The future

So much moaning in this country. The catalyst, as you know, is housing. Its unaffordability has caused a malaise wasing over Reddit like a toxic wave. The harder it is to afford a detached with a picket fence, the more desperately we want it. Humans are weird that way.

The reality?

There is no fix. Get over it. Real estate is a global problem, and it’s not getting solved in Canada, even if we throw out the bums currently running the place. The past – when blue collar workers could raise a family and buy a bung on one income – aren’t coming back. That was sixty years ago. In 1960 there the planet had three billion people. Now we number 8.1 billion. Back then there were 17.9 million Canadians. Now it’s 41 million. In 1960 almost 40% of Canadians were rural. Now 83% live in cities.

So, face it. The clock won’t rewind. It’s not coming back.

But growth, change, technology and a swelling world have brought other opportunities. Maybe it’s time to stop dreaming about an asset class whose best days have passed and focus on something hopeful and predictive. Lately that’s been the equity market. The value of enterprise and innovation. Behold the S&P.

So far in 2024, while Canadians think the economy is tanking, the S&P 500 has advanced almost 11%. That’s twice the level of wage gains and time times inflation. In the last 90 days the market hit 22 new record highs. Ten of 11 sectors advanced. Four in ten corporations are trading for more than they were a year ago. In this year to date, there have been only a handful of trading days when the index retreated enough to notice.

More remarkable is the fact this investor optimism has happened as US politics turns into a clown show with a convicted sex abuser and fraudster leading presidential polling, a brutal slaughter going on in Gaza, Russia gaining ground in its illegal war on Ukraine, climate change scientists worried, trade sanctions expanding and a Chinese real estate meltdown threatening that economy. Everything but locusts. Oh, wait…

Why the new lust for stocks? Why did $50 billion surge into equities and related ETFs in just three months? What are people expecting?

More of the same, that’s what.

Unlike morose, depressed, whiny, jilted homebuyers, these investors are looking forward to inflation being crushed back down to 2% later this year, allowing interest rates to decline amid a soft landing for the American economy. That means employment stays robust, the cost of money falls and consumer prices retreat, without recession. Goldilocks.

Mr. Market anticipates three rate cuts in 2024. Bond prices have improved and consumer spending has advanced. The latest corporate earnings season surpassed expectations. AI is galloping ahead, promising to revolutionize society and grease productivity even as it causes social upheaval. The market is being led by the largest companies on earth, behemoths that technology and social media created. The Magnificent Seven together have a market cap exceeding the size of every economy in the world, save one.

These few companies account for 40% of the market rise, but in the last few months a lot more breadth has taken place. Now small caps, as measured by the Russell 2000, appear ready to follow suit as the US economy moves into its post-post-pandemic phase. Meanwhile unemployment in the States has been under 4% for two years – a remarkable feat. Wages in both America and Canada are growing a lot faster than the rate of inflation. GDP numbers out at the end of this week are surprisingly strong. And CBs are getting primed for the first, critical, policy rate drops about ten weeks from now.

For these reasons – optimism about the future, not debilitating nostalgia for a lost past – the market has been advancing. Seems there is more to come. And remember that over past decades, equities have eclipsed every other asset class, including real estate, for growth.

Of course there’s also volatility inherent in the market. Investors who try to amp up returns by betting on individual stocks can be destroyed as easily as they’re rewarded. So the wise water down risk by owning baskets of companies or an entire index through a low-cost, high-liquidity ETF. Further protection comes with balance – mixing equities with fixed income assets in the same portfolio. And by being global. Lots of Canadians have regretted having too much home-country maple bias.

This much seems clear: property investing is a minefield of regulation, taxation and manipulation. Prices are insane. The politics impossible. It’s getting worse.

Move on.

About the picture: “Hi Garth… attached are some photos to “fight back” against the onslaught of feline fanciers,” writes Bob. “This is Tobi!”

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