Category: Accounting tips

At this time last year (the third week in April) 202 houses – detached and semis – sold in Toronto. This year sales were 30. Gulp. That’s a decline of 85%, showing just how nasty the virus has bitten. In all of the GTA (six million souls) the collapse was almost equal, at 80%.

Condos? Even worse. Sales of 231 in Toronto last year fell 86% to 32, and faded by 87% in the rest of the region. And look at this graphic showing the condo sales-to-new-listings ratio in the Big Smoke over the last few months. From 120% in February it crashed to about 10% last week. No showings, no sales. No sales, no market.

Toronto condo sales plop as pandemic panic pops

Not unique to Toronto, either. The same is happening in Vancouver, Victoria and Montreal. In Alberta it’s a full-blown economic crisis. In the flatlands, it might as well be January – things are frozen solid. So the questions are simple. Is this temporary and will demand/sales explode in August? Or is this a new normal – sellers afraid of buyers poking through their stuff; no more open houses; skittish mortgage lenders; people seeking distance over convenience?

Here are some of the current realities. Several of them will stick.

• The suburbs are suddenly looking good. Back-to-the-land is back. Your hippie parents would understand.

For the last decade moisters flocked to the city. The denser the population, the better. More social interaction. More connections. Nightlife, networking and collaborative workspaces. Commuting was dissed and hated. Cars eschewed. Condos ruled. Walk to work. Live in a loft with dangly pipes and a bike elevator, next door to Starbucks.

The virus changed that, of course. City cores are germ factories The subway’s a death chamber. Maybe you’re breathing the same air your neighbour is. Yuck. Besides the Mills are now in full family-formation mode, so bringing up junior in a sea of concrete isn’t such a hot idea. Wouldn’t a back yard and a pooch be nice?

You bet. Just watch the renaissance happen. Minivans. Barbeques. Lawnmowers. Ant spray. The works. And the whole rural thing is the next phase. Now that nobody needs to actually go to work anywhere, why not?

• Sales have crashed. Listings have crashed. Prices are holding as a result. However people selling really have to sell. Buyers have bargaining power.

As the virus hit and sales crashed, sellers retreated. Listings have dropped everywhere, which means average prices have remained reasonably steady as less demand meets lower supply. But this also means those who have kept their properties on the market really, really, really need to sell. Choice may be more limited, but the potential bargains are multiplying with each week this mess continues. If you’re in a position to strike with a meaningful, actionable offer, then go for it. You can even include a few conditions, if you want, like a home inspection. And write in what you fancy. Some furniture. The garden tractor. Dog.

• Getting a loan is getting harder. A lot harder.

Yes, the virus has done a great job of dividing us into two groups – the creditworthy, bullet-proof elite (civil servants, teachers, first responders, essential service workers) and the tenuous riff-raff (small business owners, hairdressers, construction dudes, corporate vice-presidents, airline pilots, financial advisors, electricians). Credit is available and cheap, but risk has jumped dramatically. After all, 12% of all the mortgage-holders across the nation have asked for deferred payments, indicating distress. Four in ten Vancouver homeowners now say they’re approaching poochedness. The tide has gone out. Many are naked.

Lenders and brokers are therefore spending more time looking at a borrower’s job stability and financial status than in the past. When a pandemic arrives which infects few but bites everyone, even high-paying glam jobs can be wiped away in weeks. If you’re buying or refinancing, make sure you grovel – or get a job at Service Canada.

• Condos are the past. Dirt is the future.

The condo market is in shambles. Pay attention. This could happen again. And again. The virus may return, widely or in pockets. For weeks or months. Nobody knows. But meanwhile whole condo buildings are sealed to non-residents. Showings are kaput. Inmates are worried about common areas, elevators and garbage rooms. Airbnb has collapsed and thousands of units will be coming on stream as a result.

Inherently people now want more space, distance, security. This will fuel interest in properties with their own plots of land, windows that open and gaps between residential structures. Besides, at $1,200 per foot (or above), urban condos in Toronto and YVR had become excessively, insanely, irrationally expensive. Lately the $1-million-plus-unit market has withered and died. There is a watershed moment coming for the cliff dwellers. Many will be shocked as they slide into negative equity.

Will these realities hold? Or is it impossible to see the future clearly through the fog of pandemic-inspired mass panic and economic destruction? Will house lust inevitably overcome the infection of fear?

Time will tell. But a cabin with three laying chickens and a creek suddenly beckons.

Source

  By Guest Blogger Doug Rowat

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COVID-19 has taken much from us.

Most of the control that we had over our daily lives is gone. We can no longer touch or be near many of the family members and friends who we love. We cross the street when others come near us. We can’t visit most of the stores that we used to. Same with restaurants. We certainly can’t vacation. And live sports? Concerts? All gone.

For those of us with children, we’ve been forced to become amateur teachers, or more often, amateur entertainers. For some, it’s negatively affected our health, or the health of those close to us. As we gaze at the rising infection rates, it seems at times too that we have no control over the virus’s spread. In short, we inhabit an anxiety-filled and frustratingly restrictive world at the moment.

However, this week I offer some simple ideas to take back some of the control that you may have lost over the past four months. Because I’m a financial guy, I’ll stick to ideas that can generate or save you a few dollars. All the ideas for relieving boredom and cabin fever I’ll leave to the YouTubers (though I will highly recommend Roger Federer’s volley challenge). My specific purpose here is to allow you to gain a bit more control over your finances.

10 ways you can take back control

So, 10 ideas that may be helpful to you and, in some instances, those in your community:

• Read about the available government benefits (both provincial and federal) and claim what you’re entitled to. This is the obvious first step, and sufficient media and government attention has already been given to these programs, so I won’t belabour the details. Though, if nothing else, at least regularly check in here: www.canada.ca/coronavirus. Our clients have reported to me that, thus far, the government has been true to its word in delivering the CERB benefits within the three business days promised
• Consider refinancing mortgages or lines of credit. There are a myriad of different mortgage types with varying durations and break penalties, so this won’t make sense for everyone, but it’s worth investigating. The prime lending rate in Canada has fallen from 4.00% near the start of the year to only 2.45% currently. With interest rates likely to remain at rock-bottom levels for the foreseeable future, there’s at least the potential to lock in a more favourable interest rate.
• And after you’re talked to your financial institution, give your auto insurer a call. No one drives anywhere now; see if your insurer is willing to reduce your premiums. TD Insurance, for example, is already “temporarily adjust[ing] premiums to reflect changes in personal vehicle usage.” Many other insurers are following suit. If your insurer isn’t already offering to adjust premiums, a bluntly worded email or phone call threatening to switch to another insurer should do the trick.
• If you have a full-service financial advisor, seek their advice. You hired your advisor to oversee and manage your investments, but you also hired them for long-term financial planning, risk management, tax strategies and so on. The advice offered might be as simple as optimizing the amount of this year’s RRSP contribution or it may involve a more detailed long-term wealth forecast. But regardless, now is the time to lean on them for their guidance and expertise. Those of you at a discount broker or roboadvisor? Well, best of luck.
• Review your subscriptions and memberships. Are there are any that no longer have value? For example, most sports leagues and sporting events have been cancelled this year (or are at serious risk of being cancelled). Therefore my DAZN sports-streaming subscription at $150/year is looking pointless. Similarly, is there a gym or club membership that no longer has relevance and could be cancelled? Many readers can probably find similar savings that will only take a quick phone call or click of the mouse to realize.
• Support your local businesses. This can be done with an outright donation or by continuing to use their services (takeout food, for instance). For those who are transaction oriented (e.g., I expect a good or service in return for any money I spend), a gift certificate is a great option. This way you can give local businesses the cash flow that they desperately need now, but you’ll still get something for yourself in return down the road. I did both the donation and gift certificate route with our local independent movie theatre, the Fox Theatre, which has been a wonderful source of both personal family and client entertainment in the past—therefore I want this neighbourhood business to survive long into the future.
• Assess your skill set. Is there gig or part-time work that you could pick up? My daughter now takes music lessons remotely, for example, so if you can tutor (in whatever area of specialty that you may have) offer these services up to your community.
• Examine your household budget. Obviously, the coronavirus has dramatically cut all our spending, but now is a good time to look at the expenses that you probably could permanently do without, or at least significantly cut back on, once things return to normal. I outlined the average expenses for Canadians in this blog post. When we’re finally let out of our cages, do you truly still need to spend a full $86,000 a year on household expenditures?
• Obviously, a big community garage sale is not an option at the moment, but selling individual items online is certainly possible. Look carefully around your home—what would sell easily that you no longer want? For instance, it recently occurred to me that many Steve McQueen movies are overrated. (During the coronavirus isolation, for example, I re-watched The Magnificent Seven and it does NOT hold up well—watch Kurosawa’s The Seven Samurai instead.) Therefore I sold an old McQueen autograph and got a lot more for it than I expected. Look around, I bet there are many old treasures gathering dust that you could monetize—and you now definitely have the time to look. Canada Post remains open: but remember, the first hour of business is for those at higher risk (the elderly and those with compromised immune systems).
• Take out loans from friends or family members. Obviously, this is a highly personal decision fraught with many complicated family dynamics, but for many, these are desperate times and there’s at least the potential to have a more flexible payback schedule than a loan from a financial institution as well as a lower (or even non-existent) interest rate. You know your family best, but I present this as an option of last resort that may be more appealing than an outright default, which would damage your credit rating.

Now, this is where I turn the blog over to you—the commenters. Traditionally, this has been where you tell us that the global economy is doomed (or will be saved), tell us that Trump is the greatest president ever (or the worst), or explain that the market is certain to move lower (or higher). And this is usually also where you attack crowdedelevatorfartz mercilessly (or defend them with equal enthusiasm).

However, in this instance, I ask you to set aside your normal blog-comment impulses and simply present your best ideas for saving (or earning) your fellow Canadians a loonie or two. In a time of crisis, every little bit helps.

I know you have it in you blog dogs. Impress me.

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

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First they came for the baristas. The unemployed. And that was okay.

Then they came for the hotel workers, the idled factory serfs and the retailers. We nodded.

Then they came for the contractors, the gig people and the self-employed. We watched.

Next they came for the small business payrolls. Then the mega corps. We wondered a little.

They came then for the seasonal workers, the voluntarily jobless and the kids. We saw that.

They came for the entrepreneurs with free loans. We wondered.

This week they came for the store landlords. We raised a brow.

Finally, as the oilpatch received its cash, the farmers asked, what about us?

Soon they’ll be in, too.

In a single month Ottawa dished out $16 billion to support people who are not working. As noted, 6.2 million Canadians, a third of the workforce, are now on the dole. Mortgagees won’t be paying for months. Unknown numbers of renters have stopped writing cheques to landlords. Income taxes, GST payments, property taxes and more have been pushed into the future. Low-income folks are getting another five billion in sales tax credits. Businesses are taking $72 billion to subsidize payrolls. By June the cash outlaw will be $107 billion. Plus $155 billion in deferred revenue. This is, by far, the largest Canadian stimulus program since Pamela Anderson defected. It also shows we’re a nation of citizens apparently without cash flow, reserves, savings, resources or resilience.

So how can you fault anyone for sticking their hand out, when three clicks on a government site gets you cash?

Answer: you cannot, thanks to the spendiest prime minister in national history.

So, here are the food producers, standing with cap in hand. “We do not mean to create panic,” says the head of the ag federation, creating panic. “At the same time, it would be irresponsible not to sound the alarm about the realities Canadian farmers are facing.”

Without their own subsidy, farmers are threatening not to plant a crop this year, leave the fields fallow and watch all the facemaskers in Sobey’s freak out. They want an emergency fund and guaranteed financial backstop in case the virus disrupts operations, prevents harvesting or whacks migrant pickers. The federal minister says: “Of course, we recognize that our government has more work to do.”

Ka-ching.

Jennifer and her squeeze run a consulting company in southern BC. Business is pooched. They have bills and little revenue, and were prepared to tough things out – until the prime minister offered loans of $40,000 at 0% interest with ten grand coming as a grant. Free money.

“So we applied online,” she says. “It was a total of three questions, plus our bank account number. No call. Seven days later we had $40,000. Yes, we need the money to keep clients in place, but why was this so easy? Too easy?”

The next day Jen added this:

Follow up on our too easy loan. Our bank just sent a link to print loan terms (you know if we wanted to.) Bizarre. As responsible biz owners we took time to look at numbers/forecasting, talked w/clients, subs and CA before applying and had all info normally req’d ready. We fully expected a call to screen for qualifying so shocked when funds just showed up in biz acct. We’re not complaining but why so easy?

My heart goes to those most effected worldwide and in true need of help but does what’s now playing out in Cda justify the costs? Reminds me of key pass on cruises, just swipe to pay, easy, painless until bills are slipped quietly under cabin doors on last day. I’m not at all equating the pandemic to a cruise only our govts seemingly blind swiping. My curmudgeonly dad would’ve said who the hell is paying for all this?? Seems too many don’t care. Where it’s all headed incl our freedoms worries me far more now then our investments and has me up at night.

So far the big banks report shelling out about $9 billion in such loans. There’s no risk to them. Ottawa guarantees the principal. The banks make their interest from the feds,  who also happen to be buying $150 billion in bank mortgages. Now that they are foregoing hundreds of millions a month in homeowner cash flow thanks to deferrals, it’s a welcome piece of business.

Three clicks and you get two grand a month in emergency benefits. For some recipients, this is more than they made working at Starbucks, or in their seasonal or part-time job. Three clicks and your business, comatose or not, finds forty grand in its bank account. Agree to keep on your employees, and Ottawa will pay 75% of their wages. By the time this is done – the autumn, maybe – the federal Liberals will have dispensed close to $200 billion. Historic.

Now, let’s be clear. Because politicians turned off the economy in a massive reaction to a virus, they’re culpable for the consequences. They forced people out of work. Killed off cash flow. Shut down commerce. Destroyed economic activity and made millions jobless. In a nation of over-indebted, house-lusty, ill-prepared grasshoppers, this was a financial death blow. The treasury had to open.

In a few weeks, with millions hooked on the dole and a black hole in public finances, it will end. Keep your eye beneath the cabin door. It’s coming for you.

About the photo: “It’s not a dog pic,” says Joe, “but I thought you might like it for the blog. Taken this morning in Coquitlam, BC.”

Source

The results were a shock.

In the midst of what can only be described as economic rubble, 30% of Canadians say they shouldn’t return to work until the virus is gone. Gone. No new cases. Another 20% want to stay home until there’s a vaccine. Whenever. A quarter would return to their jobs only when there’s no pressure on the health care system. Just 6% want to work now. So says this week’s Leger poll.

Conclusion: at least half the country is cool with sweatpants, Netflix and government pogey. Wall-to-wall media virus porn and politicians making the most of a crisis did a bang-up job of scaring the poop out of folks. And now they’re being paid to stay home.

Since this is not a virus blog, we won’t talk about the flattening curve, the under-utilized hospital emergency rooms or the way a bug ate our civil liberties. History will judge this pandemic against all those in humanity’s past. And it likely won’t be proud.

Let’s focus instead on what comes next.

Job losses and economic decline are without precedent. In four weeks 22 million Americans became unemployed, wiping away 10 years of growth. The jobless rate went from 3% to 17% in a flash. Retail sales have crashed. It will takes years for this to recover, which is a big deal since 70% of the US economy is based on consumer spending.

The good news is that America’s a highly-diversified behemoth with deep pockets and a presidential election in seven months. Once virus restrictions are eased in May the snap-back in GDP will be impressive, even if the jobless rate stays in double-digits until next year. The expectation of this is why stock markets have reclaimed a lot of the ground they shed when the virus arrived. In six months investors will be happy they sold nothing in the storm.

But Canada is not America. There are two things we need to fret over. Oil. Houses.

World crude prices were below $20 US again Thursday. Demand has been destroyed by the impact of the virus as governments in many countries turn off their economies. The situation is the most dire in 30 years, and for Canada it’s a blow. Oil is our biggest export. Alberta is fatal. So much for those Wexit guys.

As for real estate, it’s hard to overstate the negatives – and this sector is a bigger hunk of the economy than energy. Household debt is off the charts, at an historic high. We owe more than the Yanks did when their real estate collapsed. Legions of people bought houses with 20-times leverage, and even with rock-bottom mortgage rates they are now hurting. Over 600,000 households – representing 12% of all bank mortgages – have asked for payment deferrals. Airbnb has collapsed, which will force tens of thousands of units into the rental pool – dropping lease rates – or onto the open market, diluting prices.

In Toronto half of all condo sales over the last decade have gone to speckers and amateur landlords. Yet 40% of those owners lose money every month and hang in just to secure capital gains – an illusion now. In Vancouver 45% of homeowners say they won’t be able to keep making mortgage payments and a growing number believe property taxes will also go by the wayside. As a result the city’s mayor is talking bankruptcy. Imagine what they would do to civil service defined benefit pensions.

Almost 30% Canadians are on government benefits, including millions with no cash and all their net worth in property. It’s worth remembering the American market cratered when just 8% of homeowners got into financial difficulty. So if politicians and public sentiment keep workers from working for another two or three months, we need to seriously assess the risk in real estate.

Then there’s tax. Somebody must pay for the $200 billion in excess government spending the pandemic is costing as Ottawa pumps out the cash. Already the rich face a 54% top marginal rate, and their ranks are thin. The greatest pool of untaxed wealth in the country is residential real estate. How much longer can that remain the case?

Well, you can mull these concerns with me, or suck on the soma realtors are dishing out.

Says ReMax: “The COVID-19 outbreak will be a tough, but temporary blow to the Canadian housing market. As Canada collectively presses pause on the economy and our lifestyles, real estate demand and activity will temporarily take a seat. The bounce-back of the national housing market, however, is projected to be strong. A cooler Spring, a sizzling Fall.”

Says Royal LePage: “From our experience, we are not expecting significant year-over-year price changes in 2020. Home price declines occur when the market experiences sustained low sales volume while inventory builds. Currently, the inventory of homes for sale in this country is very low, matching low sales volumes as people stay at home. It is easy to mistakenly equate a handful of transactions at lower prices to a reset in the value of the nation’s housing stock. Distressed sales that occur during an economic crisis are a poor proxy for real estate value.”

There. Is everything clear now? Unprecedented economic destruction. People in no hurry to work. An historic debt crisis. Six million on the dole. But house prices will be higher.

At least we still have a sense of humour.

Source

Balcony ballading helped keep Italians sane during the lockdown.

Before the virus attacked New York City, propelling mortality numbers higher, Italy was the epicenter of the pandemic. North American media was filled with viz of caskets, terrified health care workers, army trucks hauling off bodies and deserted urban landscapes. The country, we were assured, was completely pooched. Overwhelmed. Infected. Lost.

But, just a few weeks later, the Italian economy has started to reopen. Yesterday, in fact. Does this give us hope? What lessons are there for Canada?  Did the media lie, or at least exaggerate?

  GreaterFool’s irascible, mercurial yet meticulous and trusted on-the-ground correspondent is Dolce Vita. We asked him some pointed questions. – Garth

How did it feel to live through the hot zone of a pandemic?

My region was not hard hit but I dwell next door to hard-hit Veneto region. I only go out to shop/take garbage out 1/week all in 1 trip – I gown up with gloves, mask (look like an ICU worker, disinfect when I get home after, just like one).

Have to put up with that infernal Civilian Protection Agency van driving by each day blaring “Stay inside etc.”, duh, and having to read Tweeted replies by the American Far Right that have rotting teeth, recently telling me that the Italian lockdown “typical for Fascist Italy” stating “Give me freedom, or give me death” (how they got to that from social distancing is beyond me) also taunted by them for having a “Socialist” Public Healthcare System (yesterday, I hate to admit it but I Tweeted to them and inquired how their Private System was doing? No responses yet). And how did we turn Socialist a few Tweets after being Fascist?

Other than that Garth, pretty darn good.

How will the economy start reviving this week?

Firstly for those that do not know, yesterday (April 14) Italy went into its Phase I of returning back to normal (noticeably more traffic from outside that morning). Complete and extensive list here, by trustworthy La Repubblica:

If you look at the three broad categories in the list, they are subsets of the three main Italian GDP Sectors: Agriculture: 2.2% (2017 est.), Industry: 23.9% (2017 est.) and Services: 73.9% (2017 est.).

What I see in the list is Retail Trade, about €286113 Million or 12.5% of total GDP Nominal (€1.9 Trillion) plus Agriculture and some Industry, mostly manufacturing about 4% GDP. My guess is that 18% maybe 20% of the economy loosened up. The big bonus here I believe is that lots of people employed in the Services Industry will benefit the most returning to their jobs and getting a paycheck they can spend, which is good for the economy (Hospitality Industry, 14% of GDP, remains closed). Anyone not in those industries will still be subject to lockdown and returning workers have to practice distancing, masks, gloves etc.

May 3rd, 4th? This will be Phase II where it is expected the rest or a substantial amount of the economy and remaining workers will go back to work, again with distancing etc. Task Force working on it as I type. We’ll know the details within the next 2 weeks I am sure.

Media painted Italy as a basket case of poor planning & lousy health care with bodies stacked in the street. Was this accurate?

NO, ABSOLUTELY NO. Bergamo hardest hit in all of Italy and all you saw on MSM’s in Europe and N. America was Bergamo, Bergamo, Bergamo. Yet, it never collapsed – and they laid themselves bare in a time of terrific turmoil, tears, so the World could see how bad C19 was and to PREPARE, LEARN from what was happening there. Military helped haul away caskets, too many for funary locally to do it and they ran out of burial places in Bergamo. Outside of Lombardy & Veneto (to an extent), Italy was fine. Then later, originally aghast America at Bergamo, starts piling dead bodies in refrigerator trucks outside its NYC hospitals. I could go on, that’s enough.

What can Italy teach Canada now?

1. Italia today starts to be the Canary in the Coal Mine opening up its economy. Learn from the mistakes Italy will make and follow its successes. Get the Government of Canada to PLAN AHEAD for some time in Summer. Proactive, not Reactive. You have months to observe and learn.
2. Stop any bitching at Ottawa the provinces. 20/20 hindsight, clairvoyance not even Superman can do better – they are only human. Besides they are shoving all kinds of money your way, so at least show some gratitude (way more than Italy did).
3. It isn’t over until the voluptuous lady sings, Pandemics come in waves, pay no attention to the “glimmer of hope” crowd for now, instead, wait until your Rt ? 1 like Italy’s THEN celebrate, just a bit. In the meantime keep BUCKLING DOWN CANADA and BEAT those Government of Canada projections. Count the glimmer of hope moments in this flattening chart I went thru for the past month, only to be dashed the day after (my chart):

Almost forgot, listen to Garth, he’s a whiz at this where it seems most of the Cdn. MSM walking in a cloud, mesmerized by the events around them, doing no useful acute analysis, merely parroting what others say for the most part. When the going gets tough, the tough get going…Garth is the latter.
One last lesson:

Italia is down on her knees, BUT not out.

Here is what that has come to (poignant, well known song, sung by an Italian opera singer in English, in front of Il Duomo di Milano):

After writing this, I had a good cry for the first time since C19 began to ravage my Bella Italia and its people.

Thanks Garth, I needed that and you always seem to know what is best. – Dolce Vita

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Should you take money the government offers, even if you don’t need it?

That, of course, was the debate yesterday as this blog slipped from chatter about canines, balanced portfolios and manly haircuts into the churning waters of ethics, morality and angst. Applications for the emergency benefit continue to pour into Ottawa and it’s possible an astonishing third of the entire workforce will ultimately stick its collective paw out. The tax consequences of this could be Biblical. We shall reflect on those soon. Ready your special underwear.

In the last 24 hours the steerage section has been in open revolt. Cries of ‘we want our two grand, or you die’ have been ringing out from below. But is this reflective of the way most people feel? How about the survey that was posted here? Are people feeling responsible, or just greedy? Well, you may be surprised. Results in a minute – and thanks to the 5,881 readers who chimed in.

First, an update. Ms.Virus is meeting her match, but taking a toll.

The cases continue to pile up. NYC is a mess. Two million people have been infected globally. Most hotels in Canada are closing. The unemployment rate in Banff is 85%. Lobsters are down to $5 a pound. Used car prices are expected to plunge as inventories pile up. The real estate market is comatose. Air Canada and Westjet are living off government payroll pogey, but all those Airbnb hosts are twisting in the wind. Eight hundred thousand hospitality workers are out of a job, and will be the last ones rehired. Mortgage deferral applications are trailing away, but 600,000 families have asked for it. And the latest confidence index has crashed faster than Drake’s credibility after his latest video (I mean, dude, is this really the time to prance around your mansion? Even if you had talent?).

Pollster Nik Nanos found people are more bent out of shape than at any time since 2008 (when the surveys began), and real estate is a big reason. Over 40% now expect house prices to drop – a stunning change from one month ago when just 13% anticipated a decline. And, yikes, 80% say the economy will get worse over the next six months – 20 points higher than during the 2008 crash. Meanwhile another survey shows 9% of homeowners in Canada anticipate being unable to pay their mortgages – despite deferrals by the banks – if things don’t snap back in three months (which they won’t). Compare that with a 0.5% mortgage default rate in the 2008-9 crisis. And, wow, 45% of homeowners in Vancouver say they’ll be unable to make their payments in May. (By the way, the city reveals it’s probably going bankrupt if enough owners welch on property tax.)

Okay, so people are in a deep funk. But not your portfolio. After a best-in-45-years romp last week, financial markets continue to chug higher. Goldman Sachs and JP Morgan say the bottom is in the rearview. Yes, earnings will suck and the economy’s cratering with millions of people watching Netflix and eating Cheetos in their skivvies, but investors are positioning for the recovery. It will come. Pandemics are temporary. They pass. The sun will return.

And this brings us to the questions posed here yesterday. Will you take Ottawa’s virus pogey? Even if you need it not?

What can I say? I am so proud of you. Well, most of you…

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“I played golf yesterday and asked one of the other guys how his investing is going?” says Mike from the Left Coast. “His answer ‘not doing well right now but when I get my $2000 benefit it will go straight into my investment account’.

“I stewed on that for half a hole and when we got to the next tee I asked out loud to the group ‘so you’re still working for your brother but have applied for the CERB?’ ‘Yup’ was his response. Then another member of the group said, with a smile on his face, ‘I applied for it too’. I asked why, he said ‘my hours have been cut’ again with a smile. I stopped talking about this as it would have got ugly.

“I will not be golfing with two of the three members of this group anytime soon. I’m not sure how all of this will play out but it’s not going to be pretty. Maybe you should write about it.”

Well, here we go. Unleash the hungry hounds of avarice.

There are some 19 million working people in Canada. In the last three weeks almost six million of them have applied for money from the government. Astonishing. Historic. Troubling. A couple of million rushed to claim EI once the pandemic hit and jobs started to evaporate. Another four million have signed on for the emergency benefit in just the last seven days. Almost two hundred thousand claims came in over the Easter weekend. They continue.

The $2,000-a-month payment (for 16 weeks) is intended to support people who have lost their jobs to Ms.Virus, are in quarantine or must care for kids (since all the teachers went home). In other words, people without income. The feds have made it simple – three clicks and the cash is on its way. If nobody else applies (and they will), this will cost us $49,000,000,000 over four months. This is but one piece of the pandemic bill which will raise the annual deficit from just over $20 billion to almost $200 billion. Your grandchildren will still be paying for it when they retire.

Are there really six million people unemployed right now? Of course not. That would be a 32% jobless rate, when the number is likely a third of that (yet still appalling). But what the pandemic has done – prompting governments to turn off the economy, then having to support so many millions – is twofold. First, it exposes us as a nation of ne’er-do-well financial illiterates and hedonistic profligates who confuse debt-infused assets with wealth and save nothing. Second, this could be the death of personal responsibility. I mean, sheesh, have you checked what the moisters are saying on social media?

To a lot of kids the CERB is the teaser for UBI. They believe and expect that in an unfair world in which Boomers stole all the jobs and made houses too rich to afford a universal basic income is their right. Increasingly a bunch of politicians agree with them. It’s the social justice policy swamp from which Jagmeet and Bernie Sanders crawled. So just wait until the Mills start filling the seats in the House of Commons.

Anyway, this is the crossroads. Giving people ten billion a month for not working is a crippling expense. Ottawa has an obligation to support those whose livelihoods it destroyed in the pandemic fight, of course, even if those citizens had failed to look after themselves. It’s a moral imperative.

But do all citizens have a right to the money – just because it’s there? Because it’s not means-tested? Is that a clever, smart thing to do? Certainly accepting enough cash to top up your TFSA with growth-oriented ETFs at a time of market decline is an amazing benefit. Yet in doing so, are you making future taxes higher? Indenturing your kids? Legitimizing political stupidity and overspending? Hurting Canada? Guaranteeing there’s less health care money when the next pandemic comes? Being greedy and myopic?

Or does your personal situation and family need trump all of that?

Perhaps those taking the cash without need feel it’s an act of political retribution. Maybe they agree with the prime minster that we’re a post-nation state. Maybe like many of the young they think government exists to support them. Maybe after declaring an emergency to fill us all with fear, the authorities are diverting us with greed.

But here’s the main question: what will you do?

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Once upon a time, tenants paid their rent. Or were tossed.

Once upon a time, investors could borrow against their houses to buy rental units, turning idle equity into cash flow, with tax-deductible loan interest.

Once upon a time HELOCs were safe.

But that was then. This is now. It’s virus time.

Last week major banks began making it known to buy a property, rent it out and be a landlord, you’d better have cash for the 20% down payment. No borrowing from a line of credit. No gifted money. No using plastic. In the grand scheme of things, this seems like a small change. But it’s not. This is what your mom would call a harbinger.

First, tenants are no longer to be trusted. Governments, either. Unknown numbers of renters didn’t pay up on the first of April. You can be sure many more will be keeping their cash on the first of May. Thus some REITs have been hammered in recent weeks, since being a landlord is now akin to sneezing on someone’s kid.

Not only have most provinces made it illegal to boot a non-paying tenant during the current crisis, they’ve also indefinitely disbanded landlord-renter tribunals. It could be months and months – or well over a year – before a property owner can be rid of a deadbeat occupant. Meanwhile (by law) they must keep premises heated, serviced, maintained and insured. Suddenly being a landlord is a perilous occupation, rife with financial risk. And the banks don’t wish to share it with you.

Second, this foretells a hammer coming down on HELOCs. After all, it was too good to last. Canadians have borrowed more than $300 billion against their houses (not counting mortgages of $1.6 trillion), and at least a third of them pay only interest on the outstanding balance. In fact, if you used a home equity loan to buy a rental property, you never want to pay it off – since all interest can be deducted from income received, reducing tax payable.

This change is also a warning to everyone with a HELOC, whatever you used the cash for. We’re in a debtstorm at the moment. The virus has made everything worse, instantly, by throwing millions out of work. The fact 600,000 families won’t be making mortgage payments for the next six months is costing the banks about $778 million every four weeks in lost income. It’s risk-off time for the guys in the big, shiny towers at King and Bay.

Remember, lines of credit are demand loans. You can be called upon to repay some or all of your LOC – secured by real estate or not – at any time. This has never happened on a wide scale, of course. But we’ve never turned off the economy before, either. By refusing to allow lines to fund investment property purchases, consider the first shot to have been fired. That banker may be gunning for you, next.

So, third, the virus has shown – in the starkest of terms – that millions of Canadians have allowed debt to render them impotent. The bankers are exposed. Expect them to be reducing risk in future, especially as politicians and financially-pooched Canadians bumble their way to added chaos.

The feds asked the banks to defer mortgage payments. They did. Now borrowers are screaming that missed payments will be added to their outstanding balances (duh). They thought ‘deferred’ meant ‘free.’ Ottawa has also asked that credit card interest be slashed. Political leaders have clearly sided with tenants who cannot/will not pay, with homeowners who borrowed debt they cannot service plus consumers who financed lives with plastic, not income.

Ms. Virus quickly proved all those posts about people being a couple of hundred bucks from monthly misery were correct. Witness the fact over five million people have applied for the emergency monthly pogey of two grand. They lacked the resources to survive four weeks without help. Yikes.

At the apex of this are the banks. They can, and will, absorb some of this pain. But when we come out of the dark and into the sun again – in a month or two – credit will no longer flow like the mighty Fraser.

So stop this yammering about a debt jubilee, kids. It’ll be exactly the opposite.

A brief word about your portfolio. Despite massive unemployment in Canada and the US, the awful impact of Covid-19 on the US and unknown damage to the global economy, stocks have been on a roll. The gains last week were the best in 45 years, with American markets plumping by more than 12% and Bay Street following.

Are investors nuts? Don’t they know what’s happening? Over 16 million US workers out of a job in four weeks and unemployment jumping from 3% to 10% – how could that lead to an equity rebound?

Markets may well have gotten ahead of themselves and will retreat, but as the gauge of fear (the Vix) drops, the S&P 500 has rocked because (a) the bad news is old news and (b) the worse things get the more governments and central bankers will spend to prop it all up, plus (c) the virus is starting to plateau.

The four words now echoing: stay calm and go long.

About the photo: Tell me honestly you didn’t need a puppy picture today. Especially one who can shop!

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   By Guest Blogger Ryan Lewenza

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Today I’m going to mix things up, moving away from my typical boring market analysis content and instead focus on the science aspect of this corona virus and pandemic. I’m fortunate that my brother is a specialist in this field as he’s been incredibly helpful to me in understanding some of the key elements of this virus. Today he’s going to try to provide answers to some critical questions and concerns around this deadly virus.

  A bit of background first. Dr Shawn Lewenza is an Associate Professor at Athabasca University and an Adjunct Professor at the University of Calgary. He is a microbiologist with 25 years of experience researching bacterial infections, with a focus on understanding how microbes cause disease and evade the immune response, as well as antibiotic resistance and discovery. Clearly he’s a real treat at dinner parties!

Shawn, can you tell our readers a little about the science and the progress related to the development of a vaccine for the COVID-19 corona virus?

There are many developments in the brief time since the beginning of this pandemic that are rapidly leading to a COVID-19 vaccine. The outbreak was officially reported from China on December 31, 2019, and the first genome sequence of the corona virus responsible for the initial cases was released on January 13. It was only 63 days later when the first vaccine candidate from the biotechnology company Moderna was injected into volunteer humans for phase I trials. This was a world record setting time to go from virus sequence to the start of phase I human trials. The first phase determines if there are protective antibodies made in response to the vaccine and tests safety in humans, while phase II will determine if the vaccine is effective to prevent infection. This company is testing a novel mRNA vaccine strategy, which highlights our openness to new approaches.

In total, there are over 50 candidate vaccines being developed worldwide, which include multiple vaccine strategies, and clinical trials have already started1. While a vaccine normally takes between 5-7 years to commercialize, most experts agree on a much tighter timeline of 12-18 months for a COVID-19 vaccine.

There are multiple $1 billion dollar COVID-19 vaccine projects, both by industry (Johnson & Johnson) and private investment. The Bill and Melinda Gates foundation has deep experience in vaccine development and has committed to the construction of multiple vaccine production facilities. Rather than waiting for trials to determine a winning formula, this bet hedging approach will produce several hopeful candidates, with the intention to deliver a billion doses of vaccine by the time the data from the clinical trials are out.

What is the concept of herd immunity and how is it relevant to the COVID-19 pandemic?

Herd immunity is the process whereby a majority of the population become immune to an infection, through recovery after a natural exposure. When the immune herd approaches 60-80%, there is a very low risk of continued spread and outbreaks. The percentage is higher for highly infectious viruses like measles, and rough estimates of 50-65% have been made for COVID-19. All evidence suggests that COVID-19 infections produce an effective immune response that should lead to protection for life. A vaccine would decrease the time necessary to reach herd immunity, but many outbreaks flame out before the vaccine has been developed. This was true for the SARS corona virus in 2002-2004. The silver lining, however, is that all the work done on the SARS vaccine is accelerating the development of the COVID-19 vaccine.

Are there potential antivirals that may support the recovery from the pandemic?

In addition to vaccines and the growing percentage of recovered patients, new and repurposed antiviral drugs are a major hub of activity in biotech and basic research labs worldwide. While we have many antibiotics to treat bacterial infections (also under threat due to antibiotic resistance), we have relatively few antiviral drugs. Viruses are small, minimalist entities, with few moving parts, which makes the design of antivirals more challenging.

The anti-malarial drug hydroxychloroquine was found to be effective in a small, clinical study that some have criticized. A repurposed drug like this one already has FDA approval, which shortens the path to actually using this drug in a new context. Despite the uncertainty, clinical trials are already underway. The normal restraints for identifying lead compounds have been greatly relaxed during this pandemic. In addition to drugs that target the virus, this pandemic is also highlighting the importance of drugs that dampen the immune response, which are another strategy to treat this infection. Many of the symptoms may be due to an overreactive immune response attempting to clear the infection.

What most impresses you about the response of the scientific community to this pandemic?

Because of the strict social distancing and self-isolation policies that we are successfully implementing in Canada, it does mean that many basic science labs are also shutdown. I have been really impressed with the volunteerism seen in many scientists who are committing their time, lab equipment and expertise to help with many aspects of the pandemic. COVID-19 testing relies on a relatively simple method that most grad students in molecular biology could perform, and there are many trainees actively carrying out these tests, in support of the public health labs.

This pandemic is a wakeup call to governments about the need to invest more in preparedness, and in research towards testing and vaccines. This coronavirus pandemic is similar to most outbreaks, where the source of the virus is from food animal production, and I think this outbreak will lead to many policy changes that will reduce the risk of future outbreaks.

References
1.   https://www.sciencemag.org/news/2020/03/record-setting-speed-vaccine-makers-take-their-first-shots-new-coronavirus
2.   Read here if you would like to see a simple description of the how the corona virus hijacks our cells.  https://www.nytimes.com/interactive/2020/03/11/science/how-coronavirus-hijacks-your-cells.html

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

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Andy Seliverstoff photo

Happy Easter.

The following needs to be stated.

In recent days a number of people have tried to coopt this blog for their own twisted agenda. You would have missed much of it, since the comments were trashed as I saw them stream by. There is a neo-Nazi wanker from Ontario repeatedly trying to get in. Yesterday another zealot posted the manifesto of a Colorado-based NRA nutcase on the death of civil liberties and the need for unrest. A number of our resident loonies and haters have linked the C19 smackdown to a grand globalist conspiracy. And there are a tide of socons and libertarians who decry the rapid advance of big government, claiming the virus is a perfect ruse for bureaucratic tyranny and despotic rule.

Why here?

Likely because this blog has lamented the shutting down of the economy; the fact 1.01 million people lost their jobs last month; that four million must now live on government handouts and hundreds of thousands of families can pay neither mortgages nor rents. This is tragic. So has been the loss of five or six hundred Canadian lives during this pandemic, of course. It is all intensely regrettable.

Have politicians handled the crisis as well as they could have? This week the prime minister suggested we’d be in the current state a year. Clearly a huge number of businesses will never reopen if that is the case. Unemployment will go from temporary to structural. The standard of living will drop substantially. Millions will be thrust back into poverty. Government budgets will be ballooned for a generation with inflated levels of tax and diminished opportunity for the young. That’s what a single year of this will mean, and more.

During the event governments, national and provincial, have passed emergency decrees, ordered people to stay home, dictated what businesses must shutter, closed borders and airports while directing police to charge, fine or arrest people who walk too near to others or traverse a park they declared closed. Unprecedented economic measures have been put into place, with clear consequences. Through the process, opposition leaders have been largely silent. Legislatures have been closed. Debate absent. Votes not held. And all this is worrisome.

But none of these points, questions or concerns should be construed by any social misfit as suggesting that society’s best option was to sit back and let the virus rip through the herd. Doing nothing was never an alternative. The bug needs to be squished and the health care system spared from melting down. The efforts people have put into social distancing, personal hygiene and altering their daily lives have been both impressive and effective. We are in far better shape for them. Together we want this thing to end. And we’re doing what we must to bring that about.

But we also need to work, support our families, school the kids, keep our houses, make money and spend it supporting others. The economic damage occurring daily is incalculable. Whole industries are disintegrating. Robust businesses are dying from lack of cash flow. An entire nation of people cannot stay confined at home, living off subsistence government payments – as much as politicians want to breed dependency.

We need hope. A roadmap. Leadership from the darkness back into the sun. Treating a population as if it were comprised of six-year-olds is unhelpful. Being talked down to and patronized by elected officials who are themselves trying to figure things out will eventually breed rebellion. We don’t need society’s malcontents to tell us that.

No, C19 is not the flu. It’s serious, deadly, new and scary. Hundreds have died. Thousands more will. But millions won’t. The virus is also wounding them in meaningful ways. Life will never be risk-free.

No action is no option. Indeterminate lockdown isn’t viable, either. In return for handing over our civil liberties, we deserve an agenda. We have been patient, compliant and dutiful. We have common purpose. We have obeyed. Now show us the plan.

This cannot continue…

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