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December 20, 2016 | The One-Eighty

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.


It the last twelve months the average house in Toronto gained 20.3% in value. In Vancouver, where prices are now declining, the year/year advance was 20.3%. Meanwhile the Toronto stock market, in the same time, has swelled 21.01%.

This is more telling when you consider that since its low in February, Bay Street has surged 28%. In that same period of time the average Vancouver house has lost $200,000, or roughly 11% of its value.

Coincidence? Nah.

The environment between the last snow and this one has changed dramatically – in just ten months. February’s investors were in a serous funk, looking down the pipe, seeing a gruesome year developing. China was plopping. ISIS was killing. Commodities were plunging. Markets losing. Billions piling into bonds that were paying nothing. Or less than nothing. Just to be safe.

Oh yeah, and Vancouver houses were flying off the shelf, as they were in Toronto. The flight was on into real assets – bricks and mortar and even gold (now down $250 an ounce in the last five months). Doom, gloom and pessimism had most financial investors questioning their portfolios, while the smart ones were out selling bonds, buying equities and loading up on preferreds.

For most of the past eight years that this pathetic blog has unfortunately been alive, the world ‘s been in a no-growth, quasi-deflationary, low-rate, low-yield, low inflation, crappy mode. First we had the credit crisis, which scared the bejesus out of everyone. Then commodities crashed, spanking Alberta. Interest rates cratered as bankers tried to shock the economy back to life. And volatility swept over us, spiking with the 2011 realization the US might be, gasp, running out of money. (It wasn’t.)

The expectations now have done a one-eighty. Markets expect governments to spend money building stuff, instead of buying bonds. Higher interest rates are being embraced as harbingers of robust economic growth. Lower taxes and fewer regs have corporations looking to boost revenues and profits. Stock markets are lifting in anticipation. And the lessening of competition that anti-globalization will bring (the next big event will be in France) means even more inflation.

The US economy has shifted into third gear. Unemployment’s at a nine-year low. Fifteen million jobs created in six years. Wages are rising. And a tighter-than-expected labour market could actually bring higher rates, faster, if a wage-price spiral starts to develop. Emperor Trump is expected to deliver more inflation, more deficits, more jobs, more stimulus, more pro-business conditions that should propel the Dow well past the 20,000 mark

Meanwhile preferreds, slagged here relentlessly when on sale and unloved, have surged 27% in price, while still delivering a fat dividend yield to investors. Real-return bonds, which rise with inflation (also dumped on by the macroeconomists in the steerage section) have broken ranks with other bonds and plumped nicely. Balanced portfolios are up double-digits after a year in which investors stared longingly at 1% brain-dead GICs or those ‘high-interest’ accounts offered by online Hungarian-Canadian Veterans’ Benevolent Agrarian Credit Unions in Manitoba.

So, in the bleak weeks, a balanced and diversified portfolio reduced volatility and preserved capital while markets suicided. During shocks like Brexit, rising bonds helped temper falling stocks. In the good times, the same assets in the same weightings have delivered a solid performance. In other words, if you build this thing correctly, ignore it completely, and stop reading useless blogs, you’ll be fine.

As for your house, well, not so much. Real estate feeds on cheap money, the flight of capital from financial assets and dumb Canadians thinking mortgages are “good debt.”

All three, so done.

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December 20th, 2016

Posted In: The Greater Fool

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