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April 4, 2019 | Uppa, Uppa

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.

Remember that angst about the inverted yield curve? Suddenly everyone was an expert on the bond market which, like The View, or manbuns, defies human comprehension. What did it mean?

Apparently not what the rabble thought. Short-term rates have tipped above bond yields lots of times. It doesn’t always predict a recession a year later. Like now. Forget it. Not happening.

While the bottomy curve got lots of media attention, the fact it righted itself hasn’t. That’s not news. It’s normal. So the yield on Government of Canada bonds has popped back up along with US Treasuries, signalling sustained strength in the US and global economies (Canada is another story).

Just look at the latest news. The American stock market is within piddling distance of its all-time, heroic record high hit last year. All of that 20% decline last autumn which had posters here committing financial hari-kari is gone. Poof. Markets have rewarded investors with gains of 12-15% over the last 100 days, making fools of those who sold into a storm and went to cash. (How many times do I have to type the same words…)

There’s a US-China trade deal on the table. That Trump would do this was never in doubt. He needs a deal badly to keep markets and his re-election chances aloft. For the same reason he won’t shut the Mexican border – at least for more than a day or two. The economic implications would be extreme. Not going there.

And look at the latest jobs-related stats. The number of people filing for unemployment benefits has dropped to the lowest point since 1969 – when my perfect body was clad in a tie-dyed T, bell-bottoms and rocker boots. This blew economists away. It shows labour conditions are tightening. Employers don’t want to shed workers since replacements are scarce. Six million jobs now go begging, in fact. And this is a recipe for higher wages, which breeds inflation and suggests the Fed may not be finished hiking after all.


So, up she goes. The yields. No more inversion. That recession talk, as a result, is pushed to the back burner.

So what happens now to mortgage rates and housing market? Recall that a week or two ago we were yakking about imminent cuts as the bond market signalled even lower yields were ahead. Well, the factors above (higher equities, trade deals, lotsa jobs, the promise of good corporate earnings) have moved the needle. There may not be an all-out mortgage rate war this spring after all.

However, that doesn’t rule out juicy deals already in the marketplace from some of the aggressive players. Meridian CU in Ontario still has a 1.98% two-year loan on the table. An new online thingy called ‘motusbank’ hit the ground this week with cheapo loans. Cutthroat HSBC has unveiled a fiver at 2.75% for insured borrowers and 3.09% for refis. And TD Bank is the only one of the Big Guys chopping this week, reducing its five-year to 3.29% – about a third of a point less than the others.

Historically, these are all great rates. Remember that inflation has been running at 1.5%, and with the new carbon tax you can count on that ticking a lot higher. So borrowing at sub-3% is a bargain. Why would you cash in investments for a down payment when crazy bankers will lend you buckets of money at a cost barely greater than inflation itself?

But here’s the point: probably won’t last.

The China-US deal alone will push bond yields up. If American job creation remains solid, expect a similar result. And it’s Year Three of the presidential cycle, traditionally a good period for equity investors. This time, with Trump, it’s accelerated, since he’s consistently equated a record stock market with his transcendent divinity and enlightened omnipotence.

So, want cheap money?

Don’t dawdle.

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April 4th, 2019

Posted In: The Greater Fool

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