Careful

Never buy a dog when you're drunk

Another one bites the dust.

Days ago a big GTA-area developer went paws up, filing for bankruptcy protection and leaving a lot of debris in its wake. Forme Development Group, out of Markham, has specialized in building low-rise, high-rise, mixed-use and hospitality developments. But no more. The company says it has $220 million in debt and can’t make payments despite having 18 projects on the go in the Toronto region, Waterloo, Niagara and Prince Albert out there in the flatlands.

Forme says in court documents it has “been experiencing increased stress on its cash flows for the last year, which has led to occasional late and missed debt payments.” And this: “In recent months, however, the company has encountered serious liquidity issues  due to  a slowdown in the real estate market in the GTA, as well as delays in planning and development of several projects resulting from municipal delays. Consequently, the company can no longer advance its projects since it does not have the liquidity to pay development costs.”

The outfit has scrounged up five million to keep going until its various projects are liquidated. So if you were planning to move into a new Forme town house in Mississauga or Toronto, a condo in Waterloo or the GTA, good luck. Remember the GreaterFool Guide to Buying Real Estate – Rule 7: never purchase anything you can’t yet pee in. If it doesn’t exist, it’s a futures play. And this is what can happen.

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It’s disasters like Forme that have a Big Rethink going on right now over the mortgage stress test. Builders, realtors and some provincial politicians have been seriously lobbying Ottawa to back off this sales-killer, or at least cap the beast. Without a doubt this thing has squished credit, squashed moisters, dampened sales and erased the profits of people who gambled that housing demand would continue despite whatever regs the feds came up with. (Look at what just happened to sales in Vancouver. Shudder.)

As you know, the stress test was the immediate result of banks’ mortgage portfolios getting too ugly for the regulator to gaze upon. Thanks to the Bank of Mom, tons of unqualified kids were buying houses without mortgage insurance because they were gifted 20% downpayments and could escape close scrutiny. So the bank cop put his foot down and declared everyone be tested to ensure they could make the payments. Okay, we get that, the industry says. But did you have to make it so extreme?

So the pressure is on to have the qualifying rate (now at the bank offer +2%) capped at a lower level, and not float up with future rate hikes. I hear this is exactly what will happen in 2019. By the way, don’t be shocked if Ottawa – going into an election year – also allows 30-year amortizations again (with CMHC coverage), plus mortgage insurance for properties selling over $1 million.

You can draw your own conclusions. Maybe someday we’ll elect people with spines.

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Tuesday’s big dump on stocks was a complicated thing, it turns out. Trump bragged about his deal with China, then reversed himself in a tweet (“I’m a tariff man,” he foolishly wrote). A Fed official said some hawkish things just days after the market figured rate pressures were easing. Bush’s well-earned state funeral shuttered markets on Wednesday, forcing traders to cover positions. And the yield on long bonds flopped, making people wonder if debt markets were forecasting slower times ahead.

In any case, one day does not a market make. And for investors with balanced, diversified portfolios it was just noise. Ignore it.

A more fundamental issue is if central banks will continue to tighten in 2019, or back off – as Trump has demanded. So here is what TD Economics says in a fresh report: (a) next year will be Peak Rate in Canada and the US. (b) Any sharp drop in consumer or business confidence (including real estate) will help kill more increases. (c) Given debt-drenched households and a wonky energy industry the Bank of Canada will blink first.

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When GM restructured, punting 2,500 workers in the iconic Oshawa plant, it was a huge story. But that may be the just the start of an unwinding of our car business, despite the USMCA. Next up – Ford.

While the company disputes it, Morgan Stanley analysts are sticking with a report saying the company is about to axe 70,000 workers across its global platform in a $11 billion restructuring as it, too, gets ready for a future with fewer cars, more autonomous vehicles, electric models plus way fewer grunts on the assembly line and white shirts watching them. In the crosshairs might be the sprawling complex in Oakville where 4,500 people toil. Current production includes the Edge, Flex and two Lincoln somethings.

Let’s hope not. But lately I’ll believe almost anything.