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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

December 7, 2018 | Spin, Spin, Spin

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’s been a vexing year for investors. People trying to time the market have been spun out. Look at Friday. After plunging, oil surged. One Trump advisor said a China deal was likely. Another said big tariffs would happen. Job numbers were great in Canada but so-so in the States. Days ago the Bank of Canada started retreating on rates. Now the opposite.

Meanwhile bond yields are splattered all over the sidewalk. Benchmark US 10-year Treasuries have fizzled while Government of Canada five-year bond yields have crashed almost half a point. In the bond world, that’s like having a Newfie (the dog kind) sit on your face. You feel it. Look:

 

So here’s an odd thing. The lowest jobless rate in 40 years may convince the central bank to raise its benchmark rate again next month. After all, the economic fundamentals still spell ‘inflation’. But at the same time, fixed-rate mortgages may fall along with long-term bond yields. The chartered banks should already have made a cut, based on the debt market, but haven’t since that costs them money and the mortgage business has croaked lately.

This is an example of what’s called an ‘inverted yield.’  That’s when short-term rates (controlled mostly by the Bank of Canada) get higher than long-term ones (bond yields). The next BoC hike will push its benchmark level to 2%, for example, while (as I write this) the five-year bond is down to 2.02%. This usually means Mr. Market expects things to be slower (and cheaper) in the future than they are now. But, of course, this could all change on Monday.

So the best defence is to set your investment clock for the day you’ll need the money, and forget it. Go balanced (60/40 works well over time) and diversified (use ETFs, not individual stocks and hold bonds, REITs, equities, preferreds etc). Shun high-cost mutual funds, be tax-efficient about where you put assets (RRSP, non-registered account or TFSA). And, for God’s sake, stop reading the comments section of this pathetic blog. It’s toxic. For some unfathomable reason this site attracts moaners and wailers who confuse gambling with investing and have a cow when markets fall five per cent after rising thirty.

In fact, on that note, the number of hateful posts lately in the steerage section (all of them trashed by my bevy of incredibly attractive, unpaid co-op students) has hit the red zone. Keep it up and I’ll send all your IP addresses to my Russian and Nigerian pals. Or Tony Clement.

Now back to this yield stuff.

Two months ago the benchmark Canadian bond yield hit the highest level in almost eight years. Central banks started sounding a lot more like hawks, and we told you they planned four or five rate hikes by the middle of 2019. Two of those have occurred in the States, one in Canada with another set for a few weeks from now. But by then it appears likely five-year mortgage costs will have declined by about a quarter point.

What to do if you’re borrowing?

The safest route is to sign up for a fiver, still available in the 3% range. Sure, a variable-rate mortgage will come with slightly lower monthly payments, but there’s a gamble involved. If the economy grows, Trump and Xi become BFFs, corporate profits are solid and Britain survives Brexit, then central banks will be quick to resume monetary tightening. And withdrawing stimulus is never fun. Up she goes.

Now, given all the crap I wade through daily on this site on your behalf, you’ll sit quietly and endure the following sycophantic praise. It has nothing to do with your portfolio, your property or your mortgage. But it makes me feel better. I may even come back here on Sunday as a result.

First off, the fawning: I’ve been a daily reader for roughly three years now.  I find your blog educational, your writing witty, and the price to be reasonably fair.  At the absolute very least, you’ve helped an unknown number of populace think about real estate differently, you’ve informed your serfdom on regulatory change, you’ve kept the masses updated on political agenda, and you’ve pounded into our brains the importance of balance and diversification.  All you’re missing, is more regular updates on Bandit.  I have often sung your praise, and pointed those who thirst for an investment education, in the direction of Greaterfool.ca.  Like I said, the price is right and the advice is on point.  Recently, I turned my closest friend on to your blog. A highfalutin Cowtown Chiro who was looking for his investment portfolio to reach its Full Potential.  You have also become required reading for newbies onto my team.  Many thanks for your continued teachings, and the dialogue it creates on our trade floor!

You and I share similar views on transparency of real estate statistics, xenophobes, taxes placed on the wealthy & small business owners, and the superiority of dogs over cats.  Where we differ, is the thickness of our skin.  A tip of the hat to you, Sir.  It’s not often that I read the comments section, as I can find more insightful conversation on financial markets in the back of Lloyd and Harry’s Mutt Cutts wagon, than from some of the troglodytes who lurk in the depths of internet anonymity. In return for sound and reasonable advice, free of charge, you receive barbs, scoffs and jeers, from some of the internet’s most sanctimonious keyboard warriors.   You are fair, you believe in free speech, and you take the time each and every day, to provide quality information.  You do this in the face of relentless criticism and disparagement.  Bravo to both you and your genitals, that are clearly forged of tempered steel.

In the spirit of U.S. Thanksgiving, I want to say thank you for your efforts.  Thank you for your continued discourse on personal investment strategy, inheritance, and dampening of one’s personal tax burden.  I’m well aware that the number of good people, who are grateful for your guidance, far outweighs the number of argumentative cave dwellers, who are the self-proclaimed second coming of Steven Cohen.  I fear the day your site goes dark.  Too many souls will be without counsel, left to tread the financial waters on their lonesome.  Until then, I just need you to know there are many fans out there.  Even if we’re often silent, please know of our appreciation.

Thank you, Damon.

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December 7th, 2018

Posted In: The Greater Fool

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