is fiscal policy. Building infrastructure, creating jobs, improving amenities all ripples through our economy amplifying each fiscal dollar spent ten fold ultimately returning to the taxpayer what it cost them and then some.

An excessive reliance on monetary policy and the departure from the ***cough, cough*** GOLD standard is what led us down the garden path to this place of financial debauchery.

#76 Vic waiting on 09.29.16 at 9:41 pm

I miss VREU, especially now that house prices in Victoria and the surrounding communities are all going up still – 12% this year for Victoria according to teranet data (not realtor data).

Hey, what happened to those collapsing sales and crash around the corner? Still waiting for you to explain away the rising prices :)

#77 conan on 09.29.16 at 9:46 pm

The next big thing is robotic manufacturing. The powers that be will invest 95% + of these dollars in First World countries. The developing world will take a bigly hair cut.

Natural resources that are needed to build and run robotic manufacturing could be a good buy.

The bad news is more unemployment and we end up using robotic manufacturing to build weapons of war and smart phones.

A six week degree in mixing 3 D printing polymers is all you will need to get a good job.

#78 Terry on 09.29.16 at 9:48 pm

“Almost a decade of in-the-ditch rates succeeded in avoiding the deflation and depression that threatened us in 2008”

There is no success story here Garth. You are all still ignoring that all the toxic debt that the FASB in March of 2009 allowed to be hidden from the books still exists! That accounting rule change alone put a floor in the market almost to the day it was implemented. The bad debts are still impairing what all these companies and banks are really worth. We haven’t solved any of the problems that created the Financial Crisis of 08/09. In reality we have all added to them and it’s just a matter of time before it all blows up in our faces again.

#79 Gus Barker on 09.29.16 at 9:56 pm

In acknowledging the problem foreign buyers have wreaked on his city Mayor Moonbeam of Vancouver capitulates and sighs, ” the tax is too little too late” So much for the social benefits of denial.

But what sham eh. Moonbeams ‘ mother in law’ was a serial buyer until caught by Chinese authorities and jailed for looting in Harbin.

Is that level of ignorance even possible ,sadly, we now have proof that it is possible to be so politically correct that you can spite the nose on your face.

#80 Mark on 09.29.16 at 9:58 pm

The output gap in the USA is so large right now that you could drive a bus through it. Its rather silly to suggest that there is anything that even begins to resemble inflationary pressure in either the US or Canadian economy that would indicate rate hikes. If anything, deflation appears to be accelerating, not just in RE prices and debt-financed consumption, but also in food more recently:

http://www.cbc.ca/news/canada/saskatoon/food-prices-dropping-first-time-years-1.3784145

“”Prices are actually dropping,” Sylvain Charlebois said in an interview with CBC Radio’s Saskatoon Morning.
Charlebois is a professor of food distribution at Dalhousie University.
The price drop, he said, comes thanks to a fairly simple recipe of economic factors. The food distribution landscape has become much more competitive, and the dollar is stronger than expected, Charlebois said. The result is a treat for consumers.”

I suggest that Canadian students better learn how to write software if they want a job that enables one to live and work in Vancouver or Toronto, because this ain’t your father’s Oldsmobile anymore.

Extremely terrible advice. Software jobs, especially in those cities, are few and far between, and even relatively minimally advertised positions are receiving hundreds of applicants. And if you’re a born and raised Canadian, or even a long-term Canadian, the compensation has been suppressed to such an extent that home ownership is basically impossible on current salaries. They’re not likely to grow much either, especially with how unstable the sector is and the gains in productivity achieved through trends such as outsourced computing and “the cloud”.

#81 Smoking Man on 09.29.16 at 10:02 pm

Full disclosure in a Trump white house.

When he calls area 51 and asks for the files. And they say no…

YOUR FIRED.

#82 Mark on 09.29.16 at 10:08 pm

“according to teranet data (not realtor data).”

Keep in mind that Teranet data lags by a few years, an artifact of its methodology essentially turning it into a low-pass filter. So you really can’t use it to determine real-time price changes.

Better to join the party than be a dispossessed renter in a bidding war for a mouldy basement suite.

The party ended 3 years ago. All you see these days are a few remaining drunks running around, still high on crack and liquor, thinking the party is still going. The key here is to find the next party.

I love how everyone uses Japan as the go to for frozen interest rates. Nobody ever seems to mention one of our dollars is equal to 77 of theirs.

Our dollar used to be in excess of 200 Yen. So the Yen has strengthened considerably. An artifact of low interest rates and the Japanese deflation.

#83 Wrk.dover on 09.29.16 at 10:11 pm

Inflation was a tricky thing in the 80’s. A local guy traded in his used daily for income tractor each year, for a few years in a row and got what he had paid new for it at each trade! He even kept the same bank payment amount, as interest rates were waning.
I though, had bought several commercial wood working machines (made by now defunct Canadian companies) which now, 30 years later, any one of can easily be replaced with brand new Chinese knock-offs for much less than what I had paid for them second hand back then.
Where ever those tractors ended up, they are still worth more now than what they had cost new, even though they are probably very worn and neglected, as of course new tractors are very pricey, even though they too come from the third world now.
So there you have it manufactured goods either benefited you with inflation and globalization, or not.
some with tangible assets will win with inflation and others will not.
Obviously the WWII generation made out like bandits on any real estate that they ever bought, held and sold, at each decade/stage of their adult life.
If interest rates go up this cycle can return, but they will not go up, because the financial engineers have taken too big a piece of the pie, and eaten the seeds, rather than planting the crop. Easter Island part deux.

The good cook came up on deck and said ” fellas it’s been good to know you ” you know that song…

#84 Questions on 09.29.16 at 10:19 pm

This about sums it up…

https://www.youtube.com/watch?v=y_PrZ-J7D3k

#85 };-) aka Devil's Advocate on 09.29.16 at 10:21 pm

#77 conan on 09.29.16 at 9:46 pm

Science fiction does tend to precede reality.

Automation, while eliminating jobs, need not create the consequences of unemployment… given a new economic paradigm… alas… more science fiction.

But just imagine living a life void of the need for work.
For sure, you would be required to contribute such that you were not a net cost to society but you were free to live a life more as does every other living species on this planet.

Think about it… remove the competitive aspect of “survival of the fittest”. We are after all the more intellectually advanced species, are we not?

Every other species, other than when they are on the hunt – which as the advanced species think we are above yet really have we eliminated the “HUNT”?

Or… are we not nearly so advanced as we think and have only complicated and made worse that already competitive “survival of the fittest” environment in which too often we, due to our advanced intellect, are only too cognitive of that competative nature. Isn’t that what leads to house horny? What used to be “keep up with the Jones'” is now more “Leave the Jones’ in our Decadent Lust Dust!”

Go figure?

#86 joblo on 09.29.16 at 10:34 pm

So confused…. you say this:
“There’s a role for government in days like these, to spend big on infrastructure, job creation and public assets. T2 got elected on exactly such a promise, for example. Thus far, nothing.”

Then there’s this:
http://news.nationalpost.com/news/canada/canadian-politics/tories-slam-imf-directors-praise-of-trudeaus-economic-plan-i-dont-care-if-its-the-queen-of-sheba

Political BS,

#87 chopstix on 09.29.16 at 10:40 pm

Vancouver mayor concedes ”Foreign-buyers tax too little, too late, Vancouver mayor says”

the horses are out of the barn and not comin’ back.

http://www.theglobeandmail.com/news/national/foreign-buyers-tax-too-little-too-late-vancouver-mayor-says/article32159046/

#88 TurnerNation on 09.29.16 at 11:10 pm

I still remember those yearly Greaterfool.ca road shows: taking dogma to the finest 3-star hotel ballrooms in Canada.
It was a hot mess of bikes, biker chics, spilled oil and spirits, tinged with burnt rubber stains. And this was just in Smoking man’s room…

#89 siddelly on 09.29.16 at 11:15 pm

#19 AR
#24 The Spangler

Harry Dent did some demographic research and concluded that while Japan’s boomer generation was only slightly smaller and earlier than North America’s, the real problem that Japan has is that while all the “wrinklies” are getting older and are living much longer, the country has virtually no immigration to speak of, and the young people are avoiding sex like the plague. It turns out that old people spend far less money on things like houses and baby strollers and consumption in general. They are now desperately moving more and more women into the workplace to cover for all the freedom ’55ers (common retirement age for salarymen).

#90 Entrepreneur on 09.29.16 at 11:16 pm

On the topic of Wal-Mart with cheap prices from China…Or other countries that are cheaper than Canadian?!?

Now what is wrong with Canadian made? Go after the unions who strike for higher wages, etc. who make our products high priced to survive in this country. Support the average working Canadian who works with their hands to make a better quality product.

A leader has to deal with the issues within their nation first.

#91 Dave on 09.29.16 at 11:26 pm

I’m not sure why I bother writing this since it likely won’t get posted ….I remember 4 years ago you predicted “rates would double within 5 years”. Since then rates have been dropped twice by Bank of Canada and we are actually .50 lower then we were 4 years ago.

In my opinion a rate hike in December should be expected but the long-end of the bond market is clearly telegraphing that low rates are here to stay. Predicting this rate cycle to last several years and include multiple rate increases is completely unfounded and is a very contrarian opinion.

#92 Fortune500 on 09.29.16 at 11:29 pm

I agree. This is what I have been preaching for 8 years. But … so far I have been wrong. We can be wrong for a long time yet.

#93 MarketInquisitor on 09.29.16 at 11:49 pm

Here are some neat comparisons between DB and some other banks that were experiencing issues this year.

http://marketinquisitor.com/2016/09/29/deutsche-downtrend/

#94 WalMark of Sadkatoon on 09.29.16 at 11:50 pm

US GDP revised upwards.

Again.

http://www.cnbc.com/2016/09/29/gdp-2q-growth-rises-14-percent-in-final-reading-vs-12-percent-estimate.html

Sorry Canada. Your economy and your dollar suck

#95 WalMark of Sadkatoon on 09.29.16 at 11:51 pm

Wake me up when Toronto and Vancouver real estate prices start falling. Getting bored waiting

#96 understood by few on 09.30.16 at 12:13 am

#76 Vic waiting on 09.29.16 at 9:41 pm
I miss VREU, especially now that house prices in Victoria and the surrounding communities are all going up still (snip)

———-

Ha. Yep, Sept is almost over and the predicted downturn has yet to arrive. Sales are down (as VREU loved to point out) but inventory is at record lows. Looks like it might be a record month for sales… again.

At some point it’s gonna go flat or drop, just not on VREU’s schedule.

I’d take over for VREU posting awful graphs (but of prices rising.. straight from Teranet!), but I’m afraid Garth would ban me.

#97 Let's Get House Horny on 09.30.16 at 12:30 am

58 and 68

How are your Bear Stearns and Lehmans stock going these days ?

Early retirement must be just around the corner no doubt ?

#98 Sheane Wallace on 09.30.16 at 12:37 am

#80 Mark

I am doing Johnny and I look much sober than you. You are delusional.

Deflation? Where? Is there anything that costs less today than 10 years ago?

#99 Sheane Wallace on 09.30.16 at 12:42 am

#87 chopstix

They are just looking for a scape goat to justify their failed policies.

There is no sane place on earth where with medium household income of 70-75 k a SFH is ‘worth’ 1.2 -1.5 millions.

Specially with the abundance of space and row materials in this country, a house in 2 acres lot should be 250-300 k max.

I understand that frozen brains don’t work optimally but there should be some limits to stupidity after all!

#100 Bram on 09.30.16 at 1:22 am

Garth, you should ask Ryan or Dough what this Deutsche Bank thing is all about.

Market cap turns out to be minuscule: us$16B compared to us$94B of RBC.

But it has “exposure to $51T derivatives?”
What does that mean?
If all their bets turn bad, they owe 3000 times what the whole bank is worth?

madness. Please let it go bankrupt, and punish reckless banks.

https://www.bloomberg.com/gadfly/articles/2016-09-29/deutsche-bank-hedge-funds-back-away

#101 fred graves on 09.30.16 at 1:55 am

“here’s the likely scenario on interest rates” says Garth.
Seems like I read that 4 or 5 years ago, almost word for word, ” bank of Canada follows suit 93% of time.” Give it up, at least the timetable

#102 Damifino on 09.30.16 at 1:59 am

The effectiveness of cheap money (in stimulating growth) has worn off.
———————————–

So many things are like that.

A drug addict needs to keep upping the hit just to get to the same place. Eventually, no amount does the job.

Antibiotics were once a fantastic boon to mankind. Now they are ineffective against many nasty organisms.

I used to read the newspaper once in the morning and felt fairly well informed. Now I read news all day but feel I know less than ever.

#103 millenial82 on 09.30.16 at 2:03 am

I don’t see the big scare mongering deal or angry sentiment about Brexit. This was clearly a passionate vote that mattered to a lot of people in their Country. The majority voted to leave and in a democratic society their wishes should be respected and considered fair around the globe. Kermit de Farage repeatedly said Brexit was about taking back control of their Country from a central power in Brussels. It is yet to be seen how this will unfold but he did say their borders aren’t intended to be closed to business and they want to continue trade with their Allies in the EU. In other words, we think we can manage ourselves better on our own thank you very much.

#104 DANIEL F on 09.30.16 at 2:44 am

Trump mentioned rates and the necessity to increase them in the first debate. Honestly, this man has things figured out. What a shame it would be if hiLIARy won.

#105 Ralph Cramdown on 09.30.16 at 5:21 am

The Trudeau Liberals need the Loon to crash in order to borrow the kind of deficit now being projected. We’ll hear the phony numbers from Poloz saying a 50 cent dollar will stimulate manufacturing, that will allow Junior to project another phantom revenue jump and borrow tens of billions more against the chimera.

A rate increase in the US will facilitate the cascading crash of the C Dollar and there will be no hike in rates for Canada. Don’t wonder why TD Bank is buying all the corporate debt in the US they can…and investing zero into Canada.

Poloz and Trudeau can only accomplish one thing, and that’s to turn Canada into a bifurcated post developed country where 80 percent of workers pay 90 percent of their income in taxes so that the elite 20 percent of civil serpents can live better than the rest 100 percent of the time.

A cheap loon confounds the elite who call the business community “gutless” because the Keynsian idea is that a depreciated currency means more exports, but in the global world of the liberals which didn’t exist when Keynes was alive means Canada competes with Bangladesh for labour costs on Quebec garment factories .

What Canadian factories need is a loon on par with the Pound and Euro so that we can buy the most efficient new machinery to produce more goods cheaper with less labour. But our Baby Face PM does’nt understand this.

Nope,no rate increase in Canada as long as Trudy can borrow and tax. He has the support of La Garde and Moon with his eye on U N glory. Canadian workers are just dogs hit under his shoes.

#106 A rate scenario... on 09.30.16 at 6:25 am

Hypothetically:

Cdn economy continues to sputter or tank, large job losses result, insolvency rates increase, RE markets soften at the very least or some, outright crash and Cdn banks suffer large loan losses from consumer and mortgage debt.

Cdn’s still continue to borrow to maintain the lifestyle they believe they deserve.

If you were government, would you further lower rates?

No, you would raise them to stop Cdn’s from borrowing themselves into oblivion with a single asset wealth creation strategy (a.k.a., RE).

Sounds crazy?

Revisit the early 80s interest rate hikes. Then it was inflation diverting the private sector from making innovation and productivity improvements and Cdns investing in RE as a “safe haven”. Then it was to “cool off” 416 RE.

Replace inflation from then with the now: hard to eak out a profit from a sputtering economy (per StatsCan, July saw Cdn. Corp. operating profits drop by 3.4% and they have been dropping since 2nd Qtr 2015 for ALL INDUSTRIES, financial or non-financial).

Solution: increase rates so that the private sector can earn a profit from investing, until the economy recovers.

bsant54

#107 Saint Herb on 09.30.16 at 6:33 am

#18 The only thing that stresses me is the fear of my landlord coming to his senses and selling this place while the property value going is good.

Hoping his greed wins out and he holds for the long term.
—-

I worry about the same thing.

What happens to rent prices and availability of rental if a real correction/crash happens in Toronto?

#108 Millenial on 09.30.16 at 6:48 am

Raising rates on Dec 14th?

They already have their excuse not to: Deutsche Bank and European banking stability concerns. See, there will always be an excuse!

BTW, I’m personally of the opinion that you don’t need to have interest rates go up to have a stock, bond, and/or real estate crash.

#109 BobC on 09.30.16 at 6:51 am

Are the Canadian people going to allow this to happen? The smartest and best family dog I ever had would fall into this catagory.

http://www.cbc.ca/news/canada/montreal/montreal-pit-bull-dangerous-dogs-animal-control-bylaw-1.3780335

#110 CJBob on 09.30.16 at 7:24 am

#54 Stop Being Naïve on 09.29.16 at 8:30 pm
I love how everyone uses Japan as the go to for frozen interest rates. Nobody ever seems to mention one of our dollars is equal to 77 of theirs.
___________________-
Congratulations. Seriously. We have a winner. This is the dumbest comment I’ve seen on this blog and consider the competition.

So if a car in Canada costs $20,000 they are paying the equivalent of $1,540,000? Excellent logic.

#111 pBrasseur on 09.30.16 at 8:14 am

Garth, sometimes I think you read (or watch) the news too much, the result is too many trees and not enough forest!

Trump and Brexit may generate a lot or media activity that doesn’t mean they are that important.

Xenophobia, anti-trade and anti-globalization sentiments are nothing new and every election seems to be «important and defining». The one thing to understand is, these forces are not going to change the world, they are (somewhat normal) stressful reactions to the world changing, but those changes are irreversible.

Trade, globalization and migration of people is only beginning.

My point was simple and clear. Globalization supports low inflation and rates through the efficient transfer of labour costs. Protectionism has the opposite effect, fosters inefficiency, and will assist central banks in raising rates. — Garth

#112 crowdedelevatorfartz on 09.30.16 at 8:21 am

@#64 Barb

Democracies generally only last 200-300 years.
Death knell?
********************************************

How do we determine how long democracies “last”
( If we can consider the Lobbyist funded Billions of dollars, dog and pony shows we currently call elections “democratic”).

Since the US was the first nation to ever peacefully change leadership by popular representative election…..

Which other “democracies” lasted 200 to 300 years?

#113 WalMark of Sadkatoon on 09.30.16 at 8:41 am

I am doing Johnny and I look much sober than you. You are delusional.

Deflation? Where? Is there anything that costs less today than 10 years ago?

Now u know why his portfolio is sunk and he can’t get any company to look at his resume

Lack of logic

#114 Franco on 09.30.16 at 8:52 am

Did you say rate hike before the end of the year and more in 2017? Not a chance.

#115 crowdedelevatorfartz on 09.30.16 at 8:54 am

Hey!
Princess Charlotte said her first words in public yesterday in British Columbia.
And.
Ironically enough, her first word spoken in public perfectly descibed the BC Real Estate market…….

“Pop!”

#116 My bank TD, a real bank, was right... on 09.30.16 at 9:05 am

TD last predicted a barn-burner 3rd Qtr. Well July, its first month, started like this:

+0.5%

Let by mining, quarrying, and oil and gas extraction. Only Construction and Public Sector (Education, health and public administration) were negative and not by much.

Reason to be more cheerful Garth?

Only thing that was missing from your post today were the 4 horsemen (and I admit, my prior post as well).

1 month does not make a recovery but I’ll take it.

bsant54

I recall nobody talking about ‘barn-burner’ GDP numbers. You made that up. But growth will be positive this year, after some negative quarters. Be happy for that. — Garth

#117 pBrasseur on 09.30.16 at 9:11 am

My point was simple and clear. Globalization supports low inflation and rates through the efficient transfer of labour costs. Protectionism has the opposite effect, fosters inefficiency, and will assist central banks in raising rates. — Garth

No doubt about that, actually globalization and its effect on inflation is likely the source of the great bond bull market of the past 30 years. The constant lowering of interest rates associated to ill-advised policies on RE for example led to the GFC, same for our epic RE bubble.

But it seems we are now entering a different phase of globalization, one where the massive arrival of cheap labor in the world market becomes less significant. For example wages in China are rising and lowering inflation effects are now longer so remarkable. From this point on the absence of pressure on inflation won’t be so automatic, as soon as world growth resumes (and it will) there will be more inflation.

Signs of global activity reviving:

http://scottgrannis.blogspot.ca/

This is what’s changing (and why we are indeed close to a bottom), protectionism would make it worse of course, but so far it’s more media hype than reality.

Do you remember Reagan slapping tariffs on 750cc plus motorcycles to protect Harley-Davidson? I believe that’s the kind of stuff Trump would do, it would certainly generate a lot of media noise, but in the end freer trade would prevail because too many interests depend on it.

#118 TorontoBull on 09.30.16 at 9:22 am

Interest rate increases are coming – the Establishment has decided already. Check the Economist Sept 24-30 edition coverage on the negative impact of low interest rates for too long. BOJ and the Fed have also finally realised the negative externalities associated with low rates. That’s why BOJ wants to steepen the yield curve. Also watch Philadelphia Fed president recent discussion on why low rates are not good in the long run (discourages business investment).
Next is Mario who is under intense pressure from Germany as low rates hurt banks (Bundesbank anyone?!). So imho, rates will start rising very slowly in 2017 or 2018. So I will be diminishing my bond exposure and increasing my equities exposure. But wait for the initial panic that is coming in the next 2-3 months when bonds will rise in order to sell.

#119 goober on 09.30.16 at 9:22 am

people have been saying rates will rise for years much like they have been saying home prices will go down for the past several years

been wrong for years. will continue to be wrong in the future

#120 Jib Halyard on 09.30.16 at 9:41 am

Rates will never go up.
And oil will never fall below $100 a barrel.
And the Kaiser will be defeated before Christmas.

#121 matt on 09.30.16 at 10:13 am

Knowing the inevitable of all of this – is the recommendation to still hold a diversified ETF portfolio (40safe/60other)? Are there better options?

#122 -=jkw=- on 09.30.16 at 10:29 am

@ #11 MF
You are forgetting that T2’s base is single mothers, pot heads, and anyone else who has messed up their lives. These people now want to A) blame everyone else. B) take from those more successful.

That arrogant attitude is the key to keeping T2 in power. Keep it up, please, and thank you!

As for the article: sticking with the variable at 2.05 for another year….no increase in Canada for a year.

#123 I'm stupid on 09.30.16 at 10:30 am

#97 Lets get house horny

How are your Bear Stearns and Lehmans stock going these days ?

Early retirement must be just around the corner no doubt ?

Sure you can point out some losers and say the sky is falling… I said 1-3% of your portfolio, even a total loss would get recouped in less than 6 months. It’s a risk reward scenario, the risk is 1-3% the reward could be 2-5 times your money in less than 5 years. Doing nothing will result in a 2% loss (inflation), its called being a contrarian, buying when everyone else is selling. Being afraid will get you nowhere! Just saying!

#124 Sheane Wallace on 09.30.16 at 10:48 am

#115 crowdedelevatorfartz on 09.30.16 at 8:54 am
Hey!
Princess Charlotte said her first words in public yesterday in British Columbia.
And.
Ironically enough, her first word spoken in public perfectly descibed the BC Real Estate market…….

“Pop!”
———————
She probably meant ‘Poop’ as it is literally hitting the fan at the moment.

#125 When Will They Raise Rates? on 09.30.16 at 10:48 am

#58 I’m stupid on 09.29.16 at 8:45 pm

#10 Marcus

I bought 10k shares of db. That’s how certain I am that they won’t go broke. These is called a buying opportunity, I’m not saying to gamble everything you have on db stock 1-3% is worth the risk.
——————————————

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/09/23/20160927_LEHDB_0.jpg

#126 canageesegoose on 09.30.16 at 11:08 am

Garth

http://www.theglobeandmail.com/opinion/new-airbnb-rules-vancouver-continues-assault-on-private-property/article32133410/

It is increasingly obvious that the Canuck economy is controlled by oligarchs…try showing up at a hotel in YVR and renting a room….they have all been rented, some with huge increases in rack rates through online sites catering to package tour groups….the government turns a blind eye as they rake in a variety of taxes

Meanwhile the small guy gets shafted, just as with the blocking of Uber….Canadians need to be more like Americans and fight against these northern oligarchs and elites blocking competition

US cities, such as San Francisco, Santa Monica and Anaheim are also imposing restrictions on Airbnb. Like Uber, the unregulated, unlicensed competition is seen as wholly unfair to those with large investments, whether a hotel or a cab license. — Garth

#127 LL on 09.30.16 at 11:24 am

#10 – Marcus

I know Dutch bank is in big trouble (apparently it is worst compare to 2008 – Lehman and co.)

I am wondering what will be the consequences on Canadian banks…

#128 LL on 09.30.16 at 11:36 am

Deutsche Bank – not Dutch bank!

#129 Doug in London on 09.30.16 at 11:36 am

While many of you argue that interest rates will NEVER rise, I’ll just quietly put in more lowball offers on CPD, XPF, and ZPR. Yes, it may take some time, as well as something many investors don’t have, namely patience but it will pay off.

#130 RentYVR on 09.30.16 at 11:39 am

Please Garth stop with this already. You’ve been pounding on the rates must go up mantra for years. They don’t and won’t. Go look at a chart of US rates since 1790: http://nalert.blogspot.ca/2015/04/chart-world-without-federal-reserve.html

Lots of periods where rates were low and stayed low for years. Will rates rise one day? Sure. Would that be good for us who believe in fiscal responsibility and prudence? Absolutely. But just because we want it to happen doesn’t mean it will.

#131 Mel on 09.30.16 at 11:40 am

Sorry. Interest rates are not going up. The system will blow itself up if it did.

We have locked ourselves into Japanese style fiasco.

Thanks to all who thought spending today, and forget about tomorrow got us here.

I would put most of the blame on Bank of Canada, and all those other fools who regulate the Banking systems around the world.

#132 crossbordershopper on 09.30.16 at 11:40 am

i think with trudeau he will give the little people enough money to eat, that is all that is needed for millions of Canadians. A place to stay, dry, warm, food, clothing, and good tv and fast internet. and a car to get around. after that, who cares. its all fluff, most poor people travel more than rich people. they are busy working etc.
i am moving today, again, travel light, the goal is to pay no rent so the goverment cheque from turdeau is spent on personal stuff. why pay rent to some gready landlord. Canada has so much land, why is real estate so expensive.
stay nimble, flexible, keep costs down, thats the same matra garth tells to his 1% investors, for the 99% of us, they understand what i am recommending, the same thing, but for the vast majority of people.
with thanksgiving coming up turkey prices are super low, so even the poor eat well, thank god for galen weston, the sobeys and the montreal guys who run metro. we can all eat like kings.
and give thanks to trudeau for keeping us all safe from the crazy bombers, and making sure like clockwork my cheque is in my account.

#133 Karma on 09.30.16 at 11:47 am

Good read for any person following US politics:

“Vote for Trump. Vote for Hillary Clinton. But whomever you vote for, don’t make your decision based on some nightmarish view of the state of the union.”

http://www.vox.com/the-big-idea/2016/9/28/13081298/conservative-trump-apocalyptic-america-optimism

#134 Yuus bin Haad on 09.30.16 at 12:02 pm

Before heading off to mold young minds at the LSE, BOE deputy governor Minouche Shafik said the neutral rate (?) is closer to zero than it used to be. Minouche, of course, is one of the CBs running the global economy. I wonder if anyone’s keeping an eye on the credit market.

#135 Teulon on 09.30.16 at 12:05 pm

#66 BJ
Just google it and you’ll find examples – also called ” common wall agreement “. Basically deals with roof replacement, insurance issues after a disaster, coordinated improvements etc.

#136 LL on 09.30.16 at 12:05 pm

# 108 – Raising rates on Dec 14th?

They already have their excuse not to: Deutsche Bank and European banking stability concerns. See, there will always be an excuse!

They always have an excuse!

#137 meslippery on 09.30.16 at 12:17 pm

Here,s a chart of Japans Interest rates.
http://www.tradingeconomics.com/japan/interest-rate

#138 MF on 09.30.16 at 1:23 pm

#122 -=jkw=- on 09.30.16 at 10:29 am

Not arrogance but reality. It’s sad.

MF

#139 cramar on 09.30.16 at 1:41 pm

Interesting with all the worry over Deutsche Bank on this blog, DB is up a whopping 17% in huge volume off its low yesterday. Great contrarian trade for those willing to blow into the face of a hurricane.

#140 Capt. Serious on 09.30.16 at 1:54 pm

If the central banks indicate rate hikes and tightening, then it’s run for the exits.

Temporary volatility. If the profits still flow, nothing to worry about. In the short term the market is a voting machine, but in the long term it is a weighing machine. The central bank’s mandate is full employment and price stability. Nothing about ensuring stock returns.

#141 Capt. Serious on 09.30.16 at 2:01 pm

But it has “exposure to $51T derivatives?”
What does that mean?
If all their bets turn bad, they owe 3000 times what the whole bank is worth?

I think you need to read up on value at risk. Unless all of them are directly correlated, impossible.

#142 45north on 09.30.16 at 2:28 pm

Shared Services:

JSS: “There’s a role for government in days like these, to spend big on infrastructure, job creation and public assets. T2 got elected on exactly such a promise, for example

the most obvious role of government is to run the government. Shared Services is a centralized über computer system which is costing $1.4 billion a year.

http://ottawacitizen.com/business/local-business/under-review-independent-review-to-assess-shared-services-mandate

now $1.4 billion is a lot of money. Shared Services promises that it will run all the Government computer systems better and cheaper. It hasn’t and it won’t. At Agriculture Canada I developed and ran a small computer system to do Geographical Information Systems and then I developed a web site:

http://sis.agr.gc.ca/cansis/index.html

Shared Services costs too much because it imposes security requirements on systems like the Canadian Soil Information Service which doesn’t need them. It promises that it will understand the requirements of all the government systems but it just cannot. There are too many and too diverse.

Government spending must of course run the government in the most efficient and effective way but it should also develop Canadian computer expertise than can be applied to the world economy.

#143 Barb on 09.30.16 at 2:50 pm

crowdedelevatorfartz on 09.30.16 at 8:21 am
@#64 Barb

Democracies generally only last 200-300 years.
Death knell?
********************************************

How do we determine how long democracies “last”
( If we can consider the Lobbyist funded Billions of dollars, dog and pony shows we currently call elections “democratic”).

Since the US was the first nation to ever peacefully change leadership by popular representative election…..

Which other “democracies” lasted 200 to 300 years?
——————————————————-

https://en.wikipedia.org/wiki/Alexander_Fraser_Tytler,_Lord_Woodhouselee

#144 Barb on 09.30.16 at 3:07 pm

Re “democracies” generally lasting 200-300 years, forgot this:

“The average age of the world’s greatest civilisations from the beginning of history has been about 200 years.

During those 200 years, these nations always progressed through the following sequence: From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to complacency; From complacency to apathy; From apathy to dependence; From dependence back into bondage.”

Sound familiar?

#145 Freedom First on 09.30.16 at 3:18 pm

Yes.

Rates will go up. It’s absolutely inevitable-Garth.

Here is the point. Don’t get caught swimming naked. Ever.

I am never emotionally attached. To any asset, or any person. Except myself, of course. My life and well being depends upon it. And, I love it that way.

I care about people. Just not too much.

007
Freedom First
PHD/Freedomonics

#146 Bram on 09.30.16 at 3:23 pm

#130 RentYVR on 09.30.16 at 11:39 am
Go look at a chart of US rates since 1790:

Dude, wild swings in interest rate is absolutely benign compared to rampant deflation / inflation.

If central banks need to crank the rates all the way down to avoid deflation, or all the way up to avoid hyper inflation, then be thankful that they do.

Because of strict monetary policies, you don’t have to do this:
http://i.stack.imgur.com/YyQeB.jpg

Deflation will doom those with debts, inflation will doom those with savings. So let’s keep it moderate.

#147 mike from mtl on 09.30.16 at 3:34 pm

#129 Doug in London on 09.30.16 at 11:36 am
While many of you argue that interest rates will NEVER rise, I’ll just quietly put in more lowball offers on CPD, XPF, and ZPR. Yes, it may take some time, as well as something many investors don’t have, namely patience but it will pay off
=====================================

I own because of yield, could be waiting easily 10-15 years for BoC to raise in my opinion. Rate cuts to zero (or below) far more likely until then which will punch them down another 30%

Could be completely incorrect but there’s little hard evidence to suggest otherwise.

#148 Damifino on 09.30.16 at 3:46 pm

“Like Uber, the unregulated, unlicensed competition is seen as wholly unfair to those with large investments”
———————————-

Absolutely. When you come to visit a city you are using the infrastructure that exists because of its taxpayers.

People running hotels are required to collect tax from such visitors and remit it to their civic government.

People who run an Airbnb are not. Not yet, anyway.

If you want to make your house into a hotel then you should have to get a license, collect & remit the necessary levies, undergo a safety inspection, and get the required liability insurance.

Otherwise, you are ripping off your taxpaying neighbors.

#149 Bram on 09.30.16 at 4:53 pm

I think you need to read up on value at risk. Unless all of them are directly correlated, impossible.

I read up on it, and it is indeed not as bad as this, but for another reason:
Because for 99.9% of the derivatives they hold both sides of the bet, cancelling out each other, as long as the losing party stays solvent. If the loser defaults, DB still needs to pay the winner though.
http://economics.stackexchange.com/questions/10649/why-hasnt-massive-derivatives-exposures-at-banks-already-led-to-disaster

So the net exposure to derivatives is what counts here.
The $51T number is total exposure, not net.

About your remark the bets needing to be correlated…
I don’t think that is correct:
If the bets are trillions, and the assets are billions, you really need only a slight skew to push you over.

Market cap and assets are seriously low for DB.
From what I read, they are leveraged twice as high as the average bank, and is rated riskiest in the world, atm.

But to be fair: that blog-dog that bought DB yesterday made a good call.
Apparently DB is now valued by markets at 20% of book value, if it doesn’t fall, you could do well.

Bram

#150 jess on 09.30.16 at 5:03 pm

WillD:

anti-globalization movement? i thought it was a TRANSPARENCY movement.

#151 jess on 09.30.16 at 5:36 pm

Indonesia May Block Websites of Tech Companies Avoiding Tax
http://www.bloomberg.com/news/articles/2016-09-29/indonesia-raids-google-office-after-warning-on-tax-audit-refusal

============
odoriferous!

parliament.uk/documents/commons-committees/work-and-pensions

SWISS ROCK LIMITED, DOMINIC CHAPPELL AND ASSOCIATES
Summary
and Recommendations

http://tinyurl.com/zhpmvnj

#152 Barb on 09.30.16 at 5:53 pm

Deutsche Bank and Trump have quite a bit of history!

“Trump wore out his welcome with Deutsche Bank’s corporate banking arm in 2008, when he attempted to get out of paying $40 million he personally owed the bank after his company failed to make a payment deadline on a larger $640 million loan for his Chicago project.”

from here:
http://www.motherjones.com/politics/2016/09/trumps-conflict-interest-big-overseas-bank-getting-worse-minute

#153 Rexx Rock on 09.30.16 at 7:05 pm

Don’t be shocked when one day the fed will come out and say we will never raise rates only lower them.Insted of feeding you all bs lies we will tell the truth so you can’t speculate on fed day and make money on the stock market.

#154 Doug in London on 10.01.16 at 3:03 pm

@mike from mtl, post #147:
I also have bought preferred share ETFs for yield, and may buy more if they go on sale again. Will interest rates ever go up again? I don’t know, but when I read a lot of comments here about how they will NEVER go up again it’s a sure sign to a contrarian that we’re at or near bottom.

I remember reading similar comments about the price of oil in June 1998 when it was trading at $11/barrel and some “expert” said “there’s so much oil out there it could go to $5/barrel”. I bought some more TD Energy Fund, on sale of course, when I read that comment. A year later in June 1999, when gold was at about $230/ounce another “expert” said “no one has a use for gold anymore, it could go to $150/ounce”. After reading that article I bought more Altamira Precious Metals Fund. Oh no, I’m being sucked into the time tunnel again! I heard Millenium by Robbie Williams, I’ve Seen Better Days by Citizen Kane, and Praise You by Fatboy Slim for the first time on Q92 Timmins, where I lived at the time. Say, are we going to survive the date rolling over to Y2K?

In summary, when all you hear is about how something that is historically low is going to stay there forever or drop further, it’s probably at the bottom. Similarly, in 1981-82 when interest rates were at an all time high, a lot of people said they would stay that way for many years to come. Now the time tunnel has whisked me back to 1982. Say have you heard that brand new tune I Love Rock and Roll by Joan Jett, or seen the new movie ET?