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March 4, 2016 | Slaves

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.

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Some days ago this cheeky blog (the facial kind) said don’t dump maple. Good call, as it’s turning out.

Sure, I know our country of Justinastan is somewhat pooched. When a $7.8 million house in the rich part of Van sells for a million over asking (with 11 offers) even as the economy descends, you know what lies ahead. It ain’t good. Where house lust, family borrowing and consumer finances come into play, there’s a lot of pain ahead.

But for others, a whole other tale. It’s quite simple. Even the dudes who wrote the Bible got it: “The rich rule over the poor, and the borrower is slave to the lender.” So, suck it up all you lefty Millennials who think mortgages aren’t debt, rates will never rise, and the rich are for eating. In the period which lies ahead, investors will rock. Debtors will roll.

So I told you weeks ago the commodity price rout was likely overdone. After all, the value of oil, nickel, copper, grain and other stuff we all need plunged to 1990s levels, completely illogical given the fact global growth is positive, not negative. Tanking prices for hard stuff were understandable in the dark days of 2009, but not now. Look at the world’s two biggest economies – the US is in recovery (more on that in a jiff) and China will grow by 6.5% this year. Sure, everybody’s got problems (at least the Chinese are largely spared Adele) but the light at the end of the tunnel’s no longer a train.

Since then, oil has popped and at $36 a barrel is almost 30% higher than a month ago. In other words, all those who shorted oil stocks or Canadian banks are being handed their derrieres. At the same time the Canadian dollar has advanced rapidly even against a strong American currency, and sits above 75 cents. Meanwhile the TSX has recovered lots of lost ground, which has been reflected in exchange-traded index funds like XIU – advancing 11% since Bandit’s new knee was installed.

In fact, did you know Bay Street now hosts one of the best-performing markets? It’s up almost 2% on the year, while Wall Street is negative by an equal amount. The advance this year has been dramatic, from deeply negative to bragging rights in ten weeks.

Now, what’s next?

Predictions are hard, so let’s stick with what we know. The American economy is doing exactly what was forecast here – swelling methodically, steadily and predictably. In the end, it will probably drag the entire world to a better place, which will includ higher interest rates.

We know this: Job creation surged in February. Employment numbers for the previous two months have just been restated, and they’re substantially higher. The American unemployment rate, steady at 4.9%, is now half what it was six years ago. By the way, this is an eight-year low. Last month the labour force expanded by half a million people. They all found jobs.

The US workforce is now growing at the fastest pace in more than a decade, and the share of the population holding down a job is at the highest level since 2009. The labour participation rate jumped last month, to a level not seen in a year. This rate has increased now for three months in a row – something which has not happened since 2006. In fact, it’s the largest such gain in 16 years.

The doomers will moan that many jobs are entry-level, don’t pay enough and wage gains have averaged just 2% annually. They want everyone to be a vice-president with a six-figure income and a defined benefit pension. But the reality is any job is better than no job, and with three million more Americans working than one year ago, no wonder car sales are torrid and US real estate has stabilized.

These are some of the reasons commodity prices are swinging back. Strong jobs market. Improved growth outlook. Better corporate earnings. The return of inflation. And, later this year, higher US rates.

So oil is going up, aided by the Saudi-Russia freeze deal, lower US production and speculation that when something the world really, really needs sheds 80% of its value, it was probably a stupid thing.

Naturally, turmoil could return and crude could crater again. Our dollar would fall and more truck nutz be retired in Edmonton. But reversals will probably be shallower and shorter, since there’s no valid indication the States is going down, the world will slip into deflation or the cost of money will stay where it is.

Those people astute enough to cash out of an asset at a speculative high, popped up by epic debt, and diversify into liquid securities with growth potential, shall inherit the earth. Literally. In time you won’t believe how much dirt is for sale.

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March 4th, 2016

Posted In: The Greater Fool

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