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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

May 27, 2021 | Shades

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.

 

Well, we told ya. Follow the money.

Thursday was epic. Three of the Big 6 banks confirmed what must be obvious to everyone, save the doomers, nihilists, pantywaists and GOFs (grump old farts) who live in the nether regions of this blog. What did we learn?

First, the pandemic is over. At least on Bay Street. Done. Finished. A spent force. Second, the economic carnage caused by the slimy little pathogen was just a sliver of what had been expected. Third, GDP, inflation, interest rates, employment and spending are all poised to rise. Fourth, you should stay invested. This could be quite the ride.

For the record, these three banks alone earned profits of almost $9.5 billion in three months. That’s the headline story, with RBC bringing in four billion (up 171%), TD earning $3.7 billion (ahead 144%) and the Commerce adding $1.7 billion (compared with just $392 million last year – wow).

The bigger story was about damage. Covid may have had a head-on collision with government, spewing guts and bent metal everywhere, but for the larger economy this was a mere fender-bender. Loan loss provisions have been slashed by all four banks reporting so far, as we told you would be the case. The Royal had booked almost three billion for bad debt, which has now been reversed. At CIBC cash set aside for bum borrowings has been reduced 98%. And for TD the better part of $400 million in bad-debt money is now reclaimed.

The banks have bags of cash on hand, robust mortgage books, improved credit conditions and have plumped their bottom lines with a serious reduction in branch overhead as Covid-induced online banking becomes the norm. Fat, healthy banks presage growth and expansion. It’s a classic pattern, coming after crisis and contraction. If you saw this emerging last March, you were a visionary. Or maybe you just read this blog.

During the third week of March, 2020, markets crashed. All of the Trump-era gains were wiped away. Panic selling ensued as Covid cases topped 200,000 worldwide and this blog was rife with comments forecasting oblivion.

“So are we headed for a depression?” I then asked. And responded…

“The answer is no. Over the coming days trillions of dollars will be announced and spent by governments as they pay laid-off workers, subsidize airlines, pump liquidity into the banking system, slash borrowing costs, forgive indebtedness and backstop corporations. Logic tells us pandemics are temporary. They come, wreak havoc, peak then pass. An economy that was firing on all cylinders in January and collapses in March can be functioning again in June. And in advance of that, financial markets will advance. They always do. Stocks are a leading indicator. Oh, life (and markets) aren’t going back to normal any time soon, but neither are they going to zero. Nor are we destined to re-live the Dirty Thirties. But you will never forget 2020.”

Ten days later Ryan wrote:

“Given all the uncertainty right now the markets are pricing in a protracted recession and that we’ll all be locked in our homes indefinitely, when in fact by Q4 and into early 2021, economic growth could be rebounding and potentially strongly. I believe we’re getting close to the panic/capitulation/depression stage. And this is when markets typically bottom, providing the best opportunities and future returns.”

That, as you now know, is exactly what happened. Investors who ignored the pandemic’s onslaught saw their assets restored, then soar. Those who bucked convention and scooped the lows were rewarded. Once again, it wasn’t ‘different this time’.

This week bankers crushed it – profits are swelling, loan losses are a mere pimple and you’ll have to wear shades for Q3 and Q4.

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The pandemic slashed immigration to Canada by about two-thirds. But the virus also saw real estate bloat as never before. Sales and prices have hit record highs lately. Everywhere. This has all made a mockery of those who blamed foreign buyers for pushing up housing costs to the point where Canadians could not compete. It was a sham before Covid, and it’s a fact now. Shame on those realtors and scummy politicians (like BC’s David Eby) who have forged a career out of xenophobic opportunism.

But, it’s started again. So let’s review CMHC’s new report, “The 2020 Condominium Apartment Survey,” published a few days ago. “The share of non-resident ownership in condominium apartments remains low and stable,” it concludes. And most of these units are rented out to locals.

“Non-resident ownership is concentrated in the secondary rental market. These units mainly consist of condominium owners who rent out their properties in these cities. Both CMHC and Statistics Canada’s results suggest that within the secondary rental market, non-resident ownership is likely concentrated in newer and larger rental buildings that generally command higher market rents.”

That makes sense. And let’s remember almost 20% of all families living in Toronto, for example, own secondary properties, most often rental condos. As for foreign ownership levels, here are the four markets with the greatest concentration:

  • Toronto – 2.6%
  • Montreal – 1.8%
  • Vancouver – 1.3%
  • Halifax – 1.3%.

It’s time to find something else to blame.

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May 27th, 2021

Posted In: The Greater Fool

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