Entries from September 2020 ↓

They did what?

Was the bond market surprised when Mr. Socks let it be known federal spending was just getting going? That the estimated $380-billion annual deficit was, well, merely a starting point?

Nah. Rock-bottom yields hardly budged on Canada bonds after the Throne Speech. Mr. Market says the central bank will continue to gobble up debt, creating demand and depressing yields for a while yet. Given the one-two punch of fiscal and monetary stimulus (Chrystia’s spending and the CB’s buying) we’re on our way to a $500 billion annual shortfall, and all the long-term consequences that will bring.

Don’t ask. They’re ugly. Your kids will hate you. Especially if they grow up to be anaesthesiologists.

Meanwhile, lenders are in a deathly battle for mortgage market share. Today we have a new all-time winner for the lowest fixed-rate, five-year home loan. It’s from those pirates at HSBC and clocks in at a mere 1.64% (for insured mortgages). It’s the cheapest advertised rate in Canadian history.

Yikes. That means it costs but $2,031 to carry a mortgage of $500,000 which, after five years becomes $415,600. Thus, $84,400 in principal is retired through making $122,000 in payments over sixty months. A record.

Combine that with 20x leverage, thanks to CMHC’s ridiculous insuring of 95% mortgages, and you arrive at these conclusions:

  1. When housing agency boss Evan Siddall warns young people not to buy real estate because of the inherent risk, and chastises society for its mindless ‘glorification’ of housing, is he hoping we won’t notice what his own outfit is doing? By insuring loans with extreme leverage, protecting lenders who can then do crazy things – like offer a 1.64% loan – this governmental body is literally begging moisters to jump in, increasing demand and jacking prices further.
  2. Ottawa is out of control. Stimulus spending is off the charts. Now the PM says, in a trumped-up, pre-election address to the nation, we’re in a second virus wave. Not maybe. It’s here. (By the way, the province I’m in today has one lonely dude with symptoms. No new cases. Nobody in hospital.) As a result of scary Covid, we’ll get national child care, universal pharmacare, payroll subsidies until next summer, a brand new CERB,  and, oh yeah, an enhanced shared-equity mortgage program for first-time buyers. Plus, of course, whatever the NDP wants in order to prop up the government. Did I mention there’s an election in the cards here? Will Canadians vote against cheap child care, 1% mortgages and free scripts?
  3. We are so drugged on debt. Households owe over $2 trillion, and mortgage demand is (of course) popping higher. The feds will spend $500 billion more than they have, pushing the federal debt way past a trillion. Provinces are pooched. Cities are crying for cash (look at poor Toronto and Vancouver). Conclusions: taxes and user fees will rise. When rates start sneaking back up, well, I hope you did the right thing in the final months of 2020.

First, if you’ve been even thinking a teensy bit about downsizing your real estate, and live in a bubble city or region (everywhere except Alberta, and the other flat bits), why not do it now? Buyers are currently hopped-up, wild-eyed, debt-infused zealots, seriously believing if they don’t purchase immediately they’ll be shut out forever. So cute. Anyway, this is the time to bail for top bucks.

Then rent for a while. Wait to get back in if you need property. The world will sure look different in two or three years when all of this stimulus starts turning to regret.

Looking to buy? Don’t. Utter foolishness. You’ll pay too much and are better off leasing a place since landlords are hurting and rental rates are dropping. Down 15% in the last few months in Toronto, for example.

If you must buy (spousal abuse) pre-qualify for financing. Get a five-year fixed commitment since the variable discount has largely vanished. If you end up in a bidding war, and win, (a) plan on staying put for at least a decade to justify being Hoovered, and (b) get a weekly-pay mortgage which – combined with today’s ridiculous rates – will help you trash the extra debt in record time.

Have a financial portfolio? Stay invested. The amount of government and central bank stimulus in Canada, the US and globally is unprecedented. Twelve trillion so far – which is about the size of the entre Chinese economy. It will continue to inflate many asset values, keep rates depressed, flow cash into capital markets, paper over anything Covid does and shift the burden of pain from corporations to governments, taxpayers and savers.

There’s a reason equity markets caught fire after their March lows. That’s when Trudeau and others turned the taps on. Despite all that the virus has done to our world, investors with balanced and diversified portfolios have skated through the mess. Now the taps are being opened even wider. No reason to think we’ll get a different result. And when a vaccine arrives, stand back.

By the way, did you see Ontario is now allowing employers  (effective next week) to skip making contributions to their defined-benefit pension plans? More virus fallout. More reason you need a Plan B.

Bottomless

No Time for Austerity.

You betcha. And that was the theme of today’s Throne Speech. What a surprise.

The Trudeau government is gearing up for a national child care program, universal pharmacare, enough spending on green initiatives to create a million jobs (good luck with that), plus oodles more money for testing, vaccine development and pandemic-fighting. Enhanced EI benefits will be extended and the wage subsidy program rolled right into next summer. No big UBI announcement but – as detailed here a few days ago – that $199-billion-per-year Godzilla would require massive tax changes to fund.

Speaking of tax, Throne speeches never detail such stuff – and we’ll get a lot more from Commander Chrystia in a few weeks. But the Liberals did promise they will be “identifying additional ways to tax extreme wealth inequality,” attack stock options, and also take a run at the online giants like Facebook.

The key phrase, “this is no time for austerity.” So much for the warnings of bankers, business leaders and those pesky Conservatives. More money will be coming for the travel business, arts, hospitality and targeted subsidies for businesses nailed in soon-to-come regional lockdowns. More for women, racialized citizens, kids and old snorts.

Missing words were ‘deficit reduction’ and ‘debt.’ Oh, and ‘election.’ But not for long.

Short, Sharp & Dramatic

No, that’s not merely a description of me. It also applies to corrections during a bull market – which we have been in now since the shock of Covid wore off. Stocks have been wonky, and generally descending since making all those exciting new highs in August (happened again today).

The FAANG tech giants are vulnerable. The airlines are dying. But cyclicals are gaining ground. The railways are back. Cash is moving into small caps (which always lead a recovery). So a pile of experienced money is positioning for the post-virus world when crazy fiscal (government) and monetary (CB) stimulus wears off and companies start making decent money again in a growing GDP.

But before that happens, the tree will likely be shaken again. More volatility. More RobinHooders squished. And, of course, there is this…

The Vote from Hell

America has to choose between a crazy 74-year-old serial fibber and narcissistic bully and a 77-year-old crusty career politician with a platform of mush. Not pretty. On one side is the evangelical, F150-driving, rebel forces of the right and on the other the BML, new-green-deal, social justice lefty warriors. A recipe for sustained conflict.

The worry is no clear winner on November 3rd, followed by protracted indecision amid vote counts, legal challenges and conflicting claims of victory. Markets hate uncertainty. Polls are imprecise and anxiety is building.

Veteran trader Ed Pennock had this to say earlier today:

Election polling is inexact. Biden’s lead is shrinking. His Lead has narrowed in Florida, Iowa, North Carolina, Ohio, and Arizona. His lead in Pennsylvania has dropped to 5%. He should be worried. This is how 2016 went. 45 did not win the popular vote. He won the Electoral College. The difference this time will be the contested Mail-In Ballots. Count on it getting Ugly.

Recall that during the Gore-Bush recount in Florida (which took more than a month) the markets shed about 12% of their value. This election could take until the end of 2020 to figure out, and that bull market correction might well reflect it. Who knows? But it seems reasonable to (a) stay invested and ignore the noise and (b) use your shiny new 2021 TFSA money to go shopping. Stuff may be on sale.

Pity the Poor 905

So last week this pathetic blog detailed the decline in urban-core condos in terms of sales and prices, and told you why. You know. The virus. Germy elevators. WFH. The quest for space. And cheapo mortgages.

We also told you about poor Hamilton, flooded with house-horny Millennial condo refugees and their damn cats, driving local prices skyward with multiple offers and extreme bids. The assumptions being made: remote working is forever. Downtown office jobs are relics. You can earn the same money in your underwear at home as you can in the cube. And why not move to some hick city to get an affordable house when you don’t have to commute into the Big Smoke?

Well, that’s cute. Reality will arrive for these folks soon enough.

Meanwhile the disease is spreading. Now it’s Fort Erie that’s sizzling, say local realtors. (For the uninitiated, this grimy blue-collar former canal city of 30,000 people sitting 152 km to the west and south of Toronto. The death highway connecting the two is the QEW.)

Sales in the region are up about 40% from last year and prices have risen 15%. Plus, if you move to Fort Erie, you get to see Buffalo across the river, with its picturesque red and blue flashing first responder lights and ever-present glow from smoldering buildings.

Yes. Livin’ the dream.