David Raymond Amos@DavidRayAmos
Replying to @DavidRayAmos @alllibertynews and 49 others
Methinks anyone can Google Fundy Royal Debate to view what I say is true and
to help them understand why my political foes within the federally
supported SANB are on the attack N'esy Pas?
Last week's gloom and doom has not seized Canadian economy yet
486 Comments
David R. Amos Methinks its a hard rain gonna fall N'esy Pas?
Steven
Arsenault
Reply to @David R. Amos:
I'm voting you down just for that N'esy Pas.....it needs to go.
David R. Amos
Reply to @Steven
Arsenault: Methinks you forgot to ask if I cared that you find my Chiac
offensive. Need I say that I bet Premier Higgs and his Deputy Gauvin
would agree that last week was a rather telling thing about who can use
that lingo and who cannot N'esy Pas?
Steven
Arsenault
Reply to @David R. Amos:
Me thinks you also forgot to ask if I care..... N'esy Pas?
David R. Amos
Reply to @Steven
Arsenault: Methinks I should bring your concerns up as I debate in Fundy
Royal again during the upcoming election of the 43rd Parliament N'esy
Pas?
David Lugli
Reply to @Steven Arsenault: i think you do ---you responded with instructions
David R. Amos
Reply to @Steven
Arsenault: Methinks a lot of folks know I predicted this recession long
before the brand new Potash Mine closed in Sussex N'esy Pas?
David R. Amos
Reply to @david
lugli: Instruction or not methinks anyone can Google the following to
view what I say is true and to help them understand why my political
foes within the federally supported SANB are on the attack N'esy Pas?
Fundy Royal Debate
Last week's gloom and doom has not seized Canadian economy yet: Don Pittis
Can the economy withstand the latest barrage of gloomy economic news?
A flood of domestic fruit and veg will likely help push headline inflation down. (Don Pittis/CBC)
A glance at the business headlines over
the past week might have left you thinking the world was on a fast
track to economic Armageddon.
Markets crashed. There were
renewed warnings about the inverted yield curve, which, almost
bizarrely, has moved from economic arcana to bar chatter. Banks in
Denmark offered to pay interest to mortgage seekers to encourage them to borrow money. The world seemed to have turned upside down.
For
Canadians trying to comprehend our place amid reports of chaos, this
week offers two more beads on the thread of Canada's
ever-evolving economic story, inflation on Wednesday and retail sales on
Friday.
And
whether we are whistling past the graveyard, or somehow strangely
sheltered from the global economic turmoil, there are plenty
of indications Canada is not following a path insinuated by the past
week's gnashing of teeth. At least not yet.
"We
are currently at a time of a lot of uncertainty," said economist
Farah Omran last week.
"Domestically the Canadian economy is doing fine.
Housing seems to be rebounding while employment is good."
Out of sync?
Omran,
a policy analyst with the C.D. Howe Institute, a Canadian economic
think-tank, was co-author of a report last month examining why Canadian
inflation was out of sync with the wider economy.
One
factor, the research concluded, was that economic improvements for
those with lower income tended to spur higher inflation, because people
strapped for cash are more likely to spend everything. That spending
helps to bid up prices.
When the economy instead is
rewarding people at the high end, they are more likely to invest than
spend, and inflation stays lower.
And while the latest
employment numbers showed Canada lost jobs, employers are still crying
out for workers to fill some 400,000 empty positions if only they could
find the right people.
Canadian employment remains strong, and despite some recent job losses wage growth remains at the highest level since 2009. (Don Pittis/CBC)
"Employment
is still strong and wage growth actually went up really well," said
Omran. "It was the strongest increase in wages since 2009."
According to the rationale of the Phillips Curve, recently given pop status
when U.S. Rep Alexandria Ocasio-Cortez earned kudos for her question on
the subject to Federal Reserve chair Jerome Powell, rising wages should
help push up inflation.
But as Omran said, in a complicated world, no single cause shapes the inflation figure.
In
general, higher inflation is a sign of a strong economy, showing that
consumers and businesses are using up spare capacity, including labour.
But
when food prices fall because the Canadian harvest comes in, that makes
people better off while recirculating money in the domestic economy.
Energy costs, which have been falling in spite of fear mongering over
carbon pricing, have a dual effect, making consumers better off but
starving the oil-producing regions of income and jobs.
Americans still shopping
On
Friday a poll of bank economists by the business wire service
Bloomberg showed a consensus that inflation would fall from two per
cent to 1.6 per cent, with retail sales declining by 0.3 per cent, as
falling auto sales weighed on dealers.
However,
gloomy prognostications south of the border did not pan out. Last week
U.S. core inflation, a figure that leaves out volatile food and energy
prices, rose sharply for the second month running.
On Thursday, sharply
higher retail sales surprised U.S. markets, seemingly indicating that
consumers have not been put off by global signs of distress.
The
U.S. and Canadian economies are heavily dependent on consumers, and
there are signs that gloomy headlines may be having an effect. (Carlo Allegri/Reuters)
As
to the wider machinations of the global economy, Omran says they will
have an effect in Canada.
New economic stimulus abroad in the form of
low or negative interest rates will make Canadian imports cheaper,
pushing inflation lower. But by pumping up the economy they may also
stimulate foreign demand, including for Canadian products.
A
general weakening in global manufacturing, notably in Germany and
China, damaged by the U.S.-China trade battle, may hit Canadian exports
of raw materials, though there will still likely be demand for products
such as food and gold.
A general fall in demand for oil is
likely to hit expensive producers first, one possible reason why the
Koch brothers sold out of Canadian oilsands investments earlier this
month.
Relatively isolated from oddities
So far the
Canadian and the North American economy, based on services and on trade
within the NAFTA area and most of all dependent on consumer
spending, has been relatively isolated from oddities such as negative
mortgage rates.
But with consumers so crucial to the economy, negative headlines and global gloom may already be having an effect.
New
data from the U.S. released on Friday showed that consumer sentiment
fell to its lowest level in seven months, partly motivated by interest
rate cuts by the Federal Reserve, said Richard Curtin, the economist in
charge of the survey conducted by the University of Michigan.
"Consumers
concluded, following the Fed's lead, that they may need to reduce
spending in anticipation of a potential recession," said Curtin.
Ironically,
the rate cuts that U.S. President Donald Trump championed as a means of
stimulating the economy may actually be having the opposite effect.
Don
Pittis was a forest firefighter, and a ranger in Canada's High Arctic
islands. After moving into journalism, he was principal business
reporter for Radio Television Hong Kong before the handover to China. He
has produced and reported for the CBC in Saskatchewan and Toronto and
the BBC in London. He is currently senior producer at CBC's business
unit.
A
share trader reacts as he sits behind his trading terminal at the
Frankfurt Stock Exchange. More than one quarter of all the government
debt in the world is currently paying out a negative yield, including
all of Germany's. (Kai Pfaffenbach/Reuters)
Sure, maybe if you were the captain of a ship full of sorghum, changing direction on the high seas with each new presidential tweet, you might sense the tides were shifting. And anyone trying to buy a Harley Davidson in Hungary was likely also keenly aware that there was some funny business afoot.
But unless you happened to be a Canadian exporter of steel and aluminum or a Mexican avocado farmer, it was perhaps easy to think the world of international trade was largely business as usual.
Not
anymore. Markets were whipsawed this week by the slow realization that
the outlook for the world's economy isn't getting better — it's getting
worse. And while 800-point drops for the Dow Jones index tend to
generate a lot of headlines, it's what's happening in some far more
under-the-radar indicators that are the best signs of just how wacky the
economy is getting.
Negative rates
Bond yields don't
tend to get a lot of attention outside of the financial press, but their
behaviour in recent weeks is perhaps the surest sign of just how
topsy-turvy the global economy has gotten. Bonds are debt, issued by
governments and companies, that come with an interest rate attached so
that the people loaning out the money get a return over time.
Generally
speaking, bonds are seen as safe investments, which is why investors
only expect a few percentage points of return from holding them at the
best of times. But the fog over the economic outlook is so thick at the
moment that many borrowers are getting away with selling bonds offering a
negative yield.
Interest
rates have gotten so low that Danish bank Jyske has started offering a
negative-rate mortgage that actually pays the borrower. (John McConnico/Bloomberg News)
Anyone
buying that bond is willingly buying an investment that's guaranteed to
lose money, but investors are more than happy to buy it up — because
the fear is that alternative investments will fare even worse.
That
may sound great for anyone looking to buy a home in Copenhagen, but
it's very bad news for the world's economy, says Paul Gardner, partner
and portfolio manager of Avenue Investment Management.
"There's
something around $16 trillion of bonds around the world dealing with
negative interest rates," he said in an interview with CBC News this
week. "That's very unhealthy ... just because it has a feel of
instability."
Gold is perceived to be a safe haven, which is why investors flock to it during times of uncertainty. (Michaela Handrek-Rehle/Bloomberg)
"You always want to have positive interest rates," he said. "You want low, but you don't want negative."
Those
negative yields are filtering down into the economy in some truly
jaw-dropping ways. A Danish bank this week started offering a negative yielding mortgage
— meaning anyone who signs up will get money to buy a home, and then
get a tiny interest payment in their account every month to help pay
down the principal.
Yield curve has flipped too
As
much as one-quarter of all the government debt in the world is currently
upside down. And even the bonds that still eke out a tiny return are
flashing red warning signs of their own.
Under normal
circumstances, long-term bonds tend to pay out more than short-term ones
simply because it's a lot easier to forecast the short term than the
long, so a bond buyer demands a higher rate for a long term to offset
the risk of that uncertainty.
But
a funny thing has happened of late, in that yields have flipped —
long-term rates are even lower than short-term ones, — which suggests
investors have more confidence in the short term than they do over the
long term.
It
may be rare, but to Bruce Bittles, chief investment strategist for R.W.
Baird & Co., the yield curve inverting makes perfect sense.
"I don't think there's any mystery," he said in an interview. "It's because interest rates all over the world are plummeting."
"The Federal Reserve is going to have to come in and lower rates again, so the bond market is anticipating that."
Gold is suddenly soaring
If
investors think the world's economy is lurching towards recession, it
makes perfect sense that interest rate predictions are following suit.
And so, too, does what's happening in the investment that investors
often run to in times of fear: gold.
The glittering metal
touched a six-year high this week above $1,500 US as fearful buyers
poured money into what's perceived as a safe haven.
"When
investors are looking for somewhere to run, many view gold as an
attractive option, particularly when the world's central banks also seem
to believe the same," the analysts at RBC Capital Markets wrote this
week. "Rate cuts are back in style and ... global monetary policy is
indeed gold positive."
It would be ironic if central bankers'
desire to stimulate the economy caused investors to park their money in
an asset like gold that does nothing for the economy. But that's just
par for the course in today's uncertain times, according to author and
portfolio adviser Hilliard MacBeth.
"Moving into cash and gold is not what central bankers were anticipating when they pushed for zero rates," he said in a note to clients on Friday. "But in the strange world we live in today, expect the unexpected."
Stock markets sell off as inverted yield curve in bond market prompts recession fears
Dow Jones loses 800 points, TSX down almost 300
Thomson Reuters ·
The
yield on 2-year U.S. debt was briefly higher than the yield on 10-year
debt on Wednesday, a rare situation that suggests a lack of confidence
in the economy. (Alex Grimm/Reuters)
Bond markets are showing this week that they vehemently disagree.
Sliding bond yields and the inversion
of a key part of the U.S. yield curve on Wednesday for the first time
in 12 years show that bond investors have a far gloomier outlook for the
U.S. and global economies than the U.S. central bank.
"The
rates market rarely lies and globally it looks like it's expecting a
day of reckoning," said Tom di Galoma, a managing director at Seaport
Global Holdings in New York.
Investors are certainly feeling
fearful about the development. The Dow Jones Industrial Average plunged
800 points to close at 25,478 or almost three per cent on Wednesday, as
recession fears settled in for stock investors. The Toronto Stock
Exchange fared slightly better, down 300 points or almost two per cent
to 16,335 on the same fears.
"With the yield curve inverting it
certainly raises that [recession] prospect," Bruce Bittles, chief
investment strategist for R.W. Baird & Co., told CBC News. "I don't
think there's any kind of mystery as to why we're seeing this kind of
weakness."
Part of the fear that investors have is that central
banks may be running out of ammunition to stimulate growth as countries
offset each other's attempts to boost growth with looser fiscal policy.
Worsening economic data, weak inflationary pressures, the escalating U.S.-China trade war
and intensifying tensions between protesters in Hong Kong and the
Chinese government have boosted demand for safe-haven debt, sending many
European government bond yields deeper into negative territory while
the longest-dated U.S. Treasury yields have fallen to record lows.
The
inversion of key parts of the Treasury yield curve, in which investors
in short-term holdings get paid more than those in long-term ones, has
historically been a reliable indicator of a coming recession. Typically
longer term debt pays out more than short term debt, so when the outlook
for the short term looks better than the long term one, it's taken as a
sign of trouble ahead.
On
Wednesday, the yield on the U.S. 10-year Treasury note tipped 2.1 basis
points below two-year Treasury yields, the first time this spread has
been negative since 2007, according to Refinitiv data.
The
inversion rattled investors already worried that a U.S.-China trade war
might trigger a global recession and kill off a decade-long bull market
on Wall Street. Major U.S. stock indexes were down about two per cent
as a result.
"People are becoming more convinced that global
growth is weakening and people are starting to see some signs of
transmission into U.S. sentiment," said Gennadiy Goldberg, an interest
rate strategist at TD Securities in New York.
"That longer-end
rates are rallying does suggest some lack of confidence that the central
banks will actually be able to do anything about the slowing global
growth momentum," he added.
Fading optimism
At the
start of the year, markets and central banks were more optimistic on the
global economic outlook. The European Central Bank had just ended its
stimulative bond purchase program while the Fed was seen as likely to
continue hiking rates after raising borrowing costs four times in 2018.
That shifted in March, however, when the Fed abruptly brought an end to its hiking cycle.
In
conjunction with disappointing U.S. manufacturing data, the move
sparked broad repositioning that led the three-month/10-year yield curve
to invert for the first time since 2007. That was followed in July by
the Fed's first rate cut since 2008.
The U.S. central bank looks
better placed to ease conditions than many of its counterparts as it
still has room to cut rates. Bond markets are priced for two additional
U.S. rate cuts this year and a third in the first half of next year.
An inverted yield curve is usually a precursor to a downturn in the real economy. (Michelle Nichols/Reuters)
The ECB, meanwhile, is evaluating cutting rates further into negative territory and undertaking another bond purchase program.
The Bank of Japan is similarly looking at lowering its negative interest rates and expanding asset purchases.
The
Bank of Canada, meanwhile, isn't immune from the sudden movement toward
rate cuts, with investors pricing in about a one in four chance of a
rate cut next month, and odds that jump to better than 90 per cent by
next year.
By easing financial conditions, a central bank can
stimulate an economy by making business and consumer loans cheaper,
while the depreciation of the local currency that results from lower
interest rates can boost exports.
As central banks compete for
more dovish policies, however, they threaten to cancel each other out,
making each move less effective.
"The
reality is that central banks around the world are responding to a
diminished outlook, looking to cut rates and ease financial conditions,
so basically it means the Fed's not cutting rates in a vacuum," said Jon
Hill, an interest rate strategist at BMO Capital Markets in New York.
Last
week, the New Zealand central bank sent investors scurrying to
safe-haven currencies by cutting rates more than expected and indicating
that it may take rates below zero if needed.
A chorus of other central banks including those in India, Thailand and the Philippines also cut rates during the week.
"Overburdening
of monetary policy in recent years has made it almost ineffective, or
even harmful in some cases, as central banks are trying to address
problems beyond their control, with limited and often experimental
policy tools," Bank of America Merrill Lynch FX strategist Athanasios
Vamvakidis said in a recent report.
"We see signs that this is not a sustainable situation and may not end up well," he said.
Governments
have printed unimaginable amounts of money, inflating the money supply,
since 2008. A bank in Denmark just offered the first negative-yield
mortgage. Another recession is inevitable. What will we do this time? (Mark Blinch/Reuters)
Some economists seem to think that only a credentialed
economist has the right to be utterly wrong about an issue of economics.
Their contempt for amateurs — columnists with broad audiences, for
example — would sear the lungs if inhaled.
So, because criticism
just makes me feel so terrible, let me phrase a whole set of nagging
worries as questions. Can we agree there are no stupid questions?
Probably not. But let's try anyway.
Question No. 1: How in
heaven's name did we arrive in a world where you must pay someone to
borrow your money, and what does that mean to the punters? Like, um, me?
At the moment, there is more than $14 trillion US in negative-yielding debt extant in the world, meaning money is not just cheap, it's on sale at a loss.
Let's
put that sum in perspective: Canada's GDP in 2018 – the entire economic
output of a G7 country – was about $1.7 trillion US. Fourteen trill is a
huge chunk of global wealth.
Governments, many of them
European, are actually offering — and investors are buying — bonds that
are worth less at the end of five or 10 or even 30 years than their
purchase price.
Negative-yield mortgage
And a bank in Denmark is now offering a
negative-yield mortgage. Jyske Bank will lend customers a ten-year
fixed-rate mortgage with an interest rate of -0.5%, which means those
borrowers will actually pay back less than they borrowed.
As for
the punters, some have pensions, private and public, which, if this
trend continues, will be forced to severely reduce their payouts. Some
have RRSPs and other savings, which are subject to the same market
forces. The expectation my generation was raised on was that prudence
and parsimony would result in a nest egg later in life, which someone
would pay to borrow, which would help fund your retirement. Now,
apparently, we will have to pay someone to "hold" our money for us.
Bloomberg, the financial news agency, moved an explainer piece on all this last week, which suggested that this is all perfectly normal.
Relatively
flat economic growth in the developed world, explained the explainer,
combined with ever-increasing concentration of wealth, has left rich
people and companies sitting on vast piles of cash for which there is
weak demand.
The rules of economics being what they are,
theorized the author, it only makes sense that financial institutions
would begin charging to store this surplus money. After all, if you own
something really expensive, don't you have to pay to store it safely? A
safety deposit box costs money, doesn't it?
What the explainer avoided was where a lot of this money came from in the first place. Which brings us to Question No. 2: Governments
have printed unimaginable amounts of money, inflating the money supply,
since 2008. That must have consequences for the punters, right?
In
early 2008, before the criminal greed of America's mortgage and
investment bank industry nearly destroyed the world's economy, the
balance sheet of the U.S. Federal Reserve stood at about $870 billion.
(Speaking
of 2008, there is no better example of economists being wrong. Larry
Summers and Alan Greenspan, two economists who rose to manage much of
the American economy, not only didn't see the subprime crisis coming,
they both fought successfully against regulation of derivatives, which
are essentially bets on the rise and fall of asset values. Wall Street's
creation of ever more insane derivatives basically caused the meltdown
while regulators looked the other way.)
Then-Fed
chair Ben Bernanke and his fellow governors, desperate to avert
complete disaster, plugged in the money-printing machine (actually,
money printing is done electronically, with a few computer keystrokes).
The Fed balance sheet is now at nearly $4 trillion.
The
European Central Bank began printing money in 2015: $2.6 trillion Euros
over four years, or about 7,600 Euros for every person in the currency
bloc. Japan, the UK and Switzerland have all done the same in differing
amounts. The technical term for it is "quantitative easing."
The
central banks have used the oceans of new money to buy bonds from their
own debt-addicted governments, with the intended result of lowering the
cost of borrowing and encouraging risk-taking, which is at least one
explanation for the nosebleed stock market levels nowadays, and the
staggering levels of household debt here and in the U.S.
But there is serious pressure to do even more. Which brings us to Question Number Three: Winter
is coming, and so is another recession. It is inevitable; 10 years have
passed since the last one. What will we do this time? And…the punters.
One
thing central banks won't be able to do this time is lower interest
rates significantly. As negative rates are already here. U.S. President
Donald Trump, judging by his weekly rants about the incompetence of
Federal Reserve Chairman Jerome Powell, whom Trump appointed, seems to
think monetary policy should be in the hands of politicians like him.
(Now that would be a confidence-inspiring move, wouldn't it?). Trump
thinks cutting U.S. interest rates even further is just the ticket.
“Three more Central Banks cut rates.” Our problem is not China - We are stronger than ever, money is pouring into the U.S. while China is losing companies by the thousands to other countries, and their currency is under siege - Our problem is a Federal Reserve that is too.....
....proud to admit their mistake of acting too fast and tightening too much (and that I was right!). They must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW. Yield curve is at too wide a margin, and no inflation! Incompetence is a.....
Other politicians, on the left, are
promoting Modern Monetary Theory, which posits that governments can
print unlimited amounts of money without inflationary consequences. Some
even want central banks to just start sending cheques to every
household.
(Actually, Trump is right over there with the
leftists, if you think about it: pro-spending, pro-debt, and pushing for
even looser monetary policy).
And of course the central banks
are increasingly shackled by the fact that citizens and governments owe
so very much; at this point, having helped create this mess to save us
all from the earlier mess, they haven't much choice but to leave
interest rates where they are for many years to come.
This much
is absolutely true: we are in unknown territory, out past the "here be
monsters" sign. None of us has any idea how this will turn out,
economists included. As we saw in 2008, the collateral damage when
things start to go badly can be devastating. Personally, I have a bad
feeling about it all, but then I'm not an economist.
I'm with Bruce Springsteen, also a non-economist, who once put it this way: "Blind faith in your leaders … will get you killed."
By
"you," he did not mean the top .5 per cent, with their insider
information and high-speed trading algorithms and political influence
and vast, expanding piles of cash. They'll be fine. When Donald Trump, a
member of that cohort, said in 2015 that the system is rigged, he was
right, just not in the way he meant.
This column is part of CBC's Opinion section. For more information about this section, please read our FAQ.
Clarifications
A
previous version of this column suggested that Jyske Bank was the first
bank to offer a negative-yield mortgage. In fact, similar types of
mortgages have been offered before.
Neil
Macdonald is an opinion columnist for CBC News, based in Ottawa. Prior
to that he was the CBC's Washington correspondent for 12 years, and
before that he spent five years reporting from the Middle East. He also
had a previous career in newspapers, and speaks English and French
fluently, and some Arabic.
A
screen above the floor of the New York Stock Exchange shows the closing
number of the Dow Jones Industrial Average on Wednesday, Oct. 10, 2018.
(Richard Drew/Associated Press)
The Dow Jones Industrial Average, one
of the main stock indexes in the U.S., experienced its worst day of the
year on Monday dropping by 760 points or 2.9 per cent. After such a
dramatic drop, many investors wonder: is is a recession or bear market
coming?
Before answering this question, I thought I would
explain what caused the 760-point drop. Last week, U.S. President Donald
Trump announced a new 10 per cent tariff on certain goods that the U.S.
buys from China. In response China has allowed its currency, the yuan,
to depreciate against the dollar.
When the US imposes a new 10
per cent tariff against China, it essentially raises the costs of
Chinese goods by 10 per cent. However, by China allowing its currency to
devalue by 10 per cent, it negates the impact of the U.S. tariffs.
Historically,
China has pegged its currency to the U.S. dollar. Now, that is no
longer the case so global markets reacted negatively. This is why the
Dow experienced the dramatic price drop on Monday.
Since then, the Dow has rebounded and much of Monday's losses have been erased.
Recessions and bear markets are inevitable (as are recoveries and bull markets) so there is always one on the way. (Graeme Roy/The Canadian Press)
Is a recession or a bear market coming?
Recessions and bear markets are inevitable (as are recoveries and bull markets) so there is always one on the way.
A
better question might be: what conditions cause a recession and are
those conditions present in the current economic environment?
The
last 11 recessions were caused by one of three events: a spike in
commodity prices, the U.S. Federal Reserve (Fed) aggressively raising
interest rates or excessively high stock prices. Currently, commodity
prices are range bound which means they are not spiking. The Fed is
lowering, not raising interest rates.
The stock market valuation
of the S&P 500, Wall Street's benchmark stock index, is trading at a
25-year average of 16 times price/earnings; this indicates that the
market is neither cheap nor expensive. So that's the good news, based on
historical data, a recession in North America doesn't appear to be
imminent.
But
then there is the inverted yield curve, while not a perfect predictor
of a recession, it has a solid predictive track record. Inverted yield
curve occurs when long term interest rates are lower than short term
interest rates. This usually only happens if investors believe that
economic growth is likely to slow.
Over
the past six decades, whenever the yield curve inverted and stayed
inverted for at least 3 months, the economy entered a recession a year
or two later.
The yield curve is currently inverted and has been since March.
Currently, commodity prices are range bound which means they are not spiking. The Fed is lowering, not raising interest rates. (Getty Images/STOCK4B-RF)
While
recessions are inevitable as they are part of a normal market cycle, I
do not believe we will experience one until after the U.S. presidential
race.
Elections bolster economy
Historically,
elections years are favourable for the stock market. Over the past 21
elections, there has only been three years where the S&P 500 had
negative returns.
The
last thing Trump wants during an election year is a struggling economy.
As such, his government will be quick to implement strategies to
stimulate the economy and stave off a recession.
It is also in his
interest to get a trade deal done with China as he will want to bolster
his image as a "great deal maker" and take credit for growing the global
economy.
My "crystal ball" prediction is that we won't see a recession until 2021 or later.
It
is a guess and I reserve the right the change my prediction as new
information comes to light. For now I'm basing my decision on the
current economic data and the predictive power of the inverted yield
curve.
This column is part of CBC's Opinion section. For more information about this section, please read this editor's blog and our FAQ.
Mark
Ting is a partner with Foundation Wealth, where he helps clients reach
their financial goals. He can also be heard every Thursday at 4:50 p.m.
on CBC radio as On the Coast’s guide to personal finance. @MarkTingCFP
mark.ting@foundationwealth.ca
Dow at record above 27,000 as U.S. rate cuts look likely
Powell's testimony to Congress indicates key rate could be cut in July
CBC News ·
A trader works at the New York Stock Exchange, which moved above 27,000 Thursday. (Associated Press)
The Dow Jones industrial stock index
hit record territory above 27,000 points Thursday, as U.S. Federal
Reserve chair Jerome Powell reiterated the central bank is prepared to
cut interest rates to support the economy.
In testimony before
the Senate banking committee on Thursday, Powell pointed to the
U.S.-China trade war and signs of a global slowdown as reasons the Fed
might have to cut rates at the end of July.
The Dow closed at 27,088, up 227 points, mainly on the strength of tech stocks.
The
broader Standard & Poor also flirted with record territory above
3,000, before closing at 2,999, up from 2,993 at the end of Wednesday.
The
tech-heavy Nasdaq closed down 6.48 points after sinking from near its
technical high. Stock indexes around the world rose Wednesday on
Powell's remarks to the House of Representatives, hinting at lower
rates, and he repeated the message Thursday.
Stocks were briefly
knocked lower by a tweet from U.S. President Donald Trump, accusing
China of "letting us down" by not promptly buying more U.S. farm
products.
"They have not been buying the agricultural products
from our great Farmers that they said they would," Trump said on
Twitter. "Hopefully, they will start soon."
The U.S. consumer
price index, released by the Labour Department on Thursday, increased
1.6 per cent in June from a year earlier.
Cheaper gas prices
were offset by higher rents and auto costs, but the key core inflation
rate was an annualized 2.1 per cent, close to the Fed target.
Federal
Reserve policymakers have cited low inflation readings as a
justification for potentially lowering short-term interest rates, but
the relatively strong core inflation number may mean slower rate cuts
than the market is anticipating, analysts say.
"With
the markets at 27,000 on the Dow and 3,000 on the S&P, they're
baking in that a deal gets done with China, that the Fed cuts rates and
remains dovish, and then earnings and guidance come in better than
expected," said Sean Lynch, managing director of equities at Wells Fargo
Private Bank. "We get a hiccup in any one of those, you'll see a little
bit of a pullback in the market."
The Bank of Canada announced
its decision Wednesday to maintain its benchmark rate unchanged at 1.75
per cent. That could mean the Fed rate, currently 2.5 per cent, could
move closer to Canada's key rate.
TSX falls
In
Toronto, stock prices slid 35 points to close at 16,529, mainly because
of lower gold prices triggered by the U.S. inflation news.
The energy sector climbed after oil prices hit a six-week high because oil rigs in the Gulf of Mexico were evacuated ahead of a storm.
An incident with a British tanker in the Middle East highlighted tensions in the region, moving the price for West Texas Intermediate crude to $60.39 US a barrel.
The TSX has been a laggard compared to U.S. markets, says Barry Schwartz, portfolio manager for Baskin Wealth.
"The
U.S. market has outperformed most every single other index over the
last 12 years coming out of the financial crisis," he told CBC News.
"Like
them or hate them, they have some of the greatest companies in
technology and that's what's driving their markets higher. And for good
reason — the profits are enormous."
U.S. stock markets set records as they roar back from brink of bear territory
Comments by Trump, rising interest rates had threatened to end Wall Street's bull run
CBC News ·
The
major U.S. stock markets have been on a roller-coaster ride of late,
and on Wednesday set their biggest single-day point increases ever after
a few days of gloom. (Richard Drew/Associated Press)
The
major U.S. stock markets shot upward in record fashion Wednesday after a
few days of gloom that dragged them to what had been shaping up to be
their worst December performance ever.
Instead of pushing into
bear-market territory, the Dow Jones Industrial Average and the Standard
& Poor's 500 index marked their biggest single-day point increases
ever.
The Dow closed at 22,878.45, up 1,086.25 points, or five
per cent, on the day. The broader-based S&P 500 finished
at 2,467.70 points, up 116.6 points, or five per cent.
The
Dow's biggest previous one-day point gain was on Oct. 13, 2008, during
the turmoil of the global financial crisis, when the index climbed 936
points. The S&P 500 set its previous point record on the same day,
at closing up 104 points.
Stocks had been falling sharply in
recent days, since U.S. President Donald Trump lashed out at his own
central bank, which has hiked its key interest rate four times this
year, most recently last week.
There was a risk Wednesday's trading would mark the end of the longest so-called bull run in Wall Street history.
Heading
into the day's session, the S&P 500 was on the verge of entering a
bear market, defined as a 20 per cent drop from its peak value.
The
S&P 500 hit a peak of 2930.75 on Sept. 20, but before Wednesday, it
was off 19.8 per cent from that high point, and needed to close down
just seven more points to be in bear territory.
The current U.S.
bull market — a run-up in stocks free without any declines of 20 per
cent or more — began in March 9, 2009, and became the longest ever as of Aug. 22.
In
that time, the S&P 500 quadrupled, the Dow did almost as well, and
the tech-laden Nasdaq index climbed 500 per cent, before starting their
current declines.
Abysmal December
Canada's TSX index,
closed for trading Wednesday due to the Boxing Day holiday, was down
16.8 per cent from its all-time high, set in July. It hasn't soared
nearly as much as the major U.S. indexes during the current bull market
because it was held back by the oil price collapse in 2015.
Global
stock markets had been suffering an abysmal December. Markets in Hong
Kong, Japan, France, Britain, Brazil and Mexico are all down for the
month.
Markets
have been jittery in recent days since reports that U.S. President
Donald Trump, left, was discussing firing U.S. Federal Reserve chair
Jerome Powell, right. (Carlos Barria/Reuters)
If
pre-Wednesday levels had held, it could have led to the worst December
on record for the major U.S. markets, despite generally strong economic
fundamentals.
"The outsized moves are not reflective of the
current U.S. economic landscape, but that seems to matter little so far
as fear mongering continues to permeate every pocket of global capital
markets,"
Stephen Innes of OANDA, a currency trading platform, said in a
market commentary.
Trump
administration officials spent the weekend trying to assure jittery
financial markets that U.S. Federal Reserve chair Jerome Powell's job
was safe. On Tuesday, Trump reiterated his view that the Federal Reserve
is raising interest rates too fast, but called the independent agency's
rate hikes a "form of safety" for an economy doing well.
Trump
has also reportedly been upset over the last week with his treasury
secretary, Steven Mnuchin, who advised him to appoint Powell to the Fed
job.
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