March 16, 2021 | The Sequel

The vax news is gAdd Newetting more infectious. The AZ brew’s been okayed for all us wrinklies, increasing supply. That floof about it causing blood clots has been discredited. Booster shots for the two-dose vaccines can now be months (not weeks) apart – more supply. And as of next week, boodles of bottles will be arriving in Canada.

All we beavs are finally getting closer to a jab, and meanwhile Biden’s big promise of 100 million inoculations in his first hundred days is coming to pass. Two million Yanks are being stuck daily now. By June, we’re told, there’ll be herd immunity in America. Hopefully we will follow in short order. There may be another wave of this damn virus before that occurs but this much is certain – we’re winning. Peoplekind, 1. Pathogen, 0.

So combine vaccine lift with the boffo jobs numbers last Friday, record household savings, Rogers spending $26 billion to swallow Shaw and stock markets 60% higher than a year ago – not to mention GameStop, Bitcoin, NFTs, baseball cards and bungalows in Tillsonburg – and we’ve got the Everything Bubble.

Sheesh. Look at the equity markets. Fresh highs everywhere. The S&P at 4,000 for the first time. Nasdaq up over 90% in a year.

Say, do you recall this day (March 16) a year ago?

Sure ya do. It was scary. It sucked. The Dow lost almost 13% – the biggest plop since 1987. The S&P shed 12% in one session. The Nasdaq crashed the most ever. Tesla croaked. The virus was ripping through society, and our minds. Nobody wore a mask but everyone was hoarding bumwad (for some reason). The real estate market froze. The lockdowns started. The border shut.

The Vix looked like this. Yikes.

On that day this pathetic blog dismounted, swaggered to the edge of the abyss, spat a cigar stump into the void, adjusted its gun belt and told you what to expect…

The short – the next 120 days
Canada goes into recession, which means a period of negative growth. Contraction. A bunch of people lose their jobs (already happening with Westjet, the oil patch, tourism, lobster guys). A global recession is also possible, which means less demand and lower prices for crude. Alberta is kinda pooched. Financial markets roil and volatility stays extreme.

Where’s the bottom? Dunno yet, but it’s coming. Markets are pricing in not only economic torpor but a 30-40% drop in corporate earnings. That would be historic. And while it’s also temporary, traders are so intensely risk-off that common sense is as unwanted as a share in Suncor or Tesla….

The long – come autumn
First, does anyone really, seriously, truly believe that in a global effort modern science will fail to produce a vaccine? Not me. It’s a done deal. Just need time. As for the economy, consider that US unemployment is the lowest in a half-century with steady income gains over the last few years. Store shelves are empty right now because people have spent a storm. Look at the vids online of hours-long lineups to get into a Calgary Costco, for example. Parts of the economy may be shuttering. Others are red hot.

Once public panic recedes pent-up demand for clothes, cars, iPhones and houses will be intense. It will happen in an environment in which central banks have injected enough stimulus to make Kevin O’Leary grow hair again. Cheapo loans. Oceans of available credit. Direct money transfers to families and businesses. All fuel for the fire.

Needless to say, financial assets will also ignite. Come the autumn the world will look like a different place. Airplanes will be flying. Stores will be open. The amount of surplus toilet paper will be epic. You will be happy you didn’t bail out of perfectly good assets when they’d lost a third or more of their value, and that you were fully invested when values restored.

Darkness. Dawn. You know the drill.

What we didn’t know then: that this would last more than a year. That WFH would embrace five million Canadians. That Trump would allow Covid to decimate America, kill 500,000 citizens, then help defeat him. That nesting, FOMO and cheap money would ignite housing, everywhere. That governments would spend $20 trillion globally to combat a bug – almost all of it freshly-printed funds.

So here we are. The goal line is in sight. But just as the advent of this pandemic brought profound change, so will its exit.

In the short term, the melt-up in housing and financial assets is likely to continue. As mortgage rates increase, so will real estate activity as buyers rush in to lock up rates and secure deals. The average house in Toronto or Vancouver increased by about $140,000 in the last six months, says RBC. Could that repeat? As for stocks, new stimulus money, global economic reopening and a surge in corporate profits have traders looking at a string of new highs right into 2022.

Meanwhile interest rates and mortgage costs will jump. Home loans that were 1.5% a few months ago will be 3% next year. Inflation will bubble up, leading to wage demands as workplaces open again. Central banks will taper back on their stimulus programs  – and how can governments not increase taxes in their budgets next year? Global growth will hike demand for commodities, with Canada benefitting from a price boost. Trudeau will call an election in the next few months. Soon you won’t remember that Erin guy’s name. Or the Green lady. Downtown condos will be gold again. Kamala will be the next president.

Oh, and Covid won’t be quite gone. We just won’t care anymore. Enough drama.

Garth Turner March 16th, 2021

Posted In: The Greater Fool

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