December 20, 2023 | Debt Defaults Leaping

Canadian debt delinquencies, insolvency proposals, and bankruptcies are all rising sharply for households and businesses. Equifax president Sue Hutchison discussed the latest data on BNN yesterday. We are in the early days of this distress cycle with three-quarters of pandemic-era low-rate mortgages to reset at higher rates in 2024 through 2026: “We expect to see tremendous […]

December 19, 2023 | China Offers Warning on Euphoric Asset Prices Elsewhere

China’s economy is struggling through a multi-year downturn in the property market, a slump in manufacturing activity and falling exports. Other countries and markets should take note. A triple whammy of falling real estate and stock prices amid credit defaults has hurt household net worth and consumer confidence. See, China’s real estate meltdown is battering the […]

December 18, 2023 | The Equity Bear Market is Likely Only Started

Asset markets leapt last week as the US Fed (and Bank of Canada) held monetary policy unchanged for the 5th consecutive month, having hiked last in July. US Chair Powell fueled euphoria when he said the Fed was talking about rate cuts in 2024–the crowd went wild. Just weeks before, Powell had said they were […]

December 15, 2023 | Fed Holds Policy Rate at 22-year High–That’s The Good News

As expected, the US Fed did not hike yesterday and held its policy rate at a 22-year high while signalling rate cuts to start in 2024. Asset markets are jubilant across the board. Relief rallies are typical at the end of central bank hiking cycles. Optimism makes sense for government bonds, which become more valuable […]

December 14, 2023 | No shame in seeking debt help

A generation of people has been devastated by monetary and fiscal policies aimed at ‘helping’ them to borrow financially suicidal sums for housing. Grave mistakes have been made, encouraged by many well-meaning family members, policy-makers and commissioned realtors and lenders. In many cases, costs will be impossible to sustain even as interest rates retreat because […]

December 13, 2023 | Consumer Spending and Employment Downturn in 2024

Consumer spending drives some 58% of Canada’s economic growth and 68% in America, so when households are blindsided by higher carrying costs and deteriorating employment, financial weakness compounds through the economy to lower revenues for companies and governments. See more on the current US job cycle in ECRI, Unveiling the Cyclical Reality of Jobs Growth: Our […]

December 12, 2023 | Yield Curve Screaming Bear Market in Process

The US yield curve’s last 17 months of inversion has been the second longest in history (2-10 curve inversion lengths shown below since 1941 courtesy of The Daily Shot). Ditto for Canada, where the 2s-10s curve has also been inverted since July 2022. Only four other times in history have seen this degree of inversion, […]

December 11, 2023 | Markets Have Not Yet Priced New Normal of Slower Growth China

Our September 30, 2021, client letter “Shifting Foundations” highlighted the default of Chinese property developer Evergrande as a turning point in the real estate-centric China growth story with broad implications for the global economy: China’s property sector has been the largest driver of its economic growth over the past decade and a significant driver of global growth. […]

December 10, 2023 | Danielle on CBC Weekend Business Panel

Danielle was a guest on the CBC Weekend Business Panel, talking about the Bank of Canada rate decision, grocery prices and McDonald’s efforts to increase sales. You can watch a video clip of the segment here.

December 7, 2023 | Lagged Effects of Epic Tightening Cycle Will Intensify in 2024

Equifax Canada reports that Canadian households added $80 billion of additional consumer debt over the past year, making the total outstanding an eye-watering $2.4 trillion. Well beyond paycheck to paycheck, many are living credit card to credit card. Money owed on credit cards climbed to a new high of $113.4 billion in the third quarter of […]

December 6, 2023 | Economic Weakness is Leading Interest Rates Lower

This morning, weaker-than-expected US job creation in November adds to the growing list of negative economic surprises globally and reinforces the expectation that the Bank of Canada today and the US Fed next Wednesday will make no rate changes for the fifth consecutive meeting. Before this morning’s data, the futures market was pricing in 120 basis points […]

December 5, 2023 | Easing Cycles are No Quick Fix

After 475 basis points (bps) of rate hikes between March 2022 and July 2023, Canada’s economy has ground to a halt, with economic activity contracting at a 1.1% annualized rate in the third quarter. Per capita, Canadian GDP has contracted for the past five quarters (below courtesy of RBC Economics). The rate of change matters most, and […]

December 1, 2023 | Sri-Kumar: Base Case is Something Breaks Soon

Komal Sri-Kumar, president of Sri-Kumar Global Strategies, joins ‘Squawk Box’ to discuss the latest market trends, the Fed’s inflation fight, why he believes the Fed will hold rates steady again at its next policy meeting because ‘they just don’t know what to do’, and more. Here is a direct video link. 

November 30, 2023 | Bulk of Equity Losses Happen During Rate Cutting Cycles, Not Before

Reminder: while equity bear markets typically start from full employment and an expanding economy, the bulk of cycle losses (81%) happen once recessions begin (blue bars below since 1933), when the unemployment rate is jumping, and central banks are slashing monetary conditions once more. Canada’s TSX has gone nowhere since June 2021, but propped up […]

November 29, 2023 | Real Estate Cycle Hitting Hard

Each week, more people realize they have too much overhead and need to cut costs. Our family knows several people in all different age groups who bought or borrowed against real estate during the pandemic and are now trying to sell. It’s not going well. It is a very stressful, sad time, and I empathize […]

November 28, 2023 | Where’s The Recession?

November 27, 2023 | Bear Markets Bottom After Central Banks Near the End of Easing Efforts

As central banks resume easing in 2024, a bear market bottom should follow months later. Waiting for cyclical lows may feel challenging, but not waiting ends much worse. Here at the end of 2023, confidence in the economy and the financial markets is a lot higher than it was at this time a year ago. […]

November 22, 2023 | FOMO Turning To Regret For The Majority of Households

As we head into the most-harangued shopping weeks of the year, it is important to understand that spending patterns are strongly tied to the value of homes, particularly among the so-called upper-middle-class households (defined as income over 100k). Now that interest rates have normalized and home prices are falling, even those still fully employed are pulling back […]

November 21, 2023 | Reviewing Private Equity “Roll Ups” in the Health Care Space

The late, great zero interest rate era enabled the levered expansion of private equity (PE) firms, “rolling up” all manner of assets, including private businesses and professional practices. In areas like health care, where fiduciary duty is paramount, the profit-maximizing focus of PE raises some cause for concern. A lawsuit by the US Federal Trade […]

November 20, 2023 | Bear Market in 2024 – but Bonds Have More Fun

  Facts and analysis without the product-pumping sell-side spin–rare and valuable. The overview in this segment is worth a listen. The world has watched intently as the world’s most influential central bank, the Federal Reserve, has implemented the most aggressive interest rate hike campaign in history — on a % change over time basis. But […]

November 17, 2023 | Buyers in Hibernation as Home Prices Fall

From 2000 to 2022, Canadian home prices increased 375% (an average of 17% annually, shown in red below), while the average Canadian wage (black line below) rose 3% per year. In the Greater Toronto and Vancouver Areas, where most of the population lives, median home prices rose 450% and 490%, respectively.     The mania escalated during the pandemic when prices in popular areas leapt 50% between the end […]

November 16, 2023 | BCA: Double-Ddigit Stock Market Drop in 2024

Higher interest rates have sharply increased carrying costs while lowering spending and investment through the economy. Both revenue and profit numbers are broadly in retreat and the urge to cut costs is intensifying. There will be a bottom in equity markets, but it has never come before central banks have resumed easing monetary conditions. Recessions, […]

November 15, 2023 | Inflated Risk Assets Mean Central Banks Tighter For Longer

A flat October US CPI release yesterday inspired both equities and bonds to rally on a growing belief that inflation is decreasing, and the US and Canadian central banks, on hold since July, are done hiking policy rates this cycle. The most abrupt monetary tightening in many decades has thrown a ton of drag on heavily indebted […]

November 14, 2023 | Consumer Spending Plans at Recessionary Levels

The University of Michigan Consumer Survey for November found a fresh low in spending intentions. Consumers citing interest rates as preventing them from buying an automobile (36%) and a home (67%) were the highest since the 1981 and 1982 recessions when the Fed funds rate was 12 and 10 percent, respectively, versus 5.5 percent today. […]