Duck!

Two days ago US stock markets hit record highs. But Wednesday was the worst day in eight months. Equities fell. Bolds rallied. Volatility spiked. Gold gained. The US dollar tanked. Big markets in Toronto and New York shed a little under 2%. Balanced portfolios were down less than half of that. In terms of losing days, it was a piffle. But humans being humans, fear was in the air.

Why did stocks fall?

Not because Donald Trump is a fool who thought he could bully his way over the justice system and intimidate then fire the FBI boss, or whose campaign operatives may have encouraged Russian hackers to throw the presidential election, or even because the guy is unethical and may end up impeached. Markets don’t care about Trump. But they’re obsessed with making money – and he’s suddenly turned bad for business.

Investors feted Trumpenomics starting in November, figuring his testo-driven, pro-business agenda would goose GDP, cut taxes, boost spending and slash regulations. After four months of governing, none of that is remotely close to happening. Worse, his gaffes have weakened support in Congress and made him look like a whiny billionaire. Claiming three million illegals voted in the last election or that Obama wiretapped him is right up there with his birther blatherings and Ivanka hiring Chinese workers for $1 an hour.

This guy is going down. Deservedly, maybe. But he will not take prudent investors with him.

Yes, financial markets hate uncertainty. Just look at what has happened on the VIX, which measures volatility:

And the correlation between the Trump missteps and the market’s moves lower are unmistakeable. When FBI Director Comey was punted, eyebrows were raised – given his meritorious service in government. “Comey,” said NBC News Tuesday night, “has more credibility in Washington than the President.” Then all hell broke loose as it became clear Comey was fired for refusing a Trump directive to back off an inquiry into the dismissal of a Cabinet minister and, likely, the Russian connection.

Thus, the Donald may have obstructed justice. If true or proven, he’s history. And so we had this reaction to the news:

Should you worry? Is it time to run around in circles, break into a cold sweat, eat a bottle of Tums or just wade quietly and desperately into the sea? Could the Trumpster destroy your retirement or Hoover your house money?

Yes, of course. If you panic, act emotionally or generally invest with your pants. Here is what the Big Brains behind this pathetic blog think is happening, and what is likely to come next

  • This will continue to play out over months with no quick resolution. So, like, ignore it.
  • If there’s a smoking gun of collusion with Russia and it’s proven that Trump tried to impede the investigation – it’s an impeachable event. This would be very unsettling in the short-term and result in further market weakness.
  • However this should not derail the economy and lead to a recession, because the US recovery continues and is strengthening.
  • Markets were overdue for a pullback given the strong run since November, and the low volatility on the VIX (until this week) showed investors were not pricing in his dippiness.
  • You need to remember these market sell-offs happen with on average three 5% pullbacks a year and one 10% correction a year. This is normal.
  • Even with Wednesday’s sell off the technicals remain bullish with the S&P 500 in an uptrend and above its rising 200-day moving average. The market’s just 2% off its highs and is up 5.3% even after today’s decline
  • Corporate profits – the mother’s milk of stock prices – were up 18% in the first quarter are expected to remain strong for the rest of year
  • So we have an improving economy, robust corporate, low inflation allowing central banks to keep rates low, plus the technicals remain strong. “I’m still bullish,” says guest blogger and fancy portfolio manager Ryan Lewenza, “but continue to think 2018 could be a more challenging year. Right now, investors should chill.”

Of course, if you have all of your money in equities, Wednesday sucked. But you deserved it. The way to find zen is to have that balanced and diversification we’re always yapping about. When stocks inevitably correct, bonds go up. Meanwhile the REITs continue to churn out their distributions and the preferreds deliver tax-sweet, fat yields. Investors with a good exposure to international markets can also benefit from the good stuff happening in Europe these days, where valuations are cheap, corporate earnings strengthening and the Trump wannabees have been handed their collective ass.

Out there, somewhere, is normal. Just wait.

How to buy

Jake is a self-confessed moister, with a wife and a hormonal tug to housing. The trouble is, they live in Vancouver – where everyone earns less and pays more. Sharing a city with people who can’t drive in snow comes with a price.

“We’re first time buyers and went into the market looking for a townhouse in Burnaby and New Westminster this year,” he says. “At the beginning, we thought we could afford something. Unfortunately we were outbid twice by big margins in 10+ offers wars. Once these properties are sold at such high prices, the surrounding areas follow similar price points and would be difficult to come back down. So now, I can’t even become a greater fool even if I wanted to.

“The frustration and desperation were not something I could imagine before getting into the market. You would think the Vancouver market had finally slowed down in 2016, but it has come back much stronger. I consider my family doing okay financially, with decent income and sizeable investment portfolio and can afford travels a few times a year. Perhaps you could change the topic of a blog post to how to become a greater fool, for those who “need to” or want to become a homeowner in heated cities.”

Sure, Jake. A primer on suicidal investing in just a moment. First, we need a reality check. The Vancouver/Lower Mainland/BC market is not on fire. It is unhealthy, unbalanced, confused and seriously skewed by grifters like HOME – the BC Home Ownership and Equity Partnership. That’s the free-money program which gifts moisters up to $37,500 interest and payment-free for five years so they can mortgage themselves into oblivion.

And guess what happens when government gives away down payments? You bet. Sales and prices go up, making it harder for people to buy – which is exactly the impact experienced in the Van condo market. Politicians do it again. Never fails.

But look at the numbers being reported for the market overall. This is the latest from the BC realtors:

The British Columbia Real Estate Association (BCREA) reports that a total of 9,865 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in April, down 23.9% from the same period last year. Total sales dollar volume was $7.19 billion, down 25.4% from April 2016. The average MLS® residential price in the province was $728,955, a 2% decrease from the same period last year.

So far this year, dollar volumes are lower by 32% across BC, sales have fallen 25% and the average price plopped over 9%, or more than $90,000. Granted, sales were higher in Vancouver (15%) compared to March, but cratered (-26%) from the same time last year. If listings in YVR were increasing at the same pace as in the GTA (36%), the price drop would be epic. But there are actually 17% fewer homes for sale than a year ago, dropping active listings to a 20-year low. Yes, by holding back product from the marketplace Vancouver real estate owners are restricting supply and firming prices. Just like OPEC. Or the milk marketing board. Or a drug cartel.

Those who argue the local market never paused are living in a house-porn world populated by the fetching moisters who star in Love it or List It Vancouver, plus rockstar realtors who make Donald Trump sound credible. Yes, condos are going up. Yup, the province is to blame. No, the market fundamentals are not healed and, yes, once listings start to pace those in the GTA, there’s no bottom.

But, hey Jake, if you want to dive in now and circle the drain with the rest of your little friends, go ahead. There are but three things to remember:

  • Get pre-approved for a mortgage before you start, but avoid one of the responsible lenders like RBC. Instead seek out mortgage brokers who can place your loan with Home Capital or, better, Vancity. They’ve got a mortgage for everything – laneway houses, properties bought in partnership with your masseuse, loans you don’t really have to pay back and even ways to get real estate without any actual money. How cool is that?
  • Second, offer whatever you have to in order to buy a house. Anything. Like, who cares? At 2.36% an extra $100,000 costs you a measly $432 more a month. Expressed in moister currency, that’s only 18 Grande Cinnamon Dolce Lattes a week at a Starbucks on Robson Street. Cheap, compared to the pride of owning a $650,000, high-overhead, 100%- leveraged condo.
  • Finally, never offer conditions of any kind when buying. No financing, No home inspection. And take a maximum of 11 minutes to view the place before declaring you’ll have an offer later in the day. Be serious. A player. Make-my-day. Total intimidation of any other pathetic bidders. Learn to swagger. Get a codpiece. And bring back a certified cheque for $100,000. Make sure mom has that much left on her LOC. Or ask Vancity.

You may think buying real estate is hard, Jake. It’s not. Just do it. Some crazed lender will give you the money and your parents will be happy no matter what crappy deal you sign. After all, you’re special.

Buying is easy. Selling isn’t. You’ll be asking me about that soon enough.