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June 19, 2016 | Exit

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.


If you hate volatility, stay at the cottage for the next month. Unplug. Be like Trudeau. Buy a canoe. Learn to vape. Get a tat. Smoke something you find in the woods. Just don’t watch BNN, CNN or read this blog. Please. I implore you.

First, there’s Brexit. On Thursday UK voters decide to stay or leave the European economic union. A no-brainer, ya’d think. Leaving will cost a ton of jobs, put Britain on a path to recession, whack financial markets and imperil, oh, 700 million or so people. But this has been largely turned into a referendum on immigration by the right-wingers and nationalists, who argue open EU borders let too many of those dangerous brown people in.

Doubt it? Look at the poster unveiled last week by the UKIP (the knuckle-dragger opposition and ‘Leave’ leaders), called ‘Breaking Point’. White supremacists everywhere would love it, with that  horde of sinister refugees streaming in. This, said the ‘Remain’ forces, has “echoes of literature used in the 1930s.” And it does. Human nature hasn’t changed. We still suck.


But since the murder last week of MP Jo Cox, the tide seems to be turning. The first poll since the event showed ‘Remain’ pulling ahead of ‘Leave’ after three weeks of opposite momentum. Bookies say the probability of a negative vote has declined to just 30% from 40% last week, so if you put your money on the status quo, you have a 70% chance of winning.

And that’s that. But the trip from here to next weekend will not be smooth. Already we’ve seen a flight to safety swell bond prices and crush yields (they temporarily went negative – minus .038% – in Germany). That’s impacted the ECB’s giant stimulative bond-buying program ($90 billion a month) and sent $1.25 trillion in bonds lower than the deposit rate. Meanwhile European inflation has been at 0% or less for ten of the last 18 months. Deflation. And a Brexit would make it way worse. Quelle mess.

But, if you believe the oddmakers (and common sense), it won’t happen. Thus, expect further violence.


Now, there’s more. The Republican National Convention to nominate Donald Trump opens July 18th, nine days before the Fed makes its next interest rate announcement. Since he demolished his opponents, fair and certainly square, he’ll be crowned. But the Visigoths know The Donald will destroy their party for at least the next one or two election cycles, and represents the same unfortunate side of humanity as do the Brexit bumpkins.

As the UK ‘leave’ forces will flame out, so will Trump. He can’t win, thanks to the Electoral College and his embrace of the politics of division. But he will roil markets, negatively influence the national agenda, become a massive distraction and might even turn the RNC event in poor Cleveland into a street slugfest.

Meanwhile the American economy’s been in a cooling phase, with lower job creation numbers that made the Fed end its flirtation with a June rate hike. As Brexit stomps Euro bond yields, US debt prices have also been rising – part of a global flight to safety. It’s not over yet.


And, lastly, we have the gang in Ottawa who now have another problem to deal with – lower mortgage rates. A three-year variable is at 2%, and fiver-fixed rates range from 2.32% (at Ahmed’s Samosa & Home Loans Emporium) to 2.49% at all of the big banks. Combined with dire words of warning in the last few days, we’re obviously getting closer to direct federal government intervention.

Says Capital economics chief North American economist Paul Ashworth: “This is a bubble. A very big bubble. And it is going to end in tears. The Bank (of Canada) claim that the risk of a housing downturn is small because there is little risk of either a spike in the unemployment rate or a jump in long-term interest rate risk premiums is naïve in the extreme.”

Says TD: “The party will come to an end. Markets are ripe for a correction.”

Says RBC economist Robert Hogue: “With affordability, or rather unaffordability, having moved off the scale in the past three to four years, the historically volatile Vancouver-area market is undoubtedly under substantial stress. It is vulnerable to a marked correction.”

Says T2: “This is a very significant crisis…“We’re on a trajectory that doesn’t have any good outcomes. What we’re all hoping for is to stabilize the market… We need to make sure we’re reining things back a little bit, in a way that doesn’t completely devalue those people whose retirements and whose equity is still in their homes.”

And we just heard that 90% of all detached houses in Vancouver are “worth” more than $1 million. At least for a while.

Dude. Pass the paddle. And the bong.

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June 19th, 2016

Posted In: The Greater Fool

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