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December 13, 2020 | Enough Already

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.

She made $5,000 last year baking cakes in her home. Covid hit. The wedding biz plopped. She applied for CERB to supplement household income (hubby kept his job).

The cheques rolled in. After collecting $18,500 in dole a letter from the CRA arrived questioning her eligibility for assistance. Pay the money back, it said. By December 31.

Crisis. She’d spent the cash. Saved nothing. The night after the letter arrived she spent in tears. Then she went to the media, to make the government look spiteful and cruel.

Welcome to Canada, 2020. Four in ten families pay no net tax. The federal deficit is $383 billion. When the current government is done, the debt will have doubled. The bulk of what future generations will owe was the work of one man, and his son.

On Friday StatsCan had some shocking things to say.

Household net worth since the virus hit has increased a cumulative $600 billion. As mentioned here before, the saving rate exploded higher with the pandemic. CIBC says $170 billion in cash now sits in bank accounts, private and corporate. Real estate sales and prices have romped higher. In the GTA the average property was worth $910,290 in February, when life was normal. In November, after nine months of unemployment, lockdown, death and quarantine, that property was worth $955,615.

Per capita, household net worth is $320,441, much of it real estate, which is $12,000 more than a year earlier. Across Canada, housing jumped in value by $440 billion in a single year, and most of that was represented by new mortgage debt. Home loan rates plunged by half, down to the 1.5% range. That meant even more debt resulted in lower carrying costs, so the rate of debt to assets fell to a 15-year low.

Cheap rates and $250 billion in direct payments to individuals, plus $180 billion in mortgage and credit card payment deferrals – along with sharply reduced family costs as WFH wiped away commuting and child care charges – have been profound. The wealth gap has widened. Houses have become sharply less affordable. Low-wage people have seen their employment wiped away. Small businesses have been obliterated. Folks with assets – like real estate holdings or portfolios of financial assets – have benefited disproportionately. Stock markets are finishing the worst year in a century for global recession and a public health crisis at record levels.

What is 2020 laying the foundation for?

First, more gains. Vaccine optimism and cheap rates will probably deliver a record real estate run come March. Many buyers will swallow massive mortgages at rates which can only increase in the future. Condo bargains will fade as it becomes clear the boss wants people back at their desks.

Stock markets, commodity prices and related financial assets will feed off the economic growth that the vax brings. Global GDP will increase, central banks will continue their stimulus programs and corporate profits will restore. Some analysts talk openly about The Roaring Twenties.

But we also have troubles ahead.

Cheap rates can’t last forever. When growth brings the spectre of inflation bond investors will want a premium, and yields increase. Higher rates will be a shock when mortgages are renewed, and as Ottawa services over $1 trillion in accumulated debt. Decisions taken amid a crisis in 2020 may look sketchy in 2025. Regardless of the actions taken by central banks, the price of money will rise. And so will the cost of living. A lot. Just ponder what the carbon tax will bring.

Tax levels won’t hold, either. No country the size of Canada can so increase public spending, and debt, free of consequences. The future will certainly bring higher corporate levies, an increase in the capital gains rate, empty-house taxes, elevated property tax, an additional tax bracket, more user fees, reduced local services and an extra cost for every Amazon purchase you make or Netflix movie you watch,

Political stability? Fuggedaboutit. Odds are 2021 will bring a federal election in Canada and dog-knows-what in the USA. Will Canadians re-elect the Libs who have the worst fiscal record in history, just because they dole out more money? Will the seventy million Americans who Donald Trump tricked into thinking the Biden presidency is illegitimate create discord, gridlock or worse? In a world growing ever more tribalized, how do we deal with common challenges like global debt, wealth inequality, climate change and a slimy little pathogen? We barely survived 2020, after all.

Well, stay the course. Be balanced and diversified. Forget DoorDash, Airbnb, Bitcoin or Robinhood. Fill your tax shelter vehicles. Don’t be seduced into new dollops of debt. Suck up to your employer. Shun GICs. Of course, get vaccinated. And muse on how we ever got to a point where someone earning five grand a year receives $18,500 in cash and feels like a victim.

The future can’t come soon enough.

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December 13th, 2020

Posted In: The Greater Fool

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