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February 4, 2020 | Going Viral

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.

You may be SOL on buying a N95 face mask in Vancouver, and the Toronto subway’s packed with wearers, but the markets think this virus thing is old. After an uncertain, risk-off plop last week, the bulls are back.

Oil’s rebounded. Copper, too. Bond yields have jumped higher and prices fallen. Gold gave up another twenty bucks an ounce on Tuesday. Even Chinese markets were crawling with bargain-hunters – and there were lots of them to be had. North American equities have resumed their steady upward trajectory, led by the legendary, weird, iconoclastic Elon Musk and his red Tesla.

The S&P 500 is on a tear. European stocks have jumped. The world seems to think hard-asses in Beijing did the right thing by quarantining 50 million people and taking extreme measures to halt the spread of the coronavirus, despite the economic damage. So, it’s done. Now investors are focused on the stuff that makes them money – a US manufacturing rebound, lower trade tensions, and the re-election of the orange guy.

The S&P 500 is sitting on a 12-month gain of 23% while Bay Street is ahead 16% for the last 12 months and above 3% just for 2020. Both markets are closing in on new record highs. Balanced, diversified, predictable, boring, comatose, wake-me-when-retired portfolios were ahead about 15% in 2019, and that continues. Once again people who sold on market panic were spanked. They forgot our cardinal rule: it’s all noise.

The reason? Corporate earnings continue to be robust. Central bankers have investors’ backs. Inflation is contained. Trade tensions are fading. Brexit is over, sort of. US unemployment is at a 50-year low and consumer confidence is high. And did I mention the orange guy will be re-elected?

Trump’s approval rate just hit its highest level – even as his abuse of power allegations were proven in Congress – and meanwhile the Democrats apparently couldn’t organize a two-car funeral in Iowa. As the Dems drift left, with the irascible Sanders spouting socialism atop the shoulders of his clueless Millennial army, the more the current president looks normal. Now, who ever thought that would happen?

Lessons from the virus?

Mr. Market is a lot less emotional than you. Stocks have been going up because of corporate profits, GDP growth, the restoration of free trade and – yes, kids – globalism. China acted responsibly, quickly and in doing so earned new respect. I think it’s time we gave Meng back, don’t you?

 

One of the big banks, the green one, dropped its posted 5-year mortgage rate this week. The decline is about a third of a point, and it comes (a) after the bank regulator hinted the stress test rate should no longer be attached to posted rates because they’re too high and (b) just as listings are pushing their way through the snow and the spring rutting season begins.

No, nobody borrows money at the bank posted rate (now 4.99% at TD), but not only does this set the stress test, it ripples through to other lending costs. For example, a five-year mortgage at the green bank is now available for about 2.8% if you’re nice and tell [email protected] she has kind eyes. Given inflation is 2.2% (at least), this is the kind of loan you should be in no hurry to pay off.

As for the stress test, if another bank or two follows the TD’s lead, the hurdle borrowers must clear could drop to a little under 5% for the first time in a couple of years. (It’s currently 5.19%.) This would mean less income required to qualify for a loan, and an increase in the amount someone can borrow. Yes, just what we need – more people heading into the busiest buying season of the year with more money when there’s a listings shortage.

A stress test rate chop also means bigger refis – the amount of money available to people looking to borrow when they renew so they can have a remodeled bathroom. Additionally, a drop in the posted rate means it costs less to get out of an existing mortgage, clearing the way to move into a bigger house!

Well, there you go. FOMO money.

Now just imagine if Chateau Bill follows the orders contained in the prime minister’s mandate letter and makes the stress test “more dynamic’ by relaxing its requirements through the coming budget. This comes after the Libs boosted the money available through the RRSP Home Buyer’s Plan by 40%, plus enhanced the equity-shared mortgage by inflating the ceiling to $800,000.

Government ain’t helping. Quelle surprise.

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February 4th, 2020

Posted In: The Greater Fool

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