Since the onset of this global pandemic, Canadians have added almost 8% to their overall mortgage debt. This debt has occurred despite a recession, double-digit unemployment and the severe threat of inflation, which our economists and financial media refuse to acknowledge.
Between home loans and LOCs, we now owe $1.97 trillion, equal to the entire Canadian economy. It is the swiftest rate of debt accumulation in a decade and the first time we squeezed out over $100 billion in a single year in new household debt.
For me, this sets a worrying tone of sorts. If the data is correct, then the next few years are pointing towards an economic boom. But if it wrong, and I believe it is at the bare minimum skewed, then we are in trouble. Perhaps it is a case of good ole’ wishful thinking. Or maybe it is just stupidity?
Traders might be giving us a clue. They are selling debt because they smell inflation, and inflation would raise interest rates. Mortgages would go higher. Higher mortgages will kill the housing market in its tracks. Housing is the single hottest center that Canada has right now. Traders dumping debt will raise bond yields which means mortgage increases are closer at hand than people think. There is no mystery why this is happening. The turning of the tide for our little economy is tight at hand. The question is will it be economic fortune or economic misfortune? Let us consider some additional facts.
Commodity prices are shooting higher (there’s serious talk of oil at $100 again, and we just witnessed 2019 and 2020 bring substantive gains in gold and silver.)
We are on the precipice of a significant inflow of vaccine and mass inoculations (the US has now pranced far ahead of schedule.) The Biden White House will soon have a $2 trillion Covid stimulus package in place, and the infections, deaths and hospitalizations have plunged across North America.
Over 70% of US companies are beating earnings estimates so far this season. Our banks are no exception. They are also pulling in big profits right now. (How could that not be the case with all of this irrational home buying nonsense and increased mortgage debt.)
Six out of six big Canadian banks have posted fat profits, beat the Street and slashed their loan-loss provisions (foolish move). In the middle of a pandemic and recession, what does this mean?
I believe it is the post-Covid irrational exuberance that we have discussed for ages going back to late last year. Wishful thinking predicated on artificial and misleading data. It is people mistakenly thinking that the world is returning to normal. That somehow, all of this debt doesn’t have to be paid back. Those taxes do not have to rise. That goods and services do not have to inflate in cost. That we do not have to fix the retirement plan (A plan that now starts much further into our 60s and early 70s). And the broken lending and credit platform that elected political appointments called central bankers are directly manipulating more so than ever to the detriment of our long-term survival will fix itself.
People, quite simply, believe that the virus is so done – at least as the primary determining macroeconomic factor, and they are ramping up as if it never existed. As if Canada is not committed to hundred of billions of covid-19 debt in funding programs and social assistance to make things “better.”
Who pays for it? We do! Our children do. To this end, perhaps we do now know where we’re going. Only the speed is uncertain. Several implications flow from this. They all support the themes we have been discussing for months now.
For example, our Bank of Canada boss suggests that as the flock is dosed (and that will erupt come April-May), the economy will make a substantive comeback, and the central bank rate will stay artificially low. But the sentiment is growing that the CB will start ratcheting back its bond-buying – also in April-May.
Put it together. Vaccinations ramping up, corporate profits jumping, infections and hospitalizations falling, the economy reopening and rebounding, and a slow monetary stimulus retreat. And this is what you get.
Well, here is my truth. It may not be yours, but my belief is simple after 17 years of being in the markets. Our economic and financial systems are badly broken in multiple ways. Some of the cracks are enormous, maybe beyond anyone’s ability to repair. Step one is admitting they are broken.
We do have broken lending and credit infrastructure. We have a changing retirement outlook already pushing people to retire later and later. We have an erratic stock market, rife with manipulation, even when that manipulation is considered to be within the allowable “norms.” We have a broken housing market, teetering on the highest velocity of money input I have ever witnessed and broken expectations for our wealth.
All this money printing and credit creation has a consequence and a sort of independent conscience that is not always obvious to everyone. For some, it is an ailment in the form of excess debt and the corrosion of lifestyle. Yet, for others, it is a tool.
Debt is not automatically wrong. It can be brilliantly productive if it lets you acquire something (like education) that increases your income or helps you own a durable asset like a home or even gold and silver. However, it becomes potentially problematic when used for other purposes, as is often now the case.
Excess debt in the past 14 years has accumulated, in part, because the price of debt (interest rates) has been artificial. Politically appointed central bankers manipulate interest rates and credit terms to achieve desired public policy outcomes, like higher employment and economic growth. Elected officials create subsidy programs that encourage yet more borrowing. And while they can point to a link between low rates and their targets, they ignore or forget about some of the unintended consequences, as I mentioned earlier, such as the unintended consequence of inflation.
Expectations of more inflation will continue to push bond yields higher, forcing the Bank of Canada and the FEDS in the US to buy more bonds to keep rates low, which would increase expectations of even higher inflation. So we can expect a period of inflationary woes just ahead.
I am not calling for hyperinflation—though that is possible if the Feds lose control of the situation. I am very convinced that we will see much higher inflation ahead—even if the economy continues grappling along with high unemployment. Gold and silver will flourish under that condition of higher inflation.
Protection while staying traditional with your money commitments and investments may be the ultimate key to balancing the best of growth and wealth insurance all in one plan. Part of that protection plan could include gold and silver. Gold and silver could make for incredible growth opportunities. Still, at the bare minimum, with the real threats we face and the broken infrastructure in our wealth systems, we believe you need diversification. You can’t put it all into a speculative property. It should be spread around and used accordingly.
Ownership of physical gold and silver over the long term is easy, liquid, and can be rebalanced from time to time to address growing wealth trends. Delta Harbour can be there for you once you have done your due diligence on gold and silver and understood the risks you currently face to support your ownership and aid you in the realization of self-directed wealth management.
Yours to the penny,
Darren V Long