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August 13, 2019 | Extremists

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.

Have you noticed the middle’s missing these days?

In politics, libs and cons might as well be commies and Nazis. The globalists are battling the nationalists. Society’s divided between the 1% and the 99%. The Mills have declared war on the Boomers. The #MeToo movement turned men into the enemy of women. And when it comes to financial stuff, the extremism continues. Rates aren’t dropping – they’re going to zero or below. Stocks aren’t just correcting – the market will be destroyed. Toronto bungalows will be $5 million each before long. And money’s finished – to be replaced by cryptos or hunks of gold.

See what I mean? The missing middle. But thinking in extremes sure gets people into trouble.

For example, they mistake routine declines for the End of Days. It goads them into selling at the worst moment, crystallizing a loss when none was needed. It makes people buy stuff that’s already soared in value, whether it’s Bitcoin at $15,000 a pop or particleboard McMansions in 2017. Seeing the world in absolutes makes us sell low, buy high and be ruled by the emotions of fear and greed – of which fear is by far the strongest twin. This blog serves a daily dose. I beseech you, for the love of God,  never to read the comment section.

Well, here’s Jan, with a small example of what extreme thinking can do to you.

Recently caved and bought a house just closed at the end of July 5 yr fixed 30 year am at 2.8%. Wanted to borrow cheap money instead of going clear title, plus I wanted variable but listened to the broker.  My penalty to get out of this brand new mortgage is $2,100. My question to you is should I pay it off and go variable?

Her mortgage is two weeks old and locked up nicely for five years at less than 3% when the inflation rate is over 2%. How can that possibly be a bad deal, worth spending two grand to get out of?

Simple. Rates are going to zero, right, Jan? If people in Denmark can pay nothing for a bank loan, it’s surely coming here, too. Even though the Fed has cut just once after nine increases and our central bankers have done nothing, the money-for-free trope is out there. So Jan wants to go variable. Questionable idea. Rates may not have bottomed quite yet, but they’re not staying in the ditch. In three years she may feel like a genius.

And then there’s Rick. “You’re a moron, Garth,” he generously says. “I just backed the truck up and put everything I’ve got into gold. Your stocks and bonds are dog crap in comparison, and they’re going down for a long, long time.”

True enough, rocks have outpaced equities in the last few months. Recently bullion in reduced Canadian dollars hit a high, even though it sits $400-per-ouce under levels of nine years ago when measured in US$. With interest rates falling and Trump at the controls, gold’s been a temporary safe haven asset. But Rick’s thinking in extremes. Too bad. Always a mistake.

Why?

First, gold is a temporary play. The decade-long track record is one of volatility. Up a mere 2.5% annually over the past five years. The only people doing well are the ones who bought at depressed levels and lock in sales. That’s a tiny fraction of those who own gold (or silver). The typical metalhead buys and never sells – a bad strategy for an asset that pays you nothing, yet can come with real costs.

Second, this surge will end. It’s a time to sell bullion, not buy it. Hedge funds are stuffed with bullion so when prices start to drop this speculation will fuel the descent. Then there’s Trump. Going into re-election, the guy is unlikely to let the China trade war fester, negatively affecting the US economy. As that risk dissipates, so will the price of bullion – just as the Fed throttles back. Hey, look at Tuesday’s action – Trump relented a little on new anti-Sino tariffs and gold choked $30 an ounce.

If you want some bullion exposure, buy an ETF holding the biggest companies trading on the Canadian stock market. That’s enough. And if you own a mess of rocks, unload. That was the advice here in 2011. It was brilliant.

The message is simple. Extremism is costly, almost always emotional in nature and the refuge of people who think Instagram is meaningful. There has probably not been a better time to be alive. No world wars. No pandemics killing millions. No depression. No hyperinflation. No 20% mortgage rates. And Adele still isn’t touring.

Enjoy.

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August 13th, 2019

Posted In: The Greater Fool

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