The stock markets are acting like the consumer is going to rack up debt and spend what little savings they have like never before. Supposedly the consumer has the most savings in decades because of Covid restrictions.  If this is true, it may come as a shock to the experts, but some people might like the feeling of having savings and many will not spend.  Plus, much of the shopping has already taken place during the past 16 months because people had nothing else to do.  All one must do is look around any neighbourhood and you will see driveways with new cars, boats, RVs, and so on. It is believed that the immediate future will put the Roaring Twenties to shame.  We believe this will turn out to be a pipe dream. 

Stock markets continue to make new records based solely on hope. Both the TSX and the DJIA are trading around 25 times-earnings which means investors expect the combined profits of the companies making up the indexes to double in just under 3 years.  This will be the fastest on record.  At 100 times- earnings, investors expect profits on the NASDAQ to double within 7 months.  This is literally impossible.

Demand for real-estate will begin to dry-up this fall. Most people who wanted a house probably bought over the past 2 years taking advantage of the low interest rates.  It is estimated that 10 to 12% of today’s purchases are for investment.  When capital gains disappear, many of these properties will end up on the market. No matter which way one bends the numbers, when it comes to cash-flow, real-estate today cannot compete with dividends.   

Without increased immigration, Canada’s population will continue to shrink. Justin wants to let about 180,000 immigrants into Canada by year end. Yet, during May 275,916 housing units were under construction. Given there are over 2 people per household on average, it is safe to say that there is surplus housing. Sadly, Canada is becoming less appealing to foreigners because we have useless governments who are only interested in being re-elected rather than long-term prosperity.  There is not one person in Ottawa that has any idea of how to unwind the mess they have created.

Interest rates will be heading higher.  This is going to force prices lower for housing and all those extra toys in the driveway.  Ontario has already begun to feel the pain with many consumers defaulting on their mortgages, bank loans and rent. It will take close to two years for these cases to be settled considering the wait time for a first court appearance is around six months.  Plus, there is now a shortage of courts and judges.

The bottom line is markets are telling us utopia has arrived.  Unfortunately, soon reality will set in, and we will not be prepared. Like pre-Covid, there is far too much debt out there that needs to be wiped out.  Deflation is tomorrow’s biggest threat.  

Keep at least 30% of your portfolio in GIC’s or other insured money market vehicles and the rest in dividend paying shares.  Wait for the market to come to you.

We must issue a warning: most pension plans will find it difficult to maintain monthly payouts in the years ahead.  All pension funds must invest based on a 30-to-40-year horizon.  This means today they are big buyers of 30-year Government bonds paying roughly 2.5%, office towers, roads, and rental apartments that also offer dismal yields.  When the economy returns, these assets will experience large price drops because there will be higher returns elsewhere.  Real-estate and bond prices are at a peak and the decline in prices will force pension funds to hold onto the asset while earning a dismal cashflow.  With a slowing economy for years to come, plus excessive construction it is going to be a fight to maintain the monthly payouts.  Pensioners will not notice this change for a few years, but it is coming.  Pensions are going to shrink, so everyone that plans on one for retirement should begin to build up their savings to offset the cut in future pension payouts.