What’s going down

What now?

After the CB nipped its key rate a little this week, economists say two more cuts are coming by the time your pumpkin freezes. By mid-2025 we’ll be about 1.5% less than last week.

Why?

The answer lies in this morning’s jobs reports from Canada and the US. They did great. We suck. The maple economy is wobbling now while more Americans are working, markets rising and Fed rate cuts are coming off the table. Employment surged 272,000 in the States, but our gain of 27,000 was less than the monthly population increase – and most hires were part-time. Of those out of work in April, three-quarters were still unemployed in May. A worrisome stat.

Our central bank gods knew this was coming. The jobless rate has hit 6.2%, while in Joe Biden’s America it’s been below 4% for over two years. That’s a feat unequalled in six decades. Bond yields are rising on the presumption rates will not be falling, which will take some steam out of the stock market. (Why risk capital on more-volatile equities when bonds can pay decently?)

The second half of 2024 will likely be dishing up more surprises. We started the year with Mr. Market expecting four to six rate drops in the US. Now, zero. The American economy is incredulously strong, even while 56% of Americans (thanks to social media and you-know-who) think then country is in a recession with unemployment at a 50-year high. This explains how a convicted felon and fraudster can be the Republican presidential candidate and competitive with the incumbent. Up is now down.

Trump says the economy is crashing, families are being crushed by inflation and debt while jobs are gushing offshore, especially to China. At least half the population believes him, despite this…

Source: New York Times

So, it’s a time for caution. Prudence. Investors should be careful to keep both growth and fixed-income assets in their portfolios, with that 25% US dollar-denomination in place and a global exposure. You can rest assured Putin will be trying to take advantage of the volatile American presidential race with a new war offensive, while Netanyahu seems out of control and Xi is desperately trying to stem a real estate collapse. We’ll get through this, but expect some rogue waves to be coming over the gunwales. My portfolio-manager buddy Doug will have more to say on this tomorrow.

What to expect with real estate?

Listings have been surging in most markets. Prices fell in the GTA last month for the first time this year. Sales have been sad for a few months. The spring market never happened. This was the second soggy rutting season in as many years. We reported here a few days ago on the crash in new-builds, with reductions up to 90% in some markets (Hamilton-Burlington). There is now a 0% chance any construction targets for the nation will be met in 2024 or the foreseeable future, despite the billions government have just spent.

As inventory rises, though, financing costs will gradually fall. Sales are likely to improve, but not rapidly. Financial volatility, Trumpism, war and doggedly high prices will keep a lot of buyers sitting on their hands. The mass exodus now happening among the ranks of US realtors could be copied here. An astonishing number of agents have not sold a single house all year. In an eat-what-you-kill profession, people can only hold out for so long.

In short, this could be the rarest of times. Rates fall, yet prices stagnate. Perhaps even wilt a little as listings accumulate and the public mood sours. Recession is a possibility in Canada, but by no means certain. And behind us all will be the steady drumbeat of negativity coming from oppo politicians, conspiracy-theory zealots and grifters who want you to believe the worst. Thus far, their influence has been alarming, outsized, disproportionate. No wonder Trump just got onto TikTok.

Stay invested. Stay away from debt. Stay employed. Stay here. You’ll be fine.

About the picture: “I’m a long time fan and follower of your blog,” writes Maria. “My husband and I met you once too in your office in TO. You gave us some sound advice. Some we followed, some we didn’t. But overall I think we’ve done fine. Anyway, after many years of longing, thanks to WFH, I finally get to have the pleasure of the company of doggos. Here is Robbie (on the left) he’s 3 years old and part bichon, a very naughty boy but so so sweet. Beside him is Sadie, she’s 8 and part Westie. She was here first before Robbie and, rightly so, she’s the boss of him. We let her because she deserves it for being such a good girl.”

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