Asleep at the wheel

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RYAN   By Guest Blogger Ryan Lewenza
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As I get up there in age (I’m one long weekend away from 50) and have more years under my belt in investing, not much surprises me these days.

Well, I was greatly surprised/shocked this week with the Bank of Canada (BoC) bringing out the inflation bazooka by hiking the overnight rate by a full percent. This is shocking since: 1) it’s very rare to see this big of a hike and it’s the largest increase since 1998; and 2) the full-point increase surprised the markets as the consensus was for a 75 bps hike. Markets don’t like surprises, which I’ll expand on, but this hike is a big deal and there’s more to come.

Today I’ll review this week’s rate hike, provide an outlook for future rate announcements and explain why I believe our BoC Governor, Tiff Macklem, is falling short, in my view.

Central bankers are deathly afraid, as they should be, of the current high inflation levels and it becoming permanent. The permanency comes from, generally, a negative feedback loop of higher commodity prices, which leads to wage increases, and in turn fuels more demand and growth, adding further to inflationary pressures. Once this inflation spiral starts, it can be a challenge to rein in.

As the 1970s and early 1980s showed, high and lasting inflation can be deleterious to the broader economy and our standard of living. High inflation reduces our purchasing power and net worth.

So, the BoC, Fed, ECB etc. have to act decisively by hiking rates. I get this. My key concern is that if I’ve learned anything about the financial markets, they don’t like surprises. When the fixed income markets price in a 75 bps hike – still a massive rate hike – then you go with the consensus, so as not to roil the markets and suggest panic, as arguably this did.

Following the rate hike the media was in a frenzy over the large 1% rate hike, likely scaring the bejesus out of millions of Canadians. If the BoC is determined to combat the inflation problem by driving our economy into the tank, then they may get their wish.

And more rate hikes are on the horizon. Currently the markets are pricing in another 125 bps by end of year with one additional 75 bps hike in August and two more 25 bps hikes in November and December. This would take the overnight rate up to 3.75%, which would mark the highest level since 2008.

I agree with this consensus outlook but then I see the BoC pausing the rate hikes to monitor the impact on the economy and inflation. Following this period (first half of 2023) I actually see the BoC potentially cutting rates later in 2023. I think the BoC could overshoot on the rate hikes, especially if we end up falling into recession, and then they’ll have to backtrack by cutting rates.

This view is based on the numerous policy errors that the BoC has made over the last few years.

Canadian Overnight Rate Forecasted to Hit 3.75% by Year-end

Source: Bloomberg, Turner Investments

The BoC’s first policy error came during the pandemic, which likely contributed to the high inflation we have today. The BoC slashed rates to a record-low 0.25% and for the first time implemented a major quantitative easing (QE) program. Quoting from the BoC website, “when our policy rate is very low, we may need to use other monetary policy tools to support the economy and reach our inflation goal.”

I guess mission accomplished since the BoC bought government bonds hand over fist, expanding their balance sheet by roughly $400 billion (see chart). The BoC started the program in March 2020 and continued it until early this year. By this time commodities were already on a tear, supply chain issues were becoming clear and inflation was heating up. Worse yet, the BoC (and other central banks) continued to state that the nascent inflationary pressures would prove ‘transitory’. In my opinion, this ‘transitory’ inflation call is one of the biggest monetary errors that I’ve seen in my career.

Bank of Canada’s Balance Sheet Assets

Source: Bloomberg, Turner Investments

The next BoC mistake was not hiking rates earlier, specifically at the January 2022 meeting. Inflation was already starting to heat up, which they even referenced in their communication, but they were more focused on eliminating ‘economic slack’ in the labour market. Unfortunately, estimating ‘economic slack’ is hard to quantify and employment data tends to be a lagging indicator. So, the BoC was looking more in the rear view mirror than looking forward.

Moreover, the markets had priced in a 25 bps hike for the January meeting as it was pretty clear they needed to act but the BoC took a big pass, again surprising the markets. I used to be a bond trader and the veterans taught me that if the markets price in a rate hike, you take it. It was a layup and Tiff and team whiffed.

What’s going to be the fallout from these rate hikes?

Clearly this is going to weigh on the overall economy by crimping consumer spending and impacting businesses/corporations. But the bigger hit will likely be in our housing sector. It’s been my long held belief that the record low interest rates have been massively stimulative to our housing market/bubble over the last few decades. Now the rates are heading the other way and given this very clear relationship, the higher rates should materially weigh on housing prices.

Below is a chart that illustrates this. It comes from the BMO economics team and overlays the BoC overnight rate with the y/y change in Toronto housing prices. Note the overnight rate is inverted on the chart to better capture the relationship. It shows that as the overnight goes up (red line going down since it’s inverted) housing prices typically decline. Home prices are off 10-15% from their peak levels earlier this year and I think there’s more downside to come as rates go even higher.

Second, we could see these rate hikes drive the Canadian dollar higher. Our dollar is largely driven by oil prices and the interest rate differentials between our government bond yields and foreign government yields. Currently the CAD/USD is around 77 cents and we could see it revisit its recent highs in the low 80s. While this is good for shopping in the US, it’s not so good to our export sector and overall economy.

All told, rates are set to go higher, which should drive housing prices lower, the CAD higher, and potentially tip our economy into recession. The BoC’s outsized rate hike this week is a tacit confirmation that they’ve been asleep at the wheel and now need to catch up. In my estimation the BoC deserves a failing grade for their policy decisions in recent years. But I’m just some schmuck that writes on a financial blog so what do I know.

Higher Rates Should Drive Housing Prices Lower

Source: BMOCME, CREA/Haver
Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

 

102 comments ↓

#1 LewenzaCountry aka Prince Polo on 07.16.22 at 10:04 am

Being an armchair economist (or armchair BoC governor) is fun! No matter what Tiff does, it won’t be the right move, since nobody would care about a headline such as “All is well and Tiff is the man!”

Ryan for next BoC governor, please. :)

#2 Flop… on 07.16.22 at 10:11 am

Rhino, you are missing out on the latest Porsche news…

M48BC

Porsche-backed e-fuels company plans big plant in Tasmania.

HIF Global chief executive César Norton said the company’s broader ambition was to produce over 8 billion litres of e-fuels a year in plants around the world, enough to decarbonise 5 million vehicles.

“Australia has exceptional renewable energy resources that can be transformed into liquid fuels and used in existing engines,” he said.

“Today, we begin the first step in Tasmania to produce hydrogen from renewable energy, capture carbon dioxide from a biogenic source and produce highly competitive e-fuels that will be the carbon neutral energy of tomorrow”

https://www.globalconstructionreview.com/porsche-backed-e-fuels-company-plans-big-plant-in-tasmania/

#3 Dharma Bum on 07.16.22 at 10:19 am

Happy upcoming birthday Ryan.

You don’t look a day over 60!

#4 Johnny Debt on 07.16.22 at 10:21 am

1%, way short of the 2% hike that was needed.

Inflation is crazy, and spitting at the fire will do nothing.

That is precisely why we need to judge the actions not words as to what CBs want.

And what they want is a few years of inflation. Clearly.

…to chip away at the debt.

So what? We’re at 2004-2005 levels?

GFC happened at 4.5%? 5% in the US?

No wonder people feel that the North American economies won’t be able to stomach anything higher than 3.5%.

And look what’s happening already…things are grinding to a halt. US at 1.75%. 2.5% is such a big deal? Sure it is.

Debt slaves and debt piggies can’t handle the load.

No one is in the mood to pay off the debt.

But the transfer is taking place.

From those who have to those who borrowed.

This is free market?

Looks like socialism to me.

Stupid me.

I should have borrowed the most I could.

Let those who lent it to me figure out how and if I pay it off. Didn’t they insure those loans.

#5 Rent the Podium on 07.16.22 at 10:25 am

As our interest rate seems to have to follow the US, the only variable we have control over is the speed with which we get to it’s resting value, so why not get there as fast as possible? For that reason I would counter Tiff made the right call with 100 pt hike.

#6 Big Bucks on 07.16.22 at 10:28 am

About as much as anybody else.The minimum corporate tax is back on the table and that too will cause prices to increase.I would tend to disagree that rates have even the slightest chance of reversing in 2023.In fact I think they will be in the 6% range by the end of 2023.Buckle up.

#7 Earlybird on 07.16.22 at 10:31 am

Transitory was logical at the time…only in hindsight could you draw this conclusion.
Great summary, but criminal low rates since the GFC has done more damage than correcting the mess we are in now.
Housing prices are beyond out of control, and is causing a generational rift and malaise. Why work when your labor can barely shelter you and is being devalued quickly by inflation…younger people don t see a path for upward mobility anymore…
Rates need to rise asap…

#8 Big Bucks on 07.16.22 at 10:32 am

Rate increases will be painful for some but will return equilibrium to our world.Saving will return to levels in the 80’s and 90’s which will take strain off our governments which have been trying to be everything to everyone,using their own credit card.

#9 Flop… on 07.16.22 at 10:33 am

Last week I wrote this.

“How do you use Trudeau salt and pepper?”

This one is a bit more obvious, you stop dying your hair and grow a beard around election time, so you look a bit more mature and grown up, once the election is over you start using your razor and Just For Men again and go back to your Sunny Ways…

M48BC

Today the Daily Mail in Britain is mocking The Metrosexual Messiah more harshly than I did.

Out with the Salt and Pepper, in with the Summer Cut.

M48BC

“ Hair today, gone tomorrow! Justin Trudeau’s new much-shorter haircut is compared to Jim Carrey’s bowl cut in Dumb and Dumber after the Canadian PM’s years sporting flowing locks.”

* Canadian Prime Minister Justin Trudeau was seen sporting much shorter locks 

* Those used to his longer hair were surprised to see his new do at Ottowa outing 

* Many have compared his cut to Jim Carrey’s character in Dumb and Dumber  

* It comes as he was forced to cancel event last minute amid protests in country 

#10 Dom Manko on 07.16.22 at 10:40 am

Ryan : I like your work but can we just tell it like it was/is? The BOC is a partisan hack and borrowed hundreds of billions so that Trudeau could spend like a drunken sailor. There’s a single cause of Canada’s internal meltdown and his name is Justin Trudeau

Trudeau admits to not giving a crap about our nations finance. Deputy Freeland thought cash is generated at no cost to any government and she agreed to print a la Zimbabwe without ever thin thinking about why Zimbabwe’s currency inflated into the millions of percent all because the government had no clue as to the effects. As went Zimbabwe, so went Trudeaus Canada.

#11 T on 07.16.22 at 10:47 am

Great post.

It’s too bad we don’t know where we would have been at this time be sans covid, or where would would be in CBS hasn’t been so stimulative. These past few years have been full of many missteps along with successes from, frankly, everyone. At few years ago it felt like cheap money would help (people and business) weather the incoming storm of a very transmissible unknown disease with potential serious negative health impacts.

The elephant in the room at the moment is the civil unrest throughout the world. People from all walks of life are very unhappy.

Continued rate increases at this pace will only help to fuel the unrest. Continued high inflation will have the same effect. There is no goldilocks potential here, I don’t see how this ends well.

#12 Dogman01 on 07.16.22 at 10:48 am

Trudeau: ‘You’ll forgive me if I don’t think about monetary policy’

Pierrie Poilievre came to a similar conclusion as Ryan , he just did not explain it as well as Ryan has just done, I believe that is because Pepe’s audience is just not as financially adroit as Ryan’s.

Yes the BoC screwed up their one job. When I screw up my one job I lose that job, accountability and all that.

If you have the strong stomach , review Trudeau’s comment’s in the last election; https://www.youtube.com/watch?v=G7VOLChLKG4 .

#13 T on 07.16.22 at 10:50 am

Great post.

It’s too bad we don’t know where we would have been at this time sans covid, or where would would be if CBs hadn’t been so stimulative. These past few years have been full of many missteps along with successes from, frankly, everyone. At few years ago it felt like cheap money would help (people and business) weather the incoming storm of a very transmissible unknown disease with potential serious negative health impacts.

The elephant in the room at the moment is the civil unrest throughout the world. People from all walks of life are very unhappy.

Continued rate increases at this pace will only help to fuel the unrest. Continued high inflation will have the same effect. There is no goldilocks potential here, I don’t see how this ends well.

#14 Yukon Elvis on 07.16.22 at 10:55 am

#7 Earlybird on 07.16.22 at 10:31 am
Transitory was logical at the time…only in hindsight could you draw this conclusion.
Great summary, but criminal low rates since the GFC has done more damage than correcting the mess we are in now.
Housing prices are beyond out of control, and is causing a generational rift and malaise. Why work when your labor can barely shelter you and is being devalued quickly by inflation…younger people don t see a path for upward mobility anymore…
Rates need to rise asap…
+++++++++++++++

This attitude is already taking hold with China’s youth:

But on China’s internet, some young people say their “ideals” simply cannot be achieved and many of them have given up on trying. Frustrated by the mounting uncertainties and lack of economic opportunities, they are resorting to a new buzzword – bai lan (摆烂, or let it rot in English) – to capture their attitude towards life.

https://www.theguardian.com/world/2022/may/26/the-rise-of-bai-lan-why-chinas-frustrated-youth-are-ready-to-let-it-rot

#15 Hot poo on 07.16.22 at 10:55 am

#45 Chameleon on 07.15.22 at 7:52 pm
#33 Felix

Well, I’ll tell you who’s poop has no value – dogs!

They must be amused as we pick it up, hot and soft.

Speaking of dog poop…

YOU dog owners need to be more pro-active and stamp this out yourselves.

Set a good example.

Call out bad dog owners.

Respect the by-laws.

Respect on-leash.

Clean up your act.

______________

I understand your concern over this matter and your distaste for certain dog owners behaviour. Believe me when I say that the majority of dog owners are respectful and feel the same.

However, to say that it is OUR problem … is like me saying you need to sort out bad drivers … you do drive, don’t you?

YOU car owners need to be more pro-active and stamp this out yourselves. I ride a bicycle so this doesn’t apply to me.

Getting involved with these people may not have the outcome you expect. It’s a job for enforcement.

#16 Flop… on 07.16.22 at 10:57 am

Rhino, you’re right in regards that Tiff might have had a whiff earlier this year, but he’s just simply in the wrong place at the wrong time, even though he’ll be compensated handsomely for his efforts.

Canadian rate is currently at 2.5% after the one percent increase.

In Australia, the current rate is only 1.35%, and the talk is of only a .50 bump next meeting, so that’s not going to dampen inflation down there anytime soon.

Stephen Poloz, was the guy asleep at the wheel, if you ask me, but you didn’t.

I have a plan to get inflation under control and interest rates bumped up seriously in Australia.

We contact Paul Hogan and ask him to bring his Crocodile Dundee character out of retirement and run 30 second commercials on t.v, mocking the Central Bank after every meeting.

“That’s not an interest rate hike.”

As he studies a chart of the much bigger interest rate rises around the world.

Now that’s a hike…

https://www.youtube.com/watch?v=WWl8EbNN8NM

#17 Jackinthebox on 07.16.22 at 11:04 am

I’m confused. Shouldn’t housing do well in inflationary times?

#18 the Jaguar on 07.16.22 at 11:22 am

You’re not alone Ryan. Most of the posters here are also schmucks with a few in the ‘mensch’ category.

I think we are in uncharted waters. It’s useful to review the past as a model for how the future is likely to unfold, and charts and graphs really bring that history into sharp focus. But the players and technology won’t remain static. Seems like the issue is hiding in plain sight. But nobody is talking about it.

Emerging economies and technologies are and will have a greater impact moving forward. New alliances are being formed and old models may not apply.

It’s fascinating to me that the story of Turkey, Egypt, and espcially Saudi Arabia applying to join BRICS (Brazil/Russia/India/China/South Africa ) has barely made headlines in western media. These aren’t nobodies. Maybe that’s why Joe B. got on a plane in the heat of summer.

Bigger than the pandemic itself was the realization of just how interconnected we really are and how reliant on supply chains to carry on business and maintain our comfortable lifestyles.

The west has led the world for decades but the way it was doesn’t mean it’s the way it will always be. A few days ago some posted that some newcomers to the country are pulling up stakes and moving back to home countries. Maybe they just don’t like “Woke” politics and outcomes. There’s voting at the ballot box and voting with your feet. Or as Joni Mitchell wrote “Don’t it always seem to go, that you don’t know what you got ’til it’s gone”.

#19 Dave on 07.16.22 at 11:25 am

Is the BoC prepared to act once Putin starts cutting off the natural gas and oil supply to the EU? Inflation would sky rocket

#20 Quintilian on 07.16.22 at 11:33 am

#17 Jackinthebox on 07.16.22 at 11:04 am
“I’m confused. Shouldn’t housing do well in inflationary times”

You point out an important paradox that have the “experts” so confused they don’t want to even discuss.

With expectation of inflation there should be a rush to buy assets before prices rise, not so much of a rush to purchase equities or real estate this time around.

Tick Tock, Tick Tock

#21 Balmuto on 07.16.22 at 11:34 am

Rents are to housing what corporate profits are to stocks.

The macro environment could be horrible, or look horrible, but if corporate profits keep rising, stocks should be fine.

Similarly, if rents keep rising, and they are, dramatically – hitting records in our big cities in June, housing should be fine. Because a) higher rents make investment properties more attractive and b) higher rents make renting less attractive relative to owning, spurring demand to buy.

So I’m not convinced we’ll see a collapse in house prices, at least not in the cities where rents are exploding, though higher rates should put a cap on any further price expansion.

#22 T-Rev on 07.16.22 at 11:38 am

Positive feedback loop my friend- not negative. Negative feedback loops correct themselves back to equilibrium. Positive feedback loops are self-propagating where a disturbance away from equilibrium (ie increase prices) increases the probability of even further movement away from equilibrium (ie wages then go up, increasing money supply chasing goods and services, leading to further price hikes).

Great post, I just thought I’d take the educational opportunity to explain that, given I hear it used incorrectly more often than not.

Happy Saturday!

#23 Victor Llearna on 07.16.22 at 11:45 am

BoC / Tiff are incompetent, just like how this country has been run since 2015. Every single year since liberals took power things get worse and worse. If project this trajectory 10 years in the future life in canada will be no different to being in the third world!

#24 Drill Baby Drill on 07.16.22 at 11:46 am

Great article Ryan. If the energy supply situation in western Europe continues on it’s current path (ie: trouble finding Russian nat gas replacements) then carbon based energy will continue to be very inflationary. This situation could put Germany in a serious downturn.

#25 Drill Baby Drill on 07.16.22 at 11:53 am

Canada needs to have a higher interest rate than the USA in order to attract investment capital. I agree with your assessment that there will be huge upward pressure on rates. I bought my first home in ’83 @ 18% VAR. We have a long way to go before we get to those levels. Bring back Paul Volker !!

#26 DON on 07.16.22 at 12:02 pm

Happy upcoming Birthday Ryan.

Enjoy and unplug. 50 ain’t so bad.

#27 DON on 07.16.22 at 12:04 pm

#16 Flop… on 07.16.22 at 10:57 am

Paul Hogan intetest rates hikes…nice.

#28 The Original Jake on 07.16.22 at 12:05 pm

Is it really Maclem’s fault or since Canada follows the US over 90% of the time, maybe it’s Powell who fell asleep at the wheel.

It’s easy for us to all be a critic, but truth is Powell saved us from depression, a far, far worse scenario. Had we had a 1930’s style economic collapse we would be in a lot worse shape today. I think FED officials around the globe were scared shiteless of a depression and by that were very, very slow to act on raising rates… hence falling asleep at the wheel.

#29 TurnerNation on 07.16.22 at 12:07 pm

The side story is the slow background takedown of the Former First World Countries.
CORVID is Life, Corvid is permanence. Designed, so.

.German Minister of Justice announces extended mask mandate from September, rules out school closures and curfews (zeit.de)

.Covid-19 public health emergency extended in the US (cnn.com)

.Robots are replacing Chinese Covid test staffs, giving nasal swab tests on citizens. ( Shenzhen today )
Chinese citizens have to take daily Covid test to prove they aren’t positive to keep their life going on…like this kid.
https://twitter.com/songpinganq/status/1547210589713285120?


— From the Killing us Softly Dept. Trust the Science? They sure know what they are doing. Anyone still trusting of these globalist ghouls…
Mindless drugged up genderless zombie slaves, how easily we are controlled:

https://neurosciencenews.com/soybean-oil-genetics-asd-15505/
“New UC Riverside research shows soybean oil not only leads to obesity and diabetes, but could also affect neurological conditions like autism, Alzheimer’s disease, anxiety, and depression.
Used for fast food frying, added to packaged foods, and fed to livestock, soybean oil is by far the most widely produced and consumed edible oil in the U.S., according to the U.S. Department of Agriculture. In all likelihood, it is not healthy for humans.”

#30 Damifino on 07.16.22 at 12:08 pm

#11 T

The elephant in the room at the moment is the civil unrest throughout the world. People from all walks of life are very unhappy.
————————————–

An completely predictable response to unworkable, ill-considered green fantasy and corrupt energy policy.

Covid and Putin were accelerators, but this train has been coming down the tracks for a very long time.

I hope Canada avoids the path of poor, sad, misguided Germany. Time is running out to get our essential fossil fuel industry firing on all cylinders again.

I’d say we’ve got about a dozen years.

#31 Scott in Gibsons on 07.16.22 at 12:09 pm

The global economy is in a high speed wobble and like novice drivers our politicians and central bankers are spinning the wheel one way then the other trying to stabilize things. Good chance our next stop is the ditch. Then all the pundits will claim that “ nobody could have seen it coming”. Small guys go broke. Big guys get bailed out. Corruption and incompetence are destroying the 99%.

#32 Ryan Lewenza on 07.16.22 at 12:21 pm

Jackinthebox “ I’m confused. Shouldn’t housing do well in inflationary times?”

A little inflation is good for housing prices but a lot of inflation is bad since the central banks are forced to aggressively hike rates. The key driver of housing prices is rates and those are heading higher. – Ryan L

#33 JRT on 07.16.22 at 12:26 pm

Interest rates should have been raised by 1/4 pt every 3-4 mos. If interest rates didn’t “drop” during 9/11, real estate would not be as costly and over priced as it is now. Especially in the Southern Okanagan where I live.
BTW, If you are going to visit the Okanagan, gas is in many instances more expensive than Vancouver. The retailers charge 22 cents a litre more than Vancouver retailers. Reverse sunshine tax?!?!

#34 Dr V on 07.16.22 at 12:42 pm

55 Michael in NY

I recommend reading “The Deficit Myth” by Stephanie Kelton

https://www.amazon.ca/Deficit-Myth-Monetary-Peoples-Economy/dp/1541736184

I break the book down into 3 sections. The first explains the requirements for the application of MMT, and the various mechanisms that are in play. I agree, or can agree with most of the premises.

Secondly, monetary policy to control inflation through
taxes and borrowing as opposed to interest rates. I’m on the fence about this as despite the shortcomings of interest rate policy, I see it as a simpler approach. I cant imagine being able to re-vamp tax codes in a timely enough manner.

Finally, the use of MMT for social needs and wants. I dont agree with Kelton on much of this, especially the federal jobs guarantee she envisions. I dont really know if this is part of MMT doctrine, or just her views.

You have made good points about UBI.

#35 Sail Away on 07.16.22 at 12:44 pm

#9 Flop… on 07.16.22 at 10:33 am

Today the Daily Mail in Britain is mocking The Metrosexual Messiah more harshly than I did.

“ Hair today, gone tomorrow! Justin Trudeau’s new much-shorter haircut is compared to Jim Carrey’s bowl cut in Dumb and Dumber after the Canadian PM’s years sporting flowing locks.”

———

Sort of funny a Brit tabloid would need to go abroad to mock a leader’s hair with homegrown Boris and his finely coiffed look so close.

#36 Dave Mel on 07.16.22 at 12:45 pm

Agree, Tif and co have done a horrible job. It may be hard but that is the whole BoC job. Do it correctly, as we are seeing, to many people will suffer.

#37 None on 07.16.22 at 1:08 pm

I find it very confusing when i see talk about ‘when the RE market will recover”. Recovery from what???

A starting point is the COVID gains. There was/is no financial justification for that with FOMO gone and 3%+ prime rate. Remember the market was over valued BEFORE covid and now we’re supposed to pretend the COVID gains were real?

I’m sticking my neck out and forecasting a 20-40% decline of PRE-COVID prices in the next 4 years.

Canadians are herd animals. The FOMO’d up and they will panic selling down. We see it in financial markets all the time.

#38 Dr V on 07.16.22 at 1:25 pm

Great topic Ryan, and good posts from Earlybird, T,
Jake and others. I do think a few small increases since the covid crash would have been prudent, but who really knew? Better to be in catchup mode than not go.

I recall an magazine article (Canadian Business?) from
time of the GFC. The CBs great concern was a deflationary spiral causing a depression. Almost
impossible to reverse.

They asked one economist if he was worried about possible inflation caused by the actions of CBs and governments. His reply was very simple. “Oh, we can deal with that”.

#39 Stone on 07.16.22 at 1:44 pm

While I don’t disagree with most of your points Ryan, there is something I disagree with.

The BoC is not here to hold your, my, or anybody else’s hand while they do their job. They raised rates 1%. And? What about it? Is it part of their mandate to cradle everyone as they do their job? Are they required to communicate in advance?

No.

They have one job. It’s to deal with inflation. You may not like what they’re doing but you’re also welcome to apply for that job and if you get it, do better. I’m rooting for you. It’s easy to criticize from the sidelines. Not so easy when you’re in the thick of it.

You’re nearly 50. I’m a few years behind you however I expect that both of us should have adulted by now. That means, we absorb changes and adapt. Be it good or bad changes.

Yes?

#40 gypsy on 07.16.22 at 1:45 pm

Okay, captain obvious.

#41 Søren Angst on 07.16.22 at 1:47 pm

Complained all thru 2021 rates should go up and I used asleep at the wheel more than once when referring to the BoC. Thank you Ryan for the concurrence.

Water under the bridge.

2 more shoes to drop & in order:

1. Much lower Consumer Spending.
2. Layoffs that follow – just beginning in the USA.

End of year or earlier, don’t know, but the result will be a severe Cdn recession.

Too much debt.

And no, Gov Canada will not rescue debtors.

BoC will not fund them so they can fuel inflation further.

No, debtors will be taken out of the economy for decades to come.

I believe a Cdn RE market collapse will happen this year. -40% easily.

——————–

I’m one long weekend away from 50.
– Ryan Lewenza

[a.k.a., Junior]

#42 SW on 07.16.22 at 1:55 pm

It’s funny, I said CB’s around the world dropped the ball months ago and are way behind the curve and Garth poked fun at me for saying so. CB’s have a track record of getting things wrong and quite frankly I don’t know why anyone listens to them. CB’s don’t understand markets except the BOJ, which actually have traders working for them.

Makes me wonder why they completely discounted oil in their projections when we are in an enduring energy crisis. Amazing.

#43 Søren Angst on 07.16.22 at 1:57 pm

And to add doom to gloom, everyone in Canada’s idea of a BASTION, the Big 5 Banks, well their share prices TYD range from:

-13.3% to -20.6%

dragging down with them every B&D Cdn ETF that there is out there, including 1 I own.

Mr. Market is saying the Cdn Banks are in trouble and if you look at their stock price chart:

https://www.google.com/finance/quote/BNS:TSE?comparison=TSE%3ATD%2CTSE%3ACM%2CTSE%3ARY%2CTSE%3ABMO&window=YTD

clear where they are headed and what the trend is.

They created too much cheap debt and helped to stoke demand.

They are as much to blame as the BoC, sorry, but they are. Irresponsible lenders.

They think CMHC will rescue them. Not when price drops in RE to come happen. They too will be holding the bag not just the taxpayer.

Serves them right. Unfortunately they will take many Cdns down with them.

#44 DON on 07.16.22 at 2:19 pm

#18 the Jaguar on 07.16.22 at 11:22 am
You’re not alone Ryan. Most of the posters here are also schmucks with a few in the ‘mensch’ category.

I think we are in uncharted waters. It’s useful to review the past as a model for how the future is likely to unfold, and charts and graphs really bring that history into sharp focus. But the players and technology won’t remain static. Seems like the issue is hiding in plain sight. But nobody is talking about it.

Emerging economies and technologies are and will have a greater impact moving forward. New alliances are being formed and old models may not apply.

It’s fascinating to me that the story of Turkey, Egypt, and espcially Saudi Arabia applying to join BRICS (Brazil/Russia/India/China/South Africa ) has barely made headlines in western media. These aren’t nobodies. Maybe that’s why Joe B. got on a plane in the heat of summer.

Bigger than the pandemic itself was the realization of just how interconnected we really are and how reliant on supply chains to carry on business and maintain our comfortable lifestyles.

The west has led the world for decades but the way it was doesn’t mean it’s the way it will always be. A few days ago some posted that some newcomers to the country are pulling up stakes and moving back to home countries. Maybe they just don’t like “Woke” politics and outcomes. There’s voting at the ballot box and voting with your feet. Or as Joni Mitchell wrote “Don’t it always seem to go, that you don’t know what you got ’til it’s gone”.

********
Nicely put Jag. The international playing field is changing. In hindsight, covid will be seen a the straw that broke the camel’s back.

#45 Søren Angst on 07.16.22 at 2:23 pm

Off Topic, sort of.

– 15,171 Listings
– 68.2% entire homes/apartments
– CA$10,352 average income
– 62 average nights booked
– 62.5% unlicensed
– 48.0% hosts with more than 1 listing

Top 15 Hosts, # of Listings

Sky View 151
Simply Comfort 73
Alec And Lily 61
Julie 46
Dave 39
Ayk 38
Sarah 37
Olu 31
Davar 29
Sonder (Toronto) 29
Kostiantyn 27
Carolyn 25
Emil & Sue 24
Kevin 24
DelSuites 22

http://insideairbnb.com/toronto/

…………………..

Top Property Managers

Sky View Suites 152
Simply Comfort 76
DelSuites 31
Pembroke inn 24
KTC Property Management 19

Active Rentals:

11,230 Q4 2021
11,892 Q1 2022
13,588 Q2 2022

https://www.airdna.co/vacation-rental-data/app/ca/ontario/toronto/overview

————————-

Prediction:

A World of Hurt coming for AirBnB et. al.

#46 Don Guillermo on 07.16.22 at 2:38 pm

#35 Sail Away on 07.16.22 at 12:44 pm
#9 Flop… on 07.16.22 at 10:33 am

Today the Daily Mail in Britain is mocking The Metrosexual Messiah more harshly than I did.

“ Hair today, gone tomorrow! Justin Trudeau’s new much-shorter haircut is compared to Jim Carrey’s bowl cut in Dumb and Dumber after the Canadian PM’s years sporting flowing locks.”

———

Sort of funny a Brit tabloid would need to go abroad to mock a leader’s hair with homegrown Boris and his finely coiffed look so close.
##########
The Daily Mail have taken many a run at Boris but are always looking for new material. T2 and Boris make their jobs easy.

#47 PBrasseur on 07.16.22 at 2:48 pm

You seem to forget that rates are about debt, you figure the BoC will pause, but lower rates are about facilitating debt, so the question is how much more debt do you thing this country (and many others) can support?

Answer is: Likely not much more.

Total debt in the US is 300% of GDP, but in Canada it’s 345% of GDP, and that without fiscal margin (we’re already taxed up to our ears) and without being the world reserve currency.

Think about that for a moment and maybe you’ll understand better why the central bank seems a bit panicky… maybe you should be too!

#48 I don't know on 07.16.22 at 2:49 pm

#37 None on 07.16.22 at 1:08 pm

-Herd animals? Ask almost any human being on earth what they would do if given a huge chunk of money. The vast majority of them would blurt out “buy a house” in about a millisecond. The need to seek out shelter is innate to us all.

While both financial assets and real estate have advantages, and one should ideally own both, real estate has added utility in the form of shelter and land. It’s also been an absolute stellar investment for over 20 years, so anyone who “succumbed to their herd instinct” has done extremely well. Add the fact that finding suitable rentals can be a challenge, particularly for families. Oh, and rent isn’t cheap (and getting worse).

You buy real estate when you can afford to. Waiting has never benefitted anyone and will continue to benefit no one, particularly now as rate hikes destroy affordability by the minute.

IDK

#49 ElGatoNeroYVR on 07.16.22 at 2:51 pm

Inflation is a false flag. I don’t know or read of a single “working for a living” ( not executive level ) employee who in the past 10 years has had their wage increased to match the inflation.Wages always go up by far less than inflation except for the top 5% wage earnes (if that) .
The regular working grunt keeps getting deeper into debt in order to live a decent life, hence the crux of the problem.
We are heading towards a French revolution style revolt if nothing changes for the regular person ,when you have nothing left to loose … a more recent example might be Sri Lanka .

#50 Triplenet on 07.16.22 at 3:01 pm

So it appears Tiff Macklem did call Evan Siddall at AIMCO
for advice on policy rate matters.
Now all Tiff has to do is dismiss all the noise coming from our librarian finance Lady and her woke drama teacher and stay the course of prudent management.
Evan will teach you Tiff, wise advice comes from experience – not text books.

#51 Ryan Lewenza on 07.16.22 at 3:21 pm

Stone “While I don’t disagree with most of your points Ryan, there is something I disagree with.

The BoC is not here to hold your, my, or anybody else’s hand while they do their job. They raised rates 1%. And? What about it? Is it part of their mandate to cradle everyone as they do their job? Are they required to communicate in advance?”

I agree they need to make changes to support the economy and rein in inflation when it gets above their 2% target rates. My argument is the BoC has made timing errors which has contributed to the current high inflation and now they are trying to catch up since they’ve been late to the party. – Ryan L

#52 Richard L on 07.16.22 at 3:23 pm

I agree with you 100% Ryan. The Bank should have reduced bond purchases in the fall of 2021 as it was apparent that the economy was heating up. Rate increases should have started in Jan 2022 at the latest.

Mr. Macklem is now sounding very hawkish, however he did not act with foresight in my opinion.

#53 kommykim on 07.16.22 at 3:44 pm

RE: “Following the rate hike the media was in a frenzy over the large 1% rate hike, likely scaring the bejesus out of millions of Canadians.”

=======================================

Well, that’s a good thing isn’t it? They should be made to think twice about racking up debt and going on spending sprees. That’ll put a damper on inflation.

#54 Not in Canada's case on 07.16.22 at 3:50 pm

I’m confused. Shouldn’t housing do well in inflationary times”

You point out an important paradox that have the “experts” so confused they don’t want to even discuss.

With expectation of inflation there should be a rush to buy assets before prices rise, not so much of a rush to purchase equities or real estate this time around.

Tick Tock, Tick Tock

I haven’t seen a stupider post!!!!

#55 Chameleon on 07.16.22 at 3:55 pm

#15 Hot poo
#45 Chameleon
#33 Felix

Well, I’ll tell you who’s poop has no value – dogs!

They must be amused as we pick it up, hot and soft.

Speaking of dog poop…

YOU dog owners need to be more pro-active and stamp this out yourselves.

Set a good example.

Call out bad dog owners.

Respect the by-laws.

Respect on-leash.

Clean up your act.

______________

I understand your concern over this matter and your distaste for certain dog owners behaviour. Believe me when I say that the majority of dog owners are respectful and feel the same.

However, to say that it is OUR problem … is like me saying you need to sort out bad drivers … you do drive, don’t you?

YOU car owners need to be more pro-active and stamp this out yourselves. I ride a bicycle so this doesn’t apply to me.

Getting involved with these people may not have the outcome you expect. It’s a job for enforcement.

—–

Well, there you go Hot poo!

Funny thing you should use that example. Because I drive and I bike.

And whenever I do both, I make it a point to be courteous. Also, I have this thing to let other drivers know when their brake lights are burned out, because it’s a real safety issue. They could get rear-ended for example, obviously. So I take the effort whenever safe and possible to let drivers of burned out brake lights know. I say thank you. I signal. I show appreciation and try to make the road a better place.

Also, I very much respect cyclists, because I cycle. I know when I choose to bike that I’m removing 3500lbs of noise and pollution emitting metal from the street, and so I understand it is very likely that other cyclists are doing likewise. Hence, they deserve the courtesy.

Finally, car vs. cyclists is no contest. That obvious mismatch is why lives on bikes deserve the respect because collisions are very one sided. What will happen to you in a car? Scratch on your bumper? Broken turn signal? Spilled coffee? Dropped phone?

On the other hand, whenever I approach a dog owner about dog being off-leash where it couldn’t, or like the case with the lady with an off-leash dog at a Blue Flag beach, it ends up in talk-back, mind your own business, confrontation. You know how rare it is to point out to a dog owner they are doing something that is disruptive to others and have them respond in a corrective manner?

That is why perhaps other dog owners will get a better response.

Your comparison of dog owners vs car drivers I feel is not as valid as dog owners and pool swimmers. One can foul it up for everyone.

The dog owner makes the decision to get the dog, it is 100% their responsibility that their decision doesn’t inconvenience others, in every possible way. Period. End of story.

Funny sidebar story. I’ve had a few dog owner friends now tell me they don’t go to off leash areas because dog walkers are coming in with 6 dogs at a time that they can’t possibly control. They find the areas dangerous for their dogs and overrun with dogs form these multiple dog walker 6-packs.

Interesting, because who are the dog owners who are using these services and not taking the time and care of their dogs as they should?

Oh how quickly it snowballs this animal ownership consumerism. Oh how easy it is to blame someone else for not putting up with some dog owners ways.

And that Hot Poo, is why I stick to admiring animals from afar, or eating them.

#56 Johnny Debt on 07.16.22 at 3:58 pm

I agree they need to make changes to support the economy and rein in inflation when it gets above their 2% target rates. My argument is the BoC has made timing errors which has contributed to the current high inflation and now they are trying to catch up since they’ve been late to the party. – Ryan L

>>>

More excuses on behalf of CBs Ryan. To pacify and cover the obvious play that they want this inflation to run away for a while to take care of debt and buy time.

1% increase when inflation is 9% is not catch up.

2% or 3% increase, that would be catching up.

#57 Cow Man on 07.16.22 at 4:03 pm

BOC has been blind and behind for 20 years. Why would it change now ?

#58 Debtslavecreator on 07.16.22 at 4:04 pm

Bunch of corrupt and incompetent clowns. Destroyers of nations and the working stiff. They’ll be gone within 10 yrs after our aptly named Loonie completes it destined dive into Deadfiat Lake. A nation that calls its currency the Loonie is all you need to know about its future.

#59 Flop… on 07.16.22 at 4:42 pm

Might be going a day early, Sunday is traditionally a real estate day on this blog.

Real Estate market is very holy, and Garth likes to punch more holes in it.

According to realtor Janice Christie, only 777 mortgage holders are behind in their mortgage payments in B.C

“There were just 777 mortgages in arrears out of a total of 711,354 mortgages in B.C. at March 31, 2022.

It will surely creep up as things unfold.

777 huh?

Does that mean they need to win the jackpot to get out of this…

M47BC

#60 baloney Sandwitch on 07.16.22 at 4:43 pm

The blame is on the millennial gen for going house crazy.

#61 AK on 07.16.22 at 4:44 pm

“Well, I was greatly surprised/shocked this week with the Bank of Canada (BoC) bringing out the inflation bazooka by hiking the overnight rate by a full percent.”
====================================

The thing that surprised me Is that these clowns finally realized that they are behind the curve.

#62 the Jaguar on 07.16.22 at 4:47 pm

After a gruelling morning of attending to ‘flotsam and jetsam’ in the current unbearable Calgary heat, I finally found a cool shaded spot , poured myself a glass of South African Protea Dry Rose 2020 over ice (highly recommended) and listened to a very good interview with financial analyst Louis Gave about the current state of world economic affairs. He covers a lot of bases. I think it would be right up your alley Damifino, if you are reading. (Damifino is one of the ‘mensches)

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

#63 SkyNut on 07.16.22 at 4:49 pm

“The permanency comes from, generally, a negative feedback loop of higher commodity prices, which leads to wage increases, and in turn fuels more demand and growth, adding further to inflationary pressures.”

Doubtful. Median wages have stagnated for decades in relation to productivity, and recent wage increases are too minuscule to explain the inflation spike.

We would also expect to see prices in labour-intensive sectors (restaurants, health care) to spike more rapidly than other sectors. Instead, we saw the price of gas and apartment rentals skyrocket (food prices inflated indirectly because it relies on oil and gas to be grown and transported). Both of those industries are largely controlled by OPEC cartels and corporate landlords respectively. They fix prices simply because they can and know people don’t have easy alternatives.

Bear in mind, this is all happening in the context of record corporate profits. So perhaps we should shift our collective attention away from labour, and towards a more likely suspect — monopolistic greed.

#64 Summertime on 07.16.22 at 4:53 pm

Yes, central bankers were asleep at the wheel by:
1. Keeping interest rates too low for too long
2. Issuing large amount of new money in order to suppress further rates.
3. Issuing record credit not supported by savings
4. Being accommodative in supporting markets.

Precisely because of that we enjoy the current record inflation, that is higher than in the 70-es and 80-es if measured in the same way, current 8- 9 % would translate to 15-18 %, not the 12 % we enjoyed at the time.

If we apply the same medicine we would see interest rates of 12-20 %.

It beats me how exactly is the increase from 1.5 % to 2.5 % a problem given the current inflation predicament.

I do not give a flying ..ck what markets think or expect, recession is the least of our problem given the looming inflationary depression.

Imagine Paul Volcker keeping the rates at 2- 3 % instead of 15-18 % at the time.

#65 AK on 07.16.22 at 4:58 pm

“Currently the CAD/USD is around 77 cents and we could see it revisit its recent highs in the low 80s.”
===================================

Last time Oil was trading over $100.00, the Loonie was north of par. This time around, It can’t even break 80 cents.
With the Liberal/NDP socialist coalition, I doubt we see the Loonie move past 80 cents. But, I may be wrong.

#66 L Lawliet on 07.16.22 at 5:02 pm

How will higher overnight rates affect the Canada 5-year bond rate? Will preferred stocks resetting next year have higher yields?

#67 Summertime on 07.16.22 at 5:03 pm

The high inflation we enjoy today is result of the Mark ‘the climate change’ Carney (remember him and his imminent rate increases BS?) and Poloz’s ‘central banking’ expertise.

Tiff is just the fall guy who has to clean the mess.

#68 Shawn on 07.16.22 at 5:03 pm

Ge where’s my big raise?

Well, where’s your big skill improvement?

I started working full time after I finished a college degree.

After that on my own time in the evenings I completed an MBA, Then a management accounting program and then the chartered financial analyst program. It’s amazing what you do with those three hours a night that others are watching television or wasting time on the internet.

Surprise, my raises were always quite a bit above inflation.

Academics are not the only route. I have the utmost respect for trades workers. But the best ones also upgrade. Invest in yourself and the rewards tend to follow.

#69 JacqueShellacque on 07.16.22 at 5:41 pm

Inflation is about money supply, not interest rates. Interest rates simply allow lenders to set out the price of borrowing such that they can lend out as much or as little as they want to, given how much money they have to lend. The money comes from the central bank. When they have lots of money, they lower the rates to push it out there. When they don’t have a lot of money to lend, they raise their lending rates in order more properly discriminate between who really wants/needs the money and who doesn’t. This by itself though does not cause or alleviate inflation. The problem is the extra money in existence.

RE interest rates, what matters here from a practical perspective are what higher rates do to asset prices. The short answer is they make assets less valuable, for 2 reasons: 1) because there’s competition for funds once interest rates are positive, and 2) asset values are priced based on their present value, which drops when interest rates go up (part of the PV calculation is the rate of interest). I know the average schlub isn’t making these calculations when they buy a house or choose whether to get ETFs, but they don’t need to, the market is wise enough to guide them. With all due respect Ryan, I know this blog is intended for general readership, but this aspect of rising rates is one I think you could’ve touched on. This isn’t based on any ‘belief’ or analysis, it’s a priori fact.

As for the prospect of recession, in a complex world with a lot going on it becomes more difficult to predict the consequences of actions. All it might take is a small % decrease in house sales, a little bump in HELOC delinquencies, increases in mortgage arrears, etc, to set in motion a train of events that can’t really be controlled, like 2008. Unfortunately a lot of people think we’re only a few months away from 2019 again, but in reality our current times are a lot more similar to 1913 or 1928.

#70 I don’t know on 07.16.22 at 5:44 pm

#60 baloney Sandwitch on 07.16.22 at 4:43 pm
The blame is on the millennial gen for going house crazy.

-Why?

They are entering their prime family formation years and need space and backyards.

Demand increase = price increases.

The millennial demographic is completely divided between those that bought and have done well, and those that waited and are completely priced out (and bitter about it).

IDK

#71 Obese Kids - O.K. on 07.16.22 at 6:04 pm

#51 DON on 07.15.22 at 9:25 pm
#47 Obese Kids – O.K. on 07.15.22 at 7:58 pm
So I’m at a Toronto pool.

I see a boy.

11…maybe 10…maybe 12.

Easily 80lbs overweight, if not more.

Heartbreaking.

I am not judging this child by any means. I’m simply concerned about his health. Clearly this is not healthy by any standards know to humanity.

************

Geezus…stop being creepy at the pool.

Maybe stick to adult swim time.

************

Lane swim?

Sucks!

Can’t do cannonballs.
Adult swim is stiff and boring.
Plus it is outside of peak sunshine hours.

As for obesity…

Obesity is just a reflection of corporate greed and consumerism.

They create addictive products that hook people. After all, what is obesity buy excess consumption.

Of course that consumption is lovely for bottom line of corporations that push contributing products.

When health troubles inevitably arise, cost of dealing with it is offloaded to the health care system and individual.

Ain’t it amazing?

Think about that next time you see obesity glorified in an advertisement. Of course no one obese should ever be discriminated against, just like no human should be discriminated against. But just remember how the corporations are taking advantage of that person for their profit. What a clever position to be in? And how ethical?
And they just brush that shame off themselves and onto that person while hiring scientists to make the products more subconsciously addictive and advertising it at all hours along with free delivery. “Your call!”

#72 Shawn on 07.16.22 at 6:30 pm

Where do banks get money to lend?

#69 JacqueShellacque on 07.16.22 at 5:41 pm

Inflation is about money supply, not interest rates. Interest rates simply allow lenders to set out the price of borrowing such that they can lend out as much or as little as they want to, given how much money they have to lend. The money comes from the central bank.

****************************
Well, you’re off track already there. Commercial banks have deposits at the central bank. They rarely borrow from the central bank.

Money is mostly created at the commercial banks and once created stays in the commercial banks while getting continuously transferred from one commercial bank to another as the money is spent.

What does ebb and flow is the banks’ appetite to lend.

When the central bank is paying a high rate on their deposits they can keep cash there rather than lending it.

It’s all rather complicated but you are wring that commercial banks are lending out money they get from central banks.

Here’s link to the central ban balance sheet.

https://www.bankofcanada.ca/rates/banking-and-financial-statistics/bank-of-canada-assets-and-liabilities-weekly-formerly-b2/

See the large deposits of commercial banks at the central bank under deposits “members of payments Canada”.

See central bank loans to commercial banks under… well, actually you won’t see it. During the pandemic crisis they did have some loans to commercial banks under purchase and resale agreements but that has now declined to zero.

#73 Dwayen on 07.16.22 at 6:34 pm

Well you said it in the last line of your post.

But I would feel a whole lot better with you at the wheel at BOC. Someone who can crunch the numbers AND think for themselves? What are the chances of that?

#74 T Rex and the dinosaur clique on 07.16.22 at 6:38 pm

“The permanency comes from, generally, a negative feedback loop of higher commodity prices, which leads to wage increases, and in turn fuels more demand and growth, adding further to inflationary pressures.”

That is a positive feedback loop.

Negative feedback loops are the desirable ones. They are what you want.

For example, the thermostat in your house is a negative feedback loop. When the furnace heats the house, to a certain temperature, the thermostat shuts off the furnace (negative feedback) to control how hot it gets. When it gets too cold, the thermostat turns on the furnace (negative feedback) to warm it up again.

Positive feedback is the bad kind. For example, if a building is burning, and you throw gasoline on the fire, you are adding positive feedback. It makes it bigger.

That is what is happening right now with inflation, we are in a wage/price spiral, positive feedback loop.

The BoC is adding negative feedback (raising interest rates aggressively) so as to cool things down.

The BoC relationship with the marketplace is supposed to always be a negative feedback loop. That is what you want a central bank to do.

The concern a lot of people have right now is that the BoC was involved in a positive feedback loop, printing money, holding rates down and trying to build inflationary pressures, when the economy was already firing on all cylinders and required negative feedback to slow it down.

#75 AK on 07.16.22 at 7:33 pm

How many remember : 1985’s dollar-capping Plaza Accord

#76 In the cold on 07.16.22 at 7:51 pm

Ryan, I don’t need need to nick pick, but I decided to:

1/ the BoC has to have more money than I do. You forgot the scale in the second chart (Bank of Canada’s Balance Sheet Assets) – it must be in millions of dollars, please correct this.

2/ the second graph is so illegible I didn’t bother reading it. Can you spend some time to clean it? with the inverted scale, and the confusing layout, it seems designed to confound, rather than illuminate. What does “% change – period to period” mean? You state 2005 is 100, and start with 2009… so is the period one year (why not state yoy change), or five?

You make good points. Keep up the good work.

#77 Penny Henny on 07.16.22 at 7:52 pm

#59 Flop… on 07.16.22 at 4:42 pm

M47BC

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

47? I thought you turned 48.
Are you still M?

#78 Stone on 07.16.22 at 8:05 pm

#51 Ryan Lewenza on 07.16.22 at 3:21 pm
Stone “While I don’t disagree with most of your points Ryan, there is something I disagree with.

The BoC is not here to hold your, my, or anybody else’s hand while they do their job. They raised rates 1%. And? What about it? Is it part of their mandate to cradle everyone as they do their job? Are they required to communicate in advance?”

I agree they need to make changes to support the economy and rein in inflation when it gets above their 2% target rates. My argument is the BoC has made timing errors which has contributed to the current high inflation and now they are trying to catch up since they’ve been late to the party. – Ryan L

———

Inflation is rampant in many areas of the world (not all but most). Realistically, Canada is an insignificant speck in the grand scheme of things. The BoC has little control over what is actually happening. I suspect the BoC is working in tandem with other central bankers and they will implement rate increases fairly closely together to tamp down the inflation issue. All that excess cash was provided globally. It will also be resolved globally.

The normal Joe 6 Pack out there is probably not aware of all that but it’s the likely reason why things are happening as they are. I’d rather take a 10,000 foot view of the problem than a 30 foot view. There’s a bigger plan at play. Let the big boys and girls figure this out. I’m sure things will turn out fine. Well, except for those who over-leveraged themselves on debt and will be imploding shortly.

#79 TurnerNation on 07.16.22 at 8:29 pm

A reminder that this weblog is proven Safe & Effective* when consumed at the recommended dose of Once Daily.

*Efficacy however has not been established with Millennials suffering from exogenous reactions such as FOMO, [email protected], FOOP, POOP, BOFFO.

#80 CJohnC on 07.16.22 at 8:49 pm

Canada needs to start doing business. That all stopped in and reversed in 2015

https://www.cdhowe.org/expert-op-eds/canadas-economy-decapitalizing-financial-post-op-ed

#81 Tony on 07.16.22 at 10:04 pm

Slightly off topic Breaking news… Bulldog Hanover breaks the world record with a 1:45.4 in the half million dollar William Haughton Memorial from post 7 in real time. Bulldog Hanover is Ontario bred. I picked him out of 2,200 yearlings to win the North America Cup when he was just a yearling.

#82 Doug t on 07.16.22 at 10:52 pm

#79 TurnerNation

LMAO WTF OMG LOL

#83 Tony on 07.16.22 at 10:53 pm

What about Europe? Inflation might trend higher well into 2023.

#84 Diamond Dog on 07.16.22 at 10:54 pm

I agree Ryan, they blew it.

Of course, the vast majority of the time our CB follows the lead of the U.S. Fed which blew it monumentally. It looks like highly politicized policy in timing a recession with the mid terms at this point. Our inflation woes were spun in 2020, I agree with your assessment in it’s entirety.

But who am I, just some 57 blowhard to likes to invest and talks to much. Enjoy your weekend. (if it’s normal, milk it, it may not last)

#85 Johnny Debt on 07.16.22 at 11:00 pm

#78 Stone

The normal Joe 6 Pack out there is probably not aware of all that but it’s the likely reason why things are happening as they are. I’d rather take a 10,000 foot view of the problem than a 30 foot view. There’s a bigger plan at play. Let the big boys and girls figure this out. I’m sure things will turn out fine. Well, except for those who over-leveraged themselves on debt and will be imploding shortly

—–

US is at what? 1.75%

Resolve?

The world is swimming in debt.

US is behind on interest rates. Next increase should be 3% to fight inflation, and won’t be that you can be sure.

I ask you, how will this be resolved?

I see only one unfortunate answer. It has to be something bigger than Covid and the 20T borrowed and spent.

What can be bigger than what the world just went through past 2 years to create the cover for 200T in spending to underpin this crazy unrepayable debt and make people forget it all?

What Stone?

Don’t say it.

I know what it is, and I don’t want to say it.

#86 Tony on 07.16.22 at 11:01 pm

Re: #70 I don’t know on 07.16.22 at 5:44 pm

The Millennials got conned by the news media and don’t seem to put a value on something before they decide to buy.

#87 Tony on 07.16.22 at 11:07 pm

Re: #64 Summertime on 07.16.22 at 4:53 pm

Debt levels come into play that’s why inflation will probably keep rising in Europe while it falls in America.

#88 Earlybird on 07.16.22 at 11:35 pm

#14 Yukon Elvis….thanks for the link!
Yup…if this takes hold, what future do we have? The bigger sentiment vibe….

#89 Sunny South on 07.17.22 at 7:02 am

First, an early happy 50th birthday Ryan. Welcome to the start of your sixth decade of life. Just wanted to know if, given past and anticipated rate hike, you remain of the opinion that markets will end the year even or slightly above start of the year’s level, and whether a TSX market bounce into the low 20,000s is still anticipated. Thank you for your reply.

#90 Ryan Lewenza on 07.17.22 at 10:14 am

Sunny South “First, an early happy 50th birthday Ryan. Welcome to the start of your sixth decade of life. Just wanted to know if, given past and anticipated rate hike, you remain of the opinion that markets will end the year even or slightly above start of the year’s level, and whether a TSX market bounce into the low 20,000s is still anticipated. Thank you for your reply.”

I see a stronger second half of the year but it might not be enough to end up posting a positive year. But I see a much stronger 2023 with markets making a new high next year. Stay tuned for that outlook. – Ryan L

#91 Linda on 07.17.22 at 10:52 am

#21 ‘Balmuto’ – the assumption in your theory that higher rents will continue to fuel a pool of buyers relies on those buyers being able to secure a mortgage sufficient to make a purchase with. As many would be purchasers are discovering, the amount the lender is willing to lend is not sufficient to close the deal. Given that CB’s are raising interest rates in order to battle inflation it follows that their criteria for approving loans has become less flexible. I’d add that someone who is finding rents too high isn’t likely to be able to take on the debt that purchasing a property entails. As Garth has pointed out, the cost of purchasing generally exceeds the cost of renting.

#92 Cash is King on 07.17.22 at 11:59 am

The end game is acheiving 1980s pricing on all homes, townhomes and condos in Canada. That way everything will be affordable and the only thing government had to do was raise the rates to rebalance the markets lower, not acuallly build anything. Let the fallen priced homes provide the needed lower cost housing. Voila, free at the stroke of a pen!

#93 Quintilian on 07.17.22 at 12:28 pm

#91 Linda on 07.17.22 at 10:52 am
“I’d add that someone who is finding rents too high isn’t likely to be able to take on the debt that purchasing a property entails. As Garth has pointed out, the cost of purchasing generally exceeds the cost of renting.”

Furthermore, rents cannot be amortized or subsidized by savers made possible by artificial negative interest rates, so the amount that can be charged is related to people’s disposable income.

By comparison to other western economies, Canadian’s wages do not justify such high rents, the departure from fundamentals won’t last as long as the bubble in purchase prices has lasted.

#94 OK, Doomer on 07.17.22 at 12:40 pm

https://www.zerohedge.com/geopolitical/dutch-dairy-farmer-faces-having-cull-95-percent-his-cows

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

Here’s what the Dutch experience with the latest war on elements on the Periodic Table. Nitrogen control will mean destruction of the economy, crappy crop yields, and higher prices for everyone, impacting especially the poor and most vulnerable.

Does anyone think Trudeau will learn from other’s big green mistakes mistakes or will he continue to blindly push Canadians into the woodchipper of eco-lunacy?

My bet is on woodchipper.

#95 DON on 07.17.22 at 12:52 pm

#85 Johnny Debt on 07.16.22 at 11:00 pm
#78 Stone

The normal Joe 6 Pack out there is probably not aware of all that but it’s the likely reason why things are happening as they are. I’d rather take a 10,000 foot view of the problem than a 30 foot view. There’s a bigger plan at play. Let the big boys and girls figure this out. I’m sure things will turn out fine. Well, except for those who over-leveraged themselves on debt and will be imploding shortly

—–

US is at what? 1.75%

Resolve?

The world is swimming in debt.

US is behind on interest rates. Next increase should be 3% to fight inflation, and won’t be that you can be sure.

I ask you, how will this be resolved?

I see only one unfortunate answer. It has to be something bigger than Covid and the 20T borrowed and spent.

What can be bigger than what the world just went through past 2 years to create the cover for 200T in spending to underpin this crazy unrepayable debt and make people forget it all?

What Stone?

Don’t say it.

I know what it is, and I don’t want to say it.

***********

War.

#96 Tom from Mississauga on 07.17.22 at 1:05 pm

Breakdown of globalization and the intricacy of manufacturing in different price points in different countries for different components going into EVERY single product. Inflation will skyrocket as cheapest is no longer first consideration, security is. Tiffer is giving clear warning we should all heed (I don’t like him either though).

#97 Cici on 07.17.22 at 1:28 pm

#71 Obese Kids – O.K. on 07.16.22 at 6:04 pm

So, I went to elementary school with a kid who was easily, by your standards, obese at 11 years of age. A lot of the kids teased him, but I never did, because he was very, very kind and also very, very smart. Just kind of short and quite chunky.

Flash-forward five years later and we were in high school. This guy magically shot up in stature (like literally grew to over 6 ft tall) and had the most amazing male physique with absolutely no excess fat, and he didn’t appear to be pumping iron.

A similar phenomenon happened to many of the “pudgier” young girls too, although most rounded out to perfection, not up.

So, that guy’s “baby fat” had simply melted and he became the most handsome man ever. And of course, he became quite popular. But he always remained very kind, very intelligent and a class act.

Long story short, don’t judge people or their children unless you know the full story. In other words, unless you are sure that they are being malnourished via sugary drinks and trans fats, just assume that they are not!

#98 Mike on 07.17.22 at 1:32 pm

There is a delicate balance within the dichotomy of a Central bankers finely tuned brain. The one half is the Electrician while the other is the Bartender. Various personalities within Central banking can be grouped thus…
EB, Eb, eB, or eb. One might suspect.

#99 Catalyst on 07.17.22 at 1:34 pm

There is a reason Freeland is our finance minister – it’s because she was the one willing to collude with BOC to flood the economy with printed cash.

Without consideration for that, its not really a full picture. When Tiff whiffed on 25 bps, I was certain he was tainted too. He’s slowly getting some credibility back but let’s see how his backbone holds up at the slightest sign of pressure.

#100 RichardTO on 07.17.22 at 1:53 pm

Mr. Fluenza, could I press you for a comment on why you think the BoC was so compliant, if not complicit, in accommodating the Trudeau Regime’s ill-conceived national response to what even Bill Gates called, “kinda of a flu”, which has now resulted in predictably high inflation?

We had plenty of statistical data by April 2020 from many jurisdictions to determine the flu-like mortality rates, and the heavily skewed distribution of these deaths to the +80 demographic.

Was the BoC duped, like the rest of society by a malfunctioning “health” bureaucracy, or do you see elements of design, in what looks like a global conspiracy?

#101 tc-contra on 07.18.22 at 12:47 am

“Dumping on Tiff is the meme now. It’s everywhere. Pepe is the cheerleader, of course. Lost on many is the fact every central bank on the planet is dealing with the same bad hand. Putin’s crazy war in Ukraine. Hundred dollar oil. Supply chain wonkiness after two years of pandemic. China’s Covid obsession leading to lockdowns that trashed economic growth. And Harry Styles, of course.”
////////////////////////////////////////////

Don’t sweat the small stuff Gartho- we have more serious problems to deal with…like which pronouns to use. Or transwomen empregnating ‘real’ women in prison.

“A transgender woman behind bars at a New Jersey women’s prison impregnated two fellow inmates, prompting officials to move her to a different facility, a report revealed Saturday.

Demi Minor, 27, was moved last month from the Edna Mahan Correctional Facility for Women to the Garden State Youth Correctional Facility …”
https://nypost.com/2022/07/16/transgender-woman-demi-minor-impregnates-two-inmates-at-nj-prison/

#102 Philco on 07.18.22 at 3:01 am

OMG I wrote the read.
Sorry all these clowns are the same and Turkey 90%.
Its the VELOCITY OF MONEY that dictates economy / inflation.
Velocity drops the clowns get worried. Velocity drops to near zero that’s a god dam depression.
T2 has no clues to these facts.
My shits ready for the worst. Do NOT watch the news or read the financials. Its all review mirror crap