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December 22, 2023 | Get Ready for Excitement and Surprises in 2024
The year 2024 will be full of surprises and uncertainty. A possible recession, the direction for the stock market, the housing bubble in Canada and changes in interest rates and inflation are all on the agenda for investors as we enter a new year. What are some of the most likely surprises? A surprise cannot […]
December 15, 2023 | The Federal Reserve Makes a Full Pivot To Rate Cuts
The Federal Reserve announced a pivot to rate cuts, hinting at an end to the period since March 2022 of rate increases and tightening of financial conditions. When the Fed cuts rates, will it help? The Fed meeting ended on Wednesday with chair Jerome Powell confirming the consensus view — the next Fed move will […]
December 8, 2023 | Canadian Lenders are Sleepwalking into The Next Recession
Canadian lenders are ill-prepared for the impact of higher interest rates on Canadian borrowers. The banks have sophisticated models that help them make predictions about the future. But those predictions are only as good as the assumptions fed into the model. Are those assumptions realistic? With the help of Nigel D’Souza, research analyst with Veritas […]
December 1, 2023 | Canada Heads into an Economic Contraction
Canada’s economy is shrinking, based on per capita GDP numbers. GDP results showed a contraction for the quarter ending September 30, 2023. Is Canada in a recession? Will there be a household debt crisis? Canadian GDP numbers, adjusted for inflation and population growth, showed a negative result for the third quarter. This means that there’s […]
November 24, 2023 | Gold Is Due For A Rally
The price of gold jumped above $2,000 per ounce this week, as the market started to expect an interest rate cut in 2024. Gold and gold shares have performed well during recessions and during periods when the stock market sold off. The price of gold has performed well in the last seven recessions, when US […]
November 17, 2023 | Wind Power Growth Hits a Major Bump in the Road
Wind power was predicted to boom in the U.S., partly due to incentives under the Inflation Reduction Act. Plans to build offshore and onshore wind turbine farms were expected to create a surge in capital investment and provide substantial new sources of renewable energy. The offshore wind power capacity was forecast to reach 30 gigawatts […]
November 12, 2023 | Canadians are Drowning in Debt
Canadians are drowning in debt — of all three types. The total amount owed in government, household and corporate debt has soared since 2010. Of particular concern today is the rapid increase in federal government debt since 2020. Can Canada escape this debt trap? We know that Canada has had a growing household debt […]
November 3, 2023 | The Federal Reserve Issues a Margin Call
The Federal Reserve kept rates unchanged this week, at the highest level since 2001. The chair, Jerome Powell, insisted that the Fed might have to hike more, if inflation does not behave in the next few months. The last rate hike in the U.S. occurred in July 2023, after a streak of 11 hikes that […]
October 27, 2023 | The Bank of Canada Needs To Worry About a Recession
The Bank of Canada kept its official interest rate at 5 percent on Wednesday, October 25, 2023. The Governor, Tiff Macklem, emphasized that the BOC is willing to hike rates higher if needed, as he is not happy with the rate of decline in the inflation measures. But the BOC also issued a lower forecast […]
October 20, 2023 | Banks Need To Revise Their House Price Forecasts Down a Lot
Forecasts of increasing house prices in Canada by the economics departments of the large Canadian banks are wildly optimistic. This matters because it directly affects the risk assessment for their most important lending division — mortgage and consumer loans. Will they revise these forecasts lower in their reports for the year ending October 31 2023? […]
October 13, 2023 | The Attack By Hamas Increases The Chance of a Wider Conflict
Last week Israel was attacked by Hamas, shocking the world. But stock markets and the price of crude oil have demonstrated remarkable complacency after this momentous event. Is this just another skirmish in an area that has been in conflict for decades or will there be serious repercussions? The classic event that the world did […]
October 6, 2023 | A Collapse in Bank Lending is Ominous
A collapse in bank lending is damaging for the economy, as growing credit is the most important fuel of modern economic systems. Without an annual increase in debt outstanding, a recession becomes almost inevitable. Will the current downturn in bank lending to commercial and industrial clients trigger a recession? Commercial and industrial lending peaked in […]
September 29, 2023 | Extremely Low Rates Triggered a Mania Like the Tulip Bulb Story
History will judge that the long period of low interest rates, which endured from 2009 to early 2022 was a colossal mistake. Investors piled into fixed income assets that were extremely overpriced based on rates close to zero. And now most assets that are sensitive to rates are repricing sharply downward. Last week we saw […]
September 22, 2023 | Stock Market Traders Wishing for Rate Cuts Will Be Disappointed
The U.S. stock market sold off this week after the Federal Reserve announced that rates will have to stay higher for longer. But the stock market should be careful what it wishes for. The record shows clearly that rate cuts are usually bad for the stock market and the economy. This week Jerome Powell, chair […]
September 15, 2023 | A Minsky Moment For Canada Has Arrived
Canada’s Minsky Moment has arrived, as the demand for new credit slows and a substantial portion of household mortgage borrowers are not paying the interest on their debt, much less repaying the principal. Hyman Minsky was an American economist who focused on the business cycle and debt. Since mainstream economics ignores debt, banking and financial […]
September 8, 2023 | The Bank of Canada Pauses But Rate Cuts Are Not Coming Soon
The Bank of Canada goes on hold, with no rate hike this week. But those expecting significant interest rate cuts any time soon will be disappointed. The end of the multi-decade period of declining rates passed without much fanfare. But rates in Canada are now as high as they were 23 years ago. This happened […]
September 1, 2023 | Crude Oil Demand Will Suffer as Transport Goes Electric
While the world’s crude oil consumption will soon start to decline, many investors expect there will be robust demand for crude oil for decades to come. But it is not too early to analyze the impact of declining demand for crude oil when choosing long-term investments. Most investors based in Canada, and especially Alberta, believe […]
August 25, 2023 | Solar Energy Capacity For Electricity Production Soars Worldwide
The pace of installations for new solar electricity production continues to surprise everyone, even industry insiders. Close to 400 gigawatts of capacity will be installed worldwide in 2023, with forecasts for as much as 563 gigawatts in 2025. Solar is now cheap and easy to install, especially on residential rooftops where permitting is not a […]
August 18, 2023 | Inflation Moderates But Still Could Bite Hard
The headline measure was recorded as 3.2 percent from a year ago, while the closely watched core CPI was a more troublesome 4.7 percent. Is inflation beaten yet? In the mid-1970s a concentrated advertising campaign was orchestrated by the U. S. government to demonstrate a willingness to beat inflation at all costs. President Ford named […]
August 11, 2023 | Deflation Risk in China is Real
The risk of deflation in China is real. A moderating pace of growth, large private sector debts and a slowdown in the crucial property sector suggest lower income, prices and deflation. Is China entering a debt deflation spiral? China has enjoyed a longer-than-four-decades income and wealth expansion that has rarely happened in the thousands of […]
August 4, 2023 | Ratings Agency Downgrades US Debt Triggering Widespread Criticism
The U.S. government bonds were downgraded a notch by the ratings agency, Fitch. This means the safety of the US treasuries has slipped and there is growing concern about the longer-term outlook for debt. Is the U.S. government at risk of default? Economists reacted negatively to the downgrade with Larry Summers calling it “absurd” […]
July 28, 2023 | The Federal Reserve hikes rates again
The Federal Reserve hiked interest rates again, to 5.25 percent to 5.5 percent. This is the highest Federal Funds rate in 22 years. The Fed has stated that it is determined to wrestle inflation back under control, which means getting to its 2 percent target or lower. Has the Fed gone too far in this […]
July 21, 2023 | China Property Market Struggles with Debt Bubble
China began a new stage in its multi-year struggle with insolvency among property developers. One of the biggest, China Evergrande, reported losses of US$81 billion this week. Will massive debts of US$207 billion dollars in the property sector drag China down? The property sector started to contract in 2021, after a brief post-COVID surge. Recent […]
July 14, 2023 | The Bank of Canada is More Worried About Inflation Than a Recession
The Bank of Canada raised its interest rate again this week, the tenth increase since March 2022. The new level, at 5 percent, means that many borrowers will face rates of 7 percent and higher on bank loans and mortgages. Why does the Bank of Canada keep raising rates? The Bank of Canada (BOC) set […]
July 7, 2023 | Value Investing Will Come Back
Value investing as a style should be doing better during this period of rising interest rates and growing recession fears. But growth investing continues to perform better than value investing by a wide margin. Will value investors ever dominate again? Value stocks are defined as “cheap” when using metrics like share price to book value […]