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January 15, 2016 | What to Do Now

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

GUITAR modified

In September of 1947 a passenger train with wooden-walled cars crashed into a freight with modern steel cars and a mess of people were mashed. That is about the last exciting thing that happened in Dugald, Manitoba, twenty clicks outside of The Peg.

At least, until Thursday, when Po’ Bill Morneau the finance minister tried to tell reporters everything was fine.

“Outside investors should be confident about Canada,” he replied to a question about our disappearing dollar. “We live in a fantastic country with abundant natural resources of course, but also a highly educated workforce, and we have the room to make some significant investments to stimulate our economy and to create a more productive Canada over the long term.”

We now know outside investors were none too impressed with the Pablum political response – the first government utterance since our currency started its current death swoon – an event that will now lead to a rate cut on Wednesday. The dollar was rudely caboosed hours later, and finished Friday down more than three-quarters of a cent, at 68.8 US pennies. It’s lost almost 11% in the 90 days since Mr. Morneau and his buds were elected. That is a new all-time record for loss of confidence in our national currency.

It also looks like we’re on the way back to 2013 in terms of federal deficits, since the feds have committed to a big whack of stimulus spending, at the same time government revenues are set to cascade lower. Blame oil for that, plus a recession we’re likely entering. All of it – the price of crude, mounting job losses, the Bank of Canada chop, the return of deficits, Bay Street blues plus the anticipated impact of historic household debt – is behind the currency plop. Looks like there may be more to come.

By the way, talking oil, Calgary-based analysts at Peters & Co. estimate that at current prices Alberta producers are burning $12 billion a year to keep the lights on – more than thirty million a day in losses. The black stuff is at a 12-year low, and Canadian oil trades at a discount to the benchmark price for crude from Texas – where they don’t have a 50% marginal tax rate nor an anti-oil NDP government with a shiny new carbon tax.

Investors have been shedding the dollar and moving into the security of government bonds – pushing the yields down to the lowest levels in history. Speaking of historic events, the current slide in the value of the dollar (11 consecutive days) is the longest since Prime Minister Trudeau (no, the first one) unhooked our currency from the US buck in 1970 when it was worth 95 cents American. It’s ironic his son may be in power when the dollar hits the lowest value ever, if it sheds another six cents.

DOLLAR SLIDE

Well, three months ago nobody was calling for a Canadian rate cut. Last weekend the odds were 40%, rising to 50% yesterday and 65% on Friday. The Bank of Canada will be dropping back to the level it called “an emergency rate” and which we’ve seen only once – during the financial crisis of 2009. Whether the chartered banks will flow this through to their prime rates, lines of credit and variable-rate mortgages is highly debatable. Anyone waiting for five-year mortgages to fall through the 2% level is probably out of luck. Eventually, of course, they will rise. At least you’d better hope so.

So, with oil still crippled by too much supply and concerns the global economy will slow, with worries about our economy, the debt binge and with a finance minister sounding so far like a political dinglenuts, expect more dollar decline. Expect the central bank to act on Wednesday. Expect fixed-income assets to droop a bit further. Expect Bay Street to lose more until stocks are too cheap to ignore.

What to do?

If you have a mess of maple stocks, take four or five Advil and seek out a good single malt. When you awake in March, things should be a little better. If you have a balanced and globally-diversified portfolio, do nothing. Your losses will be a fraction of those equity investors face, and the recovery will be quicker. The world is not moving backwards. This ain’t 2008. It’s not even 2011.

If you’re a saver, budget. Interest paid on deposits will be among the first casualties next week, and meanwhile we all know what’s happening to the price of cauliflower. Those on fixed incomes, or who lack the confidence to be long-term investors, will be facing some tough choices and lots of KD. Rates are going down and prices are going up. It is a war on savers that you cannot win.

As for real estate, it’s hard to see any scenario in which the experience of the last two years in YVR or the GTA is repeated. Yes, news of a rate cut and the coming hike in down payments may stampede a bunch of moist Twidiots into making offers and closing deals now, but the legs are being cut out from under the market as a whole. Job loss, investment loss, economic stress, currency decline and tighter credit all seem to lie ahead in varying degrees.

If you’ve made money on your house, capital gains tax-free, then consider grabbing it – especially if you’re a Boomer with less than a heaping retirement fund. Or, you can join poor Bill and wait for the next train wreck.

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January 15th, 2016

Posted In: The Greater Fool

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