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January 24, 2017 | Unintended Consequences

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.

Four more paras on this Trump guy, and then let’s be done with him for the week. As you know, Toronto stocks romped ahead on Tuesday after POTUS signed an order approving (sort of) the Keystone pipeline – which will flow Canadian crude into the US heartland. The Obama guys had halted the project on environmental concerns. Trump changed that. Screw the environment. Bay Street roared ahead by a triple-digit amount and now sits on the cusp of an all-time record high (the last one was n 2014).

But this is Donald. There are conditions. He’s gotta win. So all the pipe (1,900 miles of it) must be American, plus there will be other unspecified improvements made to the proposal which will tilt the whole thing in American favour.

You can be sure this attitude – presidential bullying – will prevail when it comes to renegotiating NAFTA. The Trump team has so expertly unnerved the T2 gang that this week every Canadian minister huddled around a mere emissary from Washington (not a cabinet member), looking for policy crumbs. Free trade with the States will remain in place, no doubt, but it won’t be the deal we have now. Have you emailed you MP yet?

By the way, for all those deplorables who come here calling the current prez “an American hero” because he’s the guy standing up for jobs and the middle class after the last president destroyed everything, well, get educated or get lost. Over the Obama presidency six million net new jobs were created – about average for the last six presidencies. What’s unique is he took office in 2008 (from George Bush) in the middle of the worst economic crapstorm in a century, with unemployment peaking at 10.6%. Today it’s 4.7%. When Obama arrived the S&P 500 sat way down at 700. Today it’s tripled, at 2282. Because stocks are a proxy for the economy, you can reach your own conclusions.

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If you live within 100 miles of Toronto, aka the Centre of Civilization, you already know what CMHC revealed in a newsy report on Tuesday. Horny GTA refugees have swarmed over your once-sleepy and cheap towns, villages and baby cities and turned them into hipster-infested, Starbuckian housing plays. Quelle shame.

Sure, house prices have escalated for years thanks to cheap rates, higher populations and stirred loins, but lately it’s been extreme. In the past year, says the agency, average prices in the arc from Niagara Falls to Barrie to God-knows-where in the east have exceeded the average GTA increase by a whopping 30%. The average detached house in 905 is now one used Kia short of a million dollars. The pace of price appreciation, CMHC adds, has never approached today’s level.

This despite the fact commuting into Toronto from the frozen wilds of Georgina or some forsaken grape field south of the Welland Canal is a soul-sucking, life-threatening experience. And yet, people do it daily. All so they can possess the detached house which is now an impossible dream in 416, or even among the cookie-cutter boxes of Milton.

But what Toronto giveth, Toronto also can taketh away. There’s leverage between the Big Smoke and the hinterland which can cut both ways. Here’s how CMHC puts it:

“In particular, a 1% shock in the GTA leads to a 1.4% price change in Hamilton within one year. For example, if GTA house prices rise unexpectedly by 10% in a particular quarter, then Hamilton house prices could rise by 14% in response within one year. Conversely, an unexpected 10% contraction in GTA prices could lead Hamilton prices to decline by 14% within one year. After three years, the total impact of a one per cent house price shock in the GTA on Hamilton prices is 2.0%. Guelph, Brantford, Kitchener, Barrie, and Peterborough all have impacts in the range of 1.7 to 1.9% after three years, while St. Catharines has a slightly lower impact at 1.5%.”

Hmm. So a 10% price correction in Toronto would mean a 20% plop in the Hammer, an 18% drop in Guelph or a 15% reduction in Saint Catharines. Those are big numbers, made worse by the fact local economies in the boonies are thinner with fewer jobs and diminished opportunities. Losing up to a fifth of your equity is as unpleasant as seeing house prices inflate when the moisters and their bicycles arrived.

Something else to hang on the little insufferables.

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January 24th, 2017

Posted In: The Greater Fool

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