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October 28, 2016 | The Head Fake

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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Well, no wonder Ontario decided not to impose a BC-style, Chinese Dudes tax on real estate. There aren’t any. Well, not many. At least when it comes to North America’s (by far) biggest and fastest-expanding condo market.

So the data’s in. No government stats or realtor Frankenumbers, but private-sector evidence collected from developers and brokerages representing a quarter of all new condo apartment unit sales. Are you prepared to be shocked? Good. You’ll have to wait one paragraph.

The Toronto condo market is Trumpian in size. About 30,000 units will sell this year, and in the third quarter sales roared ahead more than 22% year/year. The reason is simple. With detacheds fetching an average $1.2 million, they were unaffordable to the average moister even before the MST became the law of the land. The average GTA condo price is now $415,600 (up 9.6% in the past year) – which means this market alone is worth $12.5 billion annually. Yuge.

Who’s buying these things?

According to research firm Urbanation, it sure ain’t foreigners. In total non-Canadian buyers accounted for just 5% of sales, with the other 95% going to moist little beavers. But here’s a key breakdown of that number – 52% of those domestic buyers have no intention of living in the condo units, picking them up instead as speculative or investment properties. Only 43% of trades were to locals who plan to live there.

The survey was conducted between July and last month, and included only projects that were in development – pre-construction, being built, or recently completed (this is the hottest part of market). It’s the first time this kind of data has been available.

So, you wanna blame some group for pushing prices up seven times the inflation rate? Go ahead. It’s every fool out there buying a condo from a developer thinking she’ll just rent it out (at a loss), then flip for a taxless capital gain. Man, does she have a few surprises coming.

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That certainly was an interesting Friday.

Things looked peachy for the Dems at breakfast when Washington announced the latest growth number. Wow. Just a hair under 3%, shutting down all the doomers and nasty Repuglicans insisting America’s heading for recession and (maybe) collapse thanks to the nasty idiots who run the Fed and the government.

That 2.9% pop in GDP, by the way, is the biggest in two years, and more than double the growth recorded in the previous quarter. It sure added fuel to the argument that the central bank will undoubtedly raise its key rate in early December and, if the machine keeps on rolling, perhaps twice more in 2017. It also supported the prevailing pollsters’ view that Hillary Clinton has this thing locked up.

But then came lunch.

Word that the FBI has re-opened its probe into her government emails/private server thingy rocked the Presidential campaign, with Trumpian crowds chanting, “Lock her up, lock her up.” While that’s never going to happen (of course), the news was enough to reduce her odds of being POTUS by about 10% in just ten minutes. According to legendary polls analyst Nate Silver, this could drop her magic number to 68%, while Trump has bounced from a low of 12% back into the twenty range.

Could this be Brexit, Part Deux?

While a Trump win is statistically remote, since the US system isn’t based on the popular vote (as was Brexit), the odds of a Clinton loss have climbed.

What would that mean for financial markets? Your portfolio?

Probably similar to Brexit I. In other words, markets would react badly to being surprised, with lots of bets having been made on an outcome that failed to materialize – causing an avalanche of selling to cover positions. Volatility would spike. The US$ would likely falter, causing other currencies and commodities to rise. Given that equity markets are near record levels, you could expect a 5-6% whack in the first few days, while money flowed like a swollen river into safe havens such as US Treasuries.

Also like Brexit, it would be short-lived. After all, whomever’s in the White House, the economy won’t change, corporations won’t make less money, hiring won’t stop, and people won’t stop bying cars and houses. Investors would adapt, in the knowledge that it’s really Congress and its bureaucracy that runs America.

Investors with a balanced, globally-diversified portfolio would hardly notice – just as they did with the UK vote. When stocks were down 6%, their portfolios were off about 1%, then quickly recovered. Those who didn’t panic lost nothing. Those who got their investment advice from this pathetic blog’s comment section, not so much.

But, of course, Trump can’t win. Unless he does.

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October 28th, 2016

Posted In: The Greater Fool

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