The mash

Here are a few items we should mull as 2023 ramps up. Traders, investment advisors, homesellers and realtors think this will be a period of recovery. So far we’ve heard of a big bump in jobs, a meaningful drop in inflation and that Madonna’s going on a new world tour. Canadian stops included. Apparently life doesn’t end at 64, after all. Who knew?

Well, let’s update some recent topics. Like the battle between WFH and regular work.

Here’s Derwin, a federal civil servant for a couple of decades. He chimes in after we told you CRA’s 35,000 workers are considering strike action during tax season, with a big union beef being the government’s call for a return to the workplace two days a week. Thousands of them never want to go back, be closely supervised or have to set aside child-care duties for, yuck, employment.

But Derwin brings us something even darker than the corrosive impact of WFH. It’s wokeness – the kind of “inclusive and diverse” thinking which ends up being exclusionary and monolithic. If you are, for example, like D – a white Anglo-Saxon male – don’t bother applying, as many jobs are going to “self-declared equity” candidates. Qualifications and brains seem to rank well behind skin colour, physicality or heritage. What an interesting world we’ve created.

“Just thought I’d chime in on the government return to the office,” he writes. “I’ve worked for the feds for about 20 years and while I can’t say I speak for anyone else, the following picture describes my reluctance to return to the office. I got this new pop-up when I saw a job opportunity I was interested in.”

“Please pay attention to the last line in the pop-up,” he points out. “This was also for a job that did not exclude me from the outset as many job postings are exclusively for ‘equity’. Please also see a job posting for a position at Treasury Board. For some reason, messaging like this was easier to swallow when I didn’t have to look at my manager square in the eye. I just don’t feel safe in the office anymore. It makes the extra time I can spend with my wife, kids, and dog even more valuable.”

Click to enlarge.

Does the government’s workforce best serve the people when it’s reflective of society’s composition? Absolutely. Discrimination against minorities sucks. But so does discrimination against the majority.

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Almost thirty years ago US President Bill Clinton (“I did not have sex with that woman…”) enacted the National Homeownership Strategy, an ambitions 100-point plan to get more Americans into their own digs. The thrust was continued by George Bush and the rate of owners in the States rose. From a low of 62% in the mid-60s, it had jumped to 69.2% by the middle of 2004 – when the lights went out.

Unfortunately, a lot of people had been encouraged to jump in because of easy credit. Loans were cheap. Down payments low or non-existent. Bankers were creative in how they packaged and sold mortgages to investors. Prices rose fast. Speculation was rampant. People were house-horny, and then the consequences came.

The global credit crisis of 2008-10 was a direct result of house lust in America and a home ownership rate that had been artificially induced. As some venerable Wall Street banks failed and unemployment surged, real estate values crashed more than 30% and took over a decade to recover. Government had pushed on a string. We all suffered.

So where is Canada these days, after 2% mortgages, an historic escalation in valuations and now the worst affordability situation… ever?

Here:

As you can see, the home ownership rate in this country peaked at around 69% a decade ago, and has been declining steadily since. In fact, we’re back for to levels not seen since Nine Eleven – twenty years ago. At the same time, real estate mania has just grown and grown. Household debt has exploded higher to the point where we have well over a trillion dollars in mortgages, and one in four households own multiple properties.

In short, we’ve completely distorted the home ownership experience. Houses have been financialized, turned into investment assets, and how represent 55% of all the personal net worth of the citizenry. It turns out that the lowest mortgage rates ever, the easiest credit in history and successive governments that can’t stop pushing people to borrow and buy has resulted in fewer of us having an owned roof over our heads.

There is only one way out of this, and it’s not building more homes which will cost exactly the same.

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Finally, here is what falling inflation rates and the expectation of (a) economic growth, (b) a soft landing and (c) an imminent cessation of central bank rate hikes is doing in the bond market.

Yields are dropping. The rate on the benchmark five-year Government of Canada bond is down a lot – about six-tenths of a point in recent months. Huge. “The more inflation drops, the lower it goes,” says mortgage broker guru Rob McLister. “Should see some fixed mortgage rates edge lower soon. A continuation of this downtrend through spring would add buoyancy to real estate values.”

By the way, short-term rates go up every time the CB jumps its benchmark. That happens again next week. When yields rise, bond prices fall. This means the value of long-duration bonds is going up while the shorter ones fade.

Do you have some bond exposure in your portfolio? Hope so. Falling yields will be a continuing story over the next year (or two). Bonds had an awful 2022, and that is already changing – fast. Harness it.

About the picture: “Dear Garth, thank you for the many years that you have published this educational and inspirational blog,” writes Paul. “I have read your words daily for most of that time. Our family has recently grown with the addition of two kittens that needed a home. Our Westies were not sure about the kittens at first, but are now fully accepting of their new brothers. Of course the cats now rule the home as our overlords. Nice work if you can get it. Peace to all.”

Source: https://www.greaterfool.ca/2023/01/18/the-mash/