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July 21, 2016 | Trumped

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 SIGN modified

Financial markets want Hillary. There’s no disguising that. Investors would rather have Democrats (or Liberals) in power than Republicans (or Conservatives) – because left-leaning governments spend more money and love deficit financing. Leftists solve problems by feeding them. Rightists deal with trouble by starving it. Stimulus on the left, austerity on the right.

Trump scares The Street, and the Cleveland convention ain’t helping much. The coming campaign will be mega-nasty, pitting an emotional, visceral middle-class movement against a broad coalition, with a populist fighting the establishment. The social fallout could be significant, whatever the outcome, since the next president will likely take office on Electoral College ballots, rather than the popular vote. Quel mess.

At this point, that means a Clinton win. Markets assume it. But they also were 100% convinced UK voters would never opt for Brexit – so stock markets got pummeled for a 5%, two-day race-to-the-exits when that news came in. A Trump win would have the same outcome, unless it’s clearly telegraphed well in advance. But that won’t happen. If the dude wins, it’ll be akin to discovering life on Venus. Or at least in Buffalo.

Now, here’s some good news for the Clintonites. It’s called the Misery Index.

This is an informal economic indicator which melds the rolling unemployment rate with the cost of living. The assumption is that a high jobless rate or rampant inflation will make households grumpier, more miserable and highly motivated to throwing the bums out. When the index climbs as an election approaches, it’s bad news for the incumbent and great news for the challenger. Going all the way back to 1964, it’s predicted the new president with an 85% accuracy (11 of 13 presidential races).

It all comes down to perceptions. If a majority of people perceive their economic lot in life is getting worse, they vote for change. If things are okay and improving, they don’t take that risk.

Where are we now?

Well, the US unemployment rate is sub-5%, and close to the best level it’s seen since the 2008-9 credit crisis. The 287,000 new hires in June served to remind voters just how many jobs have been turned out over the past eight years, and that the recovery – albeit tepid and faltering – continues. At the same time, inflation is nowhere, mostly because rates have stayed low, wage gains have been muted (keeping prices in check) and a collapse in the price of oil has saved a hunk of disposable income on household energy. So sluggish growth means a low cost of living (2.3% inflation), at the same time as job growth continues and unemployment (4.9%) is a non-event.

The forecast is for the jobless rate to fall by election day in November, so if the Fed holds off on its interest rate hike until after the vote, the Misery Index should continue to dial back – although it looks close to bottoming out.

The latest odds: Clinton 2/5, Trump 9/4.

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What happens when a Canadian housing market starts to fall apart? As this pathetic blog has been telling you for a dog’s age, don’t expect a US-style crash, complete with mattresses hauled onto front lawns by bailiffs  in headbands while kiddies sob on the curb. Instead, we get a slow melt, with pain on the installment plan.

Need an example? Calgary. There’s a slow-mo classic Canadian bust going down. Everyone living in places they think “are different†should pay attention. It used to be different in Cowtown, too.

In the real estate market listings continue to mount – now topping 6,000, up a fat 16.8% from this time last year. Sales are down 10%, and detached house prices have started their descent – off about 4%. It’s the tip of an iceberg. You can discern that by looking at the rental market, where prices are less sticky and landlords are freaking.

About 21,000 units are currently sitting empty, a 70% increase over year-ago levels, more than at any time in the past 16 years. Counted among those are 9,000 empty apartments, for a vacancy rate of 8% – stunning. So prices are careening lower. Owners of higher-end units (above $2,000) have been trimming rents by up to a third. More to come. Pity the poor amateur landlord-specuvestors now being hollowed out. They learned that equity rises and falls, but debt never fades.

It’s taken two years for this disaster to unfold. It’ll take many more to recover. And we’re not at the bottom yet. Those who expected Calgary prices to drop by 40% in the months after oil prices plopped were as misguided as the realtors who argued a major city like Calgary (with the hottest housing market in the country three years ago) was safe.

No city is immune. And nobody ever believes it.

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July 21st, 2016

Posted In: The Greater Fool

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