Entries from December 2020 ↓

HNY

In twenty-twenty this pathetic blog posted 364 columns (missed one last week – suck it up) containing about over 290,000 words, of which far too many were ‘Covid’, ‘virus’, ‘pathogen’, or ‘pandemic’. There are now 703,200 comments published here. Four irritating posters were banned, one was suspended pending a note from his mom while anti-maskers and anti-vaxers earned hundreds of deletes and ghostings.

In this year public finances were shot to hell. Millions lost jobs. Real estate nesting was an obsession. Interest rates collapsed. So did travel, tourism, restaurants and small business. The stock market hit a record high. Over twenty million Canadians finished the year in lockdown and 15,000 died in nine months of the you-know-what. WFH became a thing. In Toronto the local board of trade estimated downtown workers at 5% of usual levels. Commuter train travel fell 93%. Airports saw 10% capacity. Porter Airlines hasn’t had a single flight since March. Westjet pulled out of Atlantic Canada, where there are virtually no infections. Balanced portfolios had a great year. Trump was neutered by a guy he claimed was in a basement, half-dead and senile. Trudeau spent $383 billion he didn’t have. Brexit finally happened. China finished 2020 in high gear. And stress. Everybody got stress. Today we’re all snappy, pissed, cagey and dangerously bored.

Now what?

Given the current state of the world, predictions (as stated here a few days ago) are arrogant and useless. But the following seems safe (and predictable)…

First, things will get worse for a while. The bug is winning and the vax rollout so far has been botched. January and February will not be a happy time in the healthcare system, so keep your damn mask on. What’s coming on Monday in Ontario may shock a lot of people who thought 2021 would immediately bring vaccine lift and rainbows.

Second, the housing madness of 2020 will certainly spill into the new year. Sales and prices up as mortgage rates actually decline a little further after the CB drops its benchmark a few more basis points. It’s a dodgy time to be loading up on a ton of new real estate debt with prices at historic highs and rates in the ditch, but the hormones are flowing. This spring will send detached values to a fresh extreme, and push urban condos to a multi-year fallow. So you can buy high or you can buy low.

Third, cheap money, new heaps of fiscal stimulus (thanks, Joe & Justin) and the expectation of widespread inoculations, along with dancing robots, Elon Musk and the WFH tech stocks will likely propel equity markets higher. A lot higher. With bonds, GICs, high-interest savings accounts and other riskless assets paying nothing where else is money going to flow? Stay invested.

Fourth, the tussle between deflation and inflation will end. Twenty trillion dollars in government stimulus spending around the world plus cratered interest rates and central bank bond-buying did the trick. No depression. 2021 will probably kick off at least a half-decade of rising corporate profits, higher GDP and inflation. Lots of it. If you think your 1.5% five-year mortgage won’t renew at double the rate in 2025, you’re not paying attention. So get ready.

Fifth, expect a federal election in 2021 as the Libs take advantage of their spending largesse. Odds are high for a Trudeau majority (given the polls), so the Chyrstia budget following that will be a 1%er’s nightmare. The capital gains inclusion rate may rise. Dividend income may be hit. A new uber tax bracket created. The tilt left continues. And high-income or wealthy people will enjoy zero public sympathy. Make sure you max your TFSA next week and your RRSP by March 1st. Create a spousal plan, and maybe a spousal loan. Income-split pensions. Set up a joint non-registered account. Consider a tax-deductible HELOC investment loan. This is war. Suit up.

Finally, if the satanic 2020 taught us anything, it’s the futility of trying to know what comes next. We don’t. We can’t. We won’t. Our world was just eaten by an invisible globlet, and nobody saw that coming. Did you know a year ago a disease would wildly inflate house prices in the boonies? Or that Christmas would be canceled and Toronto locked down? Or the prime minister would give $18,500 in free money to people who earned just $5,000 the year before? Or that 70% of those who voted for the guy who lost the US presidential election wouldn’t believe it? That there‘d be no hockey? Or university classes? And people would get arrested for having parties? All because a dude somewhere maybe ate a bat?

Nah. Fuggedaboutit. Impossible. Too stupid.

So let’s just get together and go out on the town drinking tonight.

Whoops.

Of lust and virus

Call him Jake. Seems he lives in BC. On the island, maybe. Perhaps you noticed the comment that he left here yesterday:

Just wanted to say I collected CERB. I’m not proud of it but it was necessary. I also deferred my mortgage for 6 months back in April. I renewed my mortgage 2 weeks ago at 1.65% 5 year fixed. Even though I was on the dole since April and deferred my mortgage obligations for 6 months…they didn’t care! They even offered me a $20K LOC. I have been in the house since 1998 and have way more skin in the game then the C/U (lender). I declined the LOC and have been working full time since October. Shit happens…I didn’t want any of this.

We have no idea of J’s circumstances. Single, married, kids or not. Don’t know what his house is worth, nor the heft of his mortgage. Income or pension. Age or occupation. No idea. So being judgmental is pointless.

But we do know this: the virus whacked him. He lost his job and his income. He was forced to live on $2,000-a-month government pogey. For seven months he had no other means of support. He couldn’t pay his mortgage for six months. His home is still financed after 22 years of living there. His new job is just two months old.

Those are facts. Clearly the virus that so many on this blog try to minimize, ignore and trivialize has far-reaching economic and societal impacts that won’t be gone until the pandemic ends. So politicians who flaunt the rules and go on vacations or parents who stuff their kids onto crowded toboggan runs without masks just prolong the misery Jake’s lived through. Shame on you.

But this comment also makes you wonder a little about the credit union financing his house. It extended a rock-bottom, long-term, fixed-rate mortgage to a borrower who was (a) unemployed and on government assistance for many months and (b) had no financial assets, forced into mortgage forbearance. Jake also mentioned he has more equity than debt, so the loan was probably not CMHC-insured. In other words, the CU members took on all of the risk.

So what, you say? Isn’t this a good thing that a lender helped out a guy who was, through no fault of his own, run over by a pandemic?

Yep. It’s sweet of them. Maybe a bank wouldn’t have been as forgiving. But this sure underscores how we’ve allowed a real estate-based economy to emerge and now dominate our culture. Many credit unions have monster mortgage portfolios that, in the event of a real estate decline, would crush them. Jake sounds like a credit risk, yet was handed the gold-pated, cheapo, best-in-the-house loan rate. Is this prudence on the part of the mortgagor? Or does every borrowing like this chip away a little at the financial stability of the country?

I also wonder about the decisions our guy made. A house owned for two decades in BC, given the real estate insanity of Canada – and especially that part of it – would have soared in value over the years. The windfall gain would be free of tax. And during the Year of the Virus house values have exploded as people fled cities, craved more space and detached homes, shunned condos and obsessed over nesting.

In other words, if Jake had no earned income, no assets and couldn’t pay the mortgage, why would he not bail out of the real estate at the top of the market and collect taxless bags of money to survive a once-in-a-gen crisis? It might well be enough, invested, to provide lifelong security. Obviously having a single-asset financial strategy just failed him. So why not change that?

Yeah, I know. We’re smitten. Canadians would rather eat bugs and drink from the eavestrough than sell their homes. Instead of making us reassess values, the crisis this slimy little pathogen created has exacerbated the real estate lust in our hearts. Look at this week’s Nanos survey…

Canadians are the most confident in more than three years that real estate prices will continue to rise, according to weekly telephone polling, a positive signal for the recovery. About half of respondents, or 49.2 per cent, see home prices climbing over the next six months, the highest share since May 2017.  “Consumer confidence in Canada continues to gain strength with news on vaccines. Forward perceptions on both the strength of the economy and the value of residential real estate gained a full five percentage points in the past four weeks of tracking.”

The survey also found less than 15% of people think they’re better off financially than a year ago, while their job security has recently declined. No wonder. More than 20 million are currently locked down because of the second wave, as virus deaths pass 15,000 and infections set new daily records (3,000 in Ontario alone on Tuesday). The economy is being set up for another April-style hit with a vast swath of the small business sector on life support.

And guess what? We’re one day away from recording the best December in history for real estate sales and prices in the nation’s largest market. Household borrowing and debt have been expanding faster than during the housing bubble of 2017 – when governments were forced into action to corral house horniness. Now politicians have showered $250 billion on folks like Jake and overseen a collapse in the cost of mortgages.

Strange days, indeed. Stranger still that we think they’ll end well.

Like Jake, we’re not too good at learning stuff.