Staying real

Last weekend’s flight from Toronto to Halifax was jammed. Pearson airport was a roiling sea of humanity. It looked like 2019, but with masks. At YHZ there was a hasty wave-through for the double-dosed. Shortly afterwards the new (Conservative) NS premier announced the pandemic will be over on Wednesday the 15th. No more mandatory face coverings. No gathering limits. No restrictions. But also by early October the unvaccinated will lose the right to dine out, go to a gym, a bar or club, a concert at the school or most other places where people gather. Maybe work, soon.

At the same time the US president is begging Americans to get vaxed, telling larger employers they must comply and ordering millions of federal employees to accept the jab. In Canada we have a full-vax rate approaching 70% nationally. In the States it’s 52%. Delta is ravaging certain areas. US health care is buckling where the anti-vaccination crowd is concentrated. It’s an economic threat Wall Street’s worrying about. Down 2% from recent highs.

Now the point of this post is to point out something everybody should be aware of. Vaccination = jobs. Jobs = GDP growth. And expansion = Mr. Market happiness.

The TSX has gained 18% in 2021, and is 32% higher than a year ago. That’s running neck-and-neck with US markets, which are suddenly showing a soupcon of concern. And did you catch the latest labour stats on Friday?

Another 90,200 jobs created/restored in August (most full-time), atop 94,000 in July and 231,000 in June. The unemployment rate is barely 7% – after being double that for a spell during the pandemic – and we’re now just 156,000 employed workers short of the good old days before you ever heard of Covid 19.

So it’s reasonable to assume we’ll be back at pre-crisis levels in a month or two. That’ll be the big signal for the Bank of Canada to start turning the stimulus tap off. Routine bond-buying will probably drop by half, allowing yields to rise, followed in 2022 with the first interest rate hike. Once again it’s worth reminding people taking out 1.5% mortgages in 2021 that they’ll be renewing at double that level (at least) in 2026.

So while Canada has an ugly federal balance sheet, appalling deficits and dangerous debt, the jobs news is bullish. Without a doubt Justin Trudeau will crow about this for the next week. And it bodes well for a further stock pop. So keep your Canadian weighting where it should have been for the last year – about 20% of the growth portion of a portfolio. (Suggestion: 9% in an ETF mirroring the TSX, 6% in a robust dividend fund and 5% REITs.)

What’s next for the Canadian herd?

The questions now: can we achieve herd immunity and push into a full-fledged recovery? What does that mean? How many? Will the vaxports being rolled out (BC, Quebec, Ontario, NS etc) push the hesitant and the fearful into being vaccinated? How about the slew of new vaccine mandates – at all of the banks and big companies like Shopify, for example – will they let us defeat Covid? Or will there be social unrest, pushback and more Max Bernier-style political resistance to the final phase of inoculation?

So many questions. Fundamental to them is (at the risk of poking the beast), is why a hundred million in North America would be so selfish or cowardly not to get vaxed when the serum is free, effective and approved, and the process will help keep you alive plus (in Alberta) you get paid to take it? Billions of folks globally would happily trade places. It’s an utter mystery to most. Now vaccine passports will force the issue, ensuring the next few months will not be among society’s finest.

Anti-vax protestors clog a street in Nanimo, BC.

Ah well. Despite the protests and squawking, the reopening trade will continue. So will inflation. I found this comment interesting, coming from a financial dude colleague:

“We are short of everything. Not enough homes. Not enough cars. Not enough meat. Hardly any inventory. Not enough workers. We didn’t do anything for a year & then tossed around 20% of GDP for fun money. We have a lot of paper & not a lot of stuff. Gonna be hot for a while”.

Asset inflation is what got us into this real estate mess. It’s why a crap house in a city with few jobs costs seven figures now. Central bank largesse and politicians trying to paper over a crisis with other people’s money have also inflated financial assets. Investors are fat and happy. But there’s a key difference between these two asset classes. Canadians buy houses with huge amounts of leverage – up to 20x. We owe more than a trillion on real estate, and mortgage growth exploded last year. In contrast, few of us borrow to buy ETFs, to stuff a TFSA or sock money into a retirement fund.

If asset inflation is a thing – and it is – you can see where risk lies. CBs cannot keep the taps open. Rates cannot stay at this level. Political irresponsibility must be corralled. The pendulum will swing in reverse and you will be thankful you eschewed debt. And got vaxed.

About the picture: “I’ve been reading your blog for over 6 years,” writes Beatrice. “I’ve wanted to say thank you because you really reshaped my views about money and investments.  My husband and I stopped doing many of those dumb things that you always talk about.  My pup Daisy left us today (September 10th) after being our best dog for 15 years, so I want to share her picture to celebrate her life.  Hope I’ll get to see her pretty face on your blog.  Daisy had such a zest for life and she was the most loving dog and quite enjoyed the past few years living in the US west coast with fresher air and nature (yes reading your blog played a role in our decision to relocate here for my job too).