The whipsaw

Do you feel whipsawed?

Many do. Is this a time for fear and turtling? Or has stuff just started to get better?

On Monday, for example, this blog moaned and vexed about everything from commercial vacancy rates (goin’ up) to the yawning wealth divide to our new don’t-make-me-go-to-work culture. Then just a day later came boffo economic news with a big financial rally amid a sudden consensus interest rates have peaked and will decline sooner than expected.

The reality of 2024: financial portfolios, following the Santa Claus rally expected in a few weeks, will do just fine. More than GICs. Anyone who loaded up on the banks (and the TSX) a month or so ago or snorfled bonds when they were croaking and yields popping, was sagacious. Those with B&D accounts who totally ignored them will enter 2024 in fine shape.

Face the facts. Inflation has plopped from 8% to 3%. CBs are on pause and set to trim the price of money in six months or less. Corporate profits have surpassed expectations. Unemployment has barely ticked higher despite ten Bank of Canada assaults. Houses are modestly cheaper and income gains are running two or three points above the cost of living increase. A brutal war in the Middle East has not spiked oil. In fact, it’s tumbled and so have energy costs. The American economy is expanding at a torrid rate while ours – more real estate-centric – is flat.

How can any of this be negative?

It’s not. Bond yields have tumbled and prices rebounded on economic optimism. The planet’s biggest economy – and our main customer – survived the most aggressive monetary tightening cycle in modern history. A drop in interest rates, now expected to commence in May or July – will fuel consumer confidence and more economic activity. After all, two-thirds of the entire American GDP is fuelled by people ordering from Amazon, buying iPhones and acquiring those awful pants at Old Navy. Disposable income will be going up as debt servicing costs come down.

This is why the S&P 500 is ahead 17% now in 2023. The Dow has added 5%, Bay Street is positive 3% and the Nasdaq is up 35%. Now bonds are rallying as well, along with rate-related gains by preferrreds and real estate investment trusts.

Few (maybe none) major economists are expecting interest rates to remain stable, or increase again, during 2024. Instead the call is for cuts. Likely a half-point by the summer. Some believe a full point by next Christmas. Just as rapidly rising rates chilled the economy, whacked investors and raised talk of recession, so gently descending rates will unwind that. There are solid reasons to believe 2024 will bring a rally in all asset classes. Yes, all of them. Save, maybe, gold and oil.

It seems some people are understanding this reality. Look at variable-rate mortgages.

Not long ago virtually nobody was willing to take on a home loan at 6% with the potential of increasing along with the central bank rate. But lately the jump in those grabbing a VRM has been five fold. This is now the fastest-growing mortgage term in the nation. Instead of locking in at 5.8-6% for the next five years, these borrowers gamble that they’ll ride the rate roller-coaster lower. And it’s a pretty solid bet.

What about houses, our fav place to dump most net worth?

As reported, October sucked for sales. The worst such month ever in many places (except crazy Calgary). Nationally everything is lower, including the key sales-to-new-listings ratio, now at a 10-year low of less than half. Prices are at 2021 levels in most places, and deal volumes have dropped to 20-year lows. Plus, it’s almost winter. The stress test remains north of 8% and months of inventory are swelling. Toronto, land of pandemic pandemonium, FOMO and realtor insufferance, is sudenly a buyer’s market. But without buyers.

This will change.

BMO economist Robert Kavcic has emerged lately as a notable bear. “Ample listings, restrictive mortgage rates, very little investor demand and a subdued economic outlook all suggest tough market conditions will continue,” he says. “We believe prices are now in another leg lower that could run through around the middle of 2024, depending on how the economy and mortgage rate backdrop evolve.”

Bob must have spent too long in the swamp of the Greater Fool comments section, a digital Dante’s Inferno of hair-shirted nihilists. In that dark world, we’re on the verge of collapse, a deep and painful recession, a 40-50% crash in residential prices, higher rates, more inflation, plus roaming gangs of Mills and Zs exacting revenge on greedy, hoarding Boomers.

Predictions are hard, as they say, especially about the future. But logic suggests this: if people’s TFSAs, retirement plans and savings grow next year (as they should) they’ll feel more secure. If the cost of borrowing money falls, Canadians will borrow more. If inflation continues to trend lower, heading for 2% in 2025 (we’re on track) anxiety will reduce. If recession never comes and jobs are plentiful, confidence will augment.

Draw your own conclusions about what that might mean for housing, or investing. But fearing next year is probably a mistake.

A message to canine owners.

Dog people, where are you? This pathetic blog, with a proud and slobbery history of canine bias, has recently been dealing with an invasive species. You know what we’re talking about. Cat fanciers have bombarded our email inbox with pictures of untrustworthy, primadonna felines while the owners of hadworking, loyal dogs have gone silent. Is this what you want? A site devoted to hairballs and urinary tract infections? The time to act is now.  They’re winning.

About the picture: “I’ve submitted my late dog in the past and thought that, with the string of cat pics, you might be willing to feature Felix,” writes Kayla, “one of our two retired/recovering barn cats. Here’s a picture of him looking like a king in front of our barn (that he had moved himself into last winter). He was so stealthy that my husband didn’t believe me that there was a cat in the barn all winter. Here he is now, comfortable out in the open. He’ll spend as much time as he wants curled on the couch this winter ”

To submit a picture of your beast (nudge, nudge) email to ‘[email protected]’.

Source: https://www.greaterfool.ca/2023/11/16/the-whipsaw/