Recency

A new crypto launched Monday had a market cap of $45 billion US by Wednesday morning. Real estate values in wee Lunenburg have inflated 63%. A guy on Instagram boasted he just got a home equity line of credit so he could purchase plywood. Doctor copper is up 40% lately. The federal government is now borrowing about $1 billion a day, spending the money and adding it to the debt.

Strange days. They’ve led people – many of them seem to wander in here, seeking a clean washroom – to think money’s becoming relatively worthless, fiat currency is doomed, houses will be $5 million each in a few years, hyperinflation is coming so speculation is good and only losers don’t borrow their brains out.

Some of that is true. Most isn’t. As usual, extreme views end up in a bad place. So let’s review – realistically – what may be coming. Here are six core beliefs.

Inflation, but not hyper.
The pandemic skewed a lot, increasing demand for certain things while screwing up the supply chain. Won’t last. As the virus fades normal activities will resume. Puppy prices will fall, along with that of PT lumber. People will spend money once again on gas, pants and vacations. Over time supply chains will restore, imbalances correct and prices normalize. Yes, we will have inflation – double or triple that of today – but no hyperinflation. Google the term and find out why.

Higher rates, but not fast.
Inflation and GDP growth do not come without increasing interest rates. CBs are mandated to preserve the value of currencies, and adjusting the cost of money is a central tool in doing so. As the economy expands, monetary stimulus contracts, which means the end of dirt-cheap borrowing rates and central bank snorfling of bonds, mortgages and others securities. Rates are going up over the next few years, but not enough to wound the economy. Just enough to hurt on the next mortgage renewal.

Herd immunity, but slowly
The rash AZ halt this week sure doesn’t help much, and it’s obvious Canada got off to a glacial start with dosing, compared to the US. So far under 40% have had shot one and less than 5% have had both. At this pace it’ll be well into the autumn before Canada gets the herd all vaxed up. America, in contrast, has inoculated with a frenzy, but now stalls in the face of politicized vaccine hesitancy. May God help us if this bug’s still here in two years when Trump emerges, like the cicadas.

Reopening, but all year.
Fool me once, not twice. Governments across Canada are in no hurry to end lockdowns, stay-at-home orders, restrictions, quarantines, closed borders or travel barriers. The Third Wave was a brutal surprise, fueled by variants we couldn’t even imagine eight months ago. Leaders failed. After coming so close to health care system collapse – a total embarrassment for a First World country which pours $270 billion a year into the system – politicians understand they tread on thin ground. Weep for the hairdressers and Main Street.

FOMO, but we’ve hit a wall
No, all houses will not cost a few million in five years. Supply (listings) will be growing steadily in coming months. Mortgage costs will be rising. The stress test is upped starting in June. Bidding wards are already quelled.  Incomes are falling behind, and will be slow to grow (see the above). Affordability is appalling, and it takes three decades to save for a detached down payment in the GTA. As aggressive nesting and remote learning fade (see below), much will change. Most impacted will be those who moved far away from employment. The hicks will delight in seeing them leave again.

WFH, but not much longer
Five million people left the workplace and moved into their bedrooms, cottages or kitchens. Surveys show those under 40 (the work-life balance myth) love it. Too bad. It’s over soon. WFH works for some employers, of course, but not for most. Major US financial outfits (Goldman, JPMorgan, Blackstone, Citigroup) are going back. Soon the Canadian banks will follow. NYC opens up fully July 1st. The debate now is whether or not employers have the right to require returning workers to be vaccinated (in general, they do) and will force it (unlikely). Remote workers will run the risk of being more easily replaced, offered reduced compensation and blowing career advancement (out of sight, out of mind – human nature). Dogs everywhere will be devastated.

This blog’s often mentioned recency bias. That’s when people think what just happened will take place forever. The new normal. So they believe house prices will rise without end, for example. Or think they can stay at home and collect full pay after the health emergency is over. Or feel two-by-fours will forever be unattainable.

In the real world things end up happening for a reason. Do not lose your way.

About the picture: “I’ve been reading your blog since the days when the photos and commentary could get a bit racy,” writes Ian. “Thank you for your efforts in improving our financial literacy and entertaining us at the same time. I’ve sent along an adoption photo of our Abbie, a Jack Russell terrier mix, who is very sweet, but also as cheeky as this photo would suggest.” (Do you have a canine to share with the pack? Email me: [email protected]).