[Covariance]

Base case BoC next meeting; +75bps. [Alternative scenario +100bps at 10% probability]

 

[MrBlackhill]

What's this smell? Is it the smell of a recession?

3 more hikes max.

Canada Government Bonds - Yields Curve

Canada Government Bonds and Yields Curve. Updated charts and tables, agencies ratings, spread comparisons, current prices.

www.worldgovernmentbonds.com

 

[KaeJS]

Recession for sure. It's already here. Most people outside this forum just don't see it yet.

But it's already happened.

 

[MrMatt]

Recession for sure. It's already here. Most people outside this forum just don't see it yet.

But it's already happened.

It's not going to get better for a while unfortuately.

Bad policy is a BIG part of why we're here, and I can't imagine that they won't introduce a bunch more to "fix" the problem.

 

[Covariance]

Reversion to the mean.

 

[Juggernaut92]

More stuff will be on sale. Although energy stocks may remain elevated because of the energy bull run.

 

[damian13ster]

Energy stocks are actually looking quite attractive thanks to the massive drop in oil price.
The supply/demand hasn't changed. The underlying issues in energy markets might not change for next decade.
Current valuations are attractive even with oil price being around 80$ on average, and it is hard to see the price dropping significantly below that

 

[MrBlackhill]

People are so happy to see house prices dropping a bit... Do they know the maths?

Say we've reached a -20% drop now that rates increased... Oh, "now that rates increased" also means the 5-year fixed mortgage is a 4.1%, but in 2020 you could get a 5-year fixed at 1.4%.

Say you have $100,000 for down payment, comparing a house at $500,000 in 2020, now at $400,000, so the mortgage would be on $400,000 vs $300,000

$400,000 at 1.4% is pretty much the same monthly mortgage cost as $300,000 at 4.1%

But after 5 years, you'll have paid $69,000 in principal in the first case (17.25% of your balance) and $38,000 in principal in the second case (12.67% of your balance)

 

[MrMatt]

People are so happy to see house prices dropping a bit... Do they know the maths?

I thought it was obvious people didn't know math.

Financial literacy is pathetic.
I would say crisis, but that's so overused.

Also I'm glad that home prices are dropping, they're too high.
Of course crazy high prices also spur investment to build more homes, which will help the housing shortage. So from that perspective I'm not happy.

 

[m3s]

Ultra low rates are just as destructive and unsustainable as high rates

You should have to pay a reasonable rate to borrow money, and you should be rewarded a reasonable amount to save/lend money. The low rates gave us massive debt loads and wild speculation. It's a drug for the government because it increases taxes without upsetting the masses. People think they are rich when really it's just inflation and stealth tax raises

Repairing this backwards economy will be very painful. Thanks boomers

 

[AltaRed]

It has little to do with boomers alone. Everyone accessing cheap money they want to spend on goods and services and housing has jumped on board both the asset inflation and indebtedness ships. It's been gov'ts catering to the Gen-X and Millennial house buying crowd in the last two decades that has been highly responsible for house price appreciation. The dolts simply increased demand by easing acquisition costs, i.e. mortgage rates, amortization period, down payments, home buying programs, etc, etc. Every single incentive to make housing supposedly affordable simply increased demand and thus home prices. Almost nothing was done to stimulate supply.

 

[nathan79]

I thought it was obvious people didn't know math.

Financial literacy is pathetic.
I would say crisis, but that's so overused.

Also I'm glad that home prices are dropping, they're too high.
Of course crazy high prices also spur investment to build more homes, which will help the housing shortage. So from that perspective I'm not happy.

Or they've done the math and lower prices work better for them. Not everyone is taking a large mortgage (or any mortgage). Someone who has the minimum down payment will have much different math than someone who has a large down payment.

 

[MrMatt]

Repairing this backwards economy will be very painful. Thanks boomers

You realize it's the young people who put Trudeau in power, right?

 

[Gator13]

There is another important point that is not getting much coverage. The higher interest rates are going to have a massive impact on Canada's debt payments. The near zero interest rates have allowed the Liberals even more latitude to spend like drunken sailors. Canada's annual deficit is going to balloon as rates go up.

 

[m3s]

It has little to do with boomers alone.

Whether or not they catered to millennials and gen x, which is laughable, the boomers were the adults making the decisions. I imagine they catered to financial incentives. Everything is driven by financial incentives

You can't blame people for spending cheap money. I'd argue it is not Trudeau or the consumers but the central banks who set monetary policy and interest rates. Who made the decisions that led us down this path

You realize it's the young people who put Trudeau in power, right?

I disagree that young people put Trudeau in power but it doesn't matter because low interest rates pre-date Trudeau by a long shot anyways

 

[MrMatt]

I disagree that young people put Trudeau in power but it doesn't matter because low interest rates pre-date Trudeau by a long shot anyways

Liberals Won Majority Thanks To Young Voters, Poll Suggests

And millennials could be the biggest voting group in 2019.

www.huffpost.com

Forty-five per cent of Canadians aged 18 to 25 voted Liberal, compared with 25 per cent for the NDP and 20 per cent for the Conservative Party, the online poll of 1,000 suggests.

Yeah, Trudeau is the fault of young people.

The problem is FAR more widespread than just interest rates.

 

[m3s]

Forty-five per cent of Canadians aged 18 to 25 voted Liberal, compared with 25 per cent for the NDP and 20 per cent for the Conservative Party, the online poll of 1,000 suggests.

These polls are notoriously poor and misleading

For example it doesn't matter if 99% of self-reported "Canadians aged 18-25" voted for Spongebob Squarepants in a random internet poll of 1,000 suggests if 50% of actual Canadians aged 18-25 didn't actually vote for anything in the actual vote

Trudeau has little impact on the interest rate issue anyways and interest rates do indeed drive the entire economy. Just watch what happens to markets whenever central banks change direction

 

[AltaRed]

@m3s: You appear to have an unhealthy? obsession about boomers. ISTM repeated commentary of that nature over the past few years undermines objectivity and credibility you could otherwise bring to the discussion. Most government and central bank policy in recent times has been made by Gen-Xers. The youngest boomers are already 58 years old and the oldest ones in their late 70s no longer have much stake in the game.

The folks predominantly taking out auto loans and lines of credit are younger than boomers. Most boomers are most likely indifferent. As stated by others, it is the Gen-Xers and Millennials mostly voting in 'tax and spend' Liberals and NDPers so the programs being played in the housing game are targeted to those demographics. I don't know about HELOCs but I suspect it is mostly Gen-Xers and perhaps boomers. A substantial reset of house prices and interest rates will fix that over the next year or two.

All of our children are Gen-Xers or Millennials so we have a pretty good idea what these cohorts are doing.

 

[MrMatt]

These polls are notoriously poor and misleading

For example it doesn't matter if 99% of self-reported "Canadians aged 18-25" voted for Spongebob Squarepants in a random internet poll of 1,000 suggests if 50% of actual Canadians aged 18-25 didn't actually vote for anything in the actual vote

Trudeau has little impact on the interest rate issue anyways and interest rates do indeed drive the entire economy. Just watch what happens to markets whenever central banks change direction

Well I think government policy can and often does have a far larger impact than interest rates.

Lets take some examples.
COVID, the government turned off a significant portion of the businesses in the country, big impact.
9/11, massive economic shock
Ask Ukraine or Russia on how interest rates are affecting their economy.

Interest rates may be one of the most significant single tools, but it's just one of many.

 

[MrBlackhill]

$400,000 at 1.4% is pretty much the same monthly mortgage cost as $300,000 at 4.1%

But after 5 years, you'll have paid $69,000 in principal in the first case (17.25% of your balance) and $38,000 in principal in the second case (12.67% of your balance)

Counter argument to my point is that even though you paid fewer interests and more of your principal with a mortgage at 1.4% but higher house price, you still have more debt because in the first case after the 5-year term you still have $331,000 left on the mortgage and you'll renew at a likely higher rate, while in the second case you are left with $262,000 on the mortgage and maybe you'll renew at lower rate.

But then a counter-counter argument would be to take more things into account like how much money you've lost paying a rent over the past 2 years, etc.