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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

December 7, 2016 | Wake Up

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, there ya go. The latest indication the world as you’ve known it is about to change.

First the feds diddled the real estate rules. Then the banks started jacking up mortgage rates. Now the Bank of Canada has failed to lower its rate. In fact it’s talking about looming growth (which means higher rates). The Fed is 100% certain (the market says) to restart normalizing the cost of money on Wednesday afternoon. Next year will bring at least two more hikes. Meanwhile the odds of our bank prime rising in 2017 are between 40% and 50%.  They were 6% just days ago. And stock markets have gone ballistic, with the Dow and the S&P surging to new all-time highs.

So much for the tedious forecasts bleating from the steerage section about our rates falling, the Fed balking or the US sinking into recession. In case your money’s been quivering in a dead-end interest-bearing account with The Fruit People, or sitting in cash in your alpha-seeking advisor’s money market account, “because stocks are too expensive”, this chart’s for you…

stox

This year brought three major market entry points. The China-commodity crapfest of last February, the Brexit bomb in June, and the pre-Trump willies in late October. But instead of trying to time the market, it would have made sense to have a good, balanced portfolio in place all year – cuz you never know what’s coming around the corner (and neither do stock-picking cowboys).

The Dow is just 2% away from cracking the 20,000 mark, even as the American central bank is mere days from increasing its key rate – a move that will set the stage, ultimately, for money costs around the world. This is happening as we pass from the threat of deflation and decline to the expectation of inflation and growth. Free trade – which made the world more efficient and cheaper by flowing money and jobs from west to east – is turning into protectionism, thanks to the wave of populist politics washing across Europe and America. Costs, inflation, growth and profits are all expected to plump. Markets are eating it up.

So ‘Making America Great Again’ will end up yielding more domestic jobs, while increasing the cost of workers’ entire lives – their houses, groceries, cars and loans. But that’s what the deplorable class voted for. It’s what they shall get.

Whither us?

First, it’s a great time to be an investor, not a saver. So make sure you are. Second, higher mortgage and loan rates are guaranteed over the next few years, so get used to that idea. As money costs rise, real estate will flatline or decline. Sadly most major markets are already in varying degrees of distress as the new mortgage rules take hold, so the impact could be substantial in many places.

Third, things are looking up in the land of rampant beavers. Our job creation is stronger. The economy grew at a boffo rate in the last quarter. Oil has almost doubled since the winter and may be headed for over sixty bucks. The Toronto stock market has added 17.12% in the past eleven months. And all this means there’s not a ghost of a chance interest rates here are going down. But houses are.

Back near the turn of the century, seventeen years ago, I wrote a book predicting the stock market (Dow) would double in numeric value by 2015, from 10,000 to 20,000. I was wrong – missed it by a year. I based my optimism on technological advance, demographics and the inevitable migration of money from real assets to financial ones. Of course, it was a lucky stab since nobody can predict what happens on Tuesday, let alone a decade and a half away. And if the 2008-9 market crumble had never happened, today people in Toronto would be living in $450,000 houses with a fraction of their current debt load.

The past eight years were not normal. Normal’s coming. To so many people, it will be rad.

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December 7th, 2016

Posted In: The Greater Fool

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