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November 4, 2018 | Trumpageddon

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.

Will the markets flop or soar on Wednesday?

Few midterm elections over the past cycles have been as watched as the one taking place Tuesday. You know why. The most unpredictable, iconoclastic US president ever has polarized society, ignited the economy, made deplorable prejudices mainstream, started a one-man trade war and bullied his way through two years of leadership. This is his referendum.

Even though the elections are for 435 members of Congress, 35 senators and 36 state governors, it’s all about Trump. He’s slashed corporate taxes, goosed company profits and dropped the jobless rate to a half-century low, leading to wage gains. His protectionism has rekindled manufacturing, but increased costs and encouraged the Fed to raise rates nine times. Trump’s growth-at-all-costs approach shot the stock market to record highs, but then his pissing match with China, galloping budget deficit and swelling interest rates brought a wave of selling.

As Trump now tries to divert attention to an ‘invasion’ of ragtag migrants hundreds of miles from the border, markets are focused on the election results. As I write this, 53% of Americans disapprove while 42% support him. But it’s only vote totals that count, making the outcome unpredictable. Sort of.

Here are the latest odds from Nate Silver’s web site, fivethirtyeight.com. If he’s correct, Democrats will regain control of the House from Republicans, while the Trump forces retain their dominance in the Senate.

 

 

What do the markets want? They’d prefer a Republican sweep of both chambers. That would ensure the Trumpian gas-the-economy agenda continues, perhaps with a middle-class tax chop, more cuts to costly regulations (especially environmental ones), big defence and homeland security spending and an America-first trade pact with the rest of the world.

The likelier outcome – a split House and Senate – would temper Trump’s power and influence, but still leave him relatively powerful. In that case, post-election market action may be a yawner, letting investors concentrate on corporate earnings, the Fed (no rate hike on Thursday, but one is coming mid-December) and economic indicators.

Meanwhile, have you been watching Warren Buffett? The world’s foremost stock picker shoveled money out the door in the last few weeks, buying up a storm ($13 billion) as the share prices of companies like Apple and Bank of America declined. He even spent almost a billion buying back stock in his own outfit, Berkshire Hathaway, as its value fell from $335,000 a share down to $296,000 – a 12% swoon – and folks fretted about Trump.

There’s a lesson here. But most people missed it. Ah well, maybe next October…

            

How miserable was last month for Toronto real estate? Numbers will be published very soon. Expect lower sales, rising inventory and sticky prices. Areas like York Region are still down 30% from their highs of last Spring, and things will eventually get much worse. 416 is hanging on to its leaves, so buyers should wait. The resale condo market, though, is heading into a funk, even as new developments are being flogged for $1,000 and even $1,500 per foot. Apparently we’re not out of greater fools just yet.

Other markets may provide a clue as to where the GTA is headed.

In Calgary, for example, sales of detached houses have hit the lowest level in two decades – down another 9% or so last month, at a mere 869 units. The benchmark price has plopped for the fifth consecutive month, off 3% year/year, and now sitting at $426,000. Unemployment in the city tops 8% and oil prices have dropped again. The differential between world prices and WCS – the stuff we dig up and sell – is unprecedented, and in part attributed to the fact we don’t have enough pipelines to ship through.

Maybe the feds should buy us one. Oh, wait…

In Vancouver deals have dropped to a six-year low. Last month it all went over a cliff. Home sales in total were down 35% year/year and ended up 23% lower than in September. As more and more families look to bail, inventory has hit a four-year high. While 1,966 properties sold in October, there are almost 13,000 more listed for sale – a 42% pop from last autumn. Nine in ten detached homes failed to sell, while only two in 10 available condos changed hands. Sucks to be a seller in YVR.

Victoria? Forget it. October was the 11th month in a row during which sales declined. Both detached houses and condos were hit equally. There is more to come. The combination of rising mortgage rates, the stress test and BC’s nutso ‘speculation’ tax on secondary/vacation/retirement properties is expected to seriously depress average prices.

All real estate is local. Every market differs. London is hot. Winnipeg’s in misery. Halifax has a little boom going. Edmonton just saw a one-month 4% price crash. But across the entire country we know the cost of money is rising, credit’s restricted and debt servicing loads are a burden. It’s the new normal.

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November 4th, 2018

Posted In: The Greater Fool

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