Are you ready? Interest rates start trekking higher this week. T2 lowers the tax boom days later. And meanwhile economic turmoil and political uncertainty mount.
Just the time to jet off to Saint Marten with your spawn for March Break, on a $15,000 holiday with financing provided by Visa!
Seriously, most people are in a financial fog, staggering along unaware of the intense change that’s enveloping us. The borrowing continues along with the concentration of wealth in a single asset, and the naïve belief things in retirement will somehow take care of themselves. So, GreaterFool would like to provide you with some things to worry about, ruining your week.
The cost of money
It starts going up Wednesday. Financial markets are pricing, 100%, a rate increase by the Fed. It’s the second in four months, and looks like it will be the first of three this year. The US central bank rate will by then be vastly higher than ours, and the Bank of Canada will follow suit as surely as trouble follows Trump. In the meantime, our fixed-rate mortgages will reflect the change and a year from now you’ll wish you paid more attention.
The era of cheap funds is over. Kaput. No more deflation talk. No dreaming of negative-rate loans. No monetary crisis, US currency collapse, soaring gold or anything else the doomers promised you. It was all fake. The world about to unfold is one in which savings rates will barely budge, but borrowing costs will soar. And, by the way, when the Fed pops on Wednesday there’ll be no big stock market reaction. That was fake news, too.
The trouble with oil.
We’re back into the $48-per-barrel range, a drop of 10% of so from a few weeks ago. Bummer, since crude is our biggest export and Alberta’s economy runs on the stuff. The reason is supply, not demand. Encouraged by Trump, the frackers and horizontal drillers have been goosing production with the number of rigs in operation at a two-year high.
Stockpiles of US crude are at a record level while production has jumped to over nine million barrels a day. (In contrast, Canada turns out just 3.7 million barrels, two-thirds of that from the oil sands.) If the rig count keeps rising the US gets closer to energy self-sufficiency, and we get closer to torpor. Thank goodness Alberta is being run by socialists. Simple. Everyone can just get a cheque.
Brexit. It’s back.
When UK electors chose to stick a banger in the EU eye and vote themselves out of the free trade deal, markets were horrified. They got over it. Since last summer’s referendum the British market has been a great investment – up about 16%. The pound was pounded, however, and now everyone’s waiting for PM Theresa May to actually pull the trigger and begin the disentanglement process.
This is when the trouble starts, say analysts. Expect a ‘hard Brexit’ which means disruption and job loss, especially in the key financial sector. Making matters worse are those pesky Scots. That country is headed for another referendum on independence – its second in three years. That means the UK could actually take itself out of Europe, then break up. Yikes. The local government this week started the legal process for a new Scottish-not-British vote to be held by next Spring. Polls suggest it would win this time, paving the way for an indy Scotland to join the EU just as the Brits split.
Britain’s Parliament just voted to begin Brexit. No turning back now.
The Deplorables rise
Populism, as everybody’s calling it, is redrawing the political landscape. First Brexit, then Trump, now the Netherlands, then France and perhaps Germany. The Dutch vote on Wednesday, and the hard-right, anti-immigration guy is expected to lose – but he sure has stirred the pot, as shown by riots there in recent days. In France Marine Le Pen looks to be the next President, which will mean the end of Burkinis and another blow to globalism.
Free trade, open borders and the efficient movement of people, capital and jobs is at the heart of the social unrest sweeping through society. The genie’s out of the bottle. The world will probably get harder, less tolerant and more expensive as a result. Free trade has made it way easier for companies to outsource labour, cut costs, reduce prices and earn more. Borders, walls and tariffs will repatriate jobs, increase overhead, jack prices and fuel inflation. This is one reason Trump’s being called the Inflation President, and why the Fed is pre-emptively plumping rates. Wonder how many Ds voted for that?
See? It’s all connected. So you can worry about things you cannot control, or have a balanced portfolio and go hug your dog.
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