The stagger

Hard to keep up, eh?

Well, there are three things to keep in mind today as you worry (don’t we all?) about your portfolio, your investments and your daughter’s condo lust.

First, the economy. It has three cracked ribs and a torn spleen, but is still staggering ahead. The latest numbers show growth of 1.7% (annualized) in the first three months of this weird year, less than the 2% economists expected and way behind what Tiff forecast.

No disaster, of course. Growth is growth. There’s no recession now, and none forecast – unless the interest rate vise stays tight. Consumer spending is okay. Real estate is not. The construction business is on life support. Yesterday we talked about the banks – where there are piles of bum loan funds set aside and mortgage portfolios stuffed with distressed mortgages. Like we said, staggering forward. But towards what?

Next Wednesday morning, of course. Decision day for the CB.

“Underlying growth remains well short of potential, and slack is building for the overall economy,” say the economists at BeeMo (which took a market pummeling this week). “For the Bank of Canada, we believe the main message is that the output gap is widening, as reinforced by a less-tight job market, modestly increasing the chances of a rate cut next week. There are respectable arguments on both sides of the decision, but we believe the balance of evidence points to a cut—we’ve been calling for a June cut since late last year, and will stand by that call.”

They’re not alone in reaching this conclusion.

“Activity looks even more sluggish when accounting for population growth,” says CIBC. “Policymakers are therefore on track to deliver the first dose of interest rate relief at next week’s meeting.”

The country’s biggest financial behemoth agrees. Down she goes on June 5th. “The downside surprise in Canada’s Q1 GDP growth likely removes the last potential barrier preventing the BoC from easing off the monetary policy brakes with an interest rate cut next week.

“The economic data still hasn’t deteriorated in a way that is forcing urgent BoC action, but a slow bleed over the last 2 years has left per-capita output back at 2016 levels (and little-changed from a decade ago), the unemployment rate is up a percent from a year ago, and month-over-month increases in the BoC’s preferred inflation measures are running below the central bank’s 2% inflation target. Given that backdrop, there is little reason for the Bank of Canada to wait longer to begin at least a gradual easing cycle and continue to look for a 25 basis point cut to the overnight rate next week.”

So, the Bay Street boys forecast a cut. Mr. Market (as judged from the swaps) expects a rate drop. Yesterday we told you our non-financial finance minister says the time is right. Builders, realtors, lenders and borrowers all want (and anticipate) a lower prime. Real estate boards have been telling people it’s coming. A survey this week showed consumers are sitting on their hands waiting for this to occur. And while some people want rates to stay (or rise) so houses get cheaper and their GICs can pay 6%, that’s likely a futile wish. Soon we shall know.

Also news today, a better-than-expected report out of the US. Core inflation wilted a little in April to the lowest pace this year. It suggests that wee bout of rising prices a few months ago was an aberration, not a harbinger. Good news.

The not-so-good news is that core inflation, annualized, at 2.8% is still higher than the Fed wants, and so no rate drop will be happening until later in the summer or possibly the autumn. Also a reality is a decline in income growth and a reduction in real disposable income. So, yeah, tougher for families to function, especially those carrying debt. The US savings rates has also fallen, now at 3.6%, which is considerably less than the year-long average of 5.2%.

And this brings us to this guy.

Polls show a majority of Americans think the economy is bad. It’s not, of course. Unemployment has been the lowest in 60 years, GDP is growing, corporations are making bank, the stock market just hit 22 new record highs and incomes have been running ahead of inflation for all of 2024.

But prices have popped and every single day citizens and voters are being told America’s in decline, overrun by immigrants who are mental patients or terrorists, that the social contract is broken and the system is rigged against average folk, amidst a middle-class meltdown.

The champ is Trump. I will save you, he says. And polls show he has a fighting chance of regaining the Oval Office next January. So now he is a convicted felon, guilty of criminal offences as well as having lost sex abuse and defamation cases and being found guilty of massive business fraud, while facing three more trials.

These things have not diminished his base support or fund-raising, but unknown is the impact on swing voters and independents, as well as moderate Republicans and people who will never vote for a criminal. Things just became more unpredictable.

The bottom line: volatility. The second half of 2024 will test us all. You know what to do.

About the picture: “Thanks to top G’s advice for a very early retirement,” writes David, “and the opportunity to visit the drive-thru butcher for daily treats. She will sit there and flick her ears for as long as it takes to get the attention of the great guys working there.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.