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October 21, 2018 | The Manipulators

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.

On Wednesday the central bank will raise its key rate. The third time in ten months. Three more to come by late Spring or early summer. Tomorrow (Monday) mortgage brokers expect to see one or more major banks jump the gun and add a quarter point or so to their five-year home loan rates.

Mr. Market says a Bank of Canada trigger-pull is 100% certain. So, if is doesn’t happen, the dollar will crush. But, fear not. It’s a done deal, despite soft inflation stats out last week.

Here’s the latest scorecard of Overnight Index Swaps, indicating universal confidence about what happens Wednesday morning at 10 am ET.


An hour later Governor Poloz and his minions will hold a media conference and give a little taste of what lies ahead. According to Scotiabnk’s Derek Holt, it will be hawkish. While The Ploz will not actually tell you the date of the next increase, he will say stuff like, “higher interest rates will be warranted to achieve the inflation target”, and refer to the bullish sentiment CEOs expressed in the bank’s latest Business Outlook Survey. Also expect happy words about the USMCA, the son of NAFTA, since trade worries kept rates lower than in the States.

The quarter point will cause the Big Six to raise prime to 3.95%, instantly increasing the cost of all lines of credit and HELOCs. The B-20 stress test rate, currently at 5.34%, will shortly thereafter jump to about the 6% mark, marking an almost 300% increase in the qualifying rate for a mortgage over just 18 months. Wow.

But it’s working, of course. Transactions in most markets have withered. The autumn selling season turned non-existent. At least eight in ten realtors in major markets have had two, one or zero deals this year. Credit is being restricted and a fifth of buyers can’t act as a result. Meanwhile the stress test is trapping renewers. In order to move to another lender for a lower rate they must pass the stress test. According to veteran broker Rob McLister, about one in ten cannot.

Meanwhile the bond market has hung onto most of that yield gorge. The GoC 5-year debt, which is a benchmark indicator of fixed mortgage rates, still sits near the 2.5% mark, which is 25% more than it was in July. Interest rates – long-term (bonds) and short-term (central bank rate) – are moving up and expected to stay elevated. Like, forever. Or until a recession hits after Trump is defeated in 2020 and The Troubles begin. But we’ll deal with that in a subsequent post…


Now, we have a bigger problem. Politics. Tomorrow the GTA elects a new mayor. This weekend Vancouver did the same. And he’s a doozy.

Kennedy Stewart squeaked in as the boss of YVR, coming up through a crowded field in an election that was all about one thing. You know what it is. He’s a former university prof, Dipper MP, buddies with Comrade Premier Hogan, and continues the serious tilt left in BC politics. The big planks of his housing platform are (a) triple the tax on people with second houses (called Vancouver’s ‘empty home tax’), (b) double the density in all those leafy Van hoods where people paid a premium to have single-family homes, (c) build a whack of ‘affordable’ housing units with financing yet to be determined and (d) establish the office of a rent czar to stand up to the ‘rentier class’ (landlords) that lefty Mills so hate.

So, yes, it’s an anti-wealth agenda. More political intervention into the marketplace. Instead of allowing tighter mortgage regs, buyer fatigue, rising interest rates, unsustainable pricing and fatal levels of family debt to correct the market, this guy will join Horgan in trying to crush it. Combined with the new BC speculation tax, which is another assault on the wealthy using real estate as the weapon, the future seems entrenched. Buy in this market at your peril.

And in Toronto, it’s boring but stable John Tory against another interventionist, Jennifer Keesmaat. She’s a former city planner trying to ride a wave of renter support by promising to build 100,000 affordable units over the next decade – which is 100 times more than Tory has done annually over the last four. Unrealistic does not begin to describe it. Keesmaat would finance all this with a special uber-tax on high-end homeowners, Hoovering $80 million a year from about 3,000 families. Yes, that’s a new $26,000 annual tax, on top of property tax and income tax.

The latest poll has Tory at 62% support and Keesmaat at 27% – but that comes from the Toronto Sun, so be careful.

In any case, the animal spirits have been cut loose. The same people whose speculation and house lust created a debt-fueled gasbag of excess now want socialists to fix it. We’re a strange bunch.

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October 21st, 2018

Posted In: The Greater Fool

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