- the source for market opinions


October 25, 2016 | Seriously

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.


Just fourteen days to go, and you’d think investors would be running for cover. After all, if Trump wins (and he definitely will, if you believe this pathetic blog’s sordid comment section), markets will be shocked, nationalism will trounce globalism, hard borders will defeat free trade, the elites will be spanked, central bankers squished and Toledo will be great again.

The rogue billionaire will continue the revolution started by Brexit, and embody rightist, patriotic, parochial values now fuelling groundswell democratic movements sweeping Europe. It’s the nightmare of the ruling class. Trade barriers forcing jobs to be repatriated. Walls to keep out cheap, enthusiastic immigrant workers. Higher overhead, inflated labour costs, lower exports and a profit hit. Multinational corps used to diddling the tax system suddenly faced with bringing home their billions, and handing them over.

How can any of that be good for equity markets? So it must be time to avoid chaos and go to cash. The Trumpinator cometh.

Well, that’s what they think back in the steerage section, where the ventilation’s bad and people are forced to eat bugs in retirement. It’s clearly not what most investors believe.

This would explain why gold is boring and unloved lately. Why volatility on stock markets has plunged. Why bonds and currency trading are dozy.

The S&P 500, a proxy for the US economy, is sitting less than 2% below its all-time high. The VIX, the so-called ‘fear index’ which reflects price and volume changes, is practically comatose at just 13. (After Brexit it sat at 29, during the debt ceiling debate in 2011 it hit 43, and in 2009 it spiked to 60. Yawn.) Bond markets are quiet. Currency markets behaved. Nobody seems to be rushing into the traditional safe havens of US Treasuries, greenbacks or bullion.

In fact, just the opposite. There’s been a big surge in the last few months into emerging market ETFs, the biggest in more than a year. Given that these are some of the most unpredictable markets on earth, you’d think they’d be shunned by investors worried Trump will eat the economy or declare a holy war on Muslims.

But, nah, nothing. Crickets. And here’s why…

The election is already won, markets believe. Clinton’s odds of winning were 85.4% on Tuesday afternoon, according to the authoritative site FiveThirtyEight. One month ago her chances were pegged at less than 55% – and then the three debates took place, comingled with the 11-year-old tape revealing Trump likes cats more than dogs and the emergence of almost a dozen alleged gropees. No matter how many people flock to his rallies (28,000 in Florida this week), markets are convinced the guy’s toast. So why get excited, sell off perfectly good financial assets, and hide in cash?

Also taken for granted – that interest rates will start to rise in December. Two more Fed officials said as much in the last few days, all but confirming the American central bank is on track for that increase in the first week of December, followed by two more during 2017. The current odds being given for the coming hike: 72%, which is 10% higher than last week.

In other words, markets do not care about the election. Pfft. Done already. They don’t care about a rate increase. So old. With the American economy inching forward, central bankers firmly in control of global monetary policy, corporate profits acceptable and tech advances like driverless cars about to slash costs and reward investors, why would you not wanna be there? A make-America-Great-Again Armageddon or populist insurrection? Puhleese.

Anyway, that’s where markets are. There’s nothing to worry about. Just like before Brexit.

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Some weeks ago I told you Ontario was seriously mulling a BC-type Chinese Dudes tax for the GTA. And it was, with plans to announce right after the Thanksgiving long weekend.

And then came Bill. Wild Bill. The man itching to put a round into every moister loco enough to buy a bloated house with epic debt. Not only did the guy catch realtors, bankers and brokers by surprise, but also the premier of the largest province, home to the biggest housing market and the world’s fattest real estate board. Within 24 hours it became clear that his changes – a mortgage stress test, serious restrictions on mortgage insurance, a capital gains tax crackdown and a lender deductible on losses – had the potential to kneecap the entire sector. A foreign buyers tax could be the coup de grace.

This week the premier announced there’ll be no tax announcement. On Wednesday CMHC issues a Code Red alert for the entire market. And seven days after that, you will hear about the carnage in Vancouver.

And here you were afraid of Trump. Get a grip.

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October 25th, 2016

Posted In: The Greater Fool

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