Nuclear

Trudeau was prime minister (Pierre). Five-year mortgages were well over 11%. Inflation was 9%. The Bank of Canada rate was more than 12 %.

This, policymakers figured, was a crisis. So the CB jacked rates up a full 0.75% in one go, to 13%. It was shocking. In fact, in the June election that year (1979), Trudeau crashed and Albertan Joe Clark became PM. People yearned for change amid economic distress.

Well, here we be.

Word is the CB will once again (maybe) stretch for a three-quarter pointer when rates change next – on June 1st. But this time the move would not be from 12% to 13%, but from 1% to 1.75% – hugely more impactful, especially when average houses (everywhere, all types) cost $800,000 and Canadians are carrying $1.7 trillion in mortgage debt.

Says grizzled mortgage broker guy Ron Butler: “If Tiff Hikes Prime Rate 75 BPS, Wow. That’s Nuts. I don’t really think it will be 75 but if it is…… Jesus……. that would be a nuclear strike on house values in Ontario. He was going to be up by 125 bps by October anyway. But the Physiological Shock of 75 bps. Just enormous.”

A nuclear strike. Is this just what Ottawa and the homeless, whiny, house-lusty Millennials want? Or is it exactly what everyone is suddenly afraid of? So confusing.

By the way, mortgage rates up again today (Friday). Five-year fixed are now north of 4% at all the quality lenders. The ‘B’ guys are on the way to 5% in the next week. The Big Six will be there by June. The stress test hurdle will be 7% this summer. If you don’t think that’s a FOMO-killer you’re not paying attention.

Here’s the latest from blog dog and veteran realtor Old Ron:

In this week’s meeting an agent blithely offered that his clients could have got $100,000 more had they sold their Toronto property in March, like it was Monopoly money or something. The average working stiff needs to log a lot of hours to net 100 large. We are soooo out of touch. Meanwhile Mr Soper over at Royal Lepage seems to think that Toronto has another $200k to the upside in 2022. I am not sure you can get there from here with the headwinds that are edging up to a Force 5 on the Beaufort Scale. (A Fresh Breeze).

U.S 30 year fixed mortgage now at 5.3% first time over 5% since 2011. 10 Year T-Bill hit 2.96 % 5. That is 2.6 X higher than it was 12 months ago, when it was 1.132%. A 1/2% bump in May by the Fed is baked in the cake. The B of C will follow June 1.

And NAR (National Assoc of Realtors) said that about 18% of US house purchasers are investors. I figure it is above 30% up here. Trouble is they don’t need to buy, and in my experience they quickly put the cheque book away if they sniff a correction, exacerbating the correction.

Speaking of bonds, change continues. Yields have gone nuts (it’s almost time to start gobbling up some debt, if your portfolio doesn’t have any), and over the course of the last few months the rate on a five-year Canada bonds has… tripled. This is where mortgages are funded. So guess what’s coming?

Source: Turner Investments; Investing.com

The bond market is responding to the giant leap in inflation we say confirmed this week, and also to statements like this from our central bank boss, Tiff Macklem: “We’re prepared to be as forceful as needed and I’m really going to let those words speak for themselves.”

Whoa, cowboy.

Of course, Tiff’s not alone. The US Fed has made it clear it will jack a half-point at each of the next two meetings (maybe more), and the stock market has been trying to cope with that news (not happy). Around the world, inflation has spiraled out of control as post-pandemic, consumer-led expansion roars, as the supply chain is busted, as the war exacerbates everything and after years of CB easy-money policy that saw rates crash and bankers distort the bond market with massive quantitative easing.

Now those bonds are being dumped (quantitative tightening), rates jacked and the brakes hit hard to cool off growth, speculation, borrowing and inflation.

Real estate in Canada is a prime victim of this. Already RBC says we’re bouncing off the top (as Old Ron’s colleagues attest) with these mortgage hikes being a “game changer”. On top of that are policies by government to ban offshore buyers, tax non-local owners, whack flippers and assignment sellers and punish owners who under-use their second properties. Those might have made sense a year ago and chilled some hormones. But now they will help murder market sentiment.

“We now expect home resale activity to slow more quickly than previously anticipated and, perhaps more important, we see prices peaking this spring as market sentiment sours from extreme bullishness,” says the bank.

Well, all real estate is local. Not everyone keeps up with the latest bond yield news. Most people have no idea what a Tiff is. People still want houses to live in. And inventory remains low. So what’s about to happen will be uneven across the land. The final outcome unknown.

There’s still time to sell, if that was your plan. We’re not devoid of greater fools yet.

About the picture: “I hope this message finds you and Dorothy well!” writes Hollis (we are. No plague.) “Attached for your consideration, is a photo of our little Chico. He’s a 20 year old Chinese Crested/Chihuahua mix. I’m not sure what he’s looking at in this photo, but it always makes me smile to see him among the daffs. He’s a good old boy, and we love him to bits. I am an avid reader of your blog, and have been for many years now. I even read the comments, though I ought to know better! My family has benefitted greatly from your wisdom, and I am very grateful that you share it freely with us. Many thanks for all that you do.”

114 comments ↓

#1 Dogman01 on 04.22.22 at 2:08 pm

@#133 IHCTD9
” Damn! Am I ever glad to be a Gen X, the last Generation to achieve prosperity in Canada as a matter of course. From here on in, most will slave to no good end, but my OAS will be funded. Good job Libs!”

——————————————-

GEN X!
– We saw Globalization and outsourcing begin.
– Recognized I could never compete with a workers whose cost was 100 times less than mine and this outsourcing\offshoring craze would lead to wholesale downward pressure on wages.
– Graduated into early 90 Recession….
– Recognized capital would beat Labour in all ways in this environment, so paid off small student debt bought used car with cash, then began investing with my TD Greenline Brokerage account. (you called 1-800 and executed trades with some dude on the other end, bought Royal Bank! shares)
– Realized IT was the only lucrative sector that would be open to entry level without “connections”. It provided a White Collar “Boomer” Job. (Benefits, decent salary, career path, etc) and Boomers could never master that command line!
– 30 years , head down, man with a plan, growing the stash, able to be financially free in my fifties.

GEN X the last gen where the 50th percentile on the Bell Curve could have a decent life, where upward mobility existed.

The Millennials and Gen Z better be in the top 20 percentile of success traits or “Pick your parents well”

It is so sad to see what has been constructively done to the young “Middle class and those working hard to join it™”.

Squirrel! – Look this way, climate change, look that way, diversity, but don’t look at the debt and your economic prospects as you are screwed.

#2 Caffeine Monkey on 04.22.22 at 2:14 pm

In theory the stress test is intended to cushion the shock from these rate increases, but how much do we really trust that the test is being enforced and mortgage brokers aren’t helping applicants to circumvent it?

#3 alexinvestor on 04.22.22 at 2:21 pm

It’s not quite time to go into bonds given what the Fed is threatening to do. Personally, I would be start to be tempted at the 6% mark for Canada 5 year bonds.

#4 TurnerNation on 04.22.22 at 2:28 pm

The Public Private Parterships begin. PPP is the palatable term for “Build Back Better”.
New System stuff. Governments exist only to fullfil the will of the large global corporations.

https://www.thestar.com/business/2022/04/19/ontario-quietly-bins-some-parts-of-its-blue-box-recycling-overhaul.html
Ford government quietly overhauls troubled plan to hand off recycling program to private companies



Weekend Humor. I glanced at the CBC — such malarkey and mirth as usual. So close to normal!

.Québec to keep mask mandate in place until mid-May (cbc.ca)

— Update on this deadly virus in Kanada.

.Why COVID headaches can be hard to shake — and when you should worry (cbc.ca)

— ZOMG what about the Carbon Footprint of these weapons? Should they raise Karbon taxes to compensate?
Smile: your city now is a potential target of Russian aggression with this material support:

.Trudeau says Canada is sending artillery to Ukraine — here’s what that could mean (cbc.ca)

—- For Dolce & The Data Mongers.

The flu shot. 16% effective.

https://www.cdc.gov/mmwr/volumes/71/wr/mm7110a1.htm

#5 Dr V on 04.22.22 at 2:30 pm

145 Shawn – thank you for this info.

Do the pension holders have any RRSP room? What it
looks like is the pension contributions actually exceed the 18% that an individual is allowed to contribute to an RRSP. And of course the individual cannot make up the difference through CPP or TFSA contributions as they are available to the pension holders as well.

And I know you dont like these “personal” corporations
that some of us use in tax and income planning. Of course that is available to you as well. But then you have to pay both ends of CPP.

I recall you mentioning that at least one of your kids
is working for govt? I dont hold it against them, but I
think it’s a shame when young bright minds aspire to
work at jobs just because of a pension. Fair(er?)
pensions for all is what is needed.

#6 Faron on 04.22.22 at 2:30 pm

Welp, my foot dragging arguments against home buying 1.5 years ago are looking to come true. As long as rents stay high, I won’t be bothered. But if they fall below our monthly outlay, that will be tough. The enjoyment premium of ownership will only go so far.

Probably not a bad time for folks to learn the concept of duration as it relates to bonds and other forms of debt. It’s a small part of the NETFLIX story (horror show?) whose cost of financing is going to be a serious burden. There’s a lot of messiness that will come out of the junk bond markets.

Also, Google up the timeseries of running correlation between long bond yields and the S&P 500. It was negative for almost 30 years in the 60s, 70s and 80s. That period is a decent analogue for our post-COVID and de-globalizing world.

Maybe a blog dog can tell us what it feels like to hold a 7 figure HELOC invested in equities (some of the most duration sensitive equitues at that) that are down 6 figures in a steeply rising rates environment?

#7 Sarah on 04.22.22 at 2:32 pm

“Cost of living has tripled in the last nine months” is a bit of a misleading statement. As, the rate at which cost of living increases has tripled in the last nine months, I assume everyone reading this blog can identify the difference but I don’t have the same faith in all Canadians.

Where I live in a blue collar town far far from the GTA we have had many southern Ontario “investors” begin buying up housing stock. They immediate list them for rent at Toronto prices and hire local property managers. Once their interest rates go up, and no renters to foot the bill, they’ll be the first to leave. I’m curious to see how my local community will fare in the coming months and whether this house-less millennial will finally be able to cash in on an “investor’s” desperation to liquidate their assets.

#8 Leftover on 04.22.22 at 2:32 pm

That CB’s lost the plot is old news and mainstream:

https://www.economist.com/leaders/2022/04/23/why-the-federal-reserve-has-made-a-historic-mistake-on-inflation

As I remember (circa 1982…) things happen fast or, as the saying goes, people go bankrupt slowly – then all at once.

Meanwhile, in my hood, a hot one, listings are up 56% since mid-March.

So much for supply being the problem.

#9 Felix on 04.22.22 at 2:33 pm

Happy Feline Friday!

Did you know:

A house cat could beat superstar runner Usain Bolt in the 200 meter dash.

About half of the cats in the world respond to the scent of catnip.

Cats can be toilet-trained.

Cats can drink sea water in order to survive. (In case you’re wondering, humans can’t.)

Cats dream, just like people do.

#10 Cordite stained wretch on 04.22.22 at 2:35 pm

Canada needs a crash. Not so people sitting on the sidelines can buy a house, but because all that capital wasted on housing needs to be moved into something productive.

#11 crowdedelevatorfartz on 04.22.22 at 2:38 pm

I called a .75 bump last week.
0.5 isn’t enough and 1% is too much ….hence the meeting in the middle.
And .75 still won’t be enough to slay inflation numbers.
Cost of Living will continue to climb.
Fuels, food, etc prices world wide don’t care one bit about tiny little Canada and it’s huffing and puffing Bank of Canada solutions to our self made Housing ponzie.

The Greaterfools will eventually figure out , they’re pooched, when the housing sales market has screeched to a halt, ….then the builders, ….then the trades,

This time next year should see tumbleweeds blowing down Main st.

#12 Dogman01 on 04.22.22 at 2:44 pm

Look at the chart of ZTL; illustrates how Bond ETF’s behave.
As rates rise the pack of old bonds in the fund go down in value. But if you look at he COVID 2020 scare, Feb 1 2020 to April 30 2020 where equities crashed you see ZTL rise like the phoenix. + 19%

There you have it folks. Bond ETF’s nice when equities are in FEAR mode but a drag in a rising rate environment. Individual Bonds seem the way to go now vs ETFs.

https://www.morningstar.ca/ca/report/etf/performance.aspx?t=0P00019VNY&lang=en-CA

That is thoroughly bad advice. – Garth

#13 Shawn on 04.22.22 at 2:46 pm

Money Printing?

#169 jess on 04.22.22 at 1:57 pm
value creation vs value extraction

buy back shares.. Artificial inflation?

“If share buybacks of $83 billion, representing 72 percent of total payouts for these 10 [Banks] in 2017, were instead retained, they could, under current capital rules, increase small business loans by three quarters of a trillion dollars or mortgage loans by almost one and a half trillion dollars”

***************************
Making loans increases the money supply. Making those loans would be inflationary.

Banks are in the business of making returns for share owners not “supporting business” Your bank is not your momma.

Let the dude calling for these added loans (it was in 2017) lend out his own money.

#14 Shawn on 04.22.22 at 2:54 pm

Higher interest rates?

This is going to a horror film…

Actual cash may prove to be a good choice right now. GIC guys gonna sleep sound despite losing ground to inflation. I’ve never bought a GIC in my life but I don’t dis those that have some.

Higher interest rates are a gravitational force on ALL financial assets except cash (inflation however does erode cash – as well as all financial assets unless they increase in value for other reasons like earnings)

Sympathy to those with million dollar houses and mortgages. But oh well, I don’t know any of them so its pure entertainment. Schadenfreude anyone?

Gonna hurt me too on stocks but I got some dry powder for bargains.

#15 Stuck In NB on 04.22.22 at 2:57 pm

HSBC is still offering 3.89% fixed for 5 and 7 year terms, as of today. Sizeable increase since just over a year ago, when 10 year fixed was available for 2.14%. But approximately on par with 2019 rates. Given today’s inflation, mortgages are still cheap.

#16 XEQT and chill on 04.22.22 at 3:05 pm

But what are Canadians going to do if they can’t get filthy rich simply by buying real estate, Garth?

Will we have to finally *gasp* work for our wealth??

#17 TurnerNation on 04.22.22 at 3:06 pm

We pay higher taxes for our World Class Health Care System. 3 Cheers. Hip hip

.Global News Toronto @globalnewsto
Apr 21 Some Canadians are looking outside the country to book elective surgeries amid growing wait times exacerbated by the #COVID19 pandemic. National health reporter @JamieMauracher joins @AntonyRobart with more on the situation.


ITALY…why was this country — with its strong and testo-driven strong homogeneous culture hit so hard in 2020? I’d remarked on this at that time. Softening them up for this…Social Credit Score rollout.

https://corrieredibologna.corriere.it/bologna/politica/22_marzo_29/bologna-patente-digitale-cittadini-virtuosi-punti-premi-un-app-tutti-servizi-5a861258-af3a-11ec-9372-638361423a51.shtml?refresh_ce-cp
“Bologna, the “digital license” for virtuous citizens: points and rewards. And an app with all the services”
“…and then use Big Data to “reward” virtuous citizens with discounts and discounts.”


— The Big Data will of course be sold to the Big Global Tech ruling this world.
Did you know that Facebook is the largest buyer of credit card transaction data?
You will not be able to buy or sell without the Mark?

“In Austin, Texas, Whole Foods shoppers can now pay using their palm. The pay-by-palm service is enabled by the Amazon One devices, which link a user’s palm signature to their debit or credit card.”
https://reclaimthenet.org/amazon-palm-scanning-payments-arrive-in-austin-texas/
““Amazon’s expansion of biometric data collection through Amazon One raises serious questions about Amazon’s plans for this data and its respect for user privacy, including about how Amazon may use the data for advertising and tracking purposes,” they wrote.”

#18 Powder on 04.22.22 at 3:08 pm

People who have been sitting on worthless cash for a decade are finally about to see the (limited) upside to their caution. Time will tell just how much blood will be on the streets, but there will be some.

If rates “only” go up to the estimated neutral policy rate of 2.75% (bringing variable mortgages into the mid-4’s), the damage will be minimal and savers will once again be made into the suckers they have long been.

If this trajectory of uber-hikes goes into “above neutral” territory, those GIC grandmas will be absolute royalty. A modern enterprise, let alone illiterate HELOC’d households, cannot function at those rates. Our economy is laden with zombie businesses that have only been able to hang on by a thread due to accommodative monetary and fiscal policy.

#19 VictorianSaurian on 04.22.22 at 3:12 pm

What will rising government bond yields do to taxes? Seems we are looking at service cuts, tax increases or both.

#20 DR on 04.22.22 at 3:15 pm

Hi Garth,
Debt,debt,debt. When people signed that big fat mortgage that will never ever get paid off in their lifetime! They sign their freedom away. FOMO is a trap and it gets people cus it’s human nature, people fall for the sales pitch (low life realtors) get in now or your miss out. I swear realtors are the lowest of the low, right there with car salespeople. They see you venerability and act on it with such patronizing words, “you never lose in real estate,” “it’s such a nice neighborhood “ “get in now before it’s to late”. Instead of “it’s a dump, don’t buy it” “not worth the money” “I don’t think you should stretch yourself financially “ “wait till the market cools off cus it’s way overpriced”. No they are part of the problem. I swear their meetings in the office is all collusion on how to jack the prices up so we pump,pump this fake mirage of homeownership. Love you to do a segment on realtors, THE TRUTH OF REAL ESTATE AGENTS.

#21 PeterfromCalgary on 04.22.22 at 3:17 pm

The central bankers can’t do anything about the two Ps (Putin and pandemic).

Nor can central banks do anything to fix supply problems. They can’t force young people to want to be truck drivers, they can’t make businesses find creative solutions to supply chain problems and they can’t look for oil and gas. Mr. Market will have to solve supply problems. Hopefully, the government gets out of the way of Mr. Market especially with oil and gas.

Neutering North American Energy only helps Putin it does nothing to lower global warming. To reduce global warming we need to use less oil, gas and coal rather than force importers to buy more fuel from Putin and less from ourselves.

Unfortunately, neutering North American energy seems to be the policy of Trudeau and Biden. Putin celebrates whenever a North American pipeline is killed, an LNG development is shelved or a coal mine is not approved. Putin will cry if we find real ways to reduce fossil fuel consumption while at the same time increasing supply by building more pipelines and stuff.

What central banks can do in this high inflation environment is lower demand for stuff by making money tight. Banks need to keep raising rates until demand and supply find a balance and inflation falls. The Feds job will be made easier after November if enough Republicans get elected to reduce Biden’s spending. Less government spending means interest rates do not have to rise as much to tame inflation.

#22 Apocalypse NOW on 04.22.22 at 3:19 pm

Yes, Nuclear is on the way. In the worst, Putin way.

For survivors of 2022, 2023 will be even worse.

Bee populations are crashing by 50% and more.

https://london.ctvnews.ca/bee-winter-mortality-worst-in-years-say-ontario-beekeepers-1.5869212

Combined with fertilizer and produce shortages from Ukraine and elsewhere, the food production complex will be torn to shreds by 2023.

Expect population globally to drop to under 3 Billion.

In the next 18 months.

And real estate will be Free, btw.

#23 millmech on 04.22.22 at 3:19 pm

Garth
Vancity CU 6mth open term residential mortgage already at 7.25%.
https://www.vancity.com/Rates/Mortgages/

#24 OK, Doomer on 04.22.22 at 3:20 pm

#10 Cordite stained wretch on 04.22.22 at 2:35 pm
Canada needs a crash. Not so people sitting on the sidelines can buy a house, but because all that capital wasted on housing needs to be moved into something productive.
____________________

The capital won’t be re-deployed, but rather, stranded, imprisoned or destroyed. It won’t be going anywhere.

Author James Michener once wrote:
“Only the rocks are forever.”

In this case, “Only the debt is forever”.

#25 jess on 04.22.22 at 3:21 pm

January 2019Explanatory note on the
minimum capital
requirements for market
risk

https://www.bis.org/press/p190114.htm

Explanatory note on the minimum capital requirements for market risk
1. Introduction
The Basel Committee on Banking Supervision introduced the first framework for minimum capital
requirements for market risk in January 1996.1 The aim of the framework was to ensure that banks
maintained a minimum level of regulatory capital to absorb losses arising from movements in market
prices of instruments held in the trading book. Losses suffered by banks in the financial crisis of 2007-09
revealed that the design of the framework was not sufficient to ensure that banks could withstand such
significant market distress. In response, the Committee introduced a set of revisions to the market risk
framework in July 2009, often referred to as the Basel 2.5 reforms.2 While these reforms addressed the
most pressing deficiencies of the framework, the Committee acknowledged that a number of structural
shortcomings that came to light during the crisis remained unaddressed. It therefore conducted a
“fundamental review of the trading book” (FRTB). The objective of the project was to develop a new,
more robust framework to establish minimum capital requirements for market risk, drawing on the
experience of “what went wrong” in the build-up to the crisis.3

2. Background and rationale for revising the market risk framework
2.1 Deficiencies identified in the pre-crisis framework
The financial crisis exposed a number of shortcomings in the pre-crisis market risk framework that had
been in place since 1996. The definition of the regulatory boundary between the banking book
(ie exposures generally subject to credit risk capital requirements) and the trading book (ie exposures
generally subject to market risk capital requirements) relied solely on the bank’s intent to trade an
instrument, and proved to be a key design weakness…

https://www.bis.org/bcbs/publ/d457_note.pdf

#26 Linda on 04.22.22 at 3:22 pm

‘Chico’ is 20 years old? That must be some kind of record! Looks very primal howling amidst the daffodils:)

#5 ‘Dr. V’ – the PA does reduce the amount one can contribute to one’s RRSP by the amount paid into the workplace pension plan. The CCRA does regulate how much one can contribute to a pension so I’m not sure how likely it is that someone could potentially wipe out all RRSP contribution room due to how much they were contributing to a workplace pension.

#27 Stone on 04.22.22 at 3:22 pm

Speaking of bonds, change continues. Yields have gone nuts (it’s almost time to start gobbling up some debt, if your portfolio doesn’t have any)

———

Not yet. I own a short term bond ETF in my B&D however will not venture into longer term bond ETFs yet. Current stage of bond yield increases is a mere paper cut for what is yet to come. Buying mid term to long term bond ETFs now is the equivalent of committing seppuku. I like to keep my head attached to my neck for now.

I am continuing to watch and wait for when the the time comes to vulch those longer term bond ETFs though.

That is the strategy of most people – buy when things are going up and cost more. – Garth

#28 Flop… on 04.22.22 at 3:23 pm

#75 Michael on 04.21.22 at 7:18 pm
#27 Flop… on 04.21.22 at 3:20 pm
I started a blog once.
It was the longest six months of my life…
M47BC
…………………………………………………
I enjoyed that blog every day while it lasted Flop.
Might be a good time to restart it again, I think a lot of material would come your way pretty soon.
In fact I hear the price drops started so you could have started yesterday :)
M50BC

////////////////////

That’s some nice words Michael.

We have some mechanisms available today for people interested in self education of the real estate cartel that I was lobbying for that weren’t available in 2016/2017.

Things seem to be slowing down in my hood but I could have sworn I saw a new build the other day on the East Side asking over 5 million.

The market goes up and then retreats before heading off on its next adventure.

If you haven’t gotten off the train tracks by now, then you are not going to notice a little bit of blood in the snow…

M47BC

#29 Senator Bluto on 04.22.22 at 3:23 pm

#21 Apocalypse NOW on 04.22.22 at 3:19 pm
Yes, Nuclear is on the way. In the worst, Putin way.

For survivors of 2022, 2023 will be even worse.

Bee populations are crashing by 50% and more.

https://london.ctvnews.ca/bee-winter-mortality-worst-in-years-say-ontario-beekeepers-1.5869212

Combined with fertilizer and produce shortages from Ukraine and elsewhere, the food production complex will be torn to shreds by 2023.

Expect population globally to drop to under 3 Billion.

In the next 18 months.

+++++++

My, my, aren’t you a cheery lad!

#30 Sail Away on 04.22.22 at 3:26 pm

#6 Faron on 04.22.22 at 2:30 pm

Maybe a blog dog can tell us what it feels like to hold a 7 figure HELOC invested in equities (some of the most duration sensitive equitues at that) that are down 6 figures in a steeply rising rates environment?

——-

Hey, I had one of those. Closed it out a few weeks back for a 9 month gain of around $47k. Posted it here as per standard operating procedure but maybe you were frolicking in a sauna and missed the sell.

But, also as per SOP, I keep track of all sells, as follows:

Original purchase price in 6/21: $972,578
Sold 4/22 for $1,019,606
Portfolio value today, had we kept it: $971,072

It seems we may have sold at just about the perfect time. Again! When you’re living right, fortune smiles…

#31 Stone on 04.22.22 at 3:26 pm

#18 Powder on 04.22.22 at 3:08 pm
People who have been sitting on worthless cash for a decade are finally about to see the (limited) upside to their caution. Time will tell just how much blood will be on the streets, but there will be some.

If rates “only” go up to the estimated neutral policy rate of 2.75% (bringing variable mortgages into the mid-4’s), the damage will be minimal and savers will once again be made into the suckers they have long been.

If this trajectory of uber-hikes goes into “above neutral” territory, those GIC grandmas will be absolute royalty. A modern enterprise, let alone illiterate HELOC’d households, cannot function at those rates. Our economy is laden with zombie businesses that have only been able to hang on by a thread due to accommodative monetary and fiscal policy.

———

Sitting on cash for a decade?

Nelson from The Simpsons: Ha! Ha!

There will never be a time where GIC holders will ever be considered royalty. Get real.

#32 Søren Angst on 04.22.22 at 3:28 pm

#10 Cordite stained wretch

Could not agree more. Problem is that money will disappear as home prices continue to drop. Gone. Gone.

———————-

Mr. Market Bloodbath today.

Dow -753.18
Apr 22, 3:27:07 PM UTC-4

Only thing in green is the VIX. Not even oil safe.

Glad I went for high dividend ETFs/ETNs instead of stock growth.

#33 Penny Henny on 04.22.22 at 3:35 pm

(it’s almost time to start gobbling up some debt, if your portfolio doesn’t have any)-GT

?????????????

I don’t get it. What does this mean?

#34 Søren Angst on 04.22.22 at 3:35 pm

#30 Sail Away

Today is 4/22.

You could not have sold it on 4/22 and say you would have lost money if you sold it that day.

#35 Cordite stained wretch on 04.22.22 at 3:35 pm

#24 OK, Doomer on 04.22.22 at 3:20 pm
“The capital won’t be re-deployed, but rather, stranded, imprisoned or destroyed. It won’t be going anywhere.
Author James Michener once wrote:
“Only the rocks are forever.”
In this case, “Only the debt is forever”.”

Good point. Destroyed then.
But it’s the only way any new capital is going to find its way into something other than dirt and boxes.

#36 Sail Away on 04.22.22 at 3:38 pm

#32 Søren Angst on 04.22.22 at 3:28 pm

Mr. Market Bloodbath today.

Only thing in green is the VIX. Not even oil safe.

———-

Well… and TSLA. Elon da man, you know?

#37 45north on 04.22.22 at 3:38 pm

Dogman01 Boomers could never master that command line!

what boomers you talkin’ about?

echo find files bigger than 400M
find ~/. -type f -size +400M -print0 | xargs -0 -I {} ls -hl {}

plus logical volumes, dns, xfs, centOS, hp-ux, bootp, DHCP, GIS

#38 Ponzius Pilatus on 04.22.22 at 3:41 pm

12 Dogman01 on 04.22.22 at 2:44 pm
Look at the chart of ZTL; illustrates how Bond ETF’s behave.
As rates rise the pack of old bonds in the fund go down in value. But if you look at he COVID 2020 scare, Feb 1 2020 to April 30 2020 where equities crashed you see ZTL rise like the phoenix. + 19%

There you have it folks. Bond ETF’s nice when equities are in FEAR mode but a drag in a rising rate environment. Individual Bonds seem the way to go now vs ETFs.

https://www.morningstar.ca/ca/report/etf/performance.aspx?t=0P00019VNY&lang=en-CA

That is thoroughly bad advice. – Garth
———————————-
Too many wanna-be Garths here.
There’s only one.
Listen, Grasshoppers.
And only speak when you’re asked to.

#39 Captain Uppa on 04.22.22 at 3:47 pm

I am tired of seeing the new Benz’s and Beemers pulling up to a house on my street to ensure the serfs they rented out to are paying up.

I was so pro-house boom, because I own one (bought in early 2016) and got blinded by the flourishing equity.

In other words, I bought into the disease that RE is in this country (GTA, where I am, especially).

But now, I see the damage it causes. Sad.

#40 Sonny Kang on 04.22.22 at 3:49 pm

‘Intense’ price drops coming to Vancouver housing market next year: RBC

https://biv.com/article/2022/04/intense-price-drops-coming-vancouver-housing-market-next-year-rbc

#41 Søren Angst on 04.22.22 at 3:54 pm

#36 Sail Away

Elon down just a smidge -0.21% And Elon nailed it on Netflix:

“Go Woke. Go Broke.”

——————-

You know its a bad day on Google Finance when you click on Gainers and there are only 3 stocks on the list. You click on More and there are still only 3.

You click on Losers and the list is endless.

F’me.

Dow now at
-955.59 pts
Apr 22, 3:52:13 PM UTC-4

Oddly, my Maple ETF in the Green +0.28%.

yeah Maple

#42 Down Baby on 04.22.22 at 4:02 pm

Come on down, real estate is the next contestant on the price to too high game.

Gee, look at the stocky stocks, you too are the next contestant.

Oh and our good old reliable friend bonds – prices are coming down too.

That 40 cycle of lower interest rates has ended, and so are the investment vehicles they support.

#43 T-Rev on 04.22.22 at 4:06 pm

Imma need some help here. Someone please explain to me how higher rates are going to fix the supply chain? Anyone?

Sure, there’s excess liquidity from all the QE and deficit spending. I don’t believe that increased demand is driving prices though. It’s decreased supply due to shutdowns, border restrictions, and policies that encouraged people to quit work in exchange for government cheese, coupled with high energy costs resulting from decades of energy project mismanagement in the western world. So how do higher rates fix either of those things? Is the solution simply to drive people into poverty and bankruptcy to dampen demand? Wouldn’t it be better to keep rates low to help companies invest in on-shore production to offset overseas supply issues? Clearly I’m to dull to understand, but seems to me that governments killed supply chains with their Covid lockdowns and profligate spending, and are now going to try and fix their mistakes by breaking Joe six pack. Instead of higher rates, I’d like to see them shrink the size of government. Higher rates aren’t going to fix this. I’m looking forward to the shocked look on peoples faces when inflation continues heat up even as rates climb skyward. Small increases will have big effects on demand, but it’s not going to help either supply OR input costs. Not as much as people think anyway.

I get around in business and in life…probably have a personal network of 5000 people if you count families of my immediate network. I know two COVID fatalities plus two hospitalizations in that group. Seems like we screwed everything to try and protect 1/2500 people. PS I know more people who have died in car/ATV/motorcycle accidents in the last two years than Covid. And many more who have died of natural causes and old age. “I’m from the government and I’m here to help”. The lockdowns were a disaster for global trade and security. And now they’re going to “help” tame inflation and fix supply issues. Good luck.

#44 crowdedelevatorfartz on 04.22.22 at 4:06 pm

@#29 Senator Bluto
“My, my, aren’t you a cheery lad!”

+++
Yes , “Poxy” and Ponzie get together every few months to make vinegar for their cereal.
It’s how they start their day…

#45 Sail Away on 04.22.22 at 4:09 pm

#34 Søren Angst on 04.22.22 at 3:35 pm
#30 Sail Away

Today is 4/22.

You could not have sold it on 4/22 and say you would have lost money if you sold it that day.

——-

Month of April in the year 2022

#46 Søren Angst on 04.22.22 at 4:13 pm

That was a good write up Garth.

Having lived the Pierre rates it dumbfounds that a CB rate of 1% to 1.75% would sink the good ship:

Cdn RE Diseased.

A lot of debt will do that to you.

100% of F’all is still F’all.

0.75% of $1.7 trillion, well…you know, it’s not F’all.

Well a couple of generations are about to grow up the hard way. Just like us Pierre Paleos had to.

Right now they’re blaming everyone except themselves.

Typical.

They’ll grow out of that soon enough when they realize it won’t change a damn thing.

#47 Paul on 04.22.22 at 4:13 pm

Ha, 12% to 13% yawn 2% to 4% 100% increase ouch!

#48 Søren Angst on 04.22.22 at 4:23 pm

Honest to God Garth, what a depressing Mr. Market day it was.

You go here:

https://www.google.com/finance/markets/losers

The Red list is endless.

You go down to Discover More, hoping for hope, nope it’s all Red to. Click on the scroll right arrows, nope, all Red.

Already the MSM out there trying to explain infamy.

Come Monday, a chunk of divs in, buying cheap.

It will get better.

#49 Islander on 04.22.22 at 4:33 pm

“Roughly 760,000 Canadians applied for some sort of mortgage deferral from a chartered bank since the pandemic began.“

Have fun at mortgage renewal time!

https://www.cbc.ca/news/business/covid-mortgages-cmhc-1.5718894

#50 ogdoad on 04.22.22 at 4:36 pm

Its about time…perhaps.

There’ll be plenty of cash rich people waiting on the sidelines as owners become desperate enough to sell their assets into a declining market. There’ll also be plenty of people who will ride out any decline, save money (if they can) and pass there houses on to their greedy offspring, ’cause they can..or wait until the next crisis. Then sell.

Anywho, how deep does the urge to nest go. As deep as 100k weddings? Shiny (and kinda ugly) Teslas?

Who, in power, is telling us to hold value in something else? Socks isn’t. Too busy grooming. Snorefest down south? Yawn me a river. Putin? What’s he promising? Tech? Riches? Virgins? Land?

There are many individuals on earth. Some of which are on the hunt for oxy. Like me. Others will gain power and riches by force. Will they promise houses to the masses?

We are lazy first-worlders…we will fall easily. Almost as easily as how duped we’ve become.

Og

#51 Ponnaps on 04.22.22 at 4:36 pm

But this time the move would not be from 12% to 13%, but from 1% to 1.75%

12 sounds like a lot .. so 12-13 is like a hell no the govt’s not listening..

1 to 1.75%.. nah not so much.. so no regime change yet

if only people knew how to do the math, we wouldnt be here in the first place…

#52 tkid on 04.22.22 at 4:38 pm

Does anyone remember the Andy Donato cartoon from the 1980s of the finance minister at the time panicking while saying don’t panic? There was a graphic of the then interest rate going into the 20% range.

Been trying to find it for ages. I think we may see those times again.

#53 I don’t know on 04.22.22 at 4:55 pm

“ Well, all real estate is local. Not everyone keeps up with the latest bond yield news. Most people have no idea what a Tiff is. People still want houses to live in. And inventory remains low. So what’s about to happen will be uneven across the land. The final outcome unknown.”

This is the statement that matters.

At the end of the day, renting is not an option for the vast majority. Inventory is low, and an entire generation (the biggest demographic in our society) is looking to settle down and have children.

You buy real estate when you can afford to….and affordability is about to get worse.

IDK

#54 Shawn on 04.22.22 at 4:59 pm

DB Pensions and CPP

#172 Linda on 04.22.22 at 3:09 pm

#167 ‘Shawn’ – the employer paying half is true of any DB pension plan, CPP included. I’m not sure of ‘the rules’ when it comes to DC pension plans. Do employers contribute half there as well?

Something I’m wondering about CPP. It is a universal, mandated by government law pension plan. The majority of working Canadians pay into CPP. So if CPP should for some reason fall into a deficit situation, who guarantees the benefit? The government which would mean the taxpayer?

*****************************************
All the Alberta government DB are half paid by employee and half by the government employer.

That’s not always the case. The Federal government DB (superannuation) plan is paid I believe more than half by the government employer certainly it was when I looked a few years ago.

I believe some lucky non government DBs are 100% employer paid. CN Rail?

As for CPP it has always been in deficit because it started out as a pay as you go plan. Early recipients got CPP based on way more years than they contributed since contributions only started circa 1965.

The government is the ultimate guarantor but in practice the deficit is slowly being whittled away by contributions I believe. Like any DB they can and do increase the contributions and have increased them a lot.

For a lot of lower income people CPP is a godsend as it is at least something and many would have only Old Age pension without. Oh I suppose some will say CPP just cuts into their Guaranteed Supplement. You can’t please everyone.

CPP is probably best for middle income people who earned around the CPP max or higher and never would qualify for the supplement.

For the bigger earners it’s just a bit of extra spending money. For some people their $800 a month CPP is extremely important and crucial. For others even the max $1254 per month is just play money. That’s the way life is. The “Bell” curve of income in retirement is wide with a long tail to the right and a median skewed to the left. At least it is also truncated to the left since everyone gets some minimum (Old Age plus supplement, at least for long-time residents / citizens)

The way life works, the people getting the maximum CPP are the ones who need it least in general since they often had DBs or other savings. But they earned it and will have their Old Age pensions clawed back in many cases (they should take pride in that) and we have programs for the lowest income people.

#55 The West on 04.22.22 at 5:31 pm

The air raid sirens are indeed welcome news to those who have played the game correctly.

There is a specter haunting our society and I foresee massive social upheaval on this continent in the next three years.

https://www.youtube.com/watch?v=Q5Zai1G5hp4

#56 JOHN PICKETT on 04.22.22 at 5:38 pm

Kind of like T-Rex’s thoughts. We also make dumb decisions as a country. Case in point is the Ukraine war. Seems like the last European war of 30 years ago in the Balkans our foreign policy was for an arms embargo. That war did go on but at least they had a limited supply of bullets. Pure insanity to be sending weapons to the Ukraine, a country that misrepresents itself as a democracy. It is at be a Russia Lite. There is absolutely no way Canadian consumers should be paying exorbitant prices at the gas pumps and the grocery store. The Globe and Mail writer Konrad Yakabuski put it quite clearly: “Canada’s five decade long experiment in official multiculturalism has been the creeping influence of diaspora politics, as politicians of all stripes subjugate the country’s national security interests to the whims of winning votes among certain ethnic minorities”. In Canada’s case it seems that the Ukrainian Canadian Congress is dictating our foreign policy to the detriment of all Canadians. Sad to see none of our political parties have th guts to stand up for ALL of Canada. JOHN PICKETT

#57 Doug t on 04.22.22 at 5:52 pm

The world has never been so NUCLEAR – this word now defines the world we live in – everything is NUCLEAR – war, pandemics, food shortages, markets, mental illness, opioid addiction, climate change, social disintegration etc etc etc – gotta wonder what’s around the corner

#58 VladTor on 04.22.22 at 5:53 pm

Garth
Trudeau was prime minister (Pierre). Five-year mortgages were well over 11%. Inflation was 9%. The Bank of Canada rate was more than 12 %.

************
Yes, here is the table inflation :

Table – 1979 inflation Canada (CPI):

inflation (monthly basis) inflation inflation
february 1979 – january 1979 1.31 % 9.04 %
march 1979 – february 1979 1.04 % 9.24 %
april 1979 – march 1979 0.77 % 9.78 %
may 1979 – april 1979 1.02 % 9.37 %

Now we have inflation only 6% and rate still 1.75% (amazingly good rate – free helicopter money!!! ) and panic about increasing rate up to 2% ????

With this inflation we already should have rate 6%-7% and NO panic!

I’m sure hyperinflation and stagnation ahead here and USA.

#59 paddy on 04.22.22 at 5:55 pm

I know there’s a lot of financially sound and well positioned people who read this blog everyday and we like to brag and boast about how well we are doing but we need to remember how fortunate we are, that we aren’t financially screwed like a lot of people in this country, and probably many more to come in this rising interest rate environment.

Glad we heeded Gartho’s advice and got some bond holdings our portfolios(I was an equity cowboy till 2 years ago).

As famous comedian Russell Peter’s father used to say: “Someone gonna geta hurt reeeeeal bad”

#60 Umuzi on 04.22.22 at 6:05 pm

A renovated semidetached house in the west end of Toronto near where we live, was listed last week for 2.5 million and just sold for 3.3 million. Seems like in some markets the house lust hasn’t died yet…and there are plenty of Greater Fools still ready to spend, spend, spend!

#61 UCC on 04.22.22 at 6:06 pm

#26 Linda on 04.22.22 at 3:22 pm
‘Chico’ is 20 years old? That must be some kind of record! Looks very primal howling amidst the daffodils:)

#5 ‘Dr. V’ – the PA does reduce the amount one can contribute to one’s RRSP by the amount paid into the workplace pension plan. The CCRA does regulate how much one can contribute to a pension so I’m not sure how likely it is that someone could potentially wipe out all RRSP contribution room due to how much they were contributing to a workplace pension.

The problem is three-fold. First, DB pension in the private sector do not match the resiliency of GoC DB plans (which are taxpayer backed). Second, the RRSP contributions levels are set two low for those who don’t have a DB pension. And finally, anyone who has had the DB pension failure (Sears, Nortel) soon find out that their RRSP cannot make up the difference.

Best plan, save a ton of money equal = or > than the RRSP.

#62 KLNR on 04.22.22 at 6:19 pm

I hope some of you curmudgeons get outside and enjoy the sunshine this weekend.

#63 KLNR on 04.22.22 at 6:21 pm

@#55 The West on 04.22.22 at 5:31 pm
The air raid sirens are indeed welcome news to those who have played the game correctly.

There is a specter haunting our society and I foresee massive social upheaval on this continent in the next three years.

https://www.youtube.com/watch?v=Q5Zai1G5hp4

lol.
maybe take the blinders off and get out of your echo chamber for a bit.

#64 Ponzius Pilatus on 04.22.22 at 6:23 pm

#52 tkid on 04.22.22 at 4:38 pm
Does anyone remember the Andy Donato cartoon from the 1980s of the finance minister at the time panicking while saying don’t panic? There was a graphic of the then interest rate going into the 20% range.

Been trying to find it for ages. I think we may see those times again.
————
The closest one I can think of is:
The Iraq “Information” Minister (Baghdad Bob) insisting there “are no Americans in Bagdad”, when they were already outside of his government building.

#65 Sail Away on 04.22.22 at 6:38 pm

I’m sort of pleased to see Disney get spanked for taking a political stand on an issue that does not concern the business.

Were Disney’s shareholders in agreement with this oversteppage?

Enough of this woke-ist crap from corps.

https://www.wsj.com/articles/revolt-in-disneys-florida-kingdom-ron-desantis-bob-chapek-11650578648?mod=opinion_lead_pos1

#66 Milton Friedman Fan on 04.22.22 at 6:41 pm

Unless you’re a Toronto top 5%, who else can afford current real estate prices without the Bank of Canada giving away free money to the upper middle class?

Meanwhile, Doug Ford wants to do a Mike Harris and gut social assistance, while the fallback will become subway murder statistics.

INCREASE the interest rates.
INCREASE social assistance rates for OW + ODSP.
INCREASE the OAS and GAINS
INCREASE the minimum wage.

#67 Faron on 04.22.22 at 6:50 pm

#149 Ponzius Pilatus on 04.22.22 at 11:10 am

143 DON on 04.22.22 at 10:12 am
#137 crowdedelevatorfartz on 04.22.22 at 8:52 am
[email protected] Don

Today on “Cedar Talk”…

Took me a while to figure out that the musty smell of Kludahk cabins comes from the firewood stacked inside. Mostly yellow cedar. Yeah, gorgeous wood.

Fun fact, many towns in the US are named after Lebanon and featured a lebanese cedar. There’s a great story about a guy who tried to visit them all in recent years and then went on to replace those that had died.

#68 Reality is stark on 04.22.22 at 6:51 pm

So we go on a borrowing orgy with a disproportionate amount finding it’s way into the unproductive housing market.
Let’s just say we borrowed 500 billion to create 250 billion of actual value. Is this such a bad thing?
Does the debt really need to be repaid?
Are the bond vigilantes actually going to ask for their money?
When the economy eventually slows and your overall tax bill increases substantially is that so bad?
Trudeau doesn’t see this as an issue so why should you?
So we spend money vastly overpaying public servants who work for 28 years and collect pensions for 40 subsequent years?
Is it such a crime for the government to match Pension contributions dollar for dollar to risk averse workers who already have average wages above average private sector wages?
Shouldn’t risk averse workers earn more than their counterparts due to union power? Doesn’t that just make sense?
Today’s debts are tomorrow’s taxes so who cares how much debt we accumulate?
It is of little consequence.
I am so glad to be living in The Big Rock Candy Mountains.

#69 Penny Henny on 04.22.22 at 6:54 pm

Sold all my bank stock Apr 11 and 12th.
Sitting about 45% in cash.
I saw the banks recover and come back down again and what a learning experience that is to the emotional responses one has during these ups and downs.
I have to say though this is the only time I felt good about the market going down.
I realized that I am more comfortable with missing out on gains rather than taking losses.
Having said that the high dividend CDN blue chips are still up over 48% since Jan 2021.
I locked in some gains and have plenty of RRSP room to neutralize taxes.
Life is good.

Dumb strategy. – Garth

#70 Faron on 04.22.22 at 7:02 pm

Vancouverites:

If you like pizza, Italian style, get thee to Did’s on Dunsmuir near Granville. Truly exceptional pizza. Makes the hipster neopolitan pies blush in their over priced, pretentious shame.

#71 Quintilian on 04.22.22 at 7:05 pm

#53 I don’t know on 04.22.22 at 4:55 pm
“Inventory is low, and an entire generation (the biggest demographic in our society) is looking to settle down and have children.”

Your handle is certainly an appropriate designator of your knowledge.

Nonetheless, your attempt to feather your own bed is commendable.
You are assuming that demand grows and supply is stagnant. I won’t try to explain in detail why that is wrong, as I am sure it would confuse you.

But just to point out an obvious and simplistic component. huge, colossal, and massive amount of land can be added to inventory by a stroke of a pen.

Tick Tock, Tick Tock

#72 cuke and tomato picker e on 04.22.22 at 7:08 pm

Number 57 you never KNOW what’s around the corner
but you have to know how to manage the downside side
because the upside manages itself. For us so far never a down side so far so very GOOD.

#73 CL on 04.22.22 at 7:10 pm

They’ll drop the stress test eventually. It will have served it’s purpose.

#74 Concerned Citizen on 04.22.22 at 7:16 pm

Can someone explain to me how raising to the so-called neutral (so neither stimulative nor repressive) level of ~2.5% will combat inflation running at soon to be 8% or more? When I studied economics, I sure didn’t read that keeping real rates at -5% or less was a recipe for slaying inflation.

The Tiffster is so incredibly behind the curve. On purpose, I bet…

#75 DON on 04.22.22 at 7:22 pm

“Well, all real estate is local. Not everyone keeps up with the latest bond yield news. Most people have no idea what a Tiff is. People still want houses to live in. And inventory remains low. So what’s about to happen will be uneven across the land. The final outcome unknown.”

I don’t think the main herd has been paying much attention or concern. They were told inflation was transitory and paying any amount to get in the market would be golden in years to come. Their experience to date is all they know. How can you warn someone like that?

#76 Rowdie on 04.22.22 at 7:35 pm

Recession is on its way, and whose fault is this.. the Bank of Canada. They clearly should have increased interest rates years ago, not decreasing them. Now people are in serious debt, home prices have gone through the roof, buying food, petrol etc. is getting more expensive. The upswing if you saved, high interest rates are a god send. About time!

Don’t blame Putin, he has his hands fall levelling Urkraine. Canada and the USA need to pull back, they are on Putin’s ban list… the first to go if he goes ahead with a nuclear attack. I won’t go there about our prime minister or Biden…

Take one day at a time…

Cheers

#77 Dr V on 04.22.22 at 7:42 pm

61 UCC

“The problem is three-fold. First, DB pension in the private sector do not match the resiliency of GoC DB plans (which are taxpayer backed). Second, the RRSP contributions levels are set two low for those who don’t have a DB pension. And finally, anyone who has had the DB pension failure (Sears, Nortel) soon find out that their RRSP cannot make up the difference.

Best plan, save a ton of money equal = or > than the RRSP.”
———————————————————

Valid points UCC. WRT the second, I ran shawns numbers for the pension contributions. For a $100k salary, I got $22421 total between the employee/employer and just under $20000 for an RRSP even if the earnings are “grossed up” to reflect the employer contribution. Doesnt seem quite right.

Now with the RRSP, my accountant told me a few years
ago not to put any more in it without talking to him first.
The first thing my current advisor told me was “dont put
any more into your RRSP”. So I guess I’m doing it correctly.

#78 45north on 04.22.22 at 7:59 pm

Sonny Kang

‘Intense’ price drops coming to Vancouver housing market next year: RBC
https://biv.com/article/2022/04/intense-price-drops-coming-vancouver-housing-market-next-year-rbc

but if you read the article, Robert Hogue contradicts himself

“In this altered landscape, local markets could experience a mild price correction, partly reversing outsized gains recorded in the past year.” Well true in the sense that “selected” local markets could experience “mild price correction”.

#79 Dr V on 04.22.22 at 8:03 pm

UCC – and dont forget stelco!

https://www.cbc.ca/news/canada/hamilton/the-battle-over-stelco-pension-funds-explained-1.3896097

https://www.benefitscanada.com/news/bencan/stelcos-long-battle-on-the-pension-precipice/#:~:text=By%20the%20time%20Stelco%20finally,million%20into%20the%20pension%20funds.

#80 westcoaster on 04.22.22 at 8:12 pm

Whether our mortgage is as 2% or 5%, it’s not much difference – it’s still super cheap. People are overblowing this as usual.

Of course not. Higher rates bar new buyers who traditionally fuel the market and keep prices aloft. As rates rise, prices must decline to maintain the market. That eats your equity. – Garth

#81 Faron on 04.22.22 at 8:13 pm

#65 Sail Away on 04.22.22 at 6:38 pm

Enough of this woke-ist crap from corps

Thanks for the opinion and opinion piece.

So, a corporation appealing to a majority of its customers is a bad thing? ’cause being in the 21st century (actually late 20tg) on homosexuality is “woke-ist?” Uh….

DIS is eating NFLX’s lunch. Maybe you are bitter about your holding’s recent thrashing at their hands? Sounds kinda emotional.

#82 DON on 04.22.22 at 8:24 pm

https://www.zerohedge.com/geopolitical/humans-may-be-all-over-universe-scientists-say

I knew it!

Greaterfool is the MIB portal to our birth worlds.

Of course it is..it all makes sense now.

That’s a big relief. Smoking Man was right.

#83 Linda on 04.22.22 at 8:42 pm

#54 ‘Shawn’ – did a bit of digging. First, employers do contribute towards DC pension plans. Apparently some of those plans are also known as ‘group RRSP’ plans. The main & most important difference between DB & DC is that the end result of a DC plan is not known. Could be great or could be lousy.

The changes made to CPP even before contribution rates were jacked apparently ensured that CPP would not have to be bailed out by taxpayers. Hopefully that is true as I know my own workplace pension plan needed hiked contributions from plan members to pay off deficits incurred by market fluctuations as well as actuarial changes to life expectancy.

#61 ‘UCC’ – the RRSP contribution limit for 2021 was set at $27,830. So one can contribute up to 18% of earnings up to $27,830. Given that most Canadians can’t scratch up $6,000 for an annual TFSA contribution I have doubts that RRSP limits are set too low; the problem is setting aside $ for the contribution in the first place. The main thing with enforced savings via a mandatory plan like CPP is that the $ are taken off the top, so folks have no choice but to live on what is left over. When one has a choice, it is really easy to spend those dollars on something other than future retirement savings. That is why I think we really should crank up the CPP contributions to match (& replace) other workplace pension plans. One plan to rule them all:) It would presumably end much of the ‘us vs. them’ when it comes to retirement security. It would be nice to eliminate any need for GIS, because if you qualify for that your retirement isn’t going to be anything to look forward to.

#84 Ponzius Pilatus on 04.22.22 at 8:51 pm

On Earth Day.
Huge snow dumps expected in Alberta and the Prairies.
Arizona: Tinder dry.
Sun shining in Vancouver.
God is looking down on the 2nd best place on Earth and smiling.

#85 Ustabe on 04.22.22 at 8:59 pm

#65 Sail Away on 04.22.22 at 6:38 pm

I’m sort of pleased to see Disney get spanked for taking a political stand on an issue that does not concern the business.

Hey, Sail, you missed the best part. Once their charter is dissolved by government hissy fit Disney will no longer be on the hook for policing, road maintenance/repair, sewers, water, electricity…all of it.

Guess who will be…go on, I can wait.

#86 leebow on 04.22.22 at 9:00 pm

Wow, Tiff is full on testo. Tiff being forceful with borrowers is something to behold.

As Greek stoic philosopher Epictetus taught,

People who are ignorant of philosophy blame others for their own misfortunes. Those who are beginning to learn philosophy blame themselves. Those who have mastered philosophy blame no one.

If Epictetus were alive today, and we asked him whether forceful Tiff is to blame, what would he respond? I bet he would say NO. But then, he knew nothing about central banking and money supply. Is blamelessness really same as innocence?

#87 Leftover on 04.22.22 at 9:04 pm

#34 Søren Angst on 04.22.22 at 3:35 pm

#30 Sail Away

Today is 4/22.

You could not have sold it on 4/22 and say you would have lost money if you sold it that day.
___________________________________

This guy was boasting the other day about a 7 figure tax-free income. Ya know, that sounds more like a kid in his basement taking a break between Call of Duty and Pornhub.

#88 Stone on 04.22.22 at 9:27 pm

#27 Stone on 04.22.22 at 3:22 pm
Speaking of bonds, change continues. Yields have gone nuts (it’s almost time to start gobbling up some debt, if your portfolio doesn’t have any)

———

Not yet. I own a short term bond ETF in my B&D however will not venture into longer term bond ETFs yet. Current stage of bond yield increases is a mere paper cut for what is yet to come. Buying mid term to long term bond ETFs now is the equivalent of committing seppuku. I like to keep my head attached to my neck for now.

I am continuing to watch and wait for when the the time comes to vulch those longer term bond ETFs though.

That is the strategy of most people – buy when things are going up and cost more. – Garth

———

For most people, I completely agree with you and I fully understand your response is aimed there. In my case though, I’m not most people.

You’re my mentor, Garth, when it comes to ETF investing and considering a B&D portfolio. It’s done very well for me. Fiddle and diddle as little as possible with the portfolio. Make any changes with as little emotional input as possible. Spend time collecting various perspectives and opinions and then make a decision that is hopefully an informed one.

It’s why, even at -3.83% ytd for my B&D portfolio, I feel pretty good. If you consider that a poor return ytd for 2022, I welcome your feedback indicating that.

#89 Ponzius Pilatus on 04.22.22 at 9:31 pm

#85 Ustabe on 04.22.22 at 8:59 pm
#65 Sail Away on 04.22.22 at 6:38 pm

I’m sort of pleased to see Disney get spanked for taking a political stand on an issue that does not concern the business.

Hey, Sail, you missed the best part. Once their charter is dissolved by government hissy fit Disney will no longer be on the hook for policing, road maintenance/repair, sewers, water, electricity…all of it.

Guess who will be…go on, I can wait.
—————
Haha,
Good news for the shareholders.
Sailo what’s not to like.
I think Disney could open a Disney World for LGTBQ.
They usually are high wage earners, and spend good money.
There are other resorts catering to them.
What’s wrong with that?

#90 crowdedelevatorfartz on 04.22.22 at 9:43 pm

Hmmmm
Is Putin “dealing” with Oligarchs that disagree with him ?
Or
Is Putin intimidating the Oligarchs he still controls….?

https://nationalpost.com/news/world/two-russian-oligarchs-dead-from-apparent-suicide-within-24-hours-of-each-other

If anyone doubts that Putin is a ruthless, murderous, personification of Evil……. please speak up.

#91 45north on 04.22.22 at 9:54 pm

Nuclear

Says grizzled mortgage broker guy Ron Butler: “If Tiff Hikes Prime Rate 75 BPS, Wow. That’s Nuts. I don’t really think it will be 75 but if it is…… Jesus……. that would be a nuclear strike on house values in Ontario. He was going to be up by 125 bps by October anyway. But the Physiological Shock of 75 bps. Just enormous.”

“a nuclear strike on house values” means house values go down.

#92 tc-contra on 04.22.22 at 10:07 pm

#12 Dogman01 on 04.22.22 at 2:44 pm

Look at the chart of ZTL; illustrates how Bond ETF’s behave.
As rates rise the pack of old bonds in the fund go down in value. But if you look at he COVID 2020 scare, Feb 1 2020 to April 30 2020 where equities crashed you see ZTL rise like the phoenix. + 19%

There you have it folks. Bond ETF’s nice when equities are in FEAR mode but a drag in a rising rate environment. Individual Bonds seem the way to go now vs ETFs.

https://www.morningstar.ca/ca/report/etf/performance.aspx?t=0P00019VNY&lang=en-CA
————–

That is thoroughly bad advice. – Garth
//////////////////////////////////////////////

I’ve been adding to the US etf TLT – now ~20% of my portfolio.
As the markets continue to weaken, the flight to safety is likely to lift it up nicely, as during March – April 2020, as you noted.

We’re in a bear market (to rival 1929-32, or even exceed it possibly), and most investors are still looking up! I suppose THAT is what makes a market…

#93 Tinpot manafold on 04.22.22 at 10:42 pm

Garth,

Thank you for the comments section, always helps me get to sleep, it is good as the economic overview by Lucy Hunt at Hoisington management ZZZZZZZZZZZZZ

#94 Rassy on 04.22.22 at 11:00 pm

Guests on the CBC news tonight said inflation is “transitory”, because that’s what the BOC said. Well, it’s true BOC did say that 3-6 months ago! I don’t believe they are saying that now as far as I am aware. Maybe I missed something, haha!

#95 Sail Away on 04.22.22 at 11:02 pm

#85 Ustabe on 04.22.22 at 8:59 pm
#65 Sail Away on 04.22.22 at 6:38 pm

I’m sort of pleased to see Disney get spanked for taking a political stand on an issue that does not concern the business.

———–

Hey, Sail, you missed the best part. Once their charter is dissolved by government hissy fit Disney will no longer be on the hook for policing, road maintenance/repair, sewers, water, electricity…all of it.

Guess who will be…go on, I can wait.

———-

Still Disney. It’s a concept known as ‘taxation’.

#96 VladTor on 04.22.22 at 11:24 pm

#71 Quintilian on 04.22.22 at 7:05 pm
#53 I don’t know on 04.22.22 at 4:55 pm
“Inventory is low, and an entire generation (the biggest demographic in our society) is looking to settle down and have children.”

But just to point out an obvious and simplistic component. huge, colossal, and massive amount of land can be added to inventory by a stroke of a pen.

Tick Tock, Tick Tock

************
Ok. How this huge land amount by itself can increase my salary and my ability to pay mortgage? If you thinking that those huge amount of land will decrease price of homes … you probably don’t understand how capitalism, economy and banks working.

Tick Tock, Tick Tock

#97 You know Val on 04.22.22 at 11:27 pm

Garth, Soper needs a fresh breeze alright, down wind that is where he can finally get a taste of what he has been dishing out all these years! Turn your head and cough Big Phil.

#98 Faron on 04.23.22 at 12:03 am

#95 Sail Away on 04.22.22 at 11:02 pm

#85 Ustabe on 04.22.22 at 8:59 pm
#65 Sail Away on 04.22.22 at 6:38 pm

, electricity…all of it.

Guess who will be…go on, I can wait.

———-

Still Disney. It’s a concept known as ‘taxation’

Bingo Ustabe. Yes, they will still pay property tax, but the infrastructure costs are now to be borne by the county. Disney’s share will be a small fraction of what they used to pay. Meanwhile, residents of the involved counties are about to see massive property tax spikes.

This is hilarious because the implication is that conservatives in Florida are essentially deprivatising a very prosperous town and putting that burden on government. Hypocrisy to own the libs. Amazing.

Here’s a reporter with some facts:

https://mobile.twitter.com/NPapantonisWFTV/status/1517272880882585602

But, you know, Sailo has his opinions. Which is funny given how crucial facts and logic are to the poor sot.

#99 I don’t know on 04.23.22 at 12:33 am

71 Quintilian on 04.22.22 at 7:05 pm

A sense some frustration in your response.

I will be blunt: it’s unlikely some rate hikes will set the clock back to 2012 when you should have bought real estate the first time. It’s also unlikely there will be a repeat of the 80’s that you are hoping for.

Go look at Canada’s population pyramid for clues why.

Shelter is a right. Owning real estate is not.

IDK

#100 Inadequate on 04.23.22 at 12:43 am

#92 tc-contra on 04.22.22 at 10:07 pm

Money market fund or short term treasuries offers safe harbour for now. I think it is still too early to go into long term bonds. Not until inflation number starts to turn.

#101 Michael in-north-york on 04.23.22 at 12:54 am

#56 JOHN PICKETT on 04.22.22 at 5:38 pm
===

Fortunately, none of our political parties will heed your advice. They all understand that Putin’s fascist empire needs to be stopped now.

If the kremlin empire is allowed to swallow Ukraine, it will not stop there, but will attack the East European countries that are NATO members. In that case, Canada will be pulled straight into the war.

We are much better off just sending the military equipment to Ukraine. Coordinated support from all the Western nations will help Ukraine repel the invasion, and then we avoid a global war.

#102 Allan on 04.23.22 at 1:37 am

Canadians have 1.94 TRILLION mortgage debt, not “1.7 billion”. As we see, Canadians dont see diffrence between millions, billions and trillions. The numbers are simply too big for them.

#103 Summertime on 04.23.22 at 2:14 am

High inflation.

Let’s assess the real situation.
In US the official CPI is at 8.5 % while real inflation as measured in the 80-es is double that.

Our inflation is not lower and as notable Scotia economist CPI should be 8 % if measured as in US.

So in the last year alone inflation of 17 % +, rates at 1 % currently (it was 0.5 % just a few weeks ago).

Negative interest rates of 16 %.

This is how much we lost in savings.
That 100 bucks in the bank (excluding bank fees) will buy you 84 % of the good compared to a year ago.

On salaries – if you failed to negotiate 15 % + increase, you lost income.

Average increases are 3-5%. So you lost 13 % + on average in terms of purchasing power of salaries.

On pension – the ‘indexing’ of 2.7 % is outright insult and would have been funny if it was not tragic. Reduction of 14 % + here in terms of real purchasing power as well.

The problem is that inflation is accelerating on YOY basis.

There ‘big increases’ of 0.5 – 0.75 % every few months that are talked about are a joke as even the CPI, not to count the real inflation that is double that, increase much faster. Central bankers are running slowly after fast speeding train.

If this persist for around 3-5 years as there are many indications, we are looking at around 60-70 %, maybe more one time irreversible inflation that will not be compensated by any meaning full rates increases – people quote 2.25 – 3 % as absolute top in this cycle.

This will wipe out 40 % of the standard of living of the average Joe, that combined with the decline in real estate and some moderate declines in the stock market will remove entirely the ‘feeling rich effect’ from high asset valuations resulting in even further decline in consumption, focusing on necessities that could wipe out discretionary spending and result in more inflation in order to maintain the growing GDP narrative and the financial system.

This of course has been baked in the long years of low rates, starting in 2009 and excessive QE/MBS purchases that really should not be legal and are entirely policy and central banks failures.

To count on the arsonist to distinguish the fire they set is idiocy and the very definition of insanity.

All the con men need trust and credibility.

#104 Summertime on 04.23.22 at 2:33 am

#74 Concerned Citizen on 04.22.22 at 7:16 pm
Can someone explain to me how raising to the so-called neutral (so neither stimulative nor repressive) level of ~2.5% will combat inflation running at soon to be 8% or more? When I studied economics, I sure didn’t read that keeping real rates at -5% or less was a recipe for slaying inflation.

The Tiffster is so incredibly behind the curve. On purpose, I bet…

Central bankers role is that of a magician who through smoke and mirrors ensures that the audience pocket is emptied.

Inflation is not 8 %, that is the CPI. Inflation as measured in the 80-es is double that. In short we are witnessing the highest on record inflation in the developed countries with rates at 1% and threats of further increases.

Real interest rates are deeply negative and in double digits.

Every responsible banker with some integrity would turn rates positive ASAP as this is how you fight inflation.

Talk is cheap and all this ‘0.5 – 0.75 % increase of rates waaaaaay down the line’ while real rates are kept in double digits/deeply negative is just a trick. Rates should be over 10 %, maybe 15 % already.

It is unfortunate that people’s money and standard of living is in the hands of incompetent charlatans.

Note that despite the shocking inflation they still keep buying bonds and MBS/QE!

Insane indeed. Trust them at your own risk.

I have no trust whatsoever in the thieves.

#105 Steven Rowlandson on 04.23.22 at 8:09 am

Alas the predicted withering away of the state predicted by Karl Marx the philisophical god of the western world is coming into sight. Not just the down fall of in debted government but of society and the economy largely from a toxic cocktail of malfeasence, bad habits and political correctness if not diabolical conspiracies put into action by the elites long ago.
You can not get good fruit from a diseased tree as jesus pointed out. You need to start over from scratch with a new tree. Doctor John Calhoun conducted an experiment long ago called the mouse utopia experiment. We are all living in a real life mouse utopia experiment and the results is always population crash and usually extinction. Without the basics, space, productivity both personal and economic you will have stress, crime, abnormal behavior, disease and die off. https://youtu.be/7CXj0AGuh4c

#106 Phylis on 04.23.22 at 9:31 am

#88 Stone on 04.22.22 at 9:27 pm
…….It’s why, even at -3.83% ytd for my B&D portfolio, I feel pretty good. If you consider that a poor return ytd for 2022, I welcome your feedback indicating that.
Xxxxxxx
Did you bake a little inflation into that number too?

#107 It's Just Math on 04.23.22 at 10:12 am

#58 VladTor on 04.22.22 at 5:53 pm
Trudeau was prime minister (Pierre). Five-year mortgages were well over 11%. Inflation was 9%. The Bank of Canada rate was more than 12 %.

************
Now we have inflation only 6% and rate still 1.75% (amazingly good rate – free helicopter money!!! ) and panic about increasing rate up to 2% ????

With this inflation we already should have rate 6%-7% and NO panic!

I’m sure hyperinflation and stagnation ahead here and USA.

+++++++++++++++++++++++++

Huge difference is the absolute amount of debt. In the 1980’s a $100,000 mortgage was considered pretty hefty. So it took an 18% interest rate to spank the stupid out of people.

Today, people routinely carry $800K+ mortgages. Even accounting for a roughly 50% increase after tax earnings after inflation, the equivalent debt is still around 4X higher than in the 1980’s. The numbers aren’t any better; just bigger.

So, 18.% /4 = 4.5% to inflict the same spanking.

Big debts and small changes in interest rates have the same effect as small debts and large changes in interest rates. Once the free cash flow is siphoned off, broke is broke.

Things are about to get real interesting real fast.

#108 millmech on 04.23.22 at 10:24 am

#30 Sail Away
What was the reason for selling, as you would be holding even through a ten percent plus downturn because the pros push the little guys down and out and then profit.
I am still holding my positions and my little company that could (DE.V), which acquired another company pushing their share price to $4.72 with a .03 monthly dividend. Pushes $900/mth back into the portfolio for reinvestment into financials HFIN, HYLD HDIV which I believe will perform well going forward.

#109 DON on 04.23.22 at 10:28 am

#99 I don’t know on 04.23.22 at 12:33 am
71 Quintilian on 04.22.22 at 7:05 pm

A sense some frustration in your response.

I will be blunt: it’s unlikely some rate hikes will set the clock back to 2012 when you should have bought real estate the first time. It’s also unlikely there will be a repeat of the 80’s that you are hoping for.

Go look at Canada’s population pyramid for clues why.

Shelter is a right. Owning real estate is not.

IDK

**********
I looked at the cdn pop graph sinces 1960 till now and the slope looks the same.

So the new generations of house buyers should have bought back in 2012 also to be able to afford properties? How exactly do the younger generations buy a house with inflation increasing while their wages fall behind and prices are driven higher by real estate speculators who account for what a 1/3 of the purchases.

I don’t make a living selling houses nor does Quint. Nor I am relying on paper equity to retire.

I take it you are not following the recent news so your views never get challenged?

I will be blunt. People in the 80’s were better off compared to today. Less debt for sure and higher savings rates. We have blown way past the 80’s conditions. And a .5 percent increase on and 80’s 250k executive house is not as big of a deal compared to .5 increase on an average 1 million non executive property.

“Higher rates bar new buyers who traditionally fuel the market and keep prices aloft. As rates rise, prices must decline to maintain the market. That eats your equity. – Garth”

Someone should be worried. The central banks went quickly from no need to raise rates to a .25 to a .50 and now talk of even higher and quicker rate hikes.

Who’s worried again?

Keep on trolling…

#110 Shawn on 04.23.22 at 10:31 am

Improve the CPP plan to replace all workplace pensions?

Linda above at 83 said:

The main thing with enforced savings via a mandatory plan like CPP is that the $ are taken off the top, so folks have no choice but to live on what is left over. When one has a choice, it is really easy to spend those dollars on something other than future retirement savings. That is why I think we really should crank up the CPP contributions to match (& replace) other workplace pension plans. One plan to rule them all:) It would presumably end much of the ‘us vs. them’ when it comes to retirement security.

**********************
I agree with that. CPP should probably have been extended years ago to work towards giving about a 50% pension and with the maximum pensionable earnings up around $130,000 or more. This could have eliminated the need to other DB plans although it would be very difficult to phase those out.

One option would be that in this scenario those with government and good private sector DB plans would not pay into CPP.

I believe I read years ago that in the U.S. railroad employees have great pensions and do not pay or receive social security.

#111 Shawn on 04.23.22 at 10:38 am

Summertime at 104 on the subject of Central Bankers

“It is unfortunate that people’s money and standard of living is in the hands of incompetent charlatans.”

***********************
What is really unfortunate is if you or any young person believes that your (their) money and standard of living is mainly in the hands of anyone but yourselves.

#112 Dharma Bum on 04.23.22 at 10:40 am

#84 Ponz

God is looking down on the 2nd best place on Earth and smiling.
———————————————————————————————————

Disney World?

Because #1 is obviously the GTA.

#113 Sail Away on 04.23.22 at 11:53 am

#108 millmech on 04.23.22 at 10:24 am
#30 Sail Away

What was the reason for selling, as you would be holding even through a ten percent plus downturn because the pros push the little guys down and out and then profit.

I am still holding my positions and my little company that could (DE.V), which acquired another company pushing their share price to $4.72 with a .03 monthly dividend. Pushes $900/mth back into the portfolio for reinvestment into financials HFIN, HYLD HDIV which I believe will perform well going forward.

———-

I closed out the Heloc borrow to invest because over the 9 months, it bounced around quite a bit up +10%, then back to par, then +5% when I sold, and would now be slightly underwater. Besides, the B&D it was in is not really my style… although if it had been a bit more stable, I’d still be in.

It currently sits in reserve for compelling opportunities. Probably arbitrage.

#114 Linda on 04.23.22 at 12:32 pm

#110 ‘Shawn’ – there could be a transition period but it might simply be simpler to roll over contributions & years of service into CPP for all concerned. The issue with allowing some groups to ‘opt out’ is the unfortunate fact that a number of private plans have seen benefits cut or even eliminated altogether due to the employer going into receivership/bankruptcy. For instance, Air Canada used to be a public entity. The employees were government employees. Air Canada was privatized. Several taxpayer bailouts ensued over the years. The main issue with Air Canada was the ongoing huge pension plan deficits owed its employees. Eventually a deal was struck. Any employee with 25 or more years of service received 60% of 60% – effectively 0.36 cents on the dollar – of pension contributions. Those with less than 25 years? A big fat ZERO. They lost all contributions up to date. Fine if you happened to be a new employee who had at most one or two years in the plan; not so great if you had 24.9 years of contributions & were looking to retire within the next 10 years. Time IS money; one can’t reasonably be expected to recover financially from such a hit. Plus I very much doubt those employees who lost out were given back RRSP room lost over the years due to the PA by the Canadian government.

The other issue with allowing ‘opt outs’ is the fact that some 28% of Canadian households comprise of a single person. Unless one has a pension partner, insofar as I am aware CPP benefits cease upon the death of the recipient except for the one time ‘death benefit’ provision. Unlike private pension plans there doesn’t appear to be a provision to allow one to choose a beneficiary other than one’s partner/spouse.