By Guest Blogger Doug Rowat
Now that I’m a regular contributor here, I’ve noticed a few popular trends in the comments section. Four in particular: 1) all government data is false, 2) all election polling data is rigged in favour of left-leaning candidates, 3) central banks only harm markets and the economy and 4) many blog dogs live interesting lives after about 9 pm.
For those who believe points 1) and 2), you probably feel that North America is already deep in recession and Trump’s guaranteed to be the next president. Build your portfolios accordingly. Let’s tackle point 3).
Central banks maintaining abnormally low interest rates combined with their massive asset purchases may very well result in negative consequences. However, kicking cans down roads is what always happens with economies. Recessions are rare (only 11 in the US since WWII) and we spend too much time worrying about them. Waiting in the fetal position for an impending global recession is unproductive. What I care more about is central banks’ short- and medium-term effect on equity markets.
First, does central bank stimulus actually affect market direction? Absolutely. Let’s look at some examples. The best example, of course, is the US Fed’s massive US$4.5 trillion quantitative easing (QE) program. Quantitative easing, by the way, is an indirect form of economic stimulus that provides liquidity and capital to banks, which promotes lending, and suppresses bond yields because bonds are often the assets that central banks purchase as part of their capital-boost. Lower bond yields, of course, make equity markets comparatively more attractive. The Fed’s QE has not only helped the US economy recover following the credit crisis but has lifted the S&P 500 about 9% annually, including dividends, since QE began in 2008. The correlation between QE and US market direction is an almost perfect 97%.
US Federal Reserve Assets vs S&P 500
Source: Turner Investments, Bloomberg
The Bank of Japan has taken similar action also adding hundreds of billions to its balance sheet, which has also sent the Japan equity market soaring. The stimulus has been less effective this year in part because of the rise in oil prices (Japan produces more earthquakes than oil, so sharp oil price increases often hurt their markets), but the Nikkei 225 is still up about 10% annually including dividends since the BoJ’s stimulus program began in earnest in 2009.
Bank of Japan Assets vs Nikkei 225
Source: Turner Investments, Bloomberg
And finally, the Bank of England has similarly been purchasing assets at breakneck speed, having just kicked it up a notch following the Brexit scare by adding GBP60 billion (C$104 billion) to its QE program (the Bank also lowered its benchmark interest rate, just to be safe). The FTSE 100 is up almost 12% annually since stimulus began in 2009 and 10% since the Brexit vote in June.
Bank of England Assets vs. FTSE 100
Source: Turner Investments, Bloomberg
So, where do we stand now? The Fed, of course, finished with its QE experiment in October 2014 and so far, while sometimes a bit shaky, the US economy is standing firmly on its own two feet and the S&P is up about 10% since the stimulus ended. Consensus forecasts a reasonable 2.2% GDP growth rate next year and I believe that the US market will continue to chug along without requiring more QE. The other major central banks aren’t working within countries that have the same economic strength as the US and are therefore continuing to purchase assets.
While they frequently tease the media by suggesting that their stimulus programs will shortly end, I bet they don’t. Below are the consensus GDP growth forecasts for 2017 along with current inflation rates:
- Japan: +0.7%, -0.4%
- UK: +0.6%, +0.6%
- Eurozone: +1.3%, +0.2%
Anemic. And in each instance, well below the long-term averages. Battling slow growth and low inflation, central banks will likely continue their asset purchases, which, if history is a guide, will push their country’s equity markets higher. We run a global portfolio at our practice, so what central banks around the world do matters to us. Do emergency-level interest rates and ballooning central bank balance sheets pose problems down the road?
Of course. And at some point the global economy will drop faster than Hillary Clinton on a hot day in New York. But I have to work with what’s likely to move equity markets higher on a more immediate basis—that being continued stimulus. Global growth, as we see it now, will be slow, but not negative, so we’ll worry about the next major global recession later. Thankfully, the helpful commenters here will tell you exactly when that will happen; so relax, they have it all timed perfectly.
But enough about central banks, on to point 4): what’s Smoking Man up to tonight…
165 comments ↓
Baiting SM seems like an underhanded way to get him tossed!!! He can’t resist…..
And where’s the dog pic?
Enjoy the Saturday additions.
Smoking man isn’t first. That’s all I know
Hilary getting pneumonia…..not a big deal but needing to be helped to stay on her feet was a big blow to to her campaign. Modern america likes their leaders good looking and charismatic not frail and old.
Thank you so much for pointing out (correctly, according to most economists, as opposed to blog dogs) that “the Fed’s QE has…helped the US economy recover following the (2009) credit crisis.” All too often I’ve heard (and continue to hear) talking heads such as David Prince (BNN’s go-to guy on Fridays, for some reason) go on and on about how “QE hasn’t worked,” without considering the possibility that it has in fact worked, at least to some extent, which would of course mean that the economies of countries that have implemented some sort of QE would be in far worse shape without it. Not that I expect most of the commenters-to-come to agree. But thanks again for the clear-headed commentary.
2 questions for the author (and no, I don’t know the answers already, so they’re not rhetorical):
1) The charts as listed refer to the S&P500 (USA), Nikkei-225 (Japan), and the FTSE (UK), and clearly correlate central bank balance sheet expansion with the performance of the stock market.
Has the Bank of Canada expanded its balance sheet (ie: stimulated) in such a manner? If not, is there likely to be considerable upside to the TSX going forward if the BoC follows course in Canada’s housing collapse currently unfolding and expands its balance sheet?
2) Will the central banks not eventually run out of assets to purchase? What happens if those assets on the central bank’s balance sheets fall in value because of, for example, rising long-term interest rates? If we accept that balance sheet expansion is correlated with stock market returns, are there not profoundly negative implications for economies that have already been hyper-stimulated, yet experience rising inflation?
I’m particularly interested in hearing comments on this scenario with respect to the US since their appears to be more significant risk of rising long-term rates in that country due to inflation numbers that consistently are coming in higher than expected.
Sometimes after 9pm comes early. Especially with large time zone differentials.
My liver is happy all the Middle East holidays are over and we must return to ‘work’.
Surprisingly sober tonight. Gotta check my Gregorian and Hijiri calendar to see when the next religious holiday so I can re-stock my Mojito supplies.
what a total joke.
Hi (anonymous poster!)
nice graphs and analysis. The claim is that some form of QE will continue. However it is clear in each graph that the central banks are working harder and harder to keep the boat afloat. eg the vertical scale on the BoE QE is 8x the scale of the FTSE vertical scale. The graph is visually appealing as it hints at shape but it is masking the scale. Similarly for each of the other graphs. So if the central bank input is massively scaling to keep the stock market moving, can the central banks maintain the pace?
Central Banks are the biggest reason world economies are in a mess. Their actions globally have created negative interest rates that are moving from one country to the next.
They have interfered with the natural laws of supply and demand. Their decisions are largely political and the consequences of their actions will be felt by not just by a single group but everyone and it won’t be pretty.
Defending the central banks is just dumb IMO.
Ugh. Please don’t feed the trolls. Or the egomaniacs.
“Thankfully, the helpful commenters here will tell you exactly when that will happen; so relax, they have it all timed perfectly.”
——————————————————————-
Sure they will. Cause the average income of the commenters is 400K ?
Okay, researched my previous ‘question’. This is what I can come up with:
http://www.tradingeconomics.com/canada/central-bank-balance-sheet
The BoC balance sheet went from $50B to roughly $100B from 2008-present. So roughly 100% growth.
The TSX went from a 2008/2009 bottom of ~7500 to today’s ~15,000, so 100% growth.
So correlation is highly intact in Canada.
However, if you compare to that of the US Federal Reserve, the Fed expanded its balance sheet by a factor of roughly 5X since the 2008/2009 crash (~$900B to $4.5T). Yet was only able to achieve a triple in the S&P500.
So for every 100% of balance sheet expansion at the BoC, the TSX grew by 100% in Canada. While, in the USA, for every 100% of balance sheet expansion, the S&P500 only grew at 60%.
If the BoC had expanded its balance sheet by 5X like the Fed needed to, to bring the US out of its housing collapse, the TSX would be 5X that of its 2008/2009 low (~7500). Hence, the TSX “should” be 37,500.
Neat, eh? IMHO, there’s an awful lot of upside to the TSX as assets and speculative enthusiasm continue to rotate out of housing, and towards the sort of assets that are ‘cheap’ in Canada’s economy. This is also consistent with how we know Canadian banks and Canadian deep cyclicals (tech in the 1990s….perhaps the gold sector these days) tend to perform when housing prices fall. Given the such dramatic disparity between the TSX’s dividend and earnings yield, and interest rates, significant upward reversion is pretty much baked into the cake. Its just a matter of timeframes (although with how high dividend yields are these days, there’s no cost in just taking a monster XIU position and hanging on!).
Don’t encourage him
The question that remains to be answered is what’s going to happen to all the debt? Obliviously, accumulating debt is great for the economy while it’s in process, but the reverse is true if the debt is ever paid back or defaulted — think deflation. And why is the economy barely chugging along during the current massive debt accumulation phase? If the same monetary stimulus policies where in place 50 years ago, the economy would be growing like crazy. Clearly something has changed and things are not what they used to be.
dogman01 yesterday
Why did I buy CPD and not ZPR. I too have both.
Yes. Right on. And, Smoking Man, looks like you have an open invitation. This should be good. Fan #33
Is this Ryan or Doug?
Why did you stop posting the nice pics of yourselves?
QE 2 is supposed to be unsinkable.
So was the Titanic.
Doug, Where I always am on a Saturday night, the ritual: Drop off the dogs, get some smokes and lighters, cross the nexus bridge, check into Seneca Niagara.
Hit up the Chairman Lounge for some free premium cocktails, admittance is usually cycling 170k in a six month period into a slot machine, that’s why I bring the wife to do the heavy lifting. That’s like a job to me.
Once I get the buzz to where it’s just right I go to the roulette table, drop a back chip on 9, lose then head to the STIR night club where I own a booth by the stage. I work on my book a bit after a few more drinks, then visit the house of Dog right here. With my earbuds on.
At this stage, I’m often spotted talking to myself trying to sound out words, to get things just right for my 99 fans and 1000k enemies on GF. Once done, I try and make it back to my room without falling or have a security detail escort me for my own safety.
Good fiction writing requires great fuel.
Oh, by the way, Garth has issued 12 commandments, I have to call him Gog now, the god of dogs.
Be kind to me tonight. I will give you one bad post just so you can feel the power and satisfaction of hitting the big delete button.
And central banks are also directly responsible for mal-investment in a few industries that wouldn’t even be profitable if rates were “normal” …
For instance.. Low rates provided cheap money to oil producers (example: MEG Energy) and now we have a complete supply/demand problem in oil.
QE is actually doing the opposite of what it was supposed to do because of all this mal-investment: it’s causing too much supply and low inflation (towards deflation).
The biggest problem with QE is that it rewards the reckless risk takers.
Ryan has put his cards on the table and predicting a Santa rally this year end.
Let’s see if he will be more accurate than Garth with his FED interest rate hikes.
Nice graphs & interesting numbers re: stimulus/inflation for varied parts of the global economy. Regarding the column, it seemed to me that the concept of ‘the Donald’ as the next president is not being dismissed as impossible. Which frankly makes me want to hide like some scared little kid.
I have to admit though the ‘make America great again’ slogan is marketing genius. Except the slogan implies America isn’t great now, which I find ironic. Usually any implication America isn’t the greatest is enough to make its citizens foam at the mouth in outrage, so the fact they are eating up that slogan & expressing support for Trump because of it is quite a surprise.
So, what your saying is, gold is a long-term buy! (Only half kidding)
In the meantime, anyone else notice that Calgary’s best real estate stat site (that of Mike Fotiou) has been shut down? I wonder if this is the CREA shutting him down OR if he just stopped caring and shut down the site OR if he left the business?? Get On it, Garth!
#16 Greater stool.ca on 09.17.16 at 4:42 pm
Is this Ryan or Doug?
Why did you stop posting nice pics of yourselves.?
//////////////////////////
I think it is Robax’s turn
Doug can you be a good co-worker and take some eye drops to work on Monday morning.
InfLewenza seemed to be blinking a lot in that BNN interview.
Or does he just twitch like that when he is not telling the truth…
M42BC
#5 Mark on 09.17.16 at 3:35 pm
2 questions for the author (and no, I don’t know the answers already, so they’re not rhetorical):
1) The charts as listed refer to the S&P500 (USA), Nikkei-225 (Japan), and the FTSE (UK), and clearly correlate central bank balance sheet expansion with the performance of the stock market.
Has the Bank of Canada expanded its balance sheet (ie: stimulated) in such a manner?
2) are there not profoundly negative implications for economies that have already been hyper-stimulated, yet experience rising inflation?
—
1) Bank of Canada has cut rates–quasi-stimulus.
2) Perhaps, but as I mentioned market direction is my job as a portfolio manager.
–Doug
Is it a valid conclusion that almost none of the growth in stock markets since 2008 has been due to improved growth but only due to QE– ie money printing.
If so is the recovery real at all??? From these graphs it would seem so.
Doug,
You surely will be correct on the equity markets going higher although for the wrong reason.
1. QE is strictly a tool to subsidise the budget deficit at non-market rates, it is pretty much conversion from bonds into money expanding the monetary base. As far as money velocity is not spiking up, we are somehow OK.
2. Purchase of productive assets with money from nowhere is something that I don’t like at all.
Combined, it is a double cheat:
Instead of people with money getting decent returns to invest in markets, central banks give them no returns on their savings (e.g theft which should be criminalised, markets, not central banks should determine the cost of money, otherwise it is not money but coupons with expiration dates and shrinking value) and central banks end up buying the productive assets with money from nowhere instead of the savers!
Not to talk about the outright travesty of purchasing corporate bonds!
The obvious outcome is impoverished middle class in the developed country and of course shrinking consumption maintained somehow by peak dept.
Corporations will be OK, I agree, they are diversified and invest globally but as for the average poor shuck taxpayer who is up to their eyeballs in debt and whose kids will never have a decent job… will be worse for sure.
Direct result of globalisation and monetary policies.
Not even mentioning AI and robotization here, frankly I expect between 30 and 60 % of the current jobs to be completely lost in the next decade and a half.
So plan accordingly.
A leading US investment advisor says pessimism over a “low return” environment is overdone and that current returns on a rolling 1-5 year basis are well within normal ranges. Returns are only low when measured over 10-20 years.
“While it is true that historical returns that incorporate 10 and 20 years appear well below normal, those inferior returns appear to be attributable to the “lost decade” of the 2000s and not to the current cycle’s returns. In other words, the so-called low return environment already occurred and equity returns are returning to normal.”
“However a number of asset classes have not fared well at all. It appears the misperception that low returns are the ongoing norm may merely be the result of investors’ poor asset allocation decisions over the past several years.
…. Both institutional and individual investors have largely missed out on an annualized return of roughly 14% in the past seven years in the US equity market, and recent surveys and flow of funds suggest investors generally remain wallflowers.”
http://www.advisorperspectives.com/commentaries/2016/09/14/new-normal-not-new-just-normal
Rob Carrick from the Globe and Mail put together this list of useful financial websites.
http://www.theglobeandmail.com/globe-investor/investor-education/these-websites-offer-reliable-answers-to-common-financial-questions/article31474615/
2) Perhaps, but as I mentioned market direction is my job as a portfolio manager.
-Doug
——————————-
Absolutely agree.
doug, if the stock market increases with quantitative easing, can we expect dividends to also increase?
TRON,
I guess you forgot that the great recession was caused by banks packaging and selling mortgage backed securities which turned out to be worthless. This in turn led to credit freeze. Central banks mendate is to do everything to avoid deflation since many people around the world are in debt especially in North America.
1) Bank of Canada has cut rates–quasi-stimulus.
It is actually combination of BOC low rates and the stimulus coming from CMHC and other bodies ‘insuring’ mortgages which otherwise would not have been made to the tune of extra 50-72 billions a year based on current market conditions.
The mortgage ‘insurance’ at unrealistic cost (that does not reflect the risk) is the real stimulus that is actually much larger as % of GDP than in the US.
Hey Doug, you’re sure getting the hang of this. Your stuff is better and better!
F69ON
QE kinda reminds me of:
“Money ain’t for nothing and the chicks for free”.
On second thought, maybe not the second part.
“The obvious outcome is impoverished middle class in the developed country and of course shrinking consumption maintained somehow by peak dept.”
As my grandad always says regarding today’s globalising trend “It’s easier to bring the third world to the first than the other way around”.
Drop it, you are not Garth the Turner.
It’s all Alan Greenspan’s fault. He destroyed the U.S. and World Economies.
The electoral college has gotten a lot lot closer… you portfolio managers sure are gonna be busy in Nov!. Ride em cowboy.
SM may actually be an alien.
You got to ask your self, at this point in the game why would central banks be resorting to QE. Why now, but they didn’t need to a decade ago. Is it now inflate or die? Use to be that recessions were a necessary part of capitalism.
#22 Linda
We’ve been humbled the last few years and have dropped to 11th on the list of free countries. Canada is 6th. Socialism doesn’t work. We need Trump.
http://www.heritage.org/index/ranking
Let’s be honest at least. Like Voldemort (aka he who shall not be named), currency devaluation (aka QE) is an unmentionable specter, summoning images of Weimar Germany, Zimbabwe etc. Currency is like common shares in a company, representing a fraction of the productivity and resources that a nation controls. When Governments and central banks dilute the value of these shares by QE, they are stealing value from the holders of the existing stock of shares. The motivation seems to be to encourage individuals and corporations to trade these “obligations” away for goods, services, and invest in corporate shares (currency). By devaluing currency, they are lubricating the flow by punishing those who would pool it. If you know that your money is likely to be stolen or devalued, it’s an incentive to trade it off for something that will either gain in value, or at least be consumed by the you. Hell of a way to run an economy. I think investing in BC real estate and raking off the profits makes far more sense from a risk stand point. Capital gains taxes are loosely enforced at best, the upside is sweet. All this pointless gnashing of teeth, hyper analysis of ETF gains (fully taxable unless in TFSA) when profit taking in BC real estate is smoking hot. It’s not too late to join the party. Christy and Justin have promised to throw more money in the pot, CMHC is rocking, the banks and CUs are throwing money out the door at anything warm and breathing that arrives. They’ve doubled down on RE and its your money that’s in play. Might as well go get some.
For those people wondering what is happening in the U.K employment wise…
M42BC
http://www.dailystar.co.uk/news/latest-news/545649/jobsmacking-brexit-boom-continues-uk-employment-reaches-record-high
How can a “free market” be ruled by a group of suits who fix the price of money?
Seriously, does anyone at Turner Investments not think Janet Yellen is a genius and central banking is brilliant?
This booming US economy can’t even support a second 25 basis point rate hike after 8 years of ZIRP. GDP for the first half is 1%, and just like every other quarter, the projections for the current one will drop precipitously over the coming weeks.
It’s an unmitigated disaster. A bubble of gigantic proportions, not a recovery. Not even close.
When the Fed fails once again to raise rates an insignificant 25 basis points on Wednesday, I look forward to your explanation. You can’t use the election, because you correctly pointed out the Fed’s dual mandate mentions nothing of ensuring the encumbant party wins.
Why, after the much touted “liftoff” of 9 months ago and the promise of four hikes to come this year are we once again not getting a rate hike?
The explanations will be epic.
Best post by Doug to date, both in terms of tone and content! Despite the nice graphs, I too worry that the market rise is only following the devaluation of money, after excessive QE. Anyway, thanks for the info and please keep up the good work!
Doug,
Interesting post but can you establish a causal relationship between QE & stock market performance? I think not, as one could simply argue that it was regression to the mean. The 2008 financial impact on the stock market was irrational, understandably so. However, your post is suggesting that without QE the stock market wouldn’t have recovered? I would be careful with that argument. Additionally, I have seen metrics that suggest that a lot of the benefits of the stock market recovery was not shared by the retail investor further questioning the value of the government intervention. Care to comment on that?
The graph is visually appealing as it hints at shape but it is masking the scale. Similarly for each of the other graphs. So if the central bank input is massively scaling to keep the stock market moving, can the central banks maintain the pace?
—
The graphs are transparent, proof of that is that you noticed the scale. What are central banks going to do? Spend literally trillions and then pack up right as economies are the most fragile? To paraphrase the Eagles, they have to take it to the limit one more time. Stimulus will continue, and as I’ve illustrated in my post, equity markets will likely follow along for the ride.
–Doug
It’s actually kind of amazing that the Fed was able to drive the whole market down to nearly zero interest rates for only something like 3.6 trillion dollars. Well I know other CB’s were doing the same thing but still. Considering the size of the debt markets I would have thought it would have taken more. It just goes to show prices are set at the margin I guess. The last settle revalues the whole book.
Total QE isn’t $4.5T, that’s the current size of the Fed’s balance sheet. In early 2009 that number was $2T. The difference is QE and here it is – https://fred.stlouisfed.org/series/EXCSRESNS. Your statement, “The correlation between QE and equity market direction is an almost perfect 97%,” while technically accurate, is only indirectly true since the dough never left New York. Markets and real estate are up why? QE driven ZIRP. We’re playing with fire.
Good analysis of the relationship between monetary stimulus and stock prices. I humbly suggest some topics for future posts.
What to make of China’s economy and it’s effect on Canada’s resource industry outlook.
Also how much would India have to grow to make up for falling commodity demand from China?
Where is the price of oil going?
How will all of the above effect equity prices in Canada and the United States?
Doug, I like your sweet ride. License plate was an interesting choice. At least it has brand recognition with the wrinklies on this blog.
#38 Randy on 09.17.16 at 6:12 pm
“It’s all Alan Greenspan’s fault. He destroyed the U.S. and World Economies.”
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Not really. the Japanese have been doing QE since 1989.
#3 hope & ruin on 09.17.16 at 3:32 pm
“not frail and old.”
Your comment sounds ignorant. Please be aware that many otherwise healthy young people faint can also faint in high environmental temperatures, especially if they have a viral infection/illness such as pneumonia.
Tell me you’ve never been ill.
Well Doug, seems you’re a great supporter of Central Banks, the Fed in particular. Tell me, what’s your opinion on negative interest rates and how they are beneficial to seniors who rely on interest income from savings. Or, being a stock broker, would you suggest that they put their money in the stock market instead?
Also Doug, how are low/negative interest rates ,due to central bank manipulation, making pension funds, life insurance companies happy. And Doug, do you think any of the bankers responsible for the mortgage crises and housing collapse in the US in 2007-9 should have gone to jail? If not why not?
Have you read Griffin’s “The Creature from Jekyll Island” and do you have any comments?
Like most stock brokers you are probably death against people holding gold, not because it’s not been an excellent long term investment, but because as a broker you can’t make any ongoing fees from clients holding it. Any thoughts though on your clients buying precious metal shares? Two major European banks been buying millions of dollars of precious metal stocks the last while. Are they foolish in your opinion?
Many global central banks have taken huge positions in US equities and that’s the main reason the SPX and other markets have kept from correcting as would normally be expected when valuations get as nutty as they now are. I guess you approve of this?
We also know that commercial Bullion banks have manipulated the precious metals PAPER markets for a couple decades now in order to support the US dollar. Presently, more PAPER silver is traded in one day than is mined in a year! I’m sure you probably didn’t know this nor any of the viewers on this site but it’s true.This is due to huge commercial banks shorts. Do you think this is right Doug?
Hell, I could keep going on and I sure don’t expect a reply from you but just had to get a few things off my chest after reading you commentary today. Maybe I’ll get deleted!! Wouldn’t surprise me. Cheers…
Great article Doug – way to call this issue out. The problem as I see it is an assymetric payoff function at this point. Like Nassim Taleb analogizes a turkey loves the farmer…until he doesn’t. So being right in the short-run masks the actual risk investing in today’s Fed-fuelled bubble. You’re right – we can’t predict/time the market, but the various End Game possibilities are not pretty.
What upside is left in this prolonged “recovery” versus downside? I’d rather be wrong, wrong, wrong, right, than the other way around. But hey, according to directive 10-289 the stock market will go up by 8% on average, and Vancouver real estate will have an orderly correction.
I agree with other posters that there is an element of currency warfare and that these policies are destructive to the middle class, and the economy long-term. That’s why Central Banks are so reviled by so-called the “alt-right”.
QE is a very expensive band aid. Trying to fix a catastrophic error by you know who. What is the plan to pay this money back?
Vets and vixens, viagra optional. It’s Saturday night, soon to be Sunday Girl time.
https://www.youtube.com/watch?v=-66hF31juT4
@ AK
@ Randy
If you read his book, Greenspan was in favour of bailing out the banks in the immediate aftermath of Lehman’s collapse but he was against launching any QE.
#31 JSS on 09.17.16 at 5:30 pm
doug, if the stock market increases with quantitative easing, can we expect dividends to also increase?
—
Yes. Sustainable or not, quantitative easing has led to real change in consumption–consumers are buying more cars and houses, for example. More consumption = improved corporate profitability (the past few quarters of temporary decline due to oil aside) = dividend increases.
Since QE, overall market returns have continued to made up of the traditional 30-40% coming from dividend payments alone.
–Doug
Toronto malaise spreads to Cambridge–Dozens of GTA realtors lined-up today to buy properties in Cambridge:
http://kitchener.ctvnews.ca/cambridge-properties-attract-toronto-home-buyers-1.3076968
Doug, if you want a better crystal ball regarding rates. Dude by the name of Mark Chandler, older dude his face says it all, the blood vessels and all. He knows how to dip into the UCC. That’s why he so bang on. We are equal in our calls.
On FX USDCAD George Davis is the go to guy, if he drank a bit more he would be right up there with me and Mark.
They get paid for it, I don’t. So I don’t share my thoughts regarding the markets that often.
Lucky for you guys, I’m drinking alot lately. Few good ones will slip out….
The narcissist in me I guess..
I read this post a few hours ago, and since then the only thing on my mind has been the total nonchalance of the author on this very grave situation/last ditch experiment.
With all ten new rules in mind, I want to ask, I really want to know…Do you smoke the prozac in a bong?
#44 Mark M. on 09.17.16 at 7:01 pm
This booming US economy can’t even support a second 25 basis point rate hike after 8 years of ZIRP. GDP for the first half is 1%, and just like every other quarter, the projections for the current one will drop precipitously over the coming weeks.
It’s an unmitigated disaster. A bubble of gigantic proportions, not a recovery.
—
My job is not to decide if what the Fed and other central banks are doing is right for the global economy, it’s to anticipate how what they’re doing will impact the markets.
From that perspective I’d say stimulus has worked pretty well. Or would you have preferred not to have had seven years of strongly positive returns?
—Doug
Zen less Charts:
Cheap money, invest in securities instead since even in recessions, the markets bounce back more quickly than does real estate and over time result in higher returns. Correct.
Your boss seems to think as of yesterday, cheap money in Canada bad. I agree.
As for “…helpful commenters here will tell you exactly when that will happen; so relax, they have it all timed perfectly”, I read you make more than one of those timing forecasts yourself.
The pot may not call the tea kettle black.
bsant54
#22 Linda
FYI – The “Make America Great Again” slogan isn’t a Trump original. It originated from Ronald Reagan’s 1980s presidential campaign. I agree it’s being effectively used again (unfortunately).
https://en.wikipedia.org/wiki/Make_America_Great_Again
Doug is right. Compared to Canada, the US economy is awesome! So is their currency!
This post is exceedingly odd. I tried to put it in my own words, so I could understand it:
Para #3: There is a major recession inducing problem in our economy. Don’t worry, though, governments have intervened and “kicked the can down the road”.
Para #4: Feds trashed bond yields by printing money. This is a good thing, as now more people will buy stocks.
Para #5: Oil prices, which are at historical lows, rose a little this year before settling back down to junk territory. Japan recovered quickly from this small spike in rock bottom oil prices, meaning that government money printing there has worked.
Para #6: A 10% increase in the FTSE 100 following Bre-exit can be directly linked to the Bank of England printing money (this apparently relates to people bailing out of bond markets and into equity, if the government trashes bond yields through money printing).
Para #7: The USA, arguably the world’s strongest economic superpower, has managed to wobble back to life and is now marginally growing. The rest of the world is still dependent on money printing operations. This is a good thing.
Para #8: Any indication that other countries’ money printing operations will end, is just “teasing the media”.
Para #9: Money printing will continue.
Para #10: We kicked the can down the road. At some point, the road will end. Then the bottom falls out and we are all doomed. Until then, let’s party.
I did not know how to interpret the stuff about smoking man.
Funny thing is, I agree with your entire post.
That is why my entire asset base consists of residential real estate and equity in companies which own the means of production, of the products consumed by the masses.
I figure that stuff is the only thing that governments can’t print.
#23, Vern in Cowtown
Unfortunately, Mike Fotiou’s site is currently defunct…..
I noticed a couple weeks ago that his “Real Estate Statistics” page was listing a fraction of the information that he previously posted.
Disappointing indeed.
My wife saw a piece of me she didn’t know existed last night. After my scorching hot shower, I wasn’t quite over the back pain. I went out to the back yard looking for a hidden Micky of my favorite.
Some how the towel went missing, she caught me naked and singing the below song to the moon. Got buddies there, on the dark side.
She was on google all day trying to figure out what’s wrong with me…
Listen to words my liberals….. It’s important, shake curse..
https://youtu.be/x7bIbVlIqEc
Good opening paragraph, a good sense of humour.
I have to agree with a lot of the bloggers that “QE is a very expensive band aid” (#55 conan); “Hell of a way to run a country” (#42 Robert).
We can still pretend and try to fix the economy, say things like “make the middle class stronger” but when not honest in the right direction or decision making then the fairy-tale pretend will carry on.
As for Trump, he is a symbol of people of that nation to be heard, not left out (that is what builds a stronger middle class). The TPP, international trade agreements is one big nation that left the individual nations out.
“From that perspective I’d say stimulus has worked pretty well. Or would you have preferred not to have had seven years of strongly positive returns?” – Doug
Well Doug, same question for you and Garth. Would you have preferred to not have all the growth we’ve had this past decade blowing a housing bubble?
See the answer now seems obvious to you right?
Growth that isn’t sustainable will disappear and leave far more destruction in its wake then if we’d just accept recessions.
That’s how an economy is supposed to work. It should grow slowly, sustainably over time, and the inevitable downturns would be short and less disastrous.
How can anyone have lived through dot-com and 2008 and still not see the current bubble engineered by the same organization that formed all the previous ones?
This is clearly a bubble. A bond bubble, a stock bubble, a dollar bubble and a housing bubble, and the air is coming out of it as we speak. You, Ryan and Garth barely mention the reams of negative data out of the US, focusing only on job creation. A lagging indicator, and one that barely looks good even superficially.
Again it should be obvious that this economy is a sham based on the constant promise of normalized interest rates that never materialize.
What will the excuse be on Wednesday when the Fed punts again?
I get a big laugh when people believe the fed will raise rates 2x then 2x next year.They are either really dumb or brain washed.Like I said a countless times were done raising rates.It will start going down soon.No recovery,look at Hainjin going bankrupt.No one is buying anything except houses.
Really appreciating the curated comments section!
“The Fed’s QE has not only helped the US economy recover following the credit crisis but has lifted the S&P 500 about 9% annually, including dividends, since QE began in 2008. The correlation between QE and US market direction is an almost perfect 97%.”
Yep, the chart shows us where all of the money has gone. The entire market is now a fiction. A “Potemkin Market” so to speak.
As for QE “providing liquidity”, that’s just financial-speak for increasing the money supply through frantic printing, while watering down the purchasing power of those who have saved, so that the new money can be given to the same bad actors who have created this mess in the first place so that they can continue to play the same games for a little longer.
not sure if we still talk about RE… seems its all politics and the ethics of being a good blog poster
anyways… joe louis’ house is for sale for the price of a shoe box in toronto…
http://detroit.curbed.com/2016/9/12/12891350/joe-louis-boxing-detroit-home-for-sale
DELETED 1-11
Well Doug seems you’re a great supporter of Central Banks, the Fed in particular. Tell me, what’s your opinion on negative interest rates and how they are beneficial to seniors who rely on interest income from savings. Or, being a stock broker, would you suggest that they put their money in the stock market instead?
Tell us Doug how low/negative interest rates ,due to central bank manipulation, are making pension funds, life insurance companies happy. And Doug, do you think any of the bankers responsible for the mortgage crises and housing collapse in the US in 2007-9 should have gone to jail? If not why not?
Have you read Griffin’s “The Creature from Jekyll Island” and do you have any comments?
Like most stock brokers you’re probably death against people holding gold, not because it’s not been an excellent long term investment, but because as a broker you can’t make any ongoing fees from clients holding it. Garth gets quite apoplectic when a poster even mentions gold on this site. Any thoughts though on your clients buying precious metal shares? Two major European banks been buying millions of dollars of precious metal stocks the last while. Many others are also considering precious metal stocks Are they foolish in your opinion?
Many global central banks have taken huge positions in US equities and that’s the main reason the SPX and other markets have kept from correcting as would normally be expected when valuations get as nutty as they now are. I guess you approve of this?
We also know that commercial Bullion banks have manipulated the precious metals PAPER markets for a couple decades now in order to support the US dollar. Presently, more paper silver is traded in one day than is mined in a year! I’m sure you probably didn’t know this nor any of the viewers on this site but it’s true.This is due to huge commercial banks shorts. Do you think this is right Doug?
Hell, I could keep going on and I sure don’t expect a reply from you but just had to get a few things off my chest after reading you commentary today. Maybe I’ll get deleted!! Wouldn’t surprise me because as Garth often says, it’s a pathetic blog… Cheers…
#61 Doug Rowat
#44 Mark M. on 09.17.16 at 7:01 pm
This booming US economy can’t even support a second 25 basis point rate hike after 8 years of ZIRP. GDP for the first half is 1%, and just like every other quarter, the projections for the current one will drop precipitously over the coming weeks.
It’s an unmitigated disaster. A bubble of gigantic proportions, not a recovery.
—
My job is not to decide if what the Fed and other central banks are doing is right for the global economy, it’s to anticipate how what they’re doing will impact the markets.
From that perspective I’d say stimulus has worked pretty well. Or would you have preferred not to have had seven years of strongly positive returns?
—Doug
———————————————————
Doug, positive returns based on debt, the loss of millions of jobs, middle income families are none existent, it is all a farce and people like you keep pushing on how great it is out there. Your reality and the reality what is actually happening out there is vastly different. Good luck!
============================
Mark M, you get it, good post!
lost you here. it actually contradicts your other comment.
the US economy is standing firmly on its own two feet
spot on the money here:
at some point the global economy will drop faster than Hillary Clinton on a hot day in New York.
requiring ever skyrocketing debt levels to sustain any form of growth is not standing firmly IMO. an overdose on QE is coming – the world is drowning in debt that requires further debt to sustain it, all accelerating exponentially. sever hyperinflation will be the result here too.
DELETED 5
Growth for whom? The investor class?
Nothing will be fixed until we give up on this “trickle down” globalist BS and GROW THE MIDDLE CLASS.
So much for anyone trying to mitigate their hydro bills. Big utilities win again.
So much is so wrong.
http://www.cbc.ca/news/world/solar-panels-nevada-1.3765962
#69 Mark M. on 09.17.16 at 9:20 pm
This is clearly a bubble. A bond bubble, a stock bubble, a dollar bubble and a housing bubble…
—
So you’re saying it’s a bubble?
–Doug
A good article Doug, although I sometimes wonder if some of the other people are reading the same words I am. They sometimes seem to put words in your mouth that you never said and place blame for whatever. I’m glad you have a thick skin.
2000 Tech Bubble
2009 Housing Bubble
2016-17 Everything Bubble
These artificial rates pushed every investor into risk assets. QE influenced the market because it was thought to be effective. But QE is shooting blanks as is now apparent with Abenomics; Central banks have no idea about the way out.
Re: #9 TRON
You are correct SIR !
The Central Banks are printing money to help stimulate the economy because economies need stimulus. A better way to stimulate economies is to tax the rich (which means most everyone on this site). Then get that money and put it into the hands of people who need it and who will spend it – the poor and the middle class. This is not socialism; this is compassion. This will also solve much of the radicalism that is happening throughout the world. If you have a job and enough money to raise a family, you will not tend to join extremist groups. Also, the Trumps of the world (and they seem to be popping up all over the place) will disappear. Finally, it might help some of the rich find more satisfying ways of spending their time than chasing money.
The successful now hand over 53% of their incomes. How much more do you want? — Garth
Doug, you cant have it both ways.
If you think that central bank stimulus via bond buying (i.e. money printing, i.e. stealth inflation) was a good thing, then you have to also agree that lowering rates which stimulated residential real estate was also a good thing.
#79 Bytor the Snow Dog on 09.17.16 at 10:23 pm
Growth for whom? The investor class?
Nothing will be fixed until we give up on this “trickle down” globalist BS and GROW THE MIDDLE CLASS.
—————_
exactly.
But how do we do it?
I think we should tax the shareholders (speculators) more and the workers (the ones that create real value) less.
Shareholders fund businesses that employ people. How is that not creating value? — Garth
Come now Doug, tell me why you aren’t thrilled about all of the growth we’ve had this past decade blowing a housing bubble?
Would you and your boss Garth rather we didn’t have it?
How does stimulus supporting housing register as a disaster, but stimulus supporting equities make you giddy?
This is indeed having it both ways, and there’s a growing chorus of posters here calling you guys out on it.
Garth!
The successful now hand over 53% of their incomes. How much more do you want? — Garth
To bad there isn’t a rule about engaging in disingenuous hyperbole, eh?
You do realize that many people believe everything you say…and you are telling me that your clients pay 53% of their incomes in taxes?
Top marginal rate, which many blog readers pay. — Garth
#75 Mel in Victoria
You are mostly correct.
But don’t forget that most Precious metals proponents are also selling gold and profit from it.
——————-
There are 2 things I learned in live:
1. If you can not beat them, join them.
2. If you are right but the world is wrong, suck it up and move on.
This is live.
World is unfair.
Heck, I made it through the comments! Before the hammer came down, we’d be in the 200s by now. Mostly rubbish, of course. Glad to see SM has still got it (or that it didn’t all go into the book)
I too appreciate the different, often more specific/technical posts. Doomers will be doomers, though.
damn the spellchecker.
This is life.
World is unfair.
Looks like the Amazons reviewed a posting I made in the Merciless blogs couple of days ago but never “released” it as I cannot find it. My topic was question on swap based ETFs and their usage for tax avoidance. The post was certainly not deleted because there’s no reference to my posting at all in the comments. What a bummer!
Does Doug or any Dogs or Dogesses think that swap based ETFs are good to hold or actually have them in their portfolios..I’m worried about liquidity and risk but because I’ve max out on all registered accounts, I need tax efficient solution for margin accounts in US Dollars.
Hope the Amazons allow this post through…unless my feline reference did me in.
#85 ABetterWay on 09.17.16 at 11:14 pm
The Central Banks are …
The successful now hand over 53% of their incomes. How much more do you want? — Garth
=====================================================
Garth ? 53%? Really ?
That’s a marginal tax rate … what the successful pay on their next dollar once their income hits some huge threshold. Not what they pay on their total income.
And before they gets to that threshold, all kinds of other tax dodges kick in.
Sorry, you won’t see me crying a river here.
Doug…you focused exclusively on monetary stimulus…use QE…kick the can. However, you didn’t touch upon fiscal stimulus? Why is it, do you think, that nations haven’t embraced more fiscal stimulus measures instead of relying on Central Banks? Do you not think that there is a greater recognition that there are structural issues at play, and while 2008 is well behind us, there are actually greater issues at play that require that nations keep interest rates artificially low? When you look at all of the entitlements government owe just to maintain a comparable standard of living, should interest rates rise to normal levels the system would collapse? Otherwise, with all of your compelling charts, and add in full employment and close enough to target inflation rates, why hasn’t the Fed increases rates the way that this blog declared they would over a year ago?
I am trying to figure out which #rule Smoking Man was good on, lol. I think it was #4, anti-canine.
#44 & #69 Mark M comments ring true to me too.
I am an investor but I would like to make my money honestly and truthfully. I love my country, stand by my county, like to see the poor to middle class grow, a stronger nation.
The successful now hand over 53% of their incomes. How much more do you want? — Garth
———-EDIT
The successful now hand over 5% of their incomes. How much more do you want? — Garth
The suckers now hand over 53% of their incomes. How much more do you want? — Garth
The wealthy now hand over 5% of their incomes. How much more do you want? — Garth
The salaried workers now hand over 53% of their incomes. How much more do you want? — Garth
Were you trying to say something? — Garth
Very interesting post and comments here tonight…good work everyone.
So when in Rome do as the Romans do? Free markets mean nothing, it’s all central bank QE, supressed interest rates, etc…Capitalism as we know it is in its final stages….10-15 years or less.
It has been been huge gains for very few world wide, while billions suffer. Does it make you feel good? Better than the poor who can’t take advantage of this game that has been beneficial to so few?
It’s dirty money. Sleep well at night and let’s see how much you take with you when you leave here.
I feel for the uniformed when this all falls apart and it will. Billions will suffer and let’s see how the few that benefit make out. And please don’t give me this “buyer beware” explanation. They will say they tried their best to help everyone when this falls apart. Look at Greenspan the last few days chirping. Finally coming to his senses or just covering his butt? Who’s next? Draghi? Bennny? Kuroda? Real men. Big men who have been told what to do by the powers that be. I wonder how well they sleep at night. If they do sleep well with no conscience for their actions they are absolute psychopaths. They make the Donald look holy.
Let’s all show a little humanity for all. As MLK stated “We must learn to live together as brothers or we will parish together as fools.”
Pure greed in it’s finest hour.
Funny you should mention government stats and mock the non believers. Just yesterday the head of Statistics Canada resigned over his concern the agency has lost it’s independence. But by all means please tell us again how the governments stats are legit.
Point 1) Everything is rigged except the price of uranium and the baltic dry index. Both show the world to be in the worst depression ever. Far worst than the great depression.
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Re: #75 Mel in Victoria on 09.17.16 at 9:53 pm
Precious metal stocks are about 500 percent overvalued and will meltdown like they on the afternoon of October 19th 1987 even if silver and gold skyrocket in price. Only a total idiot would be buying gold shares when they can buy bars of gold that aren’t 500 percent overvalued.
#88 Mark M.
Yes. Mark M.. You have missed the main message of this Blog since its contraception. Liquidity, Balance, and Diversification. And, of course, the cardinal sin of overexposure to ANY 1 asset class, ie. RE
QE as Doug points out saved us from a Global Depression. Do not beat up on him for it, it was not his idea. He is merely chronicling today.
Human nature and get quick rich schemes come hand in hand with cheap money, nothing new especially in speculative RE. People are gambling with cheap money to get rich quick due to uneven wealth distribution as a result of Globalization.
The bottom 80% of Canadians have seen little or no real growth in wages since 1980, circa the advent of modern Globalization courtesy of late 70s electronic networks to move money around the planet quickly.
______________________________
#85 ABetterWay
Garth, recall pre-1972 MTR’s in Canada were 0 to 80% and in the USA under Eisenhower the top MTR was 91%.
The world of the rich elite did not come to an end then; thus, more can be paid as once, more was paid.
bsant54
Ross Kay says Vancouver is finished:
“Odds are we’re going to change our correction call to a full blown crash”
“Vancouver is in full crash mode. It is not reversible.”
https://www.youtube.com/watch?v=OxwIS7IIwvk
Ross Kay says Vancouver is finished:
“Odds are we’re going to change our correction call to a full blown crash”
*******************************************
I guess economic Armageddon is upon us…quick…short the banks!
We follow what the central banks do, but that doesn’t mean they know what they’re doing.
Doug,
No career risk in this post. I like how you compare the balance sheet correlation to the markets, skipping the fact that this is not proof of causation in any robust way and then just ignoring even that to suggest you continue to “believe” the US market will chug along. You could easily be a real estate investor or better yet a realtor.
Lucky for us their is robust research to show that the US economy chugged along despite the FED, not because of it.
http://www.hussmanfunds.com/wmc/wmc160905.htm
“the “counterfactual” of how the economy would have done without these interventions is readily available. Macroeconomists know that this involves comparing the projections from constrained and unconstrained vector autoregressions (VARs).”
On the other hand I do like your short term thinking, after all some one needs to hold negative yielding bonds and stocks at high P/Es.
“Of course. And at some point the global economy will drop faster than Hillary Clinton on a hot day in New York. But I have to work with what’s likely to move equity markets higher on a more immediate basis—that being continued stimulus.”
the “counterfactual” of how the economy would have done without these interventions is readily available. Macroeconomists know that this involves comparing the projections from constrained and unconstrained vector autoregressions (VARs).
What a bunch of baloney….I’m sorry Doug but correlation is not causation. The reason markets are where they are is because of one thing: earnings. Please explain the actual transmission mechanism that makes people buy stocks because central banks are putting securities on their balance sheet. Now if you’re able to show that earnings are somehow correlated to central banks buying securities then fine you can make the case. I am so getting tired of all this central bank nonsense…they were needed in 2008/09 but what they’re doing now is completely meaningless. They control the rate that banks pay one another…that’s it.
Disagree Doug. Eleven recessions in 72 years can hardly be described as rare and something not worth worrying about.
I would actually describe it as common and predictable.
If occasional downturns are common and predictable (and always restore) why would you worry? — Garth
#101 – Freedom First
Doug’s blog post is all about the utility of central banks stimulating an economy, or more correctly, blowing bubbles for the very few to take advantage of at the expense of the vast majority who just like in 2008 will be left holding the bag when it pops.
There is no doubt the problems that caused the last crisis are worse today and that the next crisis which we are on the eve of will be far worse.
So what, will we do it all over again?
If money printing is such a brilliant idea none of us should pay any taxes. Why do we need Garth to find loopholes? Why doesn’t the government just print the tax dollars they need?
Stupid idea, right? Of course is it. So why praise money printing to stimulate equities?
Doug wants to know if I’d have been happier without the stock market growth of the past 7 years. Does he think it’s not ALL going to disappear and more very shortly?
And why aren’t he, Garth and the rest of the blog dogs satisfied with all of the growth in housing over the last decade?
It’s all bubbles. Let’s call a spade a spade.
#87 Ponzius Pilatus on 09.17.16 at 11:29 pm
#79 Bytor the Snow Dog on 09.17.16 at 10:23 pm
Growth for whom? The investor class?
Nothing will be fixed until we give up on this “trickle down” globalist BS and GROW THE MIDDLE CLASS.
—————_
exactly.
But how do we do it?
I think we should tax the shareholders (speculators) more and the workers (the ones that create real value) less.
———————
Shareholders fund businesses that employ people. How is that not creating value? — Garth
———————
Sure Garth, shareholders fund businesses that employ people in low labour cost third world countries and they also fund corporate stock buy backs. None of this helps the middle class retain jobs and purchasing power…. unless you want to see MORE debt.
There needs to be a small tax on every single stock transaction- like a Tobin tax. I’m sure you’ve heard of it.
https://en.wikipedia.org/wiki/Tobin_tax
You moan about a paucity of jobs and yet want to further tax the investment that creates them. I give up. — Garth
QE has manipulated of the markets to suppress bond yields, increase stock markets and make debt cheap to stimulate the economy.
Because America is probably the only economy that can self start and continue running well on it’s own, this might have worked. Other economies are struggling because this is just short live fuel to get a fire going- then it will burn out.
A good question would be to understand how much EPS growth has been fueled by share buy backs, using cheap borrowed money as a product of QE.
But what the market is concerned about is REVENUE growth from companies going forward. There’s only so much cheap debt can do.
#109 Bodenby on 09.18.16 at 8:24 am
What a bunch of baloney….I’m sorry Doug but correlation is not causation.
—
Trillions of dollars applied and an R-squared of 97%. Just happy coincidence, I suppose.
–Doug
Great post Doug! Entertaining and informative.
#86 not 1st on 09.17.16 at 11:18 pm
Doug, you cant have it both ways.
If you think that central bank stimulus via bond buying (i.e. money printing, i.e. stealth inflation) was a good thing, then you have to also agree that lowering rates which stimulated residential real estate was also a good thing.
—
When did I talk about real estate in this post? The only “good thing” I want is for markets to move higher and I think central bank stimulus does this.
–Doug
#105 When Will They Raise Rates?
Thank you for the reminder about listening to Ross Kay. Key words in that broadcast, besides YVR RE in crash mode now, are that he believes a:
20% price decline has already happened
and that this is BEFORE his recent call that a full blown crash is under way. Ross has been dead on about this market since the beginning of the year when he was laughed at by many.
#106 WallOfWorry
You may well be correct about shorting bank stocks in the near future, well, specific bank stocks after reading this article about RBC and their exposure to uninsured mortgages in YVR/416 (Zen: > 30% price decline, RBC “wouldn’t be able to recover the full value of the loan by selling the underlying property”):
http://www.fool.ca/2016/08/12/why-royal-bank-of-canada-is-in-trouble-if-the-latest-report-is-accurate/
Not the end of the world as long as people keep paying their mortgage, still, if the economy goes south resulting in large job losses…then trouble in future for RBC? Hard to say. Still think Garth’s sentiment is about to turn negative by October.
One thing for certain, QE and cheap money is looking to end up as a pariah to wealth generation pursued by investing in RE beyond your means…well, in YVR for thus far.
bsant54
#111 Mark M. on 09.18.16 at 8:41 am
Doug wants to know if I’d have been happier without the stock market growth of the past 7 years. Does he think it’s not ALL going to disappear and more very shortly?
It’s all bubbles. Let’s call a spade a spade.
—
No, I don’t think it’s all going to end “very shortly”. That was the point of my post.
And do you have “bubbles” on keyboard autofill?
–Doug
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Doug, so stock markets were at 0 when bank balance sheets were at 0?
Doug, you’ll find that earnings are also highly correlated with stock prices….have been for hundreds of years.
You moan about a paucity of jobs and yet want to further tax the investment that creates them. I give up. — Garth
Sigh. I thought that you were above sticking to the “trickle down” narrative. Of course I understand your livelihood depends on it so I understand $ trumps (heh) principles.
Does anyone have stats on all of the jobs created in Canada by all of this corporate favouritism in the tax system? Bueller? Anyone?
This has nothing to do with money-vs-principles. It’s all about how the economy works. I invested money in the General Store start-up and created 19 jobs. I get to deduct that investment from the income I will eventually (maybe) receive as profits. Nineteen people get wages they would not otherwise have had. Is that so hard to understand? BTW, the money I invested came from income I received from employment, on which I paid over 50% tax. How about you? — Garth
Doug, you keep responding to me but you ignore the only question I want answered.
If you’re so elated at the rise in equity value as a result of central bank stimulus why aren’t you and the team at Turner Investments not equally thrilled at the rise in house prices as a result of central bank stimulus?
Can you or Garth respond to this?
We don’t trade in houses, dude. Nor do we control central banks. — Garth
Garth your blog is a fascinating psychology experiment. There are some real nutters on here, not that I don’t believe in being diversified and prepared. I do.
I had an uncle who lived in Rocky Mountain House (name of the town says everything) and when gun registration was first passed he remarked, “and what would the government do if all us farmers stood up with our guns and refused to back down”?
As a 13 year-old kid at the time, I thought, probably laugh at you guys first of all, and then send in the army and confiscate everything. Hilarious.
We don’t trade in houses, dude. Nor do we control central banks. — Garth
BINGO!
The housing bubble doesn’t feather your nest, the equities bubble does.
Both are bubbles, both will wreak havoc on the economy and destroy wealth at an alarming rate very soon. One you countenance, the other you claim is the purview of boomers.
Let your readers decide if that’s honest.
Disagree with the hypothesis. Financial markets are immensely more self-regulating, variable and evidence-based than residential real estate. Equity markets which have risen along with the recovery from 2008-9 have not wrecked the economy nor destroyed wealth. Conversely the debt-fueled housing bubble has lured millions into a certain trap. Your epiphany is poop. — Garth
Boomers should be doomers.
This has nothing to do with money-vs-principles. It’s all about how the economy works. I invested money in the General Store start-up and created 19 jobs. I get to deduct that investment from the income I will eventually (maybe) receive as profits. Nineteen people get wages they would not otherwise have had. Is that so hard to understand? BTW, the money I invested came from income I received from employment, on which I paid over 50% tax. How about you? — Garth
And I applaud you for that. However, that is not currently going on with Big Corps. in Canada. They’re creating jobs in Mexico or China.
The tax breaks we give them mean nothing.
Incorrect. Millions of people work in this country for Canadian-controlled corporations owned by legions of shareholders through mutual funds, ETFs or equities. Your argument is impaled on the blade of simplistic generalization. — Garth
This was a good post.
This is all one big experiment that will undoubtedly have unknown implications. How can it not? A lot of people are aware of this and that’s why there is such a huge fear driven reaction every time the market is down. The central bankers are out of ammo and everyone knows it. That’s why you can see them desperately trying to keep it all propped up. That’s why they also lie to everyone about employment and inflation numbers. To keep “fear” at bay. When, in the future, the psychological confidence is lost the US market should correct 50% minimum along with every other market. That’s my belief.
Therefore it looks like the markets are totally dependent on “stimulus” to stay rising or afloat, which cannot last forever. So the question is: should we put our faith in these CB’s who look more and more desperate and clueless with our hard earned money/livelihood and hope we still get some gains after 8 years, and pray we are not the bag holder…..or should we wait for the (inevitable) collapse?
Edit: it’s my belief that even a balanced portfolio will get creamed next correction (although less than a not balanced portfolio).
MF
Your epiphany is poop. — Garth
Thank you for this gem!
The other major central banks aren’t working within countries that have the same economic strength as the US and are therefore continuing to purchase assets.
——————————————————————
Doug;
The question that begs to be asked is, why does the US have this economic strength, and thus experiencing a good recovery, that other countries around the world lack? What’s the difference?
#118 Doug Rowat on 09.18.16 at 9:34 am
#111 Mark M. on 09.18.16 at 8:41 am
Doug wants to know if I’d have been happier without the stock market growth of the past 7 years. Does he think it’s not ALL going to disappear and more very shortly?
It’s all bubbles. Let’s call a spade a spade.
—
No, I don’t think it’s all going to end “very shortly”. That was the point of my post.
And do you have “bubbles” on keyboard autofill?
–Doug
//////////////////////////////////
A bit of agro on the blog this morning.
The empire is striking back.
I will act as peacemaker, I will pack up my van and head to Florida to pick up a chimpanzee that once belonged to one of the most famous people on the planet and give it to Mark M. as a peace offering.
His name…um I forgot…oh that’s right…Bubbles…
M42BC
This has nothing to do with money-vs-principles. It’s all about how the economy works. I invested money in the General Store start-up and created 19 jobs. I get to deduct that investment from the income I will eventually (maybe) receive as profits. Nineteen people get wages they would not otherwise have had. Is that so hard to understand? BTW, the money I invested came from income I received from employment, on which I paid over 50% tax. How about you? — Garth
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That’s exactly the kind of “real jobs” that I’m talking about. Good on you Garth!
Kinda like the German Mittelstand.
The problem I have is with investments in the stock markets, where you really have no control over how the money is spent.
Unless, of course, you’re Buffet.
#130 The other Doug, in London on 09.18.16 at 11:12 am
The other major central banks aren’t working within countries that have the same economic strength as the US and are therefore continuing to purchase assets.
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Doug;
The question that begs to be asked is, why does the US have this economic strength, and thus experiencing a good recovery, that other countries around the world lack? What’s the difference?
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Simple. different countries, different stats.
Just look at China.
American and Canadian labour stats for instance are incorrect because they do not differentiate between part time and full-time jobs.
IMHO, the best indicator for how the job market is doing would be new payroll dollars created.
Best set of comments on this post I have seen in a longggg time here.
Garth…. I though that Saturday was your blog day off !
Well done elites: now the news is completely taken over with one story.
Distracting from Hillary’s issues.
(Kind of like how they “caught” B. Laden the day after Obama’s birth certificate was released. Never heard about that again. Intelligence pyramid.)
Don’t know if you guys have been following this, but Canadian oil company share prices are now approaching 1:1 price to book value (some are actually trading at below book).
Chartered banks are about to take a hit from the looming mortgage crisis.
What do you think the intelligent, contrarian investor is doing right now?
Wow, there are a lot of Debbie downers on this blog. Of course markets go up and down. It’s always going to be different this time. The world is expanding and progressing. I’ve been in the market for 45 years and yes it works the way it should. I’ll tell you though if you don’t save more then you make and invest that money you’ll have nothing in the end but to bitch and complain about how unfair it is and you should be able to take other peoples money to pay for stuff that you want because you unwisely spent all of yours. Geez pull your head out and see the daylight. The wealthy I know already pay more than their share of taxes as well as contribute large sums of money to local charities. Learn some basic lessons on how to invest not speculate. Time is your friend.
Garth:
With your “poop” comment, are you any relation to Triumph the insult dog?
Could you imagine what our economy would be like if the government didn’t backstop $520 billion in mortgages, but instead put that money toward loans for new businesses? It would be so much more diversified than it currently is and arguably in much better shape.
http://www.fool.ca/2016/09/13/canadas-banks-are-a-big-reason-our-economy-is-in-the-dump/
I keep hoping the market will tank, but it is never enough for me to jump in.
However, this September slump has me temped to FINALLY convert my TFSA Cash into investments.
Garth, Doug, and Ryan are confident that the market will continue like a bull for a bit longer…. so here is my plan:
Here is my slightly modified “Balanced” formula. It has less Maple, and a bit more REIT:
20% Canadian bond index ETF
20% Preferred share index ETF
10% Canadian equity index (large cap) ETF
20% US equity index (large cap) ETF
20% International equity index (large cap) ETF
10% REIT index (Canadian) ETF
My plan:
WEIGHTING – MER – TRAILING YLD – TICKER – DESCRIPTION
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10% 0.11 2.28% (TSE:VSB) VANGUARD CDN SHORT-TERM BOND INDEX ETF
10% 0.46 3.15% (TSE:XCB) iSHARES CANADIAN CORPORATE BOND IDX ETF
10% 0.50 5.06% (TSE:CPD) Claymore S&P/TSX Canadian Preferred Share ETF
10% 0.50 5.49% (TSE:ZPR) BMO LADDERED PREF SHARE IDX ETF
10% 0.06 2.35% (TSE:VCN) VANGUARD FTSE CANADA ALL CAP IDX ETF
20% 0.16 1.42% (TSE:VUN) VANGUARD US TOTAL MARKET IDX ETF
20% 0.22 2.63% (TSE:XEF) iSHARES CORE MSCI EAFE IMI INDEX ETF
10% 0.61 5.39% (TSE:ZRE) BMO Equal Weight REITS Index ETF
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Anyone have insight into any of above ETF’s?
Already put order in for VSB. I picked ZPR because it has more ‘rate resets’ which will be good if interest rates go up.
I feel crappy about VUN (i.e. how much higher can it go?). Plus small yield. But with the low MER and currently sitting below $40 at $39.38, maybe now it is a good buy… Doug thinks so, anyway.
Garth once said… “Buy them. Hold them. Add to them. Leave them alone.”, so that is what I intend to do.
I miss the days when Garth would post racy politically incorrect photos!
Lots on my alt site. — Garth
Your argument is impaled on the blade of simplistic generalization. — Garth
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Ouch! I gotta get that image outta my head!
#136
Seems one of the candidates was in the know a full 7 minutes before the NYPD, NYFD, FBI and Homeland security. How did he know before the people on the ground? Sounds suspicious don’t you think.
https://www.washingtonpost.com/news/post-politics/wp/2016/09/17/trump-says-bomb-went-off-in-new-york-amid-reports-of-possible-explosion/
Football season is back the nfl, not the local high school game called the cfl.
11/15 for first week isnt bad, starting next week i will start posting my pic’s. good luck.
i find it much more exciting than talking about interest rates or whatever people talk about, TFSA, like really, what is that the american transporation safety association . who cares. stay poor, no stress, wait for your goverment cheque from trudeau, and work for cash on the side for the little extra’s and spend months down south cheap. thats my retirement plan, hell thats my current plan. and millions of more people. the system is rigged, set up with fake money, fake rules, and fake people. i am not going to play that game.
Galen weston had specials on strawberries this week, in september, my dad never had that, and he worked every day of his life, where did it get him, i dont work and eat strawberries. Cant wait next week to see what Galen will have on special its like seeing a new menu every week. My dad said he ate basically the same food every day of his life.
http://www.rosskay.com/vancouvers-ponzi-scheme.html
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Canadians are suckers, Full stop.
Our Government is fully complicit in this Ponzi Scheme.
Give a Canadian a loan to buy a car a condo and a prescription and they will not care what anyone does to them afterwards.
#53 Maj on 09.17.16 at 8:18 pm
#3 hope & ruin on 09.17.16 at 3:32 pm
“not frail and old.”
Your comment sounds ignorant. Please be aware that many otherwise healthy young people faint can also faint in high environmental temperatures, especially if they have a viral infection/illness such as pneumonia.
Tell me you’ve never been ill
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Obviously people get ill from time to time. The same thing could happen to a young person or Trump.
I was just commenting on the how the voting public can perceive these things. If you are worried about a Trump presidency, like me, then what would normally be a mundane event can have a big impact. A rational person would say she got sick and will get better in time.
But would you say the American public has shown a tendency to react rationally or emotionally this campaign?
I never was a big time business men, mostly worked for the man.
Had a few small businesses, now and then.
My favorite times have always been paydays.
Personally handing out the paychecks to a few good, loyal employees:
Priceless.
Now that I’m a regular contributor here, I’ve noticed a few popular trends in the comments section. Four in particular: 1) all government data is false, 2) all election polling data is rigged in favour of left-leaning candidates, 3) central banks only harm markets and the economy and 4) many blog dogs live interesting lives after about 9 pm.
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Yes, it makes you wonder if it is only dogs that post here. Sometimes the bleating is unbearable.
Thanks for a good post.
It is already happening folks,
http://www.msn.com/en-ca/money/homeandproperty/rigged-mortgages-have-made-second-class-citizens-of-canadians/ar-BBwimLo?li=AAggFp5&ocid=mailsignoutmd
They started blaming the banks! Incredible.
The bigger depression coming our way.
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BTW, subprime housing created many useless jobs and redirected huge pile out of money away from productive assets, so in fact large chunk of our so-called-economy relies on housing. And now that is gone.
What will T2 do, except monitor the situation? What will be the ‘viral’ policies Lagarde was talking about?
Rationalising subprime housing? Capital control?
Brace for impact.
#137 Ace Goodheart on 09.18.16 at 12:50 pm
Don’t know if you guys have been following this, but Canadian oil company share prices are now approaching 1:1 price to book value (some are actually trading at below book).
Chartered banks are about to take a hit from the looming mortgage crisis.
What do you think the intelligent, contrarian investor is doing right now?
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Moving their money out?
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#140 NEVER GIVE UP
It is much more than 520 billions, total mortgage insurance market is close to 1 trillion, who knows, it could be even more.
Here is warning on the mortgage ‘insurance’ from IMF:
http://blogs.wsj.com/canadarealtime/2013/11/27/imf-urges-rethink-of-canada-government-backed-mortgage-insurance/
The successful now hand over 53% of their incomes. How much more do you want? — Garth
……..
Perhaps the more important question might be, “how much money do you need?”
Nah, don’t think so. To those with talent, drive and skills go the rewards. Taxes are plenty high enough. — Garth
This was the real situation in 2009 as I remember it
http://www.theglobeandmail.com/report-on-business/canadas-dirty-subprime-secret/article4357076/?page=all
The fact that we had boom and prices going up for 7 more years to incredible heights speaks volumes about the ability of regulators to enforce responsible rules and behaviour.
Doug,
Were you short the Yen and the Pound during the QE ramp up? Were you short the US$?
What is the R squared with real estate?
Wondering How central Bank balance sheets go down? Would it be Central banks selling the stocks/bonds/other they bought back on the open market? How likely is this to happen?
Sentiment is responsible for the majority of the move in any given market.
Clearly Canadians as a group have been ridiculously bullish on housing for the past several years driving up price-to-income ratios above any level seen in history.
Investors have been equally bullish on bonds driving bond prices higher & yields to all time lows. QE has played a role but it’s a market nonetheless. The public are very long bonds. YTM data on most intermediate & long term bond indexes is below the bond coupon value indicating long term overvaluation.
Yet sentiment toward public equities remains perpetually negative. P/E ratios are moderate. The retail investor is the most under exposed to public equities in 2 decades. Cash and bond allocations are very high. The media is perpetually bearish calling for low returns or negative returns, etc. for the foreseeable future. There is talk of the public remaining underexposed to equities for a generation.
The only other time in history when the public was more bearish on equities than today was in the early 1940s after the Great Depression. This is not what happens at market tops. We’ve got a LONG way to go…
#144. No it isn’t suspicious. Word of the bombing hit twitter at the same time people were phoning 911. Trump owns property in NYC, plus his people monitor twitter. With his tendancy to shoot from the hip, I’m not surprised he started babbling about the bombing before the cops did.
Cops tend to babble about events once they figure they know what is happening and they’re sure that babbling to the press will help them in dealing with that event. So they start talking about things about 30 minutes after the thing happened.
I dislike Trump as much as the next guy, but there’s no tinfoil to his statement re: the bombing.
Garth, when you say the rich hand over 53% of their money in taxes, that cant be right. Please explain. Marginal tax rate is pretty meaningless, tell me the effective tax rate. So I actually know how much physical dollars you are talking about.
10% 0.50 5.06% (TSE:CPD) Claymore S&P/TSX Canadian Preferred Share ETF
10% 0.50 5.49% (TSE:ZPR) BMO LADDERED PREF SHARE IDX ETF
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I also own some ZPR, not sure the rationale behind owning two Canadian preferred ETFs which are largely the same securities (banks). Bear in mind since they’re rate resets the next cut from dumb dumb Poz will send them swiftly downwards, yield stays of course.
Better for fixed income than bonds but man they’re almost as wild as REITs.
#105 When Will They Raise Rates? on 09.18.16 at 6:48 am
Ross Kay says Vancouver is finished:
…
https://www.youtube.com/watch?v=OxwIS7IIwvk
Pro tip: Don’t get your advice from a guy struggling with high school arithmetic.
From the youtube video 25:55s in, I quote Ross Kay:
During the first five years, of a normal mortgage, people are going to pay off 32% of their mortgage principle.
Ha ha ha!
Maybe if they are ‘paying’ MINUS 10 percent interest on their mortgage?
What a joke that guy. Not to be taken seriously.
China troubles…
http://www.telegraph.co.uk/business/2016/09/18/bis-flashes-red-alert-for-a-banking-crisis-in-china/
You start by giving us a stimulant and end with a sedative . Very smooth Doug . I don’t miss reading many posts but seldom read the comments much and post even less . Regarding the comment section , I have learnt to scroll though all but the ones you three comment on . Thanks for the filtering . Your comments are the only ones not in need of fact checking . I don’t know how you can read it all .
#158 Bram on 09.18.16 at 4:26 pm
#105 When Will They Raise Rates? on 09.18.16 at 6:48 am
Ross Kay says Vancouver is finished:
…
https://www.youtube.com/watch?v=OxwIS7IIwvk
Pro tip: Don’t get your advice from a guy struggling with high school arithmetic.
From the youtube video 25:55s in, I quote Ross Kay:
During the first five years, of a normal mortgage, people are going to pay off 32% of their mortgage principle.
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Agreed… he is confused…. maybe with total principal vs. interest on payments, which is different from total principal remaining.
then 2 minutes later he’s talking about how the CDN bubble will be a worse disaster than the US in 2008. he should pick a side.
QE to Infinity is just the greatest engineered wealth transfer in history. Bail me out again, please. Where’s the Oracle of Bailouts this week ?