February 8, 2021 | To the Moon

Were they false flags?

The big negatives of last week included (a) rotten jobs numbers with 213,000 more positions lost causing the unemployment rate to course back above 9%, and (b) the even rottener job the feds are doing with the vax rollout. That was capped off with a Bloomberg estimate that at this rate it will take 7.4 years to dose the world and get us back to normal. Holy crap!

Well, don’t believe it. Financial markets are betting that things move a lot faster and further. The case for optimism is growing, despite Covid variants, bumbling politicians, minus 47 in Alberta, Robin Hoodies and the prospect this might all mean Drake and Adele start performing again.

First, look at the equity markets. Record levels in New York. A homerun for the Nasdaq. And, wow, an all-time high on Bay Street, too. Commodity prices (oil, copper) are going up on the expectation of rising global demand as economies reopen. The memory of both Trump and 1/6 are fading fast (despite the impeachment trial); Biden’s boffo stimulus package will pass; and US treasury secretary Janet Yellen is forecasting full employment by next year (that will halve the current jobless rate).

Look at the S&P 500, for example. It’s ahead 4% so far this year (it’s barely February) and 19% year/year. Same for the Dow and the TSX in Toronto. The tech-heavy Nasdaq has gained 8% in 2021 and is 47% past where it sat a year ago. Even a boring, pedantic, don’t-wake-me-up balanced & diversified portfolio gained close to 8% in 2020 when Covid ripped through every expectation that humanity had.

Hey, and did you check out what Mr. Bond Market’s been up to?

Despite the lousy news last week, and even in the face of a new all-time mortgage low of just 1.25% for a fiver posted on Thursday, bond guys are aroused. The 30-year US Treasury has hit 2% – a big deal – and in Canada it’s expected our five-year debt will soon break out of a tight trading range, and not look back.

Why?

Simple, the market expects economic reopening, growth and inflation in the second half of 2021. The belief is that (a) government stimulus will continue, (b) the dosing of the herd will accelerate dramatically, (c) consumer spending will leap higher as blinking WFH shut-ins emerge into the sunlight flush with saved cash and (d) central banks will taper off their wild bond-buying as the pandemic panic fades.

By the way, have a gander at preferreds. Rate reset prefs rise along with interest rates (or the expectation of them) and lately they’ve been heading north. These were flaming bargains last year as the cost of money plunged, giving investors not only a steady, tax-efficient 5% dividend, but also the certainty of a capital gain once Covid started to succumb to vaccines. And it’s begun.

Says mortgage broker guru blogger Rob McLister: “Economists believe that the greater the percentage of vaccinated Canadians, the greater the probability that rates creep higher. Mortgage shoppers who buy into that argument must ask themselves, how much longer do I want to gamble on falling rates? Our answer would be, not much longer.”

You bet. And a mess of buyers aren’t waiting. Look at the latest real estate stats.

January sales in the largest market leapt 54% year/year and the average selling price increased over 15%. It’s expected to top $1 million in the next couple of months. Demand for detached houses grew 34% and prices ballooned by an annual 31%. Yes, we’re back into 2017 Bubble territory, but this time governments will be standing on the sidelines, looking in the other direction. No intervention. No cooling measures. No more vexing about affordability.

Governments at all levels are quite prepared to let ‘er rip, since houses most people can’t afford plus an out-of-control market is preferable to what we’ve just been enduring.

Says the board’s realtor/economist: “Looking ahead, a strengthening economy and renewed GTA population growth following widespread vaccinations will support the continued demand for both ownership and rental housing.” And did you catch the condo numbers? Sheesh. Sales ahead 85% in January, and exceeding listings growth. Apparently a mess of people haven’t heard that urbanity is toast.

“Big cities are not dead,” says broker Stephen Glaysher. “Humans are social animals and when downtown regains its appeal, people will come back. Work from home is not for everyone. Office towers will still be needed. In fact, Shopify and Amazon have just committed to lease another 200,000 sq. ft. of space downtown.”

His forecast: herd immunity happens by July. The international students and new immigrants arrive by September. And then some of the condo prices seen in late 2020 will look quaint.

What does all this mean?

Expect froth. In 2021, everything goes up. Golden retriever pups are already $3,000.

Garth Turner February 8th, 2021

Posted In: The Greater Fool

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