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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

July 28, 2016 | Finally

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.

SUCKS-modified

Everyone coming to this pathetic blog loves predictions, especially ones about the future. Here are a few of the latest.

Interest rates will rise later this year in the US, at least once. Twice is possible, but that depends on what the polls are looking like for the Presidential election in November. Next year is another whole story, when everybody should expect several increases. The implications for Canada are not cool.

Why would the Fed do this? Simple, growth. The economy is expanding sufficiently, corporate earnings are stable enough and the labour market’s in great shape. In fact, look at this:

JOBLESS

Chart by Bloomberg

The unemployment rate is currently 4.9% and has plunged from the oh-my-gawd days of 2009. But from here on in, the number of new monthly hires is expected to diminish, because America has reached what the central bankers consider “full employment.” That’s when most of the people who want to work are working – also called the long-term natural jobless rate.

So next up is inflation – in part from upward wage pressure as economic expansion makes labour more valuable. Containing and controlling that inflation is what the Fed is now focused on, even in a world where many countries are struggling with a battle against deflation. So, rate increases are a certainty.

Yeah, Canada will follow suit. But not until next year.

Meanwhile (here’s another one), oil is in for some rough times. Crude is slumping again towards $40 a barrel, and the world is awash in gasoline this summer. Refiners are freaking out, and the big oil majors which were hoping retail operations could save their bottom lines, now see that’s not gonna happen.

“It’s been a difficult year for consultants in Alberta,” says a life-long energy guy who bought a big spread of ranch land two years ago, “like a perfect storm, really, if you consider our political climate and if, like me, you are 1) in Oil and Gas, 2) work on projects and 3) contract out your services. As your last blog entry says – Alberta is pooched (until oil rebounds AND the socialist are gone, I think).”

The decline in Calgary real estate, and the decline in Alberta’s economy, could be remarkable over the coming year. Even cowboys can’t stay in the saddle forever.

Meanwhile, predictably, we’re heading for the housing wall in many places. CMHC’s historic warning this week, coming days after the bank cop ordered stress testing and the BC government created a giant tax, “to discourage foreign investment in the residential real estate sector” should not be ignored. After all (unlike the rest of us) those CMHC guys see the numbers. All of them. They know the quality of the loans, the volume and the locations.

The agency says 60% of major cities are dangerously inflated with problematic conditions – caused by overbuilding, overvaluation, overheating or price acceleration. At the top of the list is Vancouver, next is Toronto, and further down are Calgary, Saskatoon and Regina. “Price acceleration” is also advancing throughout the GTA and the Lower Mainland, spreading like an evil fungus from the urban plant.

We all know the reasons. People have bought beyond their means and financed those real estate purchases with historic amounts of mortgage debt. Meanwhile incomes have remained dormant and the economy is struggling. Now given the threats of rate increases imported from the south, weaker commodity values, an Albertan crash, a Trumpian surprise or sustained job losses, it won’t take much to push this sucker over. The feds understand, which is why a real estate task force was hastily mashed together last month.

The BC Chinese Dudes Crash Tax is likely this catalyst. Bad enough when it was arbitrarily introduced, it’s even worse today with confirmation is will apply to all legal transactions that have been negotiated, but may be months away from closing. The market interference is epic. The damage done to Vancouver, BC, the Canadian real estate sector and to our image as a stable, modern country is severe. After wobbling so incredibly high, the market has the potential to shoot lower – posing a dramatic equity shock in YVR, and helping make CMHC’s national 9-1-1 warning prophetic.

Seventeen days ago this blog delivered the final “get out” warning. The last of many. Too late now.

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July 28th, 2016

Posted In: The Greater Fool

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