- the source for market opinions


June 15, 2018 | The Fed will Keep Hiking Rates

The U.S. Federal Reserve hiked rates again and signaled that there will be more increases to come as the U.S. economy continues to gain strength. The second hike of this year came this week. Now most observers expect two more increases before 2018 draws to a close. Will the Fed continue hiking rates for too […]

June 8, 2018 | Mother Nature, Not a Bubble

Canadian housing myths are plentiful. But a new myth popped up recently in the form of a suggestion that “mother nature” is pushing house prices higher in Vancouver and Toronto. Is “mother nature” driving house prices in those two large cities? Does that mean it’s not a bubble? Many people, including former Ministers of Finance, […]

June 1, 2018 | Trudeau’s Risky Play with Trans Mountain

The government of Canada purchased the Trans Mountain Expansion Project (TMEP) for C$4.5 billion from Kinder Morgan Canada Limited. Prime Minister Justin Trudeau made this controversial move despite substantial political and financial risks. This government purchase ensures that planning and construction work for the project will continue and that the “great national economic benefits” of […]

May 25, 2018 | Lending Growth Slows Abruptly in Canada

Changes to the rules for qualifying for mortgages in Canada have been introduced in several stages recently. And these rules, on a cumulative basis, are starting to have a noticeable impact on lending to households and the housing market. Since availability of credit to finance a home purchase is arguably the single biggest factor in […]

May 18, 2018 | U.S., Mexico and Canada miss NAFTA deadline

The deadline to resolve the impasse in negotiations to amend the North American Free Trade Agreement (NAFTA) passed without a resolution of the issues. The negotiators were not talking as of Wednesday. If the NAFTA agreement is canceled by the President of the U.S. and ratified by Congress, there will be serious consequences for the […]

May 11, 2018 | Crude Oil Price Surges Lead to Recessions

The price of crude oil pushed above $70 in the last week, bringing back memories of previous oil shocks that shook the world. In decades past, oil price surges have been highly correlated with the onset of economic downturns. Is this latest move to higher oil prices going to interrupt the economic recovery this time? […]

May 4, 2018 | Bank of Canada Governor Poloz Speaks About Household Debt

Bank of Canada Governor Poloz spoke in Yellowknife, N.W.T., on May 1, 2018. He explained that household debts are large and increasing and represent a threat to the stability of the Canadian financial system. He concluded the speech with, “There is good reason to think that we can continue to manage these risks successfully. “ […]

April 27, 2018 | U.S. Government: Deep Tax Cuts and Deficits

The U.S. government recently enacted deep tax cuts that were designed to boost the economy. But tax cuts could mean smaller government revenue, and projections for deficits in government spending indicate huge increases in total government debt over the next decade and beyond. Will tax cuts be a plus or a minus for the US […]

April 20, 2018 | Energy Fails to Perform in a Benign Environment

The Toronto S&P/TSX index was down about 5 percent in the first quarter of 2018, while the important energy sector index (S&P/TSX Capped Energy) was down even more, by 8 percent. This was during a time of higher oil prices worldwide. In the US, energy companies listed on the stock market show a similar pattern […]

April 13, 2018 | Loss Aversion Could be a Very Costly Human Quirk

Loss Aversion is the human preference to avoid taking losses. This powerful force can cost people a great deal of money when it comes to trading stocks and buying and selling real estate. Can humans overcome their desire to avoid taking losses? I wrote about “loss aversion” as it comes into play when trading stocks in […]

April 6, 2018 | Inverted Yield Curves Predict the Future

A flattening yield curve, based on the difference between the 2-year and 10-year (or 30-year) US Treasury bonds, contains valuable information about the future. The recent rapid increase in short-term interest rates means that the short-term rate is catching up to the 10-year rate. The spread between the two is 50 basis points, narrow by […]

April 5, 2018 | Battery-Based Electricity Storage is Disrupting Electricity Production

  There is significant and growing interest in electricity storage, sometimes for a very short period measured in minutes. Battery storage systems are gaining followers. Storage allows electricity that is produced by renewable energy such as solar and wind to be used later, at a time of peak demand. Will advances in storage disrupt companies […]

March 16, 2018 | Canadians Lose Their Thirst for More Debt

The Bank of Canada release says: “The Bank continues to monitor the economy’s sensitivity to higher interest rates. Notably household credit growth has decelerated for three consecutive months.” Note that the Bank is saying that the growth in credit has slowed, not that Canadians, en masse, are paying back their loans. Canadians have just slowed […]

March 2, 2018 | B.C. Risks Unintended Consequences

Here’s a recap of some history: Stephen Harper was elected with minority government status in 2006 and by the end of that year Finance Minister Jim Flaherty pushed through changes to Canada Mortgage and Housing Corporation (CMHC) rules that allowed 40-year amortization of mortgage loans and zero down payments, in spite of warnings from some […]

February 23, 2018 | U.S. Stock Market is Obscenely Overvalued

The U.S. equity market is very expensive, according to most measures of stock market pricing. According to James Montier of GMO, the U.S. market is “obscenely” overvalued. Why are money managers still buying? James Montier wrote a 7 page piece called “The Advent of a Cynical Bubble” on the valuation of the U.S. market. It […]

February 17, 2018 | Higher Inflation Here To Stay

Inflation reported in the core CPI and the headline CPI on Wednesday February 14 was not a message of love for Valentine’s Day. It was a wake-up call. The so-called goldilocks scenario called for rates to rise slowly, at 25 basis points per meeting, with a target of 2 to 2.50% for the Fed Funds […]

February 9, 2018 | CNN Says That NAFTA Talks Could Collapse

As the Canadian prime minister visits the United States for four days and presumably is pushing really hard to save the NAFTA talks, the mood is somber. The probability of saving the agreement is estimated at less than 50 percent. One of the problems with expecting the U.S. to change course and agree to a […]

February 2, 2018 | Generating Income with Junk Bonds

Source BofA Merrill Lynch, retrieved from FRED, St. Louis Fed I’m using the more provocative term “junk” because it gives a sense of the risk but you are more likely to see the euphemism “high-yield”. They mean the same thing. A junk bond is a corporate bond that has a Moody’s, DBRS or S&P rating […]

January 26, 2018 | What to do with Expensive Stock Markets

Robert K. Shiller examined stock prices and earnings of the companies in that index back to 1881 and, after adjusting for inflation and using a ten-year average, this is what he got: Source: Robert Shiller Today’s valuations are second only to the 1999-2000 period. There has been four peaks similar to today, in 1899, 1929, […]

January 19, 2018 | What Keeps Central Bankers Awake at Night?

Source: The Bank of Canada Governors of the Bank of Canada have a tough job. When the time in the cycle comes to remove the punch bowl and end the debt-fueled consumption party they face a difficult task. Because of this, central bankers often lose their nerve before their actions start to bite. In fact, […]

January 12, 2018 | The Bond Bear Market Might Have Started in 2016

Some respected bond market gurus are worried that much higher rates are just around the corner, which would have serious implications for markets — both bonds and stocks. Source: St. Louis Fed/FRED Rates bounced from the same low point twice, in 2012 and mid-2016, which could mean a change from bull market to bear market […]

January 6, 2018 | The Mania for Cryptocurriencies Continues

My associate Fraser Betkowski wrote a post in September 2017 that describes the basics of the cryptocurrency world. In revisiting the same topic so soon I note that in the cryptocurrency world three months might be the equivalent of several years of normal evolution. During the Christmas break I was asked at every social gathering about either […]

December 29, 2017 | The Electric Power Grid Must Deal with Rapid Change

Gretchen Bakke, PhD in Cultural Anthropology and Professor at McGill University, in a fascinating book called “The Grid: The Fraying Wires between Americans and Our Energy Future,” outlines the history of the power grid and its vulnerability. She describes the battles that were fought in the early days between advocates for privately owned, small, special […]

December 22, 2017 | China’s Dangerous Debt Bubble

China’s debt growth is a truly astounding phenomenon. Those debts are mostly in the corporate sector making China’s corporate sector debt ratio, at 170 percent of GDP, the highest in the world. Other countries like Canada have a higher total private sector debt ratio because the household sector is more eager to borrow. But in […]

December 15, 2017 | The Federal Reserve’s Slow Approach to Raising Rates

The Federal Reserve hiked the Fed Funds rate by 0.25 percent. No one on Wall Street was surprised, as the Fed had hinted at the move and news on the U.S. economy has been consistently positive. Some have wondered why the Fed has not raised rates more aggressively given the unemployment rate at 4.1 percent, […]

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