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July 20, 2020 | Not There Yet

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.

The Royal Bank of Scotland has told its 50,000 employees not to bother coming back to work. Until sometime in 2021.

Hmm, so it’s Scotland, not Canada. But this is definitely a trend. Not just working remotely, but the conclusion of major corporations that the virus will rage for a long time. A long, long time. Despite the news weekly about vaccine trials or Covid treatments.

It’s now been over 100 days since we got whacked. Six months have passed since the bug started earning serious headlines out of China, where authorities actually welded apartment doors shut to contain it. (Just try that in Texas.) Globally there have been almost 15 million cases and 600,000 deaths. The States has seen four million infections and almost 145,000 fatalities. Public health officials forecast 200,000 by the autumn, and it seems about right. By the time the November presidential election comes around, it will be one hell of a body count.

But this is not a virus blog (I wish). Instead we’re interested in what the little bugger is doing to the economy, finances and investments. So the RBS decision, bolstered by those of airline officials (these companies are essentially being dismantled) delivers this verdict: we’ll be in a virus-dominated world until the winter. Or maybe the spring. The pandemic, in other words, will be about a year in length. (The Spanish Flu pandemic, which sprang out of WW1, raged from 1918 until the early 1920s. Today we have a vaccine against this, which we call the H1N1. But people still get it.)

Can we last a year? Are markets pricing that in?

First, government money – the CERB, wage subsidies, enhanced child pogey, student cash, OAS bonus etc. – has pumped about $80 billion into personal bank accounts over the last four months. Historic. Meanwhile a million households haven’t been making mortgage payments. An unknown number of renters are living for free since evictions have been halted and landlord/tenant boards are shut. Millions are working from home with no commuting costs, no daycare to pay, no eyeliner or drycleaning.

The result has been an improvement in personal finances because of the virus, believe it or not. That’s what the latest MNP poll found. When Covid hit these guys told us that 49% of Canadians feared imminent bankruptcy, which caused journalistic apoplexy and a real estate plop. Today’s it’s a different story. Respondents say(mirabile dictu) they can now pay their bills! Four in ten state they have no debt regrets and a quarter believe they’re better off than a year ago. The number who report they are $200 or less each month from insolvency has dropped to 43% (in Canada, that’s a win).

The question is, what happens when the CERB ends, mortgages have to be serviced and tenants start being tossed for non-payment? And there is no answer. We don’t know. But it’s probably not good.

As for markets and financial assets in general, investors were punished in 2020 then largely restored. There’s no mystery as to some of the reasons why. Pandemics are temporary, of course, so no reason for investors to turtle for long. Beyond that, massive government fiscal stimulus and central bank monetary stimulus have filled in the economic crater that Covid caused. Now CBs say rates will stay low until 2023, which pretty much guarantees price inflation.

And don’t underplay the impact of speculation. As reported here, trades in Tesla alone hit 10,000 per hour recently on just one platform – Robinhood. That’s helped the stock climb more than 200% to obese levels. Apparently Millennials and first-time investors have fallen in love with equities.

Google searches for ‘how to invest in the stock market’ rose 83% as the virus hit and markets swooned. The year/year gain, says Investing.com, is 328% while searches for ‘stocks to buy’ have jumped over 400%. This is not investing, of course. It’s speculating. But this onslaught of money – much of it coming directly from government benefits and deferred mortgage payments – has been partially responsible for 40%+ market gains since the end of March.

As for real estate, you know the story. The virus crushed listings and squished demand. Reopening has spiked the number of buyers who are competing for limited listings and financed with 2% mortgages. So sales and prices have jumped. FOMO has returned. Multiple bids are happening in major centres (but not Alberta) across the nation.

None of this is normal. Understand that. In a way we’re living in a delusional time, walking through cities emptied of commerce and profits, amid the detritus of failed businesses with Depression-era joblessness, yet people have money and confidence. They’re buying houses, taking on new debt, speculating and looking for all the world like grasshoppers.

You may know how that ends.

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July 20th, 2020

Posted In: The Greater Fool

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