Author: garth turner

No Time for Austerity.

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

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

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

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

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

Short, Sharp & Dramatic

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

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

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

The Vote from Hell

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

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

Veteran trader Ed Pennock had this to say earlier today:

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

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

Pity the Poor 905

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

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

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

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

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

Yes. Livin’ the dream.

Source

Lately I’ve been stuck in Lunenburg, on the south shore of Nova Scotia because leaving here (even for my pad in the Big Smoke) means a 14-day quarantine upon return. It’s called the Atlantic Bubble. Anyway, here are three observations.

First, the annual hurricane arrived today. Teddy. Nature is still in charge, apparently. It’s exhilarating.

Second, no virus here. Virtually nobody in the province (or the one next door) has it.  No hospitalizations. Been that way for a while now. No wonder there’s a bubble.

Third, real estate is as stupid in a town of 2,200 souls on the edge of the sea as it is in Leaside or Kits. Used to be that a $500,000 listing was top-end and took a year to sell. Now such a property goes in a couple of days, and prices have risen a third in eight months. But the really interesting point is none of the new buyers are local. And few of them have set foot in the properties (quarantine, remember?). The Upper Canadian refugees are clearly on their way, thanks to FaceTime.

As this pathetic blog recently pointed out, the Covid Boom’s everywhere. Virtually all major regions in North America have seen people panic-buying houses they think will protect them in areas they feel are safe. Condos bad, detached good. Downtowns germy, suburbia clean. This has led to a price hike nationally of 18% year/year, and a new explosion in housing debt. Despite a recession, joblessness and massive uncertainty, families have been taking the plunge. It’s weird. Emotional. Probably dangerous.

CHMC still thinks so. The federal housing agency said it again this week. “When I look at the housing market there are a tremendous number of risks,” warns chief economist Bob Dugan. “I’m not convinced that we have a sustainable basis for housing demand in the economic disturbance that’s going on related to COVID-19. That’s why I say I stand by the forecasts.”

The forecast is for a drop in real estate values of between 9% and 18% within the next few months. Of course, as prices snake higher that becomes way less scary for people. Besides, nobody’s paying attention. The virus in general has created far more demand for real estate than there is supply. In places like Toronto these days the inventory of resale homes has dropped from months to days.

The rocket fuel behind all of this is the cost of money. And behind that is the central bank.

The Bank of Canada is acting in an extraordinary fashion to artificially depress interest rates in order to (a) encourage borrowing and economic activity and (b) allow the federal government access to oodles of cheap cash to finance an historic spending binge. The results are predictable. Savers are being crushed. Borrowers are snorfling almost-free loans. And asset values are rising as the multiple bids come rushing in.

Look at the chart below. Our central bank now owns a third of the entire Government of Canada bond and T-bill market, which is double the amount of national debt that the US Fed has purchased. This bond-buying orgy has pushed yields lower, resulting in 1.5% mortgages. It means, in effect, folks can finance houses which are appreciating at nine times the rate of inflation with 20 times leverage using loans that get easier to pay as the economy reopens. The last time we saw similar conditions?

Right. Never.

Source: Bloomberg, RateSpy, Turner Investments. Scale is in billions of dollars.

The burning question is how long this will last. Rising home values mean buyers carry a lot more debt, which low rates make possible. But the virus, double-digit unemployment, recession, deflation and economic mayhem will not last forever. Vaccines and therapies will come. Social distancing will end. Elevators will no longer be toxic petri dishes. People will have showers, put their pants on and go back to work.

As the economy revives, so will inflation. In fact it might roar as companies increase costs to survive and workers try to catch-up on lost incomes. With inflation and GDP growth will come higher rates. Central banks will turn from buyers of bonds to sellers, since they never intended to hold so much sovereign debt. The rate manipulation will stop when the economy no longer needs the crack cocaine of cheap money. This is not conjecture. It’s monetary fact.

When?

Three years maybe. At most. It means people taking five-year terms now will not be renewing at the same level. Not even close.

So CMHC may be eventually right. Some people will regret their hasty emotionalism in the midst of a pandemic fog.

Others, though, will live quaintly in paradise. Down the street from me.

Source

Get the Tums. It’s autumn.

Stock markets traditionally wobble in September. Then most of the seasonal lows have come in October. In fact, some of the most gut-wrenching moments in financial history have occurred that month. The good news, we always recover.

We will this time, too. But the ride ahead will be a bumpy one. Look at the convergence of factors.

• In Canada we have epic public debt and a spend-happy federal minority government bent on remaking society, starting Wednesday. Public finances are shot for a generation. Oh boy.
• Covid’s back. More than half the US states have rising cases. The UK may lockdown again. India, Brazil, Spain. All a mess.
• Big milestone now. Two hundred thousand virus-related deaths in the States. Six months ago that would have been utterly, unbelievably, fantastically, radically inconceivable. Sunday night US networks were talking about 400,000 victims before we’re done.
• The American economy is stalling out a bit because Congress can’t get its act together on more stimulus. That logjam will probably be broken, but there’s already $3 trillion in new debt. What a hole.
• Tech’s too big.  Investors have pumped up the FAANG guys (and others) to the point where large-cap technology companies represent 44% of the entire S&P 500 capitalization. Tech valuations got ahead of themselves. As did Tesla. The RobinHood kids have been pouring gas on everything. Big pullback was inevitable.
• No vaccine timetable yet. Normal isn’t coming back for a long time.
• And the presidential election. The fight over replacing RBG. Worries that the outcome will not be known for weeks, maybe months. Court challenges, and the kind of uncertainty that markets hate.

Mix in trade disputes, international money laundering, the collapse of global travel and tourism plus hardened borders and a sudden drop in immigration, and you get this – wild days on the markets, especially as we head into the November 3rd balloting.

By the way, here’s some new polling, with odds for the Presidential winner averaged between PredictIt, FTX.com and Betfair. It looks like a Biden sweep. But wait. What if 5,000 pickup trucks with rebel flags arrive in Washington, circle the White House and form a Trump Freedom Guard?

That’s, ah, actually not a joke.

Should you worry?

First, markets are not rooting for Trump or Biden at the moment. Investors care more about stimulus – whether it comes from the Fed or from Congress. So far there’s been enough of it to ensure stocks soared from the depths of Covid despair (March 23rd) to record highs (August). Odds are this will continue for at least the next two years.

Second, Trump’s a known economic factor and Biden is a centrist. There are no radicals here. A Democratic win may in time see higher corporate taxes and more social spending, but it will not result in a socialist tsunami pushing America into depression. Historically markets have actually done better under Democrats than Republicans (68% advance per term vs 52%).

In short, history shows us markets are freaky before every US presidential contest, and rapidly absorb every outcome. How they respond if Covid lasts for years is another matter. As we pass the grim 200,000-dead-Americans milepost, this is clearly affecting investor sentiment.

Buy or sell?

Well, consider the reasonable outcome. President Biden in 2021. Trade war with China tamped down. The US assumes more of a global leadership role – rejoins the WHO, works towards climate change response, drops protectionist measures, stops playing footsy with dictators. A vaccine is finally sanctioned and inoculations begin. That takes two years (at least). Trade, travel, tourism and immigration start to creep back. Corporate profits rebound. Unemployment drops back to single-digit levels. GDP growth leaps ahead after the disaster called 2020. WFH is no longer a thing. Suburban house prices melt a little. In some places, a lot.

During all of this, interest rates stay depressed by central banks, governments continue to spend beyond their means, bond yields languish in the ditch, and equity markets remain the only game in town delivering sustained growth.

Conclusion: ignore it all. If you have a nicely-built portfolio, hands off till January. If, on the other hand, you’re a hopped-up day-trader with big Tesla options or 3x leveraged ETFs, you could try prayer. I hear that works. Sometimes. Ask Trump.

Source

Three more sleeps until Justin Trudeau has his way with us. Wednesday’s Throne Speech comes as the virus flares again in Ontario, BC and Quebec, as anti-mask Wexiters rev their pickups through the streets of Calgary, as Trump prepares to pack the Supreme Court in case that election blows up, as the economy starts going Covid-cold for the winter, as real estate bizarrely booms, mortgage deferrals end, three million people shift from CERB to EI and as the cacophony of voices crying for a universal income grows louder.

The bug has done it once more. By pushing the average price of a detached house in Toronto above $1.5 million (new record), the pandemic has widened the wealth gap yet again. Bad enough that wise people with balanced financial portfolios have sailed right through the public health crisis and economic meltdown. Now everybody with real estate has immunity.

At least that’s how a lot of folks see it. The UBIers. Millennials. Renters. Chrystia. The federal government.

You see, this is the worst recession since the 1930s. Public finances have been shredded. Eight million people were on government benefits just weeks ago. Big employers are not calling most workers back now until after Christmas. Maybe the spring. Tens of thousands of small business are just kaput. This is mucho ugly. And yet house prices rose 18% last month year/year. Mortgages are practically free. The kids are pissed.

“Your latest blog entry links to a site, https://www.ubiworks.ca/howtopay, which promotes the idea of a land value tax,” writes Alex. “I have always thought it was unfair that investing in securities is heavily taxed, but investing in real estate is not. I consider anyone who buys a home to be an investor, since I believe the main reason someone chooses to buy a home over renting one is the prospect of untaxed land value and property value (if they do good renos) appreciation.

“I was wondering what you think of this idea? It certainly has a lot of fans including none other than Milton Friedman, but it appears that in Canada, a bastion of socialism, any wealth accumulated from owning real estate as a resident is sacrosanct and therefore should be left untaxed. Thoughts?”

Until Wednesday, Alex.

Source: Iain Emslie, blog dog

Now this is pure speculation, since the prime minister did not accept my generous offer to proof read and fact-check the speech to be delivered in Parliament. But whether the hammer drops this week, in the next budget or soon thereafter, it’s nevertheless poised.

Four years ago (2016) when the Libs started making you report residential real estate sales on your tax return, this blog told you why. No, it was not (as stated) to catch non-Canadians claiming the principal residence tax exemption. It was to start building a database of residential real estate and lay the foundation for a housing tax.

And why not? Although Alex sounds like one of those irritating young bearded Trotskyites, he has a point. Why was the capital gains tax (born in 1972) applied to everything except family real estate? Savings accounts and GICs are taxed. Investment gains are taxed. This one major exemption has hugely skewed personal financial habits, funneling massive amounts of money into houses, wildly inflating prices and turning homes into financial assets, breeding speculation and greed. When Covid came, it got worse. Nesting urges, WFH, pent-up demand, the flight to space and cheap loans combined to bring us here. If there’s one stark, looming, omnipresent embodiment of us-and-them, this is it. The house.

People with property are now the wealthy. And times are tough for the non-wealthy. Guess what that means?

Even the mainstream guys are getting the drift lately. Pop accountant and Globe tax columnist Tim Cestnick recently penned a two-part series on the inevitability of residential real estate taxation. As did this pathetic blog a few months ago, he pointed to CMHC’s funding of a UBC study on housing wealth, inequality and taxation, and included the agency boss’s cry that, “We need to call out the glorification of homeownership for the regressive canard that it is.”

Cestnick also reminds us what the jealous and needy children of Generation Squeeze have to say about housing (that group loves UBI, by the way):

“We need to make it so that no Canadian relies on gains in housing wealth to feel secure, and we need to rethink policies that, by encouraging the financialization of housing, push the cost to buy or rent a home even further out of reach.”

And at the top of the list of things inflating real estate? That’s tax-free profits.

What’s in store?

A first step might be capping the taxless portion of housing appreciation. A quarter million, maybe, like in the US? After that gains are added to income and taxed as such. There could be a minimum period of habitation required to claim that partial exemption. And don’t expect this to come with deductibility of expenses, renos or mortgage interest. That’s not happening.

GST? Maybe it’ll be levied on resales the same as it is on new housing. Limiting tax-free gains and charging sales tax on transactions would certainly help push down valuations. So would a wealth tax – easy to slap on real estate (like the UBI land value tax) because properties have public assessments in place, the basis for local tax.

The main point is simple. Incomes are already subject to a top marginal rate of up to 54% in a bunch of provinces. More tax just decreases revenues. Corporate tax can hardly be raised in a recession with double-digit unemployment and businesses staggering to survive. Investors are already taxed on all their gains while savers pay even more on interest earned. So with the bulk of Canadian net worth sitting in residential real estate – which just inflated 18% in a year – why should homeowners pay nothing?

You see the logic? For some it is inescapable. And that includes the people running the country, plus the cohort of young voters they depend on.

Maybe Wednesday. Maybe the first Freeland budget. Perhaps after T2 romps to his next electoral victory. But it’s coming. You might wish to seek a defence.

Source

  By Guest Blogger Doug Rowat

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Biotechnology always gets a bad rap.

Whether it’s the smug face of “pharma bro” and price gouger Martin Shkreli, the evil biotech laboratories in Hollywood movies such as Logan, or simply the fact that the Nasdaq Biotechnology Index is 60% more volatile than the S&P 500, the biotechnology sector tends to frighten many.

But relax. The pharma bro is safely in prison serving, hopefully, another five years, cyborg-villain Donald Pierce and all the other baddies at Transigen Laboratories got what was coming to them in Logan, and volatility can always be controlled through diversification.

In other words, investing in the biotechnology space should be viewed with caution but not fear.

And lately, it’s been a great place to be invested. Driven by the strong economy, solid R&D pipelines and record levels of M&A activity (represented best by last year’s blockbuster US$74 billion deal between Bristol-Myers Squibb and Celgene) the biotechnology sector advanced an impressive 25% in 2019. Though biotechnology hit the Covid-19 brick-wall in March 2020, as did every sector, it didn’t take the market long to realize that the best hope for an effective Covid-19 treatment likely lay within the biotechnology sector’s research pipeline. This year the sector’s up another 14% y-t-d, making it one of the best places to be invested in 2020.

And the good news continues. M&A activity has again picked up, including the announcement this week of a US$21 billion acquisition of Immunomedics by Gilead Sciences, signaling renewed sector confidence. And Credit Suisse, in a research note, also just this past week, emphasized its positive sector view stating bluntly that “Biotech will likely be the solution to the pandemic”.

Further, we also had another bullish industry report released earlier this month from Fior Markets, which forecasts that the global biotechnology market will nearly double from US$448 billion in 2019 to US$833 billion by 2027. Other forecasts have the sector eclipsing US$1 trillion in similar timeframes.

While biotechnology has obvious promising applications for infectious diseases, there are also opportunities in all sorts of other areas including gene therapy and regenerative medicine. Treatments for a variety of diseases ranging from hepatitis B and Alzheimer’s to stroke and cancer are also showing great promise in clinical trials. Interestingly, applications in the agricultural space also represent growth drivers for the sector.

The sector also has other advantages. Biotechnology products are considered necessities, so manufacturing slowdowns that plague many other industries at the moment are unlikely to impact the supply chain for biotech. And many of the core fundamentals that support the broader health care sector, such as an aging population, also support the biotechnology sector.

While the more immediate prospects for biotechnology are obvious given the Covid-19 world that we live in, the long-term track-record for the sector also shouldn’t be overlooked. The Nasdaq Biotechnology Index has returned 18% annually over the past decade, for example. And finally, from a technical perspective, the Index’s recent breakout from a long-consolidating ‘wedge’ pattern is also bullish.

Nasdaq Biotechnology Index: Bullish breakout from well-established ‘wedge’ pattern

Source: Bloomberg, Turner Investments

However, given its higher risk, the biotechnology sector must be approached carefully and exposure only added within an otherwise well-diversified portfolio. But, if you’re patient, we believe that it’s a good place to be over the long term.

Unlike the federal prison in Pennsylvania where Mr. Shkreli currently resides.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

Source

Hmmm. There’s something happening here. What it is, ain’t exactly clear.

Covid has done a number on politicians’ heads. The first global pandemic in a century spawned states of emergency across the country, shuttered legislatures, hobbled the federal Parliament, caused a suspension of many civil liberties, hardened borders, afforded new powers to premiers and mayors as well as the prime minister, caused hundreds of billions in public money to be spent without debate – all while millions of people were forced out of their jobs by decree and businesses told to change, diminish or close.

Wow. And the people accepted it. They actually support it. Polls give this new reality a big thumbs-up.

So, of course, the political class won’t stop here. Even the right-wingers.

The next target: housing.

For example, Ontario’s boss – Doug Ford – has brought in legislation to freeze residential rents (which are falling) for an entire year. No increases. Not even the miniscule 1.5% hike the previous restrictive legislation had allowed. This comes after a moratorium on evictions, and a virus-caused shutdown of the province’s landlord-tenant board.

The result is that thousands (maybe tens of thousands, or more) renters lived for free with landlords unable to remove them. Meanwhile condo fees, insurance costs, utility charges and property taxes continue to inflate. Says Ford, speaking to almost two million tenant-voters: “The last thing I want any family to worry about right now is whether or not they can afford to stay in their homes.” The legislation also bans the evictions of small businesses unable to pay rent for the next year. There is no assistance for those who own and carry the buildings.

Covid, 1. Property rights, 0.

In Vancouver the mayor is pushing ahead with a plan that would allow prime residential single-family lots to be carved into multiple units, so long as two of the additional homes are affordable to families earning $80,000. The change is huge. Such neighbourhoods currently contain homes requiring a $200,000 income and three hundred grand in down payment cash.

Accomplishing this will require an easing of restrictions on parking, design and floor size. More cars, more density, smaller spaces because, says Kennedy Stewart, “I see a future where families are no longer pushed out of town because their only two options are a condo or a multi-million dollar house.”

Impacted, of course, would be those families who paid seven (or eight) figures to live in areas which were less populated, calm, spacious and convenient. But the virus has changed everything. Policy-makers have been emboldened. The public good has emerged victorious over economic reality. It is, as Justin Trudeau said, a great opportunity to remake society. Governments have a mandate now to pick which industries will survive. To tax accumulated wealth. And tell you how to live.

Covid, 1. Capitalism, 0.

In Ottawa, after seven decades of operation regulating real estate financing, Canada Mortgage and Housing is about to become an activist arm of an ambitious government. The name change to “Housing Canada” likely says it all.

The Liberal government has turned CMHC into an agent of social engineering. A national housing strategy is backed with tens of billions earmarked for helping people get homes, whether that means rental units or state-built social housing. The agency has been mandated to “provide all Canadians with homes they can afford and meet their needs by 2030.” Other regimes and political systems have tried this in the past. It failed.

This comes as we ready for the Throne Speech on Wednesday. It’s widely anticipated this will be the precursor to UBI – a universal basic income to replace the CERB payments that moved almost $70 billion into private bank accounts from the government over the last six months.

The pro-UBI lobby has been frenetic of late, seeing Covid as a golden opportunity to push government into the unheard-of position of paying everyone just to be a resident. After all, CERB paved the way. It created a public expectation of support. Once turned on, taps can never be turned off. The $199-billion annual cost of UBI would be financed by (among other things) an end to TFSAs and RRSP deductions, a financial transaction tax (on your ETFs, for example), plus a new tax bracket, higher capital gains tax rates and a clobbering of employers. (It’s all spelled out here.)

Covid, 1. Personal initiative, 0.

Is it a plot, as anti-globalists, MAGA freaks and half the steerage section believes?

Nah. It’s just politics. The virus turned elected officials into benevolent despots. It removed opposition, sober second thought, and debate. It made them more popular. More powerful. After utterly disrupting society, they seek to rebuild it closer to a utopian deal. Everyone gets a home. All receive money. The successful are drained. The rest are supported.

From each according to his ability, to each according to his needs.

You may wish to Google that.

Source

Among its victims, Covid has big-city condos on life support. This has cleaved the real estate market in two. Houses with dirt, in the suburbs or even the sticks, are objects of desire, FOMO and bulbous prices. Concrete boxes in the heart of urbanity are emptying, devaluing and shedding equity. Rentals are piling up. Leases are coming down. The inventory of listings is bloating fast. The epicenter is 416, but this class of housing is now unloved in every major centre.

Here’s why. Followed by reasons it cannot last.

• Rental demand is plunging. Small investors and amateur landlords are sitting on empty units costing them big bucks every month. In the good times rent barely covered costs. Now, for thousands, the rent is gone. Ouch.
• Covid killed off gobs of jobs in hospitality, entertainment, the food industry, retail and other sectors where many renters tend to work.\
• Silly politicians declared a virus moratorium on evictions, signaling tenants could live for free and suffer no consequences. A knife through landlords’ hearts.
• Airbnb restrictions in Toronto, Vancouver, Montreal and other places have sent large-scale hosts screaming for cover. They have flooded the market with long-term rentals and listings. Down she goes.
• Tourism is kaput. This is a multi-billion dollar piece of the economy utterly destroyed by government edict. Urban real estate, downtown properties, employment and condos have been negatively impacted.
• Students at university and colleges aren’t in class, staying home in Mom’s basement, taking online courses. Rental demand has crashed in key areas near these institutions.
• Economic uncertainty, fears of a second wave and the drop in rents (now 15% in Toronto) has kept investors on the sidelines. New condo sales have been decimated – down 85%.
• Supply keeps piling up. Every day another 300 resales hit the market, pushing prices lower. There are 12,000 rentals listed on MLS, forcing rents down. Lots of those will migrate into active listings as tenants stay rare.
• The industry is grossly overbuilding. Urbanation reports a record 78,212 condos were under construction in the second quarter,
• Covid has made condo living seem close, germy and dangerous. People are freaked out at encountering others in the corridor, the elevator and garbage room. Irrational, but powerful.
• Immigration is largely gone – massively curtailed by Covid and politics (down 63% so far in 2020). The bulk of immigrants rent or look for entry-level real estate (condos). That demand has evaporated.
• Cities are viewed by many as less desirable than the burbs or the boonies, especially when four million people are WFH, want more space and delude themselves into thinking this is the new normal.

The results are entirely predictable. Prices are falling for some of the most prime, desirable, convenient, hippest urban real estate in the country. Units that commanded $1,400 a foot last February have dropped to $1,000 and below. That’s a crash of almost 30% in the space of 180 days. New condo sales in Q2 were off 51% year/year in Toronto, and in Vancouver 75% of pre-sale units failed to find buyers.

According to Padmapper, the average one-bedder in the core if now renting for just over $2,000 a month, down from $2,300 six months ago. That price will soon have a ‘1’ handle for the first time in a decade.

So where’s this all headed?

Down. Way down, and fast.

The Covid condo correction has only started. Big declines are yet to materialize over the winter months as these trends take hold, inventory accumulates, renters stay scarce, landlords give up and potential buyers sit on their hands. Cheap mortgages can’t save this puppy. Rates likely won’t go any lower. This is a simply play of supply and demand.

Then, it all changes.

The time line is fuzzy and evolving. But it’s probably safe to make these assumptions for 2021 and beyond.

• That awful US election will be over.
• A vaccine will have been approved, and distribution started. Restrictions eased. Social distancing and mask-wearing will start to fade.
• Therapies will emerge. Cases numbers will fall fast. The second wave will have come and gone. Deaths will continue to drop even if infections do not. Everybody feels safer.
• Global will growth resumes, economies reopen and markets rage higher.
• The Canada-US border will be reopened. Flights resumed. Tourism, pro-sports and concerts trickling back to life. Immigration restored.
• WFH will stop being a thing. Ambitious employees will flock back. The downtown will be repopulating. Office towers will slowly, steadily return to more normal operations.
• People who thought they’d never commute again will be taking the train, the bus, the streetcar, the subway. Traffic and congestion will be back. All the reasons people wanted to live downtown – to be close to work, entertainment and buzz – will rage again. Cities do not die.

The opportunity?

It’s coming. Buying back into the excitement of a thriving urban core for 30% or even 50% less than in late 2019 would be a win. Get into a quality building with a proactive condo board, adequate reserves and a competent management company. Buy low-rise, not into a 95-storey tower (like just announced at One Yonge). Location is everything to a condo.

Mostly, take advantage of conditions which have not been here for years. Maybe decades. Maybe forever. Oodles of inventory – thousands and thousands of units to choose from. Motivated sellers, some of them bleeding and desperate (my fav kind). Scant competition, so no multiple offers, bind auctions or no-condition offers. And the lowest, most ridiculously cheap mortgage rates ever.

Or, you can raise sheep in Marmora.

Source

Kicked off some major media web sites for being such a tool, he landed here. Over the next four or five years Smoking Man dropped thousands of comments on this blog. At least half of them were obscene, libelous, incendiary or unintelligible. Especially the drunken, overnight ones. SM became the most Deleted person in blog dog history.

The others were always acerbic, sometimes profound, bordering on prophetic. He called for a Trump win when the guy was still riding down his elevator and labeling Mexicans murderers. He mercilessly raked former banker colleagues on Bay Street. He wrote the worst book possibly ever penned, then insisted on trying to publish pieces of it here, hoping I wouldn’t notice. He attempted to humble, humiliate, embarrass and torment me. Then he sent me creepy emails (at night, drunken) to say he loved me.

When I wrote about Dorothy one day, this was his nocturnal message:

Garth, she is beauty. I know she hates my character. I wanted to say nicer things but I love being the bad man on the blog..you can’t bend what you can’t offend..

Your lucky, you got a good woman at your side.. It’s all you need. Everything is a risk on adventure after that.

Why you got into politics beats me.. You can’t the machine. What is wrong with you? Guess you figured it out the hard way……

Congrats, you ugly bearded freak…

Smoking Man was a persona. Or was it? Was Jim Stojsin really dyslexic, or just pretending? Did he actually make millions trading forex in his wife’s name after perfectly timing his Toronto real estate sale and moving onto a California beach? Or was that fiction?

Once day three years ago he materialized, coming to visit me at my country general store, wearing Wal-Mart flip flops and driving a runt pickup with a broken windshield.

Just before the virus arrived, he went silent. I sent a note. The response: “Hello Garth this is Jim’s wife Brenda.  It’s been a tough road for Jim and I.  We were living an incredible life in California when terrible and tragic events occurred.  When he’s up to it he will let you know.  Meanwhile keep him in your prayers.”

Hours later SM sent this: “I want to send something. Just need some time to put words together. This thing is a bitch.”

Last Sunday, says daughter Amy, Jim died of brain cancer. At 61.

She sent his obituary:

Jim and his wife Brenda spent 2 fabulous years in Corona Del Mar, CA after Jim landed his dream job. Sadly, their time was cut short when Jim was rushed into emergency brain surgery in California. After, he had to return home to Canada and fight for his life, not able to return to his home away from home. He enjoyed the last few months of his life surrounded by his loved ones, seeking as much quality time and adventure as his body would permit.

Jim was a loving husband, devoted father, published author, conspiracy theorist, blog writer , alien hunter, animal lover and self-taught computer guru. Jim was not your average man, he pushed the envelope, thought independently, and walked to the beat of his own drum, all things that made others love the man they endearingly called “BigStoj”.

“Remember when you were young
You shone like the sun
Shine on you crazy diamond” – Pink Floyd

Amy also said she was going through his laptop, “and found a final blog post that mentions you. It seems that he meant to post it. We were wondering if we sent it to you if you would publish it?”

Here are Smoking Man’s final words.

It must have started in September of 2019. I came here to post words would not flow, I imagined that I had grand essay only to catch it the next day one or two sentences.

Just did New Year 2019. Wife’s forex account screaming green. Complete bragging rights for Greater Fool, was trying to figure out a way to link the P&L sheet with out Garth knowing about it.

Next thing I know I wake up at the Hoag hospital in Newport Beach to the news that if I’m lucky, I get to live 1 to 5 more years. Brain Cancer.

Man does that change your priorities, even typing this little blurb while in treatment is almost impossible, good thing my phone does the typing, I just talk to it. It’s retarded but it works.

In a short span of time I’ve gone from a make money Maverick to a how much time do I have left. Take in the views, plan the next vacation before it’s to late, start helping other’s.

I never planned on living as long as my parents, was brutal on me watching them melt. Now the odds of me making it to 65 are clearly against me. Never saw that coming. But it is what it is.

I just want to thank you dogs for putting up with all my shit over the years, I think I’m a great troll but who knows who cares. Those days are over.

Indeed they are. And I regret that. It’s now a worse world.

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So here’s a big surprise. Not.

US financial giant JP Morgan has discovered younger employees who WFH are less productive, inefficient and more untrustworthy. What a shock that people in their jammy bottoms, watching TikTok on their phones and playing footsie with the cat while they Zoom a client were not fully engaged? Who knew?

As this paleo blog has stated a few times, this is not the future. Remote working will not replace the office. Those downtown towers will not stand empty. Employers want to see you, and anyone with a career aspiration should want to see the boss. The workplace is where innovation, collaboration, mentorship, experience and social interaction happen. When human nature chances, so will the nature of work. That’s not now. WFH is doomed. At least on a large-scale basis. That means about three million people still without good hygiene will eventually be heading back.

And what a shock that will be in, oh, Hamilton.

That once-gritty, steel mill-loving place 70 km beyond the Kingdom of 416 has now become Pandemic City. An exodus of WFHers has made its way down the near-empty QEW, escaping Toronto crazy prices to snap up – and inflate – properties in Hamilton, Burlington, Grimsby and environs.  A house in the east end, listed just above three hundred thousand had 172 showings resulting in 15 offers, and sold for 30% above asking. As reported locally, digs listed for $699,000 garnered 63 showings and 13 offers, giving its owners $885,000.

And are all these GTA refugees planning on trucking back to work in the Big Smoke?

Nah. Not a chance. GO Train ridership into Toronto is down 90%, for example. An army of millennial buyers figure they can own something affordable and let Covid take care of the rest. The virus has fostered the belief traditional workspaces are kaput, commuting is for idiots, enlightened employers understand work-life balance and the need to wear really, really comfortable pants, plus technology will eliminate supervision, trips into the germy outer world and being judged. But, of course, everyone still expects full pay.

Yes, it’s a fantasy. Some may live this dream. Most will not. They will be outsourced, overlooked or downsized. Forever forgotten. In Hamilton. Or Barrie. Or Hope. Nelson. Ladysmith. Kingston. Fredericton. Truro. Lloydminster. Even Mississauga.

So the latest stats just arrived. The phemon is national. Real estate sales in August were 6% greater than in July and 44% above the year before. Prices across Canada climbed 18.5% in twelve months – in a pandemic, a recession and amid double-digit unemployment. Just imagine how great things would be if we had Ebola and locusts.

By the way did you catch this comment yesterday from federal Treasury Board President Jean-Yves Duclos? The Libs have no choice now, he said, when it comes to further opening the spending spigot: “We need to keep investing in Canadians to avoid moving from a recession to a depression.”

Seriously. He said that. So regardless of what the Throne Speech contains next Wednesday, all of us need to be aware the virus  – and the way governments responded – has blown a hole in the economy that will take a long, long time to repair. But it will.  Normal will be normal again. Meanwhile low rates are facilitating rash real estate decisions while the social media-infused WFH meme is providing justification for them.

A Mill couple sold a mortgaged $760,000 condo in Toronto, for example, and bought an ancient Hamilton bung for $700,000. He’s remote-working because of Covid. She’s on mat leave. Both have jobs are back in 416. They need two incomes. “We can’t really make a decision based on this future because nobody knows what will happen,” she told a local reporter who was writing about the hot market. “So we had to use the information we had. We’ll figure it out when we come to it.”

Yes, the future’s an abstraction. Forget it. Now is what counts, baby. Sha-la-la-la-la-la, live for today.

Where have I heard that before?

‘The budget will balance itself.’

Source: Bloomberg. Click to enlarge. PPE recommended.

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Covid crushed rates. It could be the big story of our times.

On the weekend we talked about Marie, the 60ish income-less single who sold her only asset (a house) to finance her remaining decades. But since central bankers tanked the cost of money to fight the virus, saving’s a disaster. GICs are awful. High-interest accounts aren’t. There is no option but to onboard some risk in order to make money work.

But wait. These bankers have not just squished senior savers. They’ve also brought panic buying and more debt for young families. The bug which came ashore in March might have its enduring impact here. In real estate. Mortgages, bloated and unwise

The big news is we now have a major bank advertising five-year home loans for less than 2%. CIBC’s rate is 1.97%. Never before in Canadian history has this taken place (although sub-2 has been offered unofficially by the banks and smaller lenders for several weeks). It’s also interesting that this is just a skinny five basis points more than the cost of a variable rate mortgage (which would be foolish to take).

Okay, so banks are giving 0.85% returns on a five-year GIC, and offering five-year debt at 1.97%. We know what those deposit rates are doing to savers – impoverishing them. What are the cheap mortgage rates doing to borrowers? Yes, indebting them. Plus, inflating houses. Oh yeah, and totally distorting the housing market. Well done, CBs.

It’s all about demand. When it exceeds supply, prices rise. Demand can be manipulated. Normally when the economy tanks, jobs are erased and recession takes hold people lose confidence in their financial futures, hunker down and spend less. In other words, in bad times, real estate markets shudder to a halt.

Now imagine if you layered over this economic collapse a global panic, endlessly bad headlines, plus a scary virus that floats through the air and which has killed nine thousand Canadians in the last six months. Oh, and lockdowns. Quarantines. Eight million people on government benefits. Four million more forced to work from home. No school, either. Did I mention no travel, concerts, sports or conventions? Right. Plus masks. And social distancing.

Such things, in normal times, would lead to one result. Housing torpor. But these are not normal days. The CBs have seen to that. So they have taken demand from the future and pulled it forward to now. Hence a 1.97% mortgage at the Bank of Commerce.

It’s a trick, of course. By collapsing the cost of borrowed money, central banks are trying to create economic activity by coaxing people into borrowing gobs and buying stuff. Like $1 million houses in the vacuous, soulless suburbs. As you know, it’s working. Sales and prices in the last two months have been off the charts. In the midst of economic collapse, real estate values in the GTA (for example) have just surpassed those of 2017 – when governments thought things were so out of control that new rules were required.

The cheap Covid CB money has overwhelmed those safeguards. It has rendered impotent new restrictions imposed by CMHC. It’s made moot structural unemployment and the fact some industries (like oil and gas) may be forever wounded and starved of investment capital. But even as the head of the central bank, Tiff, warns, “We don’t expect the strong rebound we’ve seen to continue at the same pace in the months ahead,” the house-buying orgy continues as if the economic crisis is in the rear-view. But it’s not.

Even as he says that, the CBs are further depressing rates and inflaming desire. Five billion dollars is being spent buying up mortgage bonds in Canada. Every single week. That supresses yields, pushes mortgages lower and property prices higher. In a recession with grinding employment lenders should be cautious. Loans harder to land. Rates stiffer. Instead, it’s party on.

Well, what could possibly go wrong?

A second wave, more lockdowns and quarantines? Things are not looking too cool in Ontario over the last few days.

A long, tough, empty winter? Less than one in ten of those forced to WFH have returned to the office. Airline business is off 90%. The jobless rate may still be double digits in February.

Trump? The November 3rd election may not be decided on that day. Or in that month. Or this year. Anything seems possible given the polarization, the Covid effect on voting and the social rift in our major trading partner.

Augmenting debt at lower rates is a horrible long-term strategy. When the cost of money creeps higher (it will happen), loans aren’t decreased but asset values fall and payments swell. Pulling demand forward should make you wonder what the future will look like, when we get there.

Use cheap rates to reduce, consolidate and trash debt, not borrow more. It’s a trap.

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