I have been in the investment business for 57 years. Never have there been 4 major assets trading at the same time in the stratosphere.

Over $1t went into crypto currencies in October. Meanwhile at the same time a handful went broke and disappeared. New cryptos are rising daily. It is estimated there are now 11,000 in circulation, up 30% in six months. The price of Bitcoin traded above $69,000 in November. This makes no sense because it is backed by nothing but wishful thinking and promotion. It is the perfect house of cards.

An article in The Economist read that “in Britain the average home currently costs more than 8 times average earnings; a level that has only been breached twice in the past 120 years”. In Canada we are paying roughly 6 times for the average home ($672,000 and rising). Places like Toronto and Vancouver are above 10-times incomes. In the U.S. this figure is an affordable 4.3 times. They clearly have the last real-estate bust in the back of their minds.

The rule of thumb when applying for a mortgage is a 20% down payment and maintain a mortgage at 3- times household income. This can be around 4-times in a low interest rate environment like we are experiencing today. Based on the average house price across Canada, a 20% downpayment equates to $134,000? Other than the top 20%, who also often have trouble saving, who can save that amount in a reasonable amount time? Very few. This is the reason for so many resorting to big mortgages with less down payment.

The data company Teranet announced the largest segment of the national real estate market is now investors. “This group now accounts for 25% of all new deals and is the first time that investors have purchased more than first buyers (22%).” The company stated, “that in a “normal” market half of all real estate transactions are first-time buyers”. The Bank of Canada added to this and found that the number of mortgages taken out by investors in the last year doubled. “Loans to repeat buyers are up 60%. New buyers, in contrast, account for a 40% gain”. Real estate in Canada is a ticking time bomb.

Since the November issue the TSX hit its 58th all-time high for 2021. The Dow Jones hit its 42nd, and the S&P 500 broke its record for the fifty-fourth time this year. The NASDAQ created 46 new highs and is currently trading around 100 times earnings. When it comes to the NASDAQ, if earnings stay flat it will take only 100 years to get your initial investment back. Plus, this multiple implies investors believe that earnings will double in roughly 10 months which is impossible. There is no doubt about it, the NASDAQ is experiencing the Tech-bubble Volume II.

Based on historically price earnings ratios the TSX is around 30% above its norm since 1954. For the Dow Jones, it is 41% above its average since 1920. The NASDAQ and the S&P500 are trading 400% and 61% above their 67-year averages, respectively. Over the past couple of years earnings have increased slightly, but not enough to justify today’s share prices.

The third hot investment is Non-Fungible Tokens (NFT). Like crypto, they are pure speculative. An NFT allow investors to purchase a part ownership in rare assets like art or comic books. During November the prices for most of these tokens soared. The trouble with this market is there are no exchanges to trade on, nor records of the past trades and values. Many of these tokens are proving to be a fraud, leaving investors with nothing.  At least stock markets have the various security regulators. NFT and crypto have none. It is estimated $14.3b have gone into the NFT market this year. Investors beware – this will not end well.

Recommendations:

Only recently has gold started trading lower. Meanwhile crypto currencies are backed by nothing and have soared. Gold will always have value as history has shown. It is needed for jewelry, dentistry, electronics, and trade. Gold has also been a reliable indication of whether the world economic system is heading into inflation or deflation. Because the price is beginning to trade south, we believe deflation is coming.

The world today is in a massive cash bubble. There is too much money floating around looking for some party to join. History proves that markets always wipe out all this surplus. It will not be any different this time. We have no clue when the correction will arrive. It could be tomorrow or still 2 years away. But make no mistake about it, it is coming, and trillions will disappear over a short period of time.  

• Dump all investment real-estate, including the REITs.
• Keep at least 30% of your investment assets in insured GICs to protect your savings.
• Continue to invest in energy, Canadian banks and hold all pipelines. All three-offer incredible long-term value.

Make sure every holding has a long history of increasing the dividends. It will be dividends received that will be your portfolio profits during Trudeau and Biden’s leadership. Ottawa and the Greens will be determined to limit the vast potential of Canada for the next four years. Sit patiently and collect those rising dividends.

Canada is an energy producing country and will be for the rest of this century. Canadian oil and natural gas will be in great demand by locals and foreigners if Ottawa allows it. It is only a matter of time before Canadians will not stand for shutting down our country for climate scare reasons.