Author: garth turner

First, a reminder.

• This is a financial blog. Well, okay, it’s also a canine blog with special emphasis on marital relationships, hormonal urges and why real men change their oil.
• But finances, the economy, real estate, tax avoidance and portfolios – that’s the main menu. So stick with it.
• Yesterday my sterilized, nitrite-coated delete finger was busy. Comments about pandemic disaster, Italian horrors, bodies by the millions and the coming collapse of our health care system were nuked. Along the way I was accused of being arrogant, uncaring, callous, flip and imperious. It was touching. Thank you.
• You’re free to panic and drool all you want. Just not here. If we’re all going to get sneezy and wheezy for a while, so be it. Life will continue.
• So, if you’re a snowflake or someone who was busy growing zits when 2008 happened, or Y2K, Nine Eleven, SARS, Desert Storm or any of the other crap which has befallen folks in the last few decades, calm down. Learn from experience. Everybody thinks it’s different this time, until it isn’t anymore. And in a few months it won’t be.

Now, time for a daily update on news you can actually use.

On Monday Mr. Market priced in a possible global recession, cascading corporate profits and a growthless 2020. So he took back a third of the gains that had been made during 2019. Not so bad. It sure wasn’t 2008, when all-in equity investors lost 55% of their wealth.

Get a grip. This is not the same crisis as a dozen years ago. Back then credit was freezing, the US housing market’s ocean of bad debt was sinking banks and systemic financial failure was inches away. Today the financial system is far more solid, bankers have pumped-up reserves and protections are in place to repel a repetition. Moreover, central banks now work in concert, monetary policy is coordinated and the international response you will see over the coming weeks will prove it.

Yup, the global supply chain has been busted. Temporarily. The travel business is decimated. Retail will suffer, along with hotels, eateries, sports and more. But the virus is a different threat. It’s not attacking the system, but demand. As it recedes over the months to come, that demand will be restored. It will surge. Like I said, life will go on.

Stocks have priced in this disruption, along with the mean little Putin-inspired oil war. But both are temporary in nature. Pandemics never last. Nor do wars. History will eventually tell us, but Monday March 9th might have been the bottom for the share values of a bunch of decent companies.

Having said that, there’s no benefit to panicking or going to cash. The drop happened. Too late to sell. Besides, you’ll just miss the rebound, whenever it occurs. Is it time to buy? Maybe. Takes guts and a long-term view. Volatility is still huge. More shocks could be coming. The best strategy, bar none, is to do nothing. If you have a nicely balanced portfolio, ignore it. Remember that during the credit crisis when equity investors needed seven years to recover, folks with balanced assets lost less, recovered in one year and averaged +5% between 2008 and 2010.

So on Monday the market capitulated. On Tuesday the Dow added a thousand points and even oil-crushed Bay Street was ahead about 350. Central banks around the world will crash rates, inject stimulus and start buying up assets, from bonds to corporate equity. In Washington and Ottawa there’ll be massive fiscal stimulus. Tax cuts. Ditto from London, Tokyo, Berlin and beyond. President Xi just showed up in Wuhan, signalling that the Chinese pandemic is coming to a conclusion. And while there are countless cases of the virus to be endured in North American this spring, there will also be an endgame. It’ll be life, not death.

Panic is pointless. Paralyzing. If it leads you to take rash actions like vaporizing your retirement strategy, it’s also destructive. Panic solves nothing. Nor does coming to this blog to unload your insecurities, fear and trembles.

“This is no time for your normally appreciated wit,” Janice wrote me yesterday. “We need you to get on the bandwagon and show some understanding of the seriousness of this dire situation, and also show some compassion & empathy. Money & investing is not on the priority list for most in such dire circumstances. There will not be a short term turnaround. The economic & supply chain disruptions are just starting. This is real, and the widespread implications are unfathomable. It is f’ing serious and deserves a f’ing serious response! Do the right thing – please.”

I just did. And here comes the finger.

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When the storm hit, she couldn’t take it. ‘Get me out,’ she said. ‘Sell it all, before it goes to zero.’

Her advisor did. He turned paper losses into real ones. She took the remaining cash and put it into a high-yield bank account paying nothing. Eventually, with no more investment income and only her public pension, she spent it all. Six years later she was bankrupt. At 82. Meanwhile everything she sold had doubled in value.

True story. My relative, in 2009. It was painful to watch how emotion replaces reason, and the inevitable outcome.

Today, same challenges. Things were bad enough with the virus insanity, then Putin decided to crush capitalism by diddling with the oil market and warring with the Saudis. Crude collapsed Sunday night, global stock markets sold off big, bond prices surged, yields collapsed, the VIX spiked and now confusion reigns.

Let’s dig in a little.

First, the bug. There have been (as I write this) 111,700 cases in the world. Of those, 63,000 people recovered. They’re fine. There are 45,000 folks who still have it, 40,000 of them with a mild dose. Just under 6,000 people (out of 7.7 billion) are serious. Some – mostly the old, with underlying conditions – will die.

Wash your hands. You’ll be fine.

Now, oil.

The virus dropped demand by about a million barrels a day as China shuttered for two months. So prices were weak. Then the OPECers started squabbling. The Ruskies played hardball. Oil plunged and could retest the lows of 2015, when it was $27 (now about $32). Nobody saw this coming. In its desire to crash US crude production, mother Russia is also whacking Alberta. Since oil makes up a third of our exports, it’s a big deal. The TSX showed that today.

Okay, stocks and bonds.

The virus uncertainty shaved more than 10% off markets which last year soared up to 30%. After all, it’s a risk. Despite the numbers above, it could go squirrely. Then the oil shock hit. The margin calls went out. The algos sold off. It was full-bore, risk-off with volatility spiking, market circuit breakers tripped and the dudes on BNN having cows.

Meanwhile central bankers have started throwing money around. Crushing interest rates was the first step – both the Fed and the BoC did that last week – and there are several more cuts to come. After that there will be direct CB buying up of assets, from bonds to the equity of major corporations. If that fails, everyone will get a pony.

Dropping rates, rising concern about recession and a torrent of money flowing from stocks into bonds have sent yields skidding lower. A five-year Canada bond paying 1.7% three months ago fell to just 0.3% on Monday before recovering a little. Mr. Market thinks US bonds will hit zero. The corollary is that bond prices have jumped – so people with balanced portfolios have seen some protection from the stock plop. As planned.

Next up? Governments. The coming T2 budget (next month) will increase federal spending, send more bucks to the provinces and may contain widespread fiscal stimulus in the form of a tax cut. It will also open the deficit floodgates. That $28 billion-a-year shortfall could double before long.

In Washington, next moves are uncertain. But it’s an election year. The orange guy has so far taken the market’s performance as a proxy for his presidency, and it’s unlikely the pump won’t be primed by a massive aid package, personal tax cuts and maybe even tariff cuts to get China back online faster. It will be breathtaking how quickly the anti-global agenda is trashed. Because it’s bunk.

Okay, so what to expect?

The mess ain’t over. The odds of a recession in Canada are much higher. The oil patch is in a lot of trouble. The good news is the cost of loans, mortgages, gas and heating fuels is going down soon, and by a lot. The bad news is imported goods will get more expensive as the dollar falls, government finances will implode and your job may be tenuous.

What to do?

Lather your hands a lot. Turn off BNN. Go play with your toilet paper mountain.

Beyond that, don’t sell into the storm. Going to cash may save you from another leg down, but it’ll also cause you to miss the leg up. There are people who ‘went safe’ in 2008 and never did find the courage to get back in – giving up an historic chance to build wealth. It’s human nature to exaggerate fear. Try to resist.

Buy cheap assets now on sale? Sure. History says that works. But it takes blind courage. For example, the world still runs on oil and prices won’t stay at these levels. The bold will reap.

Mostly, chill. Spend time with your dog. Ask her tonight about the Dow futures.

Exactly.

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The burning question is (of course) will people who hoard toilet paper buy houses?

First, why in Dog’s name are folks storming supermarkets and Costcos, fighting over Cottonelle? How is that supposed to prepare you for a pandemic of snotty neighbours and wheezy co-workers? If you end up being quarantined what, exactly, will you do with a hundred rolls of tissue? Fifty bottles of single malt, I can understand. But this?

And yet from Honolulu to Sydney to Burnaby to Mississauga and Calgary the Tpaper mania continues. Here’s how the paper towels/toilet tissue aisle looked in Jeff’s local supermarket in Edmonton yesterday. “Are people idiots,” he asks? Yup.

Why toilet paper? “I wonder if this stockpiling is to do with what toilet paper represents as a mark of civilisation and our behaviour in its use distinguishing us from animals,” muses an Australian academic (shelves are empty there, too). After all, humans are the only species alive that do not self-clean, like your oven.

Likely, though, people have been MSB (mindlessly seeking bumwad) because everyone else is doing it. We’re herd animals, massively influenced by our peers. Especially now in an era of social media when stuff like this somehow becomes more important than, oh, the economy. Finally, faced with the overwhelming media coverage of the virus, the emotional toll its taking and the feeling of personal helplessness, MSB is something. It’s a task. An action. Because toilet paper is bulky and cheap, you can spend fifty bucks and feel rich in the new currency.

Listen, Doug, Ryan, Bandit and I have no special insight into what comes next. Will a Canadian city be quarantined? (Doubtful.) Will we have a recession? (More likely.) Will your balanced portfolio keeping melting away for the next two years? (Not a chance.) Will interest rates fall more? (Yes.) Will this turn real estate back into an inflating gasbag? Hmm. Let’s mull that one for a few minutes.

Last week both the Fed and the Bank of Canada slashed their key rates a half point. It was a rash, extreme move. More to come, too. So the cost of a mortgage is getting ridiculous again. In the last week Big Banks have dropped fivers to about 2.6% (inflation is 2.1%). Variables are at generally the same price, but will fall again by the third week in April. Central bank rates are destined to drop another .5% to a full 1% before this weird chapter in peoplekind history is done. Meanwhile you can get a 1.99% three-year mortgage or a VRM for as little as 2.1% from the broker with the falafel place downtown.

Cheap mortgages have caused FOMO and brought housing bubbles in the past. Will this be repeated in the spring of 2020?

Maybe not, given the toilet paper fetish and fear Covid-19’s been allowed to generate. As mentioned here last week, the Chinese and other offshore buyers have disappeared. Sellers may not want a bunch of germy, sneezy potential buyers traipsing through their houses, dispensing micro-droplets of liquid Armageddon. So listings could shrink over the next few months. And, oy, the economy. Oil has crashed, China’s been locked down, cruises are dead, airlines struggling and events being cancelled even where there have been zero cases. It’s hard to imagine how Canada can avoid a recession, especially after the damage the FN goofs and their moronic, misguided supporters did over the past few weeks.

Recessions mean job losses, and are not good for real estate. Neither, it turns out, are pandemic scares.

Blog dog Yogesh reminds us what happened the last time – during the SARS panic of 2003. Data from the Province of Ontario shows the last thing people wanted to do that spring was go shopping for a new house.

New home sales down 45% y/o/y in March, 36% in April. Resale home sales down 6.4% and 13.4% respectively. COVID-19 is here during almost the same months of the year, you will notice. As it turned out SARS was a dud in the long run, and COVID-19 might be too. But if there is one thing that has not changed between then and now, it is the human tendencies. Are we in for the same?

By the way, the Chinese real estate market has utterly collapsed. In 70 major cites home sales declined between 90% and 98% year/year last month. That impact is now being felt on the west coast of the US, where sales in Seattle (a hot market), for example, are tumbling.

So, will people here who hoard toilet paper buy houses? Or crave condos with group elevators and hallways full of unwashed strangers?

All we know for sure is that the next six weeks will be full of surprises.

Off to buy scotch now.

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  By Guest Blogger Doug Rowat

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Let’s drill down through a few more nerd layers with this TI blogger.

Growing up, I was a fan of all things G.I. Joe—action figures, TV shows, movies and, naturally, comic books.

Almost everything related to G.I. Joe was, of course, pure farce, and in more recent years this has continued to be the case. (2013’s G.I. Joe: Retaliation starred Dwayne “The Rock” Johnson, for instance, and has a 29% Fresh Tomatoes score.)

However, Marvel Comics’ G.I. Joe issue #21, “Silent Interlude”, somehow managed to break with the franchise’s cheesy tradition and become iconic for its originality. It was an issue without words. No dialogue whatsoever. Just visuals…and almost complete silence. To this day, it’s considered groundbreaking.

Snake Eyes/ silent airdrop

Source: Google images

Needless to say, there has been enough media ‘noise’ surrounding the Coronavirus. Investors have been loudly pumped up with more fear than a teenage girl at Camp Crystal Lake. So, in the spirit of G.I. Joe issue #21, I present a blog post with a minimum of words. Instead, just the most compelling images that I’ve come across in the past month. ‘Nuff said. Enjoy the silence.

Epidemics and the S&P 500: history suggests markets will sort themselves out

Source: FirstTrust, *12-month data not available for June 32019 measles

An overreaction? Week-on-week % change in S&P 500 – only four events since 1940 have resulted in worse sell-offs… and one involved Hitler

Source: Refinitiv

‘Epidemic’ news-cycle lifespans tend to be incredibly short. A few examples:

Source: Bloomberg, Turner Investments; number of Bloomberg news stories with keyword “Ebola” and “Swine Flu” respectively

Timing the market is pointless: hypothetical investment of $100,000 in the S&P 500 index over the last 20 years (2000-2019) – a few missed good days will cripple performance.

Source: Blackrock. Missed days refers to top-performing days

Fed cut its overnight rate 50 bps earlier this week. Previous instances where the overnight rate was already this low (or close to it) followed by a 50 bp cut each proved to be positive catalysts for the market

Source: Bloomberg, Turner Investments. Reflects past 30 years of Federal Reserve action.

Finally, the news media will never keep things in perspective. Ignore them.

Source: CD, American College of Cardiology, Turner Investments

Next up: the comment section. Thus ends the silence.

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

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Good jobs numbers last month couldn’t keep stocks aloft on Friday. Mr. Market is still trying to figure out how much damage that gnarly little germ will do to the economy.

As equities swoon, money gushes into bonds. Safe stuff. For example, a boring bond ETF like XBB has gained about 6% this year while stocks have plopped. Bond prices rise when trouble comes to town. And as prices go up, yields go down. The debt market is also repricing risk, now signalling now a recession looms. When that happens corporate profits fall, equities reflect it and people shelter inside bonds – no matter what they pay.

So this is a unique time. Central banks cutting. Primes, mortgages and savings rates on the decline. Government debt – considered to be a “risk-free” asset – in big demand and yielding next to nothing. The return on the benchmark Government of Canada bond, for example – at just eight-tenths of one per cent two days ago – has collapsed to six-tenths. In fact the same bond that paid 1.7% at Christmas is now at 0.66% – a drop of more than 60%. In ten weeks. Stunning.

Down she goes! Canada bonds lose 1% in weeks.

Investors are pushing yields towards zero as US Treasuries hit a new record low. The rush into bonds is now at historic levels. People can’t get enough – you know, like toilet paper.

This weird behaviour is likely to last for a while longer, and I hope it underscores the wise (but oft-maligned) advice on this pathetic blog to always have a strong fixed-income component in your portfolio. Government bonds. Corporates. Provincial debt. Together with a little cash this should be about 25% of a balanced account. Nobody owns bonds anymore to collect interest. They’re there as a shock absorber in normal times, and for growth when everyone loses their mind (that would be now).

So, what next?

Lower rates, that’s what. The Bank of Canada ain’t finished, even after that blockbuster half-point raspberry on Wednesday. The next cut looks like it will take place in April, with another one or two after that. Yup, a drop of .75% from now. Yuge. And American rates – already lower than ours – are headed for the big goose egg.

This means if you’ve been shopping for a GIC, lock in now – even though that’s no long-term way to fund your retirement. As for mortgages, variables are hot since loan costs drift lower with the central bank and prime rates. With 2020 destined to deliver two to four more declines, this looks like a no-brainer choice. These days VRMs are in the 2.2% range and five-year fixed mortgages are 2.4%. Both are headed south. So if you’re getting pre-approved make sure you have a commitment to pass through any declines prior to the closing date.

Earlier we speculated what this might do to the residential real estate market, especially in Toronto, Ottawa, Montreal and (to a lesser extent) Vancouver. More buying power unleased. A lower stress test hurdle. Unfettered hormones, just in time for rutting season – and when listings have been scant. It’s a recipe for bubble prices, multiple bids, blind auctions, happy realtors and billions more in new mortgage debt. Sadly, it will push home ownership further away for many.

But we also need to understand stock markets do not fall nor bond prices spike in isolation nor without consequence. Canada’s run into big headwinds lately. The crashing price of oil. The FN protests and damaging rail blockades. The pipelines bottleneck. Political polarization. The clash between climate change and the energy sector, resulting in a flight of capital. Now the virus.

Yeah, home loans are cheap. Historically so. Going to get cheaper, too. But recessions bring job losses, and this may be a poor time to choke down a bulging wad of debt.

Maybe you should wait. There are better opportunities, less risk. Like selling bumwad and baby wipes from your van. Seriously.

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So, here’s the good news.

The prime rate at the Big Banks just eroded nicely, down a half point to 3.45%. That means consumer and car loans cost less. The rate on your line of credit just dropped. Ditto for the HELOC. Five-year mortgages are moving close to 2.5%. One lender now has a 1.99% three-year offering. And variable-rate mortgages are a bargain – likely to move lower.

The mortgage stress test – diddled by Ottawa just weeks ago to make it less gutsy – is on its way to just 4.5% (given current bond yields). That’s almost a full point lower than a couple of months ago.

There’s bad news, too. Are you sitting?

Savers are being crushed. High-interest account will pay less than inflation. A 5-year GIC at the Big Blue Bank is yielding 2%. Yeah, also under inflation and you have to pay tax yearly on money you don’t get. Sucks.

When it comes to real estate, the plunging cost of home loans and the defanged stress test will unleash a lot of new buying power. Given the shortage of listings in most places, this translates into price pressure. We’ve already seen that in the last month. Big jumps in the GTA (17%) and Montreal (13%). The rash action by the Bank of Canada this week will only serve to make housing less affordable and undo three years of government efforts to get the hormones back into the gland. Unless, of course, the virus keeps all the buyers at home washing their hands and guarding their hoards of toilet paper.

Also bad news (maybe)?

Mr. Market has no idea how to price things at the moment. Stocks soared Monday, tanked Tuesday, exploded Wednesday and died Thursday. Thousand-point sessions used to be stunningly rare events. No more. Meanwhile bond yields have been driven towards zero and bond prices set on fire. Investors with balanced portfolios have seen equity holdings flip wildly while their fixed-income stuff appreciates. Now everybody should understand why you always hold bonds. Even ones that pay you nothing.

Does this portend crappy days ahead? And, if so, wouldn’t this be a really bad time to buy a house in Toronto and swallow a million in mortgage debt?

Ah, that’s the question.

Well, Canada’s in some trouble. Oil prices have fallen 30% and $45-a-barrel crude (world price) is a disaster. Especially in a country when we can’t even get a pipeline built. Meanwhile the FN goofs caused serious economic damage by squatting on rail lines, and the feds seem incapable of decisively dealing with the radicals. Warren Buffett just pulled out. There’s a huge federal deficit now and no path to getting rid of it. Government spending will have to jump if the economy stutters, just when reduced economic activity means lower revenues. And now, the virus.

The central bank move this week – cutting rates by a half point (more to come) – was about as clear a signal as you can get that the economy is sliding. Resource-rich Canada was hobbled by the climate change agenda of Ottawa, aboriginal demands and commodity weakness even before Covid-19 whacked demand by shutting down China, kicking the airlines and plunging crude.

This week I spoke with an experienced, talented resource engineer who for the first time in his life can’t find work in Saskatchewan. Meanwhile his condo in Saskatoon has lost a third of its value. “Trapped,” he said. “What am I supposed to do now?”

So low rates might look sexy amid a forest of condo towers in urban 416. Maybe more kids renting condos will be able to buy the same units, and go from being miserable loser-tenants to happy owners with giant debts. But make no mistake. Overall, this is not good.

What to do?

If you have a balanced, diversified, liquid and global portfolio, ignore the noise. It’s going to last a while. The virus will be here all Spring, into summer, maybe longer. Nobody knows. But it will end. Growth will continue. Pent-up demand will shove values higher, fast. Don’t try to time it, since you can’t. Missing the good days of recovery is a bigger hit than waiting through the bad ones.

Real estate? Nothing’s changed. If you need a house, and can afford one, buy. If you can carry a big mortgage without a job, go ahead. Jump in. But don’t buy into a weakening economy just because mortgages got a half-point cheaper. Don’t wade into debt because you’re pregnant, are suffering from FOMO or your mom’s beating on you. There are a number of negatives swirling these days which should keep reasonable people from wanting any more debt – no matter how cheap it comes.

And if you’re a saver?

Sorry. You’re pooched. You might as well spend it. But not on a cruise.

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G’day, students. Ensure your emergency rolls of TPaper are safely padlocked in your lockers, then proceed to the parking lot to be hosed down by the bleach trucks. They’re waiting. After installing your N95s, safety glasses and nitrile gloves, we can begin. Full agenda today, so enjoy! Nothing to worry about here.

The Biden bulls:
That Trump dude is some smart. As you know, he started to whack away at Joe Biden months ago, using his son Hunter and the Ukrainian caper to destroy the only Dem with the creds to unseat him. Didn’t work. Led to impeachment proceedings, actually. And now Biden has risen from the ashes, phoenix-like, and Mr. Market is smiling.

As the votes were counted after Super Tuesday’s 14-state slugfest, showing Biden trouncing Bernie and his Sandernistas, Dow futures soared by hundreds of points. The primary voters did what the Fed couldn’t, which was to restore investor confidence. Maybe the virus is still here, but the commies have been dealt a big blow. Sanders was the most virulent anti-corporation, pro-tax and socialistic person ever to get that close to a presidential nomination.

Now the Democratic machine has kicked into gear. Today Bloomberg was the final Biden conquest, so you know what November will bring. The MAGA army vs the Centre. America may not have lost its mind, after all.

Bankers cut big, T2 frets:
Right on cue the Bank of Canada offed its key interest rate Wednesday. No surprise there. But the bite was big – half a point, to match the Fed. Another cut expected in April, too. Ours is the latest central bank to reduce the cost of money, shooting stimulus in a global effort to counter the economy-shrinking impact of Covid-19. Expectations are US rates will drop a full 1% this year, and we should follow in time. Savers will be crushed. Investors ultimately rewarded. The real estate news will be sad (more below).

Here’s what they told us:

COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted. This has pulled down commodity prices and the Canadian dollar has depreciated. Global markets are reacting to the spread of the virus by repricing risk across a broad set of assets, making financial conditions less accommodative. It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity.

It is becoming clear that the first quarter of 2020 will be weaker than the Bank had expected. The drop in Canada’s terms of trade, if sustained, will weigh on income growth. Meanwhile, business investment does not appear to be recovering as was expected following positive trade policy developments. In addition, rail line blockades, strikes by Ontario teachers, and winter storms in some regions are dampening economic activity in the first quarter.

In light of all these developments, the outlook is clearly weaker now than it was in January. As the situation evolves, Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target. While markets continue to function well, the Bank will continue to ensure that the Canadian financial system has sufficient liquidity.

So much for restraint.

The big loser is Mr. Socks. The federal Libs are in a pickle. Oil prices have collapsed into the $40 range, which just fuels the Wexiteers and underscores our energy sector failure. The FN goofs are still at it, and Dog-only-knows what Ottawa conceded to during those four days of talks in Smithers. It came out yesterday they didn’t even discuss the blockades. The virus has yet to land in Canada in any meaningful way, and the Cons are about to pick a snappy leader with political capital – who’s called for an October election. So the CB’s dramatic action is an admission the Canadian economy is pre-recessionary, while we sink into a voracious new deficit (which Millennials don’t care about). Did I miss anything?

What do Biden and McKay tell us about society? Suck it up, snowflakes. The Boomers are still in charge.

By the way, the yield on 5-year Canada debt is now eight-tenths of one per cent. Pow.

When Demand meets Supply:
This week we got a buck-ninety-nine three-year mortgage. This blog forecast that a fiver would be available during rutting season also at 1.99%. And it’s surely coming after the big BoC chop (plus another one in a few weeks) for the reasons spelled out above.

Already cheap rates and a paucity of listings are propelling housing markets back into bubble territory. Sad news, given the fact urban real estate is becoming the preserve of the wealthy. But the combination of cheap loans and a fearlessness on the part of house-lusty borrowers, plus owners afraid to list, is relentless. In the GTA sales are up 45%, listings down 33% and houses are 16% less affordable as a result. The average is now $910,000 and for detacheds it’s $1.485 million.

Even in tax-riddled Vancouver, in the province of Horganistan, sales are up 45%, available properties reduced by 21% and prices up slightly. Despite all of the market-killing initiatives introduced there by the Dippers, cheap money and raging hormones have broken through.

Well, this will get worse unless the virus runs amok and shuts down open houses. After a federal election in which every party came out with dumbass policies to stimulate more demand for real estate (which was already beyond the grasp of average folks) what do we expect?

Okay, kids, that’s it for today. Back outside for a re-rinse.  Tomorrow we’ll focus on root veggies and field surgery. Have a nice night.

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Silly people storming Costco. Hoarding toilet paper. Amassing bottled water. Vacuuming shelves of rubber gloves and useless facemasks. As the media drumbeat about the virus continues and grows louder, all perspective is lost.

Yes it’s new and scary. Germs be like that. But look at China. A country of 1.4 billion with fewer than 80,000 cases, where daily infections are now plunging. The epicentre of Wuhan has 11 million souls, most of the cases and a few thousand deaths. If that’s about the worst it gets – with 99.8% of the population surviving this thing, then are people in Burnaby in a flap and Hoovering local stores?

What drives rational people to speculate two-thirds of humanity could be infected and hundreds of millions fall over?

Fear, of course. Fueled by social media and stoked with ignorance, the virus crisis advances.

“My students are scared to death,” says blog dog Carol, who teaches at a post-secondary institution. “I think you can check the validity of all that I am telling my students – and if true, with your huge following, it might be worthwhile if you could get it out there.  Reducing panic is one of the critical first steps in dealing with this virus when/if the time comes.”

Here is her letter to the students:

This virus has been over-hyped – 1.3 billion Chinese and fewer than 100,000 have contracted it.  About 3,000 have died since December – more people die of traffic accidents every day – Nearly 1.25 million people die in road crashes each year, on average 3,287 deaths a day.  The flu, which you are far more likely to catch, kills 3,500 on average every year in Canada and the 2018-2019 flu season killed over 34,000 in the US – yet no one panics every year as we enter flu season.

Next, COVID 19 deaths, like for the flu, have been largely restricted to the extremely elderly and to the immune compromised – people more likely to die anyways – and to health care workers who are stressed, over-worked, and constantly exposed to the virus.  Driving, by contrast, kills and injures lots of young and healthy people – you should probably be far more afraid of getting into a car than of this virus.

So, if your cupboards are stocked in anticipation of the potential for stupid, and you follow basic hygiene – keep your hands washed whenever you go outside, or someone visits – you will probably be fine.  Don’t bother with masks if you are not ill – they are NOT designed stop a virus from entering your lungs.   The masks are instead designed to keep-in droplets when sick people sneeze, cough or snuffle – so, their primary use is for if you are already sick.  The benefit to a healthy person of a mask is to prevent you from wiping your eyes/nose with dirty hands.  This effect is easily copied – tie a scarf around your mouth and nose and buy a pair of safety goggles from Canadian Tire.  Don’t touch your face with your hands, unless you first wash them well with soap and water.

People are freaking-out because hand-sanitizer is sold-out at their local drugstore. It’s just alcohol … so buy a cheap bottle of really dry white wine or some rubbing alcohol  – put it into a small container – and voila, you have hand sanitizer! (In a pinch, perfume and cough syrup contain high quantities of alcohol, but (a) stink and (b) are sticky.)   That having been said, plain soap (don’t waste money on anything special) and water are far more effective than alcohol in cleansing your hands.

Okay, enough with today’s health tips. Nobody should fear death, since that’s unlikely (from the virus, anyway). But you should be worried about stupid. Hoarding instead of sharing is stupid, for example. Wearing a mask walking the pooch. That’s dumb. So is trashing your investment assets and going into cash. Or vexing, fretting or panicking about stuff you can’t control or influence.

Now, what about Mr. Market and your portfolio?

The news is this: central banks have started to react. As we told you they would. The Fed chopped its key rate a big half-point today and the Bank of Moosehead goes tomorrow. There are more chops coming, with US rates heading down again in the next few months and our guys trimming once more in April. As a result bond prices have jumped and bond yields cratered. The Canada five-year fell through 1% today…

US, Canada bond yields dive below 1% on Fed cut

The G7 finance dudes (including Chateau Bill) shared a conference call Tuesday morning and pledged to act together. Fed boss Jerome Powell had a presser to explain the rate cut. His comments that the mess would last “for some time” sent Mr. Market into a funk, igniting another sell-off since investors want a quick fix for everything. So, as this blog told you last week, the downdraft ain’t over yet.

But here’s the point me and Carol want to make.

You can wash your hands and stay healthy, but you can’t save China or the stock market. Understand that every time there’s a crisis it’s followed by a resolution. And emotion is not your friend. Especially fear. Carol’s students probably have no investment portfolios, and no financial exposure to current events. No jobs to lose. No skin in the game yet. But they’re scared to death – of a germ that even if they caught (unlikely to ever happen) they will survive (of course).

By the way, don’t bother posting scary, emotional comments about looming mass death. I’ve just sterilized my delete finger.

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Well, here we go.

On the weekend we told you CBs would not sit back and leave the world wheezing, coughing, fretting and snorting. Already the Bank of Japan has ponied up a pile of cash. The Chinese bank is doing the same. The US Fed will be cutting this month and the Bank of Canada’s expected to go on Wednesday.

It’s been wild. Wall Street futures opened down 800 points Sunday night, climbed into +200-point territory by dawn, then sank again. Then revived. Then soared. Mr. Market is trying hard to determine the correct level of risk in a fluid situation, and there’s no clarity yet. So big swings. Volatility will continue to spike, and central banks will move in to try and adult.

By the way, here’s this blog’s latest thinking (feel free to take notes): humanity is not pooched. Millions will not die. Covid-19 will get a vaccine (probably) and become the fifth widely-circulated and seasonal virus in the world that everyone just accepts as normal. Yeah, like the flu (which killed 56,000 Americans last year and 3,500 Canadians). Once the toilet-paper panic and mass work-from-home quarantines end, we’ll recover our perspective. Just don’t eat the wild life.

By the way, this prediction just crossed my path from a usually-credible source (Pennock Idea Hub):

We believe the global economy is undergoing a period of stress that will take some time to resolve. Asset prices are likely to be highly volatile for the next few months until the full extent of the uncertainty is resolved. In the short run, the stock market is extremely oversold and washed out. A relief rally and climactic price reversal can happen at any time. However, we expect any rally would be followed by re-tests of the old lows, which may not necessarily be successful.

So here’s the latest. Odds are running 70% or higher the Bank of Canada will cut its rate this week. Investors have fully priced in another chop in April. And there will be (the thinking goes) yet another after that. The central bank rate of 1.75% will become just 1%. And, by the way, the bond market has already arrived there – look at the yield on Government of Canada debt Monday morning. It actually dipped below 1% for a while:

Down she goes: Canada bond scraps 1% mark

So the prime will be going down, along with loan, mortgage, GIC and savings rates. With $45 oil, heavy losses on Bay Street, God-knows-what’s going on with FNs, and now the virus, BoC gov Poloz has no choice. This is 2015 all over again, when crashing crude sent him into emergency mode. Down came rates and 18 months later we had a real estate bubble so big – 30% yearly gains – that governments move in to beat it back.

So will the virus cuts do the same in the Spring of ‘20? Will people be buying houses in a panic because they’re seized with FOMO and hopped up on 1.99% five-year mortgage money?

Well, loan rates are going down. Sure thing. By how much remains unknown since cheapo rates hurt the banks, and the virus is doing them no favours as business activity slows and Canada’s resource sector groans.

Here are the GF reasons why cheap rates will make houses more affordable, but we’re unlikely to see The Bubble come back with the same gaseous impact as four years ago:

• Falling financial markets spook people, even if they’re not investors. It prompts talk of a recession (a good likelihood in Canada, given the oil situation), which means job insecurity. That inhibits big-ticket purchases like a house.
• The luxury end of the housing market is most susceptible to damage. Wealthy people buying $2 million or $3 million digs typically have a lot of financial market exposure. So current events have rattled them. Not good for sales. Trickle-down anxiety.
• Chinese buyers? Fuggedaboutit. While the impact of foreign dudes with piles of money has always been exaggerated, they have nonetheless been one factor feeding prices. But the Chinese economy is a smoky hole right now and will take a long while to recover.
• As for multiple bids resulting from packed open houses, that may not be happening in Toronto or Vancouver next month or into May. When people are lining up for hours to buy 3,000 rolls of toilet paper you know something’s squirrely.
• So if (when) the virus spreads some owners will not want people trooping through their houses, throwing germs, cooties and micro-droplets all over the place. The flood of juicy new listings realtors were expecting this season may fizzle.
• American realtors are yammering about an overall 10% price drop for houses in the next few months, despite an anticipated decline in US mortgage rates (where people can lock in a cheap price for 30 years).

As stated here on the weekend, nobody knows what comes next. Stocks markets have oversold. Volatility will reign. People are acting stupid. Rates are dropping. And it’s March. Make yourself feel better. Go get a puppy. Or a new car. It’s all good.

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Andy Seliverstoff photo

Ten years ago today, my time as a financial advisor dude began. That was after writing 17 books on money and real estate, spending eight years touring the country giving financial lectures, being a network TV business talking head and losing my mind twice, entering Parliament, where I even ran the federal tax system for a bit. (And was spanked by Stephen Harper.) Along the way I also owned stores, a publishing company, a few restaurants and inns and personally scooped thousands of ice cream cones.

Anyway, it’s been ten years doing this. I started helping people as the GFC was winding down and stock markets had lost 55% of their value. Next came the US debt ceiling crisis in 2011 and another market plunge. Oil prices collapsed in 2015 and the Bank of Canada went into emergency mode. Trump injected huge volatility the next year. Interest rates went to zero, trade wars erupted, Brexit happened, Hong Kong exploded, populism swept Europe, then we got the virus. Meanwhile there was mass migration out of Syria’s war, blizzards of locusts in Africa, climate change events, blood and chaos in Venezuela and the threat of trading nukes with Korea. And Iran.

During this time I did not stray in looking after folks. No individual stocks. No stupid-fee mutual funds. No trying to be the smartest guy in the room. Portfolios that were balanced (safe stuff and growth stuff), diversified (various asset classes, global exposure) and liquid (nothing locked up). The families I help all seem to have the same two goals: preserve my capital over time yet give me a decent rate of return. So be it.

In this decade a lot’s happened in my shop. Now there are four fancy-pants, suspender-snapping, financial hotshots looking after portfolios with about a century of mileage between them. (Doug and Ryan are the big cheeses.) Also two certified financial planners, two full-time traders, half a dozen admin people, plus me and Bandit. We told folks we’d try to get them 6% or 7% a year on average, and so far that’s exactly the case. Plus chop their tax. Set long-term plans. And, naturally, hand out excellent marital, relationship and child-rearing advice.

Turner Investments is now in the top 3% of financial advisory shops in North America. But what makes me happy, most, is that 98% of people I ever helped are still in the family.

Now I mention this meaningless little anniversary not as a commercial for my day job. That’s not what this blog is about. Instead, to remind that the world is endlessly volatile and people are always freaking out about something. The virus is today’s catalyst. It’s different, of course. Unpredictable. Scary. The public health response has been an economy-suppressor, first in China, now in Italy and the same may occur anywhere, including the US. The threat to most of us is not sickness and death – that’s statistically inconsequential – but this thing can erase profits, jobs and GDP.

Neither you nor I know what happens next. But we didn’t in 2008, either. Or 2011. Or 2016. Or with Y2K or Nine Eleven. Lots of days in the past have looked grim.

The odds are a vaccine will be found, the virus relegated to the status of measles (Mr. Market doesn’t worry about that) and pent-up demand will be unleashed, restoring asset values. That could take months. A year, maybe? No idea. But in the meantime all of the lessons this blog has been imparting recently are worth remembering. Never sell into a storm. Do not crystallize losses. Ignore the doomers, preppers, ammo pumpers and media wusses. Don’t look at your RRSP or TFSA every four hours. Have confidence things will eventually normalize, and faith in humanity. And get ready for a lot of things to happen…

This week the Bank of Canada will chop its key interest rate. It will happen again next month. In fact, it’s even possible the slice on Wednesday could be a half-point (that’s a big deal). The prime rate, mortgages, HELOC rates, savings account returns plus GICs will likewise head south. With oil in the dumps, the damage FN protestors have done and now the virus, our guys have no choice. Down she goes.

US rates are also poised for a drop. Look at the Fed’s statement on Friday. The bank’s next rate review meeting isn’t until the third week of March, but it won’t wait. Expect news of a rare unscheduled slash in the next day or two. This won’t solve the virus problem, but it will signal central banks are taking this seriously and do their damnedest to inject stimulus into the economy.

And Trump? He’s morphing fast. A week ago he muttered the virus was a plot against him. This week he’s announced more travel bans, and may reduce tariffs on Chinese goods while launching a tax cut process. With Joe Biden’s reincarnation this weekend, the president will be pulling out all stops to ensure markets restore by November.

US stocks have given up 13% in the last seven sessions. As mentioned here last week, there’s more to come. As stock prices fall, corporate valuations become more reasonable and in line with historic norms. Investors are rapidly pricing in a Chinese wasteland economy in the first few months of the year, a likely recession lasting a few months and zero corporate profits in 2020.

Massive quarantines, scared people, closed schools, travel collapse, stockpiling – all this will push huge amounts of demand into the future. Said one respected analyst in the weekend: “My belief is that this is a correction and not the end of the bull market. We are likely to have an economic shock here in the U.S., but I don’t believe we will get two consecutive quarters of negative GDP growth. Because we won’t get a recession due to the coronavirus, the bull market will continue.”

But, hey, like I said, nobody knows. It’s for this reason that today I’m doing what I did a decade ago. Calmly. Deliberately. Decisively. Stopping as required for tummy rubs and liver treats.

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