Author: garth turner

The virus news sucks. Ontario started shutting down again late Friday. Real estate open houses are kaput. Quebec’s a mess. Cases continue to pile up in the States, Europe and Asia. Two pharmas just suspended vaccine trials. Trump’s claim for a cure by election day is just more of his hot air.

Your odds of contracting it are slim. Of dying, even less. But the chances of being more impacted by Covid than, say two months ago, are probably 90%. When the snow flies, even moreso. Governments and the politicians in them are not ready to trust you yet.

Consequences?

WFH will be with us until the spring. An airline may go bankrupt. The federal deficit will be insane. Chrystia’s gonna tax you more. And some people think banks will soon start paying you to borrow money.

That was a topic here a few days ago. Negative rates. Recently some media reports suggested the Bank of Canada was considering this. So we should noodle it for the next three minutes.

First, negative rates do not mean you get paid to take a mortgage and be deliriously happy. Instead it’s when the central bank drops its benchmark rate to less than zero and provides the commercial banks with oodles of money, hoping they will lend it out. And why would they do that? Because the news is bad. Worse than bad. A disaster.

Central banks adopt negative rates, which are drastic, when they fear the economy’s about to slide into a deflationary spiral. Deflation’s way worse than inflation. When it hits, spending stops as prices steadily fall, GDP shrinks, unemployment worsens, corporate profits fizzle, companies fail and real estate takes it on the chin. Just Google the 1930s and see what deflation did to the price of a house in Toronto, Montreal or Winnipeg.

So negative rates are a last-gasp monetary tool to thwart this. The whole idea is to make saving so unattractive that people (and companies) spend everything and borrow lots. Negative rates first appeared following the 2008 credit crisis and more recently in Europe, where economies have been struggling. If they ever come to Canada, the last thing you want is to have the bulk of your net worth in a house. Deflation makes debts harder to pay, not easier, as incomes and opportunities wither.

But what about Canada in 2020? Where’s this talk of negative rates coming from?

From this dumb comment by our new central banker Tiff Macklem: “We are not actively discussing negative interest rates at this point, but it’s in our toolkit and never say never.” His last four words were a mistake. He surely wishes he could take them back.

Negative rates would mean the Bank of Canada rate drops by another quarter or half-point. That would reduce the banks’ prime by a similar amount and drop five-year mortgages to about 1%. Bank profits would be clobbered. Markets would run red. Sparrows would fall. And it would only happen if the virus flared out of control, ICUs were overrun and a complete economic lockdown were to occur – guaranteeing recovery would take many years, not a few months.

Consequences would pile up. Savers would make absolutely nothing on hundreds of billions in high-interest accounts. GICs would renew at zero. Fools would borrow excessively and asset bubbles grow, before collapsing. Banks, squeezed as never before, might eventually halt lending since they’d be taking risk without gain. Cascading prices would be lethal to small business and big corps alike.

Trust me. You do not want negative rates. Nor deflation. And the good news it this: ain’t gonna happen. Not in this lifetime.

In fact, you should expect the opposite.

The year of Covid has brought unprecedented government and central bank spending. That $350 billion deficit T2 created is because of fiscal stimulus like never before – all those CERB cheques, payroll subsidies, rent assistance and enhanced social benefits have cascaded into the economy to replace money the virus stole. Meanwhile CB rate drops have helped unleash a weird real estate boom and explosion in mortgage debt. Our Bank of Canada is also gobbling up $5 billion a week in securities, pumping all of that cash back into the system. Never. Happened. Before.

Inflation has started to rip, and all this spending assures much more to come. Public debt levels have exploded higher. The Libs in Ottawa are actually doubling Canada’s total obligation. Eventually the combination of debt, extreme deficits, government borrowing, inflation and economic recovery will trigger the bond market. A sell-off there will jack rates in short order – with neither the BoC nor Mr. Socks able to do anything about it.

In short, no negative rates. In fact one major US bank is calling for a full 1% jump in 2022. Most other analysts see rates sliding higher in 2023 and beyond. Those who argue “the government won’t allow it because everyone is in debt” have some surprises coming.

Conclusion: be careful what you wish for. Lock in at today’s absurd levels. And hope the guy running our central bank shuts the hell up.

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These last eight months have brought a housing revolution. Who ever imagined a virus would ignite a rush into sleepy London, pedestrian Halifax or boring Kelowna? But it’s real. Stunning, in fact. Sales in those places are up dramatically and prices have increased by at least a third.

We’re not alone. The same pattern has emerged in the US. Almost identical. Here’s an interesting comment from the head realtor in the Republic of Trump:

“The hottest housing markets in the new landscape are cities which offer desirable amenities—larger homes, leafy neighborhoods, access to the outdoors, walkability and proximity to grocery stores—in a more affordable package. Home buyers still want to be within commuting distance of large employment centers, but with the prevalence of remote work, they are willing to extend the distance from urban downtowns.”

Indeed. Ditto north of the border. Niagara. Kamloops. Moncton. Barrie. Squamish.

At the same time, a malaise has hit urbanity. A new report from BMO days ago – “Big City Blues” – spelled that out. The highest unemployment rate in the nation (of 33 centres) is Toronto at a withering 13%. Vancouver and Montreal sit around 11%. These are awful numbers, and at the same time real estate in the GTA and YVR is essentially unaffordable to 90% of the people living there.

Big-city house prices keep going up, but some see disturbing signs of weakness. Condo sales have started to backslide. Rents have plunged 15% in Toronto in just a few months. Inventory is starting to edge higher. In Vancouver detached prices are forecast to shed at least two hundred thousand on average. And meanwhile the suburbs sizzle – average prices have topped a million in Mississauga, where Costco is a cultural destination.

Big cities have taken a big hit, as hotels, tourism, concerts and pro sports are killed by Covid. Layer over that the WFN phenomenon. Many people think the soaring office towers in the core will stay empty, that commuting’s no longer a thing, and society will achieve that elusive work-life balance, which means you can now go for days without your pants.

Small cities have benefited the most, where the quality of life is high, streets seem safe, lockdowns are less likely, wildlife scampers through your garden and houses actually affordable. Once untethered from the need to be in a downtown workplace, enough people are flocking to Hamilton or Vernon to inflate values and stun the locals.

Of course, it’s not all Covid. Mortgages at 2% or less have inflated real estate everywhere. Worries over the US political situation have scared some people away from financial markets. GICs and savings accounts paying dirt have convinced some savers to shift into real estate, where gains appear endless. And above all, there’s stress. The pandemic is the most unsettling, consequential, disruptive and victimizing reality of our entire lives. It’s led to an emotional need for security. Nesting. A retreat into a cocoon we can control, in a world out of control.

Now, can it last? Are these wise decisions?

Sure, it makes sense for old, retired farts on fixed incomes to bail out and head for Hicksville. But what about the moisters with sprouting families, serious financial obligations and in the middle of growing careers?

That’s the gamble. And, yup, it’s a risk.

Remember GreaterFool Rule 12: before you buy any real estate, figure out how to sell it. A slow, sleepy, cheap market that just woke up because of a once-a-century event might not be the best choice. What happens when the pandemic ends? When the best jobs migrate back to the city? When you must sell but the boom’s long gone?

Meanwhile, could the virus do to housing in January and February what it did in March and April? If this cold-weather, second-wave gains traction things might look dire once again. Maybe it’s already started. On Friday Ontario’s realtors started banning open houses.

The province slid back into Stage 2 restrictions a few days ago, following the lead of Quebec. People are being asked to stay home, and agents instructed to stop showing listings, especially in condo buildings. “We are calling for our members to do the right thing,” says the head of the provincial real estate association.

If you think anything happening now is normal, you may be jolted by what’s to come.  Caution.

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  By Guest Blogger Sinan Terzioglu

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Whether or not to commute a pension is far from an easy decision.  Many prefer the guaranteed income stream for life instead of commuting and taking on the responsibility and risk of hiring an advisor or managing the assets on their own.  While everyone’s goals and circumstances are different it’s definitely worth considering and understanding whether commuting a pension could make sense for you and your family.

Some advantages to commuting:

• Flexibility. Instead of receiving a fixed amount starting at a certain age, you gain the flexibility to withdraw more or less from a portfolio as well as having access to as much of the funds as required, whenever you want.
• Control. You’ll never meet the manager of an institutional pension fund whereas you have the ability to choose or change who manages your commuted pension, as well as regularly speak with them to ensure the portfolio’s being managed in the most efficient way to meet your goals.
• Potentially less tax. Defined pension payments are fully taxed as income, whereas when withdrawing from an investment portfolio one has the ability to take funds in a much more tax-efficient way, plus to defer taxes.
• More for your loved ones. If you pass away there may be survivor benefits for your spouse for a period of a time but more they’ll be reduced. Likely there will be no benefits to children or an estate when the pensioner passes.
• The chance to do better. By commuting a pension and investing in a balanced and diversified portfolio that includes government and corporate bonds, preferred shares, alternative assets, REITs and growth assets that are geographically diversified one is essentially investing just like a pension fund manager does but with more upside because of compound growth.

As life expectancies increase and health care costs continually rise it’s more important than ever to ensure one will have enough income to last several decades.  Government pensions do not come close to covering most people’s needs and if you’re one of the lucky few to have a defined benefit pension plan it is critical to understand the health of your employer’s pension plan and whether there are medical benefits and if the benefits are indexed to inflation.

Many Canadian corporate pension plans are underfunded and regulations do not require them to be fully funded.  Unfortunately for retirees of Sears Canada this lack of regulatory enforcement cost them, as they had their pensions slashed by 30% following the bankruptcy and closure of the retailer. So 18,000 retirees who paid into the plan for decades are now living on much less than they expected and some have been forced to return to the work force in their 60s and 70s. Defined benefit pension plans of corporations are far from guaranteed.

When commuting a pension a portion is transferred tax-free into a LIRA (Locked-In Retirement Account) with the balance gets paid out in cash.  If you have available RRSP contribution room you can take advantage of that, otherwise the cash portion comes into your income for the year.  Many struggle with this as it results in a large tax bill, but this money would never have landed in one’s pocket if the pension were not commuted, so it’s important to understand that when considering whether or not to commute your pension.  Also every monthly payment would be taxable, had you stayed in the plan.

Commuted pension, double the retirement income

Here is a hypothetical example. Let’s suppose a 35-year-old switches jobs and has the ability to commute her DB pension.  If she leaves it in place she’d receive $3,000 a month ($36,000 annually) pre-tax, not indexed to inflation starting at the age of 60.  If she commutes, $200,000 would go into a LIRA (no tax) and $150,000 would be paid in cash (taxable as income minus RRSP room).  She has $50,000 in available contribution room so she maximizes that and the balance of $100,000 is brought into income for that year, netting her $50,000 after tax.  She invests the commuted value in a balanced and diversified portfolio of $300,000 ($200,000 LIRA, $50,000 RRSP and $50,000 non-registered).  Assuming she earns a 6% annual rate of return that sum would grow to $1,300,000 in 25 years.

At age 60 she could comfortably withdraw $78,000 a year or $6,500 per month, pre-tax, without depleting the capital.  If she contributes to a TFSA or any other accounts over the balance of her career she may require less income from her commuted pension, allowing it to continue growing and deferring taxes.  The non-registered portion alone could potentially continue growing for the balance of her life and the compounded growth plus any other assets could be left to her family and estate instead of a pension plan.

So commuting a pension is certainly not a one-size-fits-all decision, and not all pensions are the same.  Some have very good benefits and are indexed to inflation so the decision is not always clear. There are many considerations. They are not all financial.  We all have different risk tolerances and circumstances.

A good starting point is to think about your long term goals and what you value most.  For me personally, I don’t like the thought of contributing to a savings plan for most of my career and not being able to have control of it or access to it as well as the ability to leave it behind to my family after I pass.

Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments, Private Client Group, Raymond James Ltd.  He served as vice-president of RBC Capital markets in New York City and VP with Credit Suisse in Toronto.

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   By Guest Blogger Ryan Lewenza

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While it’s often said during elections that, “this is the most important election in years”, I think it’s fair to say that this really is one of the most important votes in recent memory. The US is the most divided it has been in as I long as I can remember over critical issues like Covid-19, the direction of the US economy, racial tensions, climate change, the Supreme Court and so much more, which are all on the table come November 3rd. And of course we have the potential (probable?) outcome of a contested US election by Trump if he doesn’t win. No wonder I’ve doubled up on my consumption of antacid pills!

So much has changed in just a few months. In January, before the pandemic hit, I would have put the odds of a Trump re-election at above 60% with the US unemployment rate at a 70 year low, US equity markets hitting new all-time highs, and the US securing an important trade deal with China. Then Covid hit and changed everything!

Trump’s handling of the pandemic has been subpar (those daily White House updates were train wrecks). Coupled with the deepest recession seen in decades and the most explosive racial tensions witnessed since the 1960s, it’s no wonder Trump is on his back heels and down in the polls.

Currently, the Real Clear Politics national poll has Biden leading by 8 points, which has increased in recent weeks following the debate, if you could call it that, and the huge news that Trump was infected with the virus last week.

Yes the polls got it dead wrong in 2016, so it’s by no means a lock for Biden, but that doesn’t mean the polls are destined to err this time.

One stat that should be very concerning to the Trump campaign is support of those over 65. In the 2016 election against Clinton, he won those voters by over 9%. Currently, Trump’s trailing by 21% based on a CNN poll and an even wider 27% from a recent NBC/Wall Street Journal poll. If this holds into Election Day, then this may end up costing Trump his second term.

RCP Poll Average – Trump vs Biden

Source: Real Clear Politics

What has me most concerned is a potentially contested US election by President Trump. Numerous times when pressed by the media and reporters on whether he would accept the election results, Trump has responded with “we’ll see”. He’s made his position very clear that he believes there will be significant voter fraud in this election, potentially setting the stage for him to contest the results come November 3rd. And given we’ll likely see a record number of mail-in ballots due to the pandemic, we could be looking at weeks and potentially months before we have a confirmed winner.

Looking back on the Bush/Gore 2000 election, it took over a month for a Supreme Court ruling to determine the winner, with markets getting whacked during this period of uncertainty (the S&P 500 declined 8% over this period).

My hope is that there will be a clear winner come November 3rd and the losing candidate, whether it be Biden or Trump, recognize the importance of a peaceful transition to a well-functioning democracy and concedes, so that we can avoid this unnecessary and pointless period of uncertainty and likely short-term market weakness.

S&P 500 Performance during Gore/Bush Contested Election

Source: Stockcharts.com, Turner Investments

If markets do come under pressure I believe it will be short-lived and could prove to be a buying opportunity, as the Supreme Court would then get involved and clean up the mess. Let’s hope it doesn’t come to this!

Trump keeps saying and some believe that a Biden win would be catastrophic for the economy and stock market. I don’t buy this for a few reasons.

First, while the US President is important, the business cycle, interest rates and other macro factors are far more critical to the economy and stock market.

Second, if Biden does win and we potentially see a “blue wave”, there could be a larger stimulus plan and potentially higher growth. Both Goldman Sachs and Moody’s predict higher GDP and job growth under Biden’s economic plans compared to Trump’s current policies.

Third, contrary to common perception, the stock market has historically done better under a Democratic president. Below I provide the annual price change for the Dow Jones since 1990 under both a Republican and Democratic President. If I sum up each yearly return under every president, Democrat presidents have seen a higher 35% return to the Republican Presidents of 27%. But this isn’t the best way to look at returns.

Dow Jones Average Price Return by President & Year

Source: Bloomberg, Turner Investments

Below is a better chart where I calculated the average performance of the S&P 500 under both Democratic and Republican presidents over the four-year term. On average, the S&P 500 has gained 56% (price return only) under a democratic president versus 27% under a republican president.

S&P 500 Performance under Different Presidents

Source: Bloomberg, Turner Investments. Based on S&P 500 data from 1945 to present

So there you have it! In 25 days from now we’ll either have a second Trump term, or a new Democratic president who will basically reverse much of what Trump has done over the last 4 years. Some welcome this prospect with open arms while others want to see more Trump. Elections matter, and this one especially.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

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This tedious, pedantic, hectoring but incredibly manly blog has asked the questions a few times now. Why stretch to buy a house during a recession? And pandemic? Which is getting worse? Huh?

Alas, even seasoned blog dogs are giving in to their pants. Witness Dan. “I’ve been reading your blog for 10 years and I’m kind of surprised to be asking you this as perhaps it goes against everything you have been preaching… but maybe not,” he whimpers.

“I’m considering upgrading my home, just north of Toronto. A house in my neighborhood has been on the market for a couple of months as it was priced too high about 2 mil. I’m told I can get it for 1.8m.  If I sell my current house I’ll get approximately 1.4mil.  Prices are high here but they are way off the highs from 3 years ago.

“I currently have 150k left on my mortgage so will be taking on about 600k in mortgage. It’s a clear upgrade on my current home and it has a well set up basement apartment which would easily bring in $1500/month. We can afford the 600k mortgage without renting but I like the somewhat passive income that it will provide.

“Household income is just over 200k. We have a good pension are 45 years old and have about 300k in financial investments.  Perhaps this question makes your eyes roll and resolve to give up preaching. I hope not!”

Now there’s a lot we don’t know about this guy. Like his profession, kids, pension details, retirement plans, investment assets, job security or family obligations (needy parents, clingy children). No real estate decision can be made in isolation. And this is a doozie. Especially in days like these.

What’s Dan proposing? For starters, increasing his debt by a factor of four. Second, he’s probably burying a bucket-full of tax-free capital gain in another property, which constitutes a gamble – that inflated real estate values will stay that way until he needs the cash. Third, he’s not buying because it’s urgent, but because it’s an ‘upgrade.’ La-de-dah. And he justifies a $2,000,000 property in the outer burbs by saying he can take in a tenant for $1,500 a month. Seriously? A dude in the basement of your mini-mansion, sharing the driveway and wandering, unshaven in the backyard?

More to consider: a $600,000 mortgage at today’s rates of 1.95% seems delicious, but will things look the same in five years when it renews at 3%? This purchase will generate $36,500 in land transfer tax, plus closing and moving costs. So, kiss the better part of fifty grand away. Selling the existing place will cost another $84,000 in commission. Plus HST ($12,600). And there may be a break fee for the existing mortgage. More property tax for the new place, too. Also, Dan would end up with over 80% of his net worth in a single asset. Never smart.

And did I mention there’s apparently some virus going around? Ontario’s new cases have exploded higher in the last few days, bringing (today) another job-sucking set of restrictions. Meanwhile some right-wing militia nutjobs tried to start a civil war in Michigan. Not that far away. And maybe an indication of what the US post-election months will bring. Scary guys with black pickups, Trump flags and AR-15s. Yikes.

These are external threats nobody can control, or even completely anticipate. Meanwhile the NDP-Liberal coalition government in Ottawa is mulling new taxes on the wealthy in order to ensure everyone gets their $500 a week in benefits. Are people living in $2 million compounds considered rich? Do you think this might be a good time to keep your head down and live quietly among the masses?

So stocks jumped again Friday. It’s been a remarkable few sessions lately, despite the president of the United States getting a deadly disease (which was a blessing from God, he says), more infections everywhere, tons of layoffs and intense political skirmishes. Trump seems more erratic than usual. In a tweet he nixed months of negotiations to craft a new stimulus bill, then two days later embraced it. He’s walked away from the next debate with Joe Biden. And the polls suck for Republicans.

The conclusion: Wall Street’s coming ‘round to the view that he’s toast. And it’s okay with that. Better than okay, actually. The worst-case scenario would be a contested outcome after November 3rd. A clear Biden victory is a superior outcome.

“We are getting more comfortable with the “Blue Wave”,” says analyst Ed Pennock. “Biden is gradually winning the Electoral College race. The increasing clarity is giving rise to an increase in risk-taking. Will Biden spend more? Probably. And the market’s fine with that. We do expect market Volatility to increase in the next 2 to 3 months.  Fears of a contested election are receding.”

Now, add in Covid therapies, like the stuff they pumped into 45. Then a vaccine, globally distributed in 2021. Sustained central bank fiscal stimulus. Plus trillions more in government economic support. If the virus has a winter crest, then starts to recede come spring, Dan will wish he’d sunk his money into something other than a pile of particleboard and glue in the GTA tundra.

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From Rossland, BC to gritty Toronto to rural Ottawa, nothing – nothing – is normal.

Blame Covid. And it ain’t over yet. Real estate values are being skewed as never before. As a result risk, and its flip side – opportunity, are elevated. The virus has infected the brains and loins of Canadians and we may just be half way through a period which promises lasting consequences.

Blog dog Tom gives us a case in point. “I’ve been shopping real estate in a ski town called Rossland. This little beauty exists in the Kootenays, within the southern interior. 4 hours east of Kelowna,” he reports.

Here, real estate has taken a few jumps, but is still quite affordable to the average city dog. Last year, a decent 3 bedroom house that needed a bit of work was about 350k.Then covid happened. Fast forward to June this year. The real estate market of this little town of 3000 is stormed by city folk fleeing their diseased high density life. Locals like myself are getting outbid left and right. Gentrification now in swing.  Prices have inflated obscenely.

Remember my little snippets on Lunenburg, 5,600 km away on the coast of the Atlantic? Same experience. Multiple bids and prices up 40% in eight months as Ontario refugees through emailed offers on properties they’ve never set foot in. The locals watch. Mystified. Amused.

And look at the scrubby, rocky turf outside the nation’s capital. Sales and values have catapulted higher since the virus hit. Urban Ottawa prices have soared 28% this year (to an average of $622,600), but in the far suburban reaches of Dunrobin they climbed 64%, to $577,000. In Carp, where the goats and llamas prance, there’s been a 84% price gallop, to $865,000.

As you know, sales/prices catapulted in both the GTA and YVR last month. Victoria and Montreal are nutso. The burbs are smoking with detacheds passing an average of $1 million in Mississauga, where all the hairdressers used to live.

But while this occurs, huge changes in the 416 condo market. Yikes. Take a gander at this chart showing sales and down active listings as never before on record.

Source: HouseSigma

Yup. Active listings are running 200% above last year’s levels. As a result, average prices are dropping about $10,000 per month with rents tumbling even faster. Across the GTA tenants are paying 11% less than last autumn, and in the core the cost of a rental apartment is down almost 15%. More to come. You know why.

• As rents drop and tenants disappear landlords – 40% of whom were already in negative cash flow – panic and sell.
• As listings grow and prices fade leveraged investors counting on annual capital gains fall into negative equity. They bolt.
• As the virus returns unemployment among potential renters creates a rental surplus. Students move home, classes are remote. Leases get cheaper.
• As Covid flourishes the downtown office towers sit at 5-20% occupancy, so WFH eliminates the need to be in the core.
• The bug’s had a massive impact on psychology. People don’t want to rise in elevators or share garbage rooms. They yearn for street access, back yards and spaces between neighbours.
• Covid has collapsed immigration. A 70% drop in newcomers to Canada has eliminated a continual pool of new renters coming into the megalopolis.
• And the bug killed Airbnb. First it was the collapse of travel/tourism, then local politicians banned it, followed by new regs seriously eliminating high-rise condos from the platform. There were 28,000 listings before Covid. Now down 90%.
• Scads of new condos are coming to market as big projects lurch to completion. More listings. Lower prices.

There you go. The sales-to-listings ratio for condos is the lowest in a decade. Rents could bottom out at a 25-30% decline from February levels. In-demand buildings where listings were scarce even four months ago now have dozens of units on the market. The chickens have come roosting with a vengeance after 50% of all condo sales in recent years went to specuvestors and amateur LLs. The sales avalanche may only have started.

Just in time to chortle, here’s Evan Siddell, the head of our federal housing agency who sounds a lot like a guy who real estate: “Trust me, this game of musical chairs ends and the last people standing are these folks loaded with debt,” he said this week.

Eight months ago, would you have believed me telling you people would be desperate to buy in Carp? Or Rossland? Outer Mississauga? Or rural NS? That prime condos in the financial heartland would be going vacant and devaluing weekly? That the mortgage delinquency rate would be 17 times higher than that of the last 30 years? That we’d have a detached housing boom and price inflation during a recession, unemployment and pandemic?

Nope. Not a chance. But here we are. And just wait till you see what January brings.

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Lost in the Trump vs Science debacle this week was our own epic battle. On Tuesday night the Trudeau Libs, propped up by the Dippers, clung to power. As a result, (a) no election and (b) hang on to your wallets. This greenlights the first Chrystia Hoovering, expected to come as an economic statement in a few weeks, or a full-on budget after Christmas (if they let us have one).

There are a couple of things you should know.

First, the guy actually running the country has a turban, a beard, drinks cranberry juice and lip-sync’s Fleetwood Mac while pretending to skateboard. On TikTok, no less. Jagmeet Singh is the only reason you won’t be going to the polls anytime soon to express an opinion on unprecedented spending, debt and social activism. The NDP’s votes were enough to give the Libs a 177-to-152 win, against the forces of the O’Toole Cons and those dudes from Quebec. Anyway, here he is, whiskers whistling in the wind…

Second, with the confidence vote won, the federal government will be moving ahead on implementing a form of guaranteed income, now called the CRB (as opposed to CERB). Five hundred a week. Plus the same amount for moms or dads who stay home with their kids who fear school. More is coming for businesses, too. And there’s 10 days of extra paid sick leave if you have to quarantine. Oh, did I mention the move towards a national pharmacare program and universal child care? And the green agenda, after Ottawa on Wednesday declared plastic to be ‘toxic.’ You know, the stuff you use every day. Everywhere.

The final bill is unknown. But it’s safe to assume the deficit won’t be $340 billion. Maybe close to five hundred billion. That would mean a doubling of the national debt under this prime minister. Maybe you agree it was necessary spending. Maybe not. But the point is, thanks to Jag you will not have a chance to express that opinion with your vote.

And where, the townspeople cry, is all this moolah coming from?

That’s easy. The Bank of Canada. While the Americans and others debate this thing called ‘Modern Monetary Theory’, this northern paradise is already implementing it. The essence of MMT is that governments can (and should) spend whatever they want on programs to serve citizens by creating extra money to pay for them. Deficits don’t matter. Nor does debt. If a country controls its own currency, why not just print all that’s required to, oh, pay everybody $500 a week?

If you have any doubt, check the chart below. When it comes to a central bank wildly inflating its balance sheet so the ruling party can spend without restraint and blame the virus, we da man!

Critics are aghast. Naturally. Creating hundreds of billions of extra dollars eventually makes all the existing bucks worth less. That leads to currency devaluation. For a trading country which imports so much, it means our goods sell cheap and the stuff we bring in costs more. Eventually interest rates must rise with inflation, necessitating the printing of more money to service the debt. Tossed into the meat grinder are people with big borrowings (like mortgages) and retirees on fixed incomes.

Paleo thinking!, say the progressives. More government is better. Public spending is good. Balanced budgets are regressive. Real estate is a human right. Jag and Justin get it.

Well, like it or not, this is what we have. In a few weeks that Freedland event might deliver clarity on the road ahead. But its direction is crystal. We’re heading left in a hurry. This is one extra reason to keep at least 25% of your overall portfolio in US$-denominated assets like index ETFs, and to ensure your accounts overall are global in nature. About 40% of the 60% in growth assets should be non-maple. Home country bias has always been a gamble. Now it could be a regret. No matter how rad we think we are.

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It’s not about real estate, stocks, getting obscenely rich, tax avoidance or even dogs.

This blog’s theme, in one word, is ‘balance’.

Lately a bunch of us have lost sight of this. The tilt is more in evidence every day. The site’s suffering ethically as a result. Maybe it’s because bully voices have pushed out the moderate ones. Perhaps it’s the toxic influence of the American election. It could be economic stress, job loss and recession. All understandable. This year has sucked from the get-go. The elephant in the room is a tiny little bug. A virus. Now it’s weaponized.

Flash back to March and April. When Covid burst on the scene turning into a global pandemic, the blog was overrun with amateur epidemiologists and armchair infectious disease experts telling us the body count would be in the millions – within weeks. The federal health minister said forty or sixty per cent of us would get it. And yet the recovery and mortality rates suggested something more akin to the flu. So was it really a balanced approach to shutter the entire economy?

I closed my building for six weeks, until the pandemic was better understood and I had ample evidence work-from-home is not a thing everybody’s good at. So we resumed operations, making sure employees had space and choices. That seemed balanced. People work better when they can yell at each other.

For context, I don’t know anybody with Covid. Today I am writing from beside the sea, in the Atlantic bubble. There are only three people in NS who are sick. Two of them got it from travelling outside Canada. One person in hospital. No deaths for a long time. Virtually all victims lived in one urban seniors’ residence – an avoidable tragedy. In short, there’s no virus here. Yet everyone is in masks. And the tourism, travel and hospitality sector has been nuked. It’s an unhinged time – commercial properties hitting the market as desperate owners bail out, and residential listings selling in hours, no showings, to desperate buyers thousands of kilometres away. No balance there.

Now it’s October. Month eight. Unemployment is 10%, four million people are on the dole, federal finances are shot, six in ten restaurants are closing and we have a second wave in Europe, growing infections in 30 US states and new shutdowns in Ontario, BC and Quebec. Globally 36 million people got the bug and a million have died. In the US the virus is the biggest single election issue, and again Monday night the president downplayed it, despite 210,000 American fatalities.

This disease, for which there is yet no cure or vaccine, is now politicized, divisive and socially destructive. An entire society has lost its balance. Blaming China and pulling out of the World Health Organization while doubting mask-wearing and rushing reopening are Trump’s ways of showing strength and defiance. Even after he got it. Democrats, public health officials and people terrified of disease are appalled. The polarization grows. ‘Don’t be afraid of this,’ says the president. And 210,000 families cannot believe their ears.

Now, about us.

Lately I’ve pushed back against those claiming this is, actually, a glorified flu or minimizing the victims because they’re mostly old, fat or compromised. The kids called it Boomer Remover. Then they started getting infected.

After eight months of something we thought would last six weeks, it’s clear this world was ripe for a pandemic – too many living too close, travelling too much, loving crowds and causing congestion. The virus will be here for months more, maybe years. If a vaccine magically appeared next week and worked, it would take a long, long time to administer to four or six billion people. Until herd immunity occurred, or Covid was contained quickly with effective therapies available to all of humanity, normal is further off than seemed possible in March.

How do we deal with this in a balanced way?

Not as Trump is, evidently. Ripping that mask off as he entered the White House  – infected – Monday night was all the evidence one needs. Not as Trudeau is doing, either. Doubling our national debt in one year with off-the-charts spending will shackle us long after C19 is a memory. The world had a chance to come together and fight a common foe, and we blew it. For some unknown reason, we’ve picked a sad, myopic, dipstick crop of leaders.

So you railing against lockdowns, face coverings or infectious socialism won’t change a thing. Dismissing victims as weak or inconsequential only diminishes you. Ignoring the threat will probably make it worse. Last longer. Cost more.

When this regional bubble descended, trapping me inside (no coming back in without a quarantine), I hated it. There are colleagues I can’t see, a home I can’t visit, clients and friends I want time with. But there are no deaths here now in four provinces, no community spread, no hint of more restrictions, no red zones. Schools open. Restaurants. Sports. Gyms. Hotels. Bars.

My views have changed. Maybe it’s the Screech.

Apparently a lot of people hated yesterday’s survey. Tough. Here are the results, based on 4,746 total responses.

(click to enlarge:)

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Up is down. Dogs are cats. The world is nuts.

Thus it seems when you scope out the news. The virus is gaining momentum again, the latest US job numbers are weak and Covid is ripping through the White House. Yet markets are robust, stocks are romping higher, real estate is smoking and financial investors are doin’ just fine. That Apocalypse2020 dude is hitting the bottle and has moved under a bridge. Bears have gone into early hibernation. Prophets of doom, like Bay Street’s David Rosenberg and his cash-hoarding little disciples, are zeroes again. Whadda world.

In the last three days Trump got Covid, went on oxygen and has been seriously pickled by every drug cocktail and experimental remedy going. He may be doing unbelievably well. He might be seriously ill. He is rising from the swamp. The fog of misinformation is thick. But we know this: he put Secret Service guys at risk by insisting on doing a motorcade around his hospital on Sunday. His Rose Garden event for the new SCOTUS lady turned into a superspreader moment. The list of infected keeps growing, and now includes his pneumatic press secretary. He may not be able to do the next debate. It’s probable others around him will test positive. Apparently no contact tracing is being done. No masks were worn that day. No social distancing. Trump did events after his close aide, Hope Hicks, tested positive. Every single rule was broken.

So there you go. The manly, BSD approach to pandemic management failed. Chaos has ensured. Stocks go up.

Why?

First, a weak economy, lots of new layoffs, rising infections in 22 states and Trump’s medical problems pretty much ensure more government stimulus. Markets are betting Democrats and the White House can agree on a new package worth $1.5 trillion or more. Stimulus is a surrogate for economic growth, and investors feed off it. Up she goes.

Second, the bigger the mess around the president, the more people who are infected in his inner circle and the more uncertain his recovery the more Biden pulls ahead. Especially after that graceless debate. Markets like certainty, just as they hate the unknown. A closely-contested election taking weeks or months to sort out would be a confidence-killer as money stays on the sidelines and equities drop. So a clear-cut Biden win – looking increasingly likely as the White House turns into a quarantine zone – is bullish. Up she goes.

Source: FiveThirtyEight.com

“While many market participants are fretting over uncertainty and volatility that could result from a contested U.S. election, JPMorgan said the chances of a clear election result are rising,” Bloomberg reported on Monday. “Biden’s possible victory is often associated with concerns over higher corporate taxes, however, the strategists say that in light of the economic slowdown he’s likely to instead prioritize business recovery and jobs growth.”

“A potential Biden victory is unlikely to deliver significant tax increases, with these likely to be watered down, and additionally there could be a greater stimulus focus and consumer. Biden had made his tax-hike proposals in a very different world without the virus.”

Now, let’s hear from you. It’s been a while since this pathetic blog dipped into the gene pool. How do you see some of the factors around us shaping markets, real estate and the future?

Results tomorrow. No fighting allowed.

About the picture: Scott writes: “My brother shot the attached image in Picton on the main drag and I thought you might like (or use) it. He is a landscaper working on a big project for a hotel. He spent some time talking to a lot of small business owners there, who all seem to be saying that C19 and the government lockdown has screwed them. They’ve all decided to see it through to the end of the season, but even with the government assistance this year, many are not coming back next year. They’re done. So unfortunate for that town.” Indeed.

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In a few days it’ll be a Thanksgiving as never before.

Seven months of pandemic. A shortfall of $350 billion in Ottawa. Mortgages at 1%. A real estate boom in a recession. Business failures everywhere. Grounded airplanes. Black Lives Matter and Proud Boys. Masks everywhere. The American president hospitalized. A second wave.

And yet we are thankful. Life is lived in degrees, not absolutes. In comparison to so many, we remain blessed. Blog dog William sends along a reminder.

So I’m sitting with a long lost friend who I discover is homeless in Toronto. After long discussions about how a CAnada Pension Plan check just doesn’t cut it in the big smoke … or which food bank is the best …. or which public library is prepared to look the other way if you’re  having a nap after having been on the street all night, I decided to try and cheer up my friend.

“Do you have a credit card?”, I asked him. “Of course not”, he said.

“How about a car loan?”

“I have a used bike that weighs a ton — but no car loan”, he replied.

“A mortgage, HELOC, loan of any kind?” I pressed on.

“Duh!!  I’m homeless — why would I have a mortgage — and no I have no other loans!”  he said.

I asked if he had money in his pocket and he took out a wrinkled $5 dollar bill. “That’s good”, I said.  “Now straighten out the wrinkles and slam that 5 bucks on the table like a big time operator!” I commanded.

He slammed the table hard Enough to gain a few stares from  nearby tables

Then I said to him, “Congratulations — you’re in the top 1/2 of the Canadian population in terms of personal net worth — your assets are greater than your liabilities…. now let’s work on your cash flow”.

He smiled and we raised a glass.

Look at those property deals going down. Record prices in the GTA. A 53% surge in offers in Vancouver. Hell, even in Calgary – ground zero for moaning and vexing – transactions last month up 34%, prices ahead 9% and listings down by a tenth.

The cheapest mortgage rates ever have played a part. WFH is a thing many believe is permanent (silly them). And above all, nesting is the driving force behind the most improbable housing bubble in modern history. The hasty exodus to the burbs continues apace. Look at southern Ontario, for example. Sales are up 18% in 416 – which used to be the crown jewel of the region – while they’ve surged 50% in York, 55% in Durham, 45% in Peel and 73% in Halton, where the cattle are buried. Same pattern in the LM – but in Vancouver, notably, condos are not being abandoned at the same rates as in Toronto. (Urban rents have now dropped well over 15% in the Six. More to come. Landlords are punked.)

But, but. Is this a market surge teetering on capricious emotion, not rooted in manly economic facts?

Of course. And you should eschew it.

Toronto broker and real estate franchise owner Marvin Alexander raised the alarm with his colleagues a few days ago. Writing in an industry mag he reports a ton of buyers (thirty last month alone in his shop) are buying houses, winning bidding wars, then not showing up with deposit cheques – throwing the process into chaos.

It’s “a startling trend that started becoming apparent about three months ago but has since ramped up to the numbers we are experiencing now,” he says. And while a buyer may have agreed to a firm, unconditional purchase, by not coughing up the deposit cash he can walk away without consequences. That’s because the jilted seller, in order to find legal remedy, must (a) wait until the agreed-upon closing date passes – weeks or months later – then (b) begin proceedings which will take months more and (c) wait for a judgment until the property sells again, which will only come if the subsequent sale price is lower. Then (d) he must try to collect. And good luck with that.

Why is this happening?

First, the market is insane, irrational and emotional. People make stupid offers in a contested situation, then think better of it when the morning comes. Second, lenders tell buyers they paid too much and won’t finance the deal. Or, third, desperate greater fools make multiple bids on several listings, thinking they can decide later which property they want (if successful). In any case, it all underscores the fragility and flakiness of the current situation.

By the way, did you catch the news about bubbles? The latest UBS global report lists the GTA as the No.3 Stupidest Place on the Planet for property prices, even way ahead of YVR (only Munich and Frankfurt are worse – but have lower ownership rates). So Toronto now is at significant risk of a “sharp correction” because of the unprecedented price romp in the middle of a pandemic. Thus UBS joins Moody’s and CMHC in sending up the warning flare.

But nobody ever cares. Until it happens to you. Like in the Rose Garden…

Donald Trump says he feels better (with the best medical care in the world). He has yet to tell people his infection underscores the need for social distancing and mask-wearing. We’ll see.

Meanwhile, says Scotiabank, this is what his infection has done to the odds of winning next month’s election.

We’re into some uncharted waters now. Markets will be choppy and volatility enhanced. You may be tempted to go to cash, day trade, stockpile bathroom tissue or even buy a $900,000 townhouse on some treeless street of ennui in suburban Milton.

Don’t. You will be thankful.

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