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July 6, 2018 | Great Again

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.

Any doubt rates will pop on Wednesday has been eliminated. Prepare. Uppa she goes.

The prime will be a quarter point higher on the 11th, and augment more in the autumn. Three more next year. The stress test will be plus- 6% in 12 months. I mean it. Get ready.

The latest data is clear. Over 75,000 new bodies flooded into the labour force in Canada last month, attracted by rising wages and more openings. Half of them found work within a few weeks. Economists expected 20,000 hirings. Instead there were about 32,000. Lots were part-time, but a job is a job. Said CIBC: “A higher unemployment rate coinciding with a strong jobs gain in June is the best of possible worlds for Canada, with more of us working, but perhaps a bit more room for that to continue without triggering an inflation spike.”

The big news is wages. In June they went up 3.6% year/year – one of the highest readings in almost a decade. Thanks higher minimums for part of that. There were even 11,000 manufacturing jobs created. The first time that’s happened this year – despite trade wars and you-know-who.

So, more workers, more jobs and more money being made, along with higher tariffs and input costs = more inflationary pressures. And that = higher rates. As documented here yesterday, the normalization continues. And, no, it will not trigger a serious recession, depression, or crash. Higher growth and incomes allows an economy to better digest debt. Yes, family finances are a mess and, yup, tens of thousands of households will suffer as rates move up and housing moves down. But it won’t kill the country. Or the banks.

What to do?

Pay down your LOC with regular monthly payments which exceed interest charges. Four in ten people aren’t doing this. They will seriously regret it. If you’re borrowing for a house, a VRM is still the best bet, given the premium for a fixed-rate. But if your lender offers a spread of less than about three-quarters of a point, seriously consider locking in to a fiver. We’ll be there in less than a year.

If you’ve been thinking of selling your property, do it. Rates are not retreating. They’re the single greatest determinate of real estate valuation. The falling cost of money was at the root of the historic romp in prices and the debt orgy which accompanied it. Now we’re on the other side of the mountain. Wait if you want, but you’ll get less later. Especially in poor BC.

And understand that as nutty and flawed as he may be, Donald Trump personifies one thing above all: inflation.

He’ll do anything necessary to promote growth, expansion and more GDP. It’s at the heart of the massive corporate tax cuts, the gutting of the EPA (what a circus yesterday), the America-first trade war, the Mexican wall, the military spending binge – it’s all designed to maximize economic activity, at the heart of ‘making America great again.’ The Fed knows this, which is why it will be even more aggressive in increasing rates and withdrawing stimulus, in an attempt to keep the inflationary fires under control.

Then there’s oil to vex over. Nothing stokes inflation more than this stuff. It’s the bloodflow of the global economy, and there are concerns we could be on the way to an astonishing $150 per barrel. The reason is a dearth of exploring, drilling and investment by the oil guys in the years since the price of crude collapsed as supply overwhelmed demand. These days global demand has hit a new all-time record, and will not retrace. It’s estimated a billion people will be moving to cities, buying cars and sucking more energy over the next couple of decades. Proven reserves have fallen by a third in the last 18 years. Could we once again start talking about ‘peak oil’? I think so.

Combine oil and commodity prices with President MAGA and the next decade will be nothing like the last one. It’ll feel a lot more like the Eighties. Google it, kids. And the music was way better.

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July 6th, 2018

Posted In: The Greater Fool

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