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March 1, 2019 | Fatal Friday

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.

Things got worse (hard to believe) for the feds on Friday, just as Mr.Socks was trying to change the channel with a cabinet shufflette.

First, lousy growth stats. Like, really lousy. The economy stalled out completely at the end of last year, growing at an annualized rate of 0.4%, a plunge of two-thirds from the previous quarter. Oil tanked. So did consumer spending. Housing slumped. Businesses turtled. And, of course, the stock market laid an egg. Almost the start of a recession, said some Bay Street economists.

This unexpected news begs a question: are higher interest rates starting to weigh on a nation of debt addicts? Consumer spending slowed dramatically and we already know real estate sales in most markets have tanked. Families are actually borrowing more lately with a big jump in HELOCs. It suggests financial distress, as people tap into home equity to service debt – especially since wages are trailing inflation. Yikes.

Second, a couple of banks missed their earnings estimates. In fact at least one slipped year/year. And while the bankers raised dividends to investors, their CEOs talked about ‘the challenging environment’ that’s developed. The stock market plop in late ’18 was part of it, but so is a huge drop in mortgage originations and an increase in loan loss provisions. Our banks are harbingers of the entire economy, and we haven’t heard this stuff in a long while.

Third, Huawei. Our government has acquiesced to the Trump agenda. Canada has officially ordered the start of extradition hearings against H exec (and daughter of the founder) Meng Wanzhou, who owns real estate in Vancouver and was nabbed at the airport there.

Remember John McCallum? My former political buddy was appointed Canada’s ambassador to China until T2 sacked him a few weeks ago. His crime? Musing that Meng’s arrest and persecution by the US Justice Department was politically motivated since the US president is in a trade war with China. Of course, John was right. And Mr. Trudeau punted him for taking an ethical position. Sound familiar?

There’s more. China’s pissed.

It demanded that Canada release Meng, who’s been under arrest since December, and it detained two Canadians in retaliation. Beijing asked Trudeau directly to intervene. He refused. So begins an extradition process which will almost certainly see Meng shipped south for a trial on charges that are broad and dubious. In fact Trump himself has suggested she might have been snatched as a pawn in his manufactured battle with the planet’s second biggest economy. There is now some evidence China will punish us. Great.

Also on Friday came details for the media of the budget lockup set for March 19th. Make no mistake – with so many negatives raining down about him, this will be Justin Trudeau’s big chance to divert attention. At the heart of it could be the Moister Homebuyer Strategy designed to target the key Liberal demographic. Key elements expected are a return to state-insured 30-year mortgages, a lift on the $1 million price cap for insured properties, an enhanced tax credit to help cover closing costs and maybe some diddling with the stress test.

As detailed here with mind-numbing repetition, political moves like this make houses less affordable, not cheaper. They increase buying power which gooses demand, which pops prices – just when Mr. Market is hammering them down. Years of attempts to soft-land the real estate gasbag could be dashed in a few months by a federal government desperate to save its own caboose.

Interestingly, an RBC report this week throws cold water on the moister meme that properties are out of the reach of an entire generation. The bank found over 40% of all homes are owned by people sub-35, a higher proportion than in most countries, including the US (where it’s 34%). The problem isn’t that first-time buyers are credit-starved, says the bank, but that there’s not enough housing supply. So giving them incentives will simply fuel competition for existing real estate – leading to, yes, higher prices.

Well, Ottawa will do it anyway. The budget is about votes, not governance. Especially now.

And to think how humbled I felt the day I set foot in the House of Commons… What a rube.

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March 1st, 2019

Posted In: The Greater Fool

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