Prosperity and ruin

Confused? Who isn’t?

The smarties at Citibank think Trump will win and Republicans will take over both the House and the Senate in the elections hurtling towards America. So, they say, stocks will rally more because the guy has promised a honking big corporate tax cut (there’s a reason Elon and Bezos suck up to him).

They also say wise people should then sell – because inevitably the US would be thrust back into high prices and inflation (thanks to tariffs) leading to more rate hikes and a heap more debt.

What if she wins?

Then stocks would slump, the analysts figure, since Harris wants to tax corps and rich people more. In that scenario, Citibank says you should back up the truck and buy.

Of course, the best path is to be balanced and diversified, own low-cost growth ETFs with global exposure along with fixed income, and do diddly. The world is too volatile, unknown, angry (look at recent blog comments), polarized and wonky to gamble. Play it safe. Go B&D, and throw every sous you can into registered accounts like your TFSA and that crazy gift called the FHSA.

But wait. What about last night?

K spoke to a crowd estimated at somewhere between 52,000 and 75,000 people in Washington. Those are Taylor Swift stats. And she didn’t don a sequined bodysuit to get them. It eclipsed anything Trump has seen. Hours later came economic news repudiating pretty much all of the former president’s claims. The country is not declining. Living costs are not exploding. The economy is not ruined.

GDP grew at just under 3% for the second quarter running. (Our rate was 1.1% last year and has been less than inflation for more than a year).

Says BMO Economics: “there wasn’t much not to like in today’s GDP report. As expected, we saw big support from all the major domestic spending categories, including consumer spending, business investment, and government. Final sales to domestic purchasers increased at a stunning 3.5% annualized pace in the third quarter, a notable step up from the second quarter’s 2.8% increase, suggesting that the U.S. economic expansion continues to operate on nearly all cylinders. Real consumer spending growth was robust in all categories last quarter.”

Yeah, that’s the Biden-Harris economy. Inflation is now down to 1.8%, says the new report. Consumer spending up. Interest rates coming down. Corporate profits robust. Stock markets at record levels. Unemployment just 4% – close to the lowest point in half a century. And Trump is telling Americans the nation’s ‘on the verge of collapse’. He should come here for a week. Sheesh.

So what’s it all mean for us?

Well, US rates will be moving down more slowly. America does not (unlike us) need a kick in the butt. But the Bank of Canada will continue with its chopping. So expect the gap between the two countries to widen, putting downward pressure on the loonie. As mentioned here a couple of days ago (to the chagrin of The Cult and PP’s disciples) the abrupt, kneejerk immigration slash will also have an impact. Not the kind you thought.

Yup. Cheaper mortgages are on the way. The spring real estate market – now only 100 days away – already has realtors and lenders salivating. If you really, really, really need to buy, maybe pick a snowstormy day in January. Not when all the saps are running.

As for investments, a fattening US, low unemployment and spendy consumers suggest more corporate profits and higher equity valuations. Yeah, a Trump win could push things further and a Harris win may trigger days of profit-taking. But it’s monetary policy (rates) and earnings (profits) which move markets. And we seem far from a ceiling. Stay invested. Who wins is irrelevant over the long-term.

Finally, some are saying the real estate doldrums have already passed – at least in the big pools of insanity and FOMO like Van and the GTA. There’s been a “change of heart in the panic-stricken”, says veteran broker Robert Ede. He’s calling July as the market bottom.

“We were off [in price] 30%, and now it’s 20%,” he says. “Will prices drop more? No. The October sales jump was either a blip or the start of a trend. And it’s a trend” (By the way, a Scotiabank report finds almost 60% of the 18-43 set who are houseless are determined to buy – despite all the moaning and wailing.)

And what about our politics?

Poilievre just announced a Con government will drop the HST on sub-$1 million new-builds. That will save buyers $40,000 or more, he claims (not understanding builders need the funds to offset tax paid, or base prices rise).

Of course, this is intended to increase demand for houses. Just like the 30-year amortizations, the higher CMHC price cap and lower downpayments. Add in a sales tax chop, more CB interest rate decreases and pent-up demand from two years of crappy rutting-seasons and – once again – politicians are doing a fine job of screwing things up.

All of them.

About the picture: “Just read the Down We Go blog post. Caused me to want to reassure you that you are not alone and that your daily column is greatly appreciated,” writes Bruce. “Doom scrolling and social media are a huge blight on the world. What ever happened to open mindness? need to find it again. Please keep up your great work. This is Nellie and our daughter Marie overlooking Nelson BC. Get Outside and everything is better!”

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Source: https://www.greaterfool.ca/2024/10/30/prosperity-and-ruin/