Entries from June 2020 ↓

The toll

First to go, Bandit and I noticed on a morning walk a month ago, was a slow fashion store. (I had to ask Dorothy what the hell that meant. Now I know.) Then her fav bookstore went down. An art gallery up the street has disappeared. So have the horse-drawn carriages. On the weekend the main coffee hangout on the corner opposite my office posted big “CLOSING” signs (above). Everything half price. Fixtures for sale. Fail.

Such is the toll of the virus on a tourist-based economy. As Air Canada and Westjet go, so goes the economic fate of thousands of small businesses. Hotels. B&Bs. Restaurants. Tour operators. Here’s what the entrepreneurs running the local coffee shop had to say to the community:

CLOSING DOWN  The uncertainty associated with the impact of COVID-19, especially in relation to its effects of tourism along with the considerable expense load that we carry, has forced us to make this decision. We are so very grateful to the amazing staff both past and present who joined us in establishing our unique business style. We tried to create a type of oasis where our customers were surrounded with tasteful and cheerful merchandise while enjoying the atmosphere of an old fashioned cafe. We would sincerely like to thank all our many customers for their continued support, it has been extremely rewarding to receive so many genuine compliments, literally on a worldwide basis. Sad day.

Sad indeed. The pooch and I walk every morning into the aroma of their roasting coffee beans. No such pleasure soon. Plus an empty storefront. Another one.

So the latest economic stats are grim. The Canadian economy shrank close to 12% in April, on top of a 7% dive in March. May probably saw a small (3%) uptick, so it’s safe to say we have about 16% less GDP than we did back in the halcyon days of Feb. By comparison, during the darkest days of the Great Depression – 1931 and 1932 – the economy withered by 10% annually. And here we are with a 16% tanking in a hundred days. Gulp.

This is the worst. Ever. All 20 sectors of the economy took a drubbing. Accommodation and food was obliterated with a 42% collapse, after a 37% drop the month before. It just doesn’t get any suckier. Entertainment and sports, down 25%. Construction, 23%. But online shopping up 17%.

Now, look at this. It’s a snapshot of Covidian chaos as of Tuesday morning. Things seem under control in Canada but are suddenly raging south of the border. Given the integration of the two economies, Trump and the inability of Americans to corral this bug, it suggests recovery may take a lot longer than new all hoped.

Seeing red: the virus erupts in 29 US states

Meanwhile many people you know are direct victims of this economic contraction, as they carry fat debt. Even as the virus was ravaging jobs, mortgage debt grew substantially in May – a new record high. And why? Not because of a ton of real estate sales, but rather thanks to deferred mortgage payments, which added to the overall debt load. The better part of a million households are not making loan payments, and haven’t for several months now.

The result: $1.08 billion in new debt added every four weeks to the steaming pile of $1.68 trillion, since folks choose not to service mortgages worth $180 billion. Payments they cannot or will not make are simply thrown on the heap – money that’ll have to be paid in the future. Mortgage growth of over 8% (annualized) during May was the highest in a decade. What an awful validation of the financial illiteracy of a nation of debt-snorflers.

So if Trump blows the virus challenge, US GDP tanks and true recovery takes a few years, what to do?

Play defence.

This is exactly why this tedious blog has yammered for years about the logic of having a balanced, diversified and liquid portfolio. It’s designed to dampen volatility and, unlike most husbands, be predictable. When darkness descends and markets fall, it protects you. When times are good, it joins in. Just look at the experience thus far in 2020.

Beyond this, pull in your horns. No big purchases. No investment condo. No leverage. Do not let 2% mortgages seduce you. Don’t defer debt, but pay it down instead. Take advantage of a localized real estate surge, based on pent-up demand, to unload. These are the days to crave maximum liquidity – wealth in negotiable securities, not tied up in a property that could soon take ages to flog.

Oh, and go buy something from the dude on the corner. There, but for the grace of dog, go thee.


The rethink

Covid log date 6.29.20.

It’s now been more than a hundred days since the giant office towers emptied into the Bay Street canyon below, as furloughed workers scurried furtively underground. Their last subway ride. For many, the final time rubbing shoulder-to-shoulder against a stranger. Without a mask. At that moment they were employees for whom ‘going to work’ had meant, well, going to work. Not going home.

But that was then. The changes since have been breathtaking. This week came more signals the world these souls knew, so distant back in February, is kaput – or soon to be. Witness the following words, part of a memo sent to the worker bees of a major financial outfit with offices in the cores of most big Canadian metropolises.

The question is: can we be effective at work without needing to be in the office all the time? Based on how the last few months have gone, the answer is a resounding yes. Looking ahead, my hope is to build an environment for my team that incorporates some of the flexibility we have gotten used to into the post-pandemic work world, whenever that arrives. Think in terms of a greater emphasis on results and output rather than evaluating people by their presence in the office or the hours that they work.

Can you imagine the big poohbah telling you that six months ago? Offices are optional. Hours uncounted. Remote is fine. Flex is the new religion. Stay in your skivvies, if you want, but remember to dress above the waist for Zoom. Results matter. No need to haul your butt downtown. Ever, maybe.

This all makes perfect sense for corporations. Dump the office overhead. Pare down the infrastructure. Let people stay at home and buy their own hand sanitizer. The bottom line actually gets fatter. Employees are less stressed. Child care issues resolved. The dog loves it. No commute. No traffic. No smelly transit buddies. No deathly elevators. Just a thick web of IT people hanging it all together. Yes, they work from home, too.

So will Covid turn out to be a long-term employment game-changer, for both corps and the folks who toil for them? If so, big ripples. Downtown cores, somewhat depopulated of commuters, will not sustain the thousands of small businesses who located there solely to suck off the foot traffic. Falafel and sushi booths, dry cleaners, dental clinics, office supply stores, and endless retail outlets, many located in the underground pathways that used to be clogged with people in business attire.

Urban condos? The impact could be huge over time. Fewer jobs in the canyon, so why would you compromise paying hundreds of thousands to live in 500 square feet of concrete? And besides making high-rise lifts totally terrifying, the virus is impacting the entire market. “The pandemic health concerns, coupled with reduced employment and hiring activity, has resulted in less immigration and reduced in-migration into the GTA,” says a report from Rentals.ca. “These consequences of the pandemic have significantly reduced rental demand at the same time as supply is increasing via short-term rentals and high-rise apartment completions.”

Meanwhile Airbnb has collapsed, throwing a ton of units on the market and depressing rents. “I live and own a downtown Toronto condo,” writes Greg.

A recent Toronto Star article stated my building was Airbnb’s 3 biggest revenue source for a single building. Since the state of emergency was declared short term rentals have been banned. The operations of the building, lobbies, concierge desk, elevators and common spaces have dramatically improved since, this building as I imagine most condo buildings were not designed to be hotels. The current state of the building is 46 units for sale, 146 for rent. The management office recently issued a memo saying to expect delays when registering new tenants due to the high volume.

Covid has also put the ice on immigration, while Ontario (and BC) still have an anti-foreigner buyer tax – which doesn’t look so genius anymore. And guess what happens when the pandemic eases and the Landlord/Tenant board gets back into operation, allowing owners to punt all those scuzzy renters who stopped paying? More supply on the market. Already rents are falling as available rental listings overwhelm demand. Rents are about 3.5% less than a year ago, and declining monthly.

And then there’s this: the pandemic flight to the boonies. Why pay $2.4 million for an okay house in mid-town Toronto (to have a 20 minute drive downtown) when you can get a mini-mansion for half that amount in Kingston, Grimsby or Kitchener – and work remotely? Why pay $800,000 for a 750-foot, two-bedroom condo on the 34th floor of a teeming downtown hi-rise when that will buy you a townhouse with a garage and an actual backyard in Burlington or Ajax?

It’s already happening, say the realtors. Sales in Halton are up 22% and in Durham by 8%, while falling 13% in Toronto. Same seems to be occurring in YVR, as activity flourishes in the Fraser Valley, on the Island and in the OK. It’s taking place in the States, too, as more New Yorkers and Bostonians head for the burbs.

After all, if you have to work from home, then home should be, like, awesome.

Bosses who talk nice to you, and valid reasons to ditch urbanity. Plus you can hide behind a designer mask. Nice work, bug.