Making sense of the markets this week: April 4, 2021

Each week, Cut the Crap Investing founder Dale Roberts shares fiscal headlines and provides context for Canadian traders.

Serious concerns over the Canadian housing bubble

BMO has sounded the alert with powerful warnings about what many are predicting a housing bubble in Canada. In reality, it’s about fire. In a Yahoo! Finance post…

“One of Canada’s biggest banks will be calling on policymakers to act immediately as a ‘fire section ’ such as blazing housing markets.

“Bank of Montreal (BMO) senior economists laid out a set of recommendations in a new record titled Canadian Housing Fire wants a response and rated how effective a variety of those measures would be. ”

Some regions throughout the nation are experiencing year-over-year price increases in the region of about 30% to 35 percent. There is a very minimal inventory and a change in demand thanks to the pandemic. Low borrowing costs are adding fuel to the flame. 

BMO said the most acute issue is market psychologyas supply-side issues persist. “The activity needed now is one that instantly breaks market psychology and the belief that prices will only rise further. That would dampen the speculation and fear-of-missing-out that those expectations are generating,” BMO’s mature economist Robert Kavcic and financial forecaster Benjamin Reitzes mentioned. 

And on the subject of Canada’s real estate bubble, this Yahoo! Finance movie is a must-watch. Industry experts John Pasalis, home analyst and President at Realosophy Realty, along with Steve Saretsky, home analyst and analyst at Oakwyn Realty, say investor psychology has been forcing the frenzy. It’s FOMO–the fear of falling out. “They need to buy a home now or else they ’re never going to have the ability to manage you,” provided Bains, that analyzes investor psychology as it pertains to real estate.

Both experts say there’s surely a home bubble of epic proportions. And buyers are being cheered by our Central Bank and politicians, even together with the guarantee that reduced prices and borrowing costs are here to stay until 2023. 

In their report, BMO given. … 

“Interest rates and the Bank of Canada’s dedication to maintain them low for many years are arguably the critical drivers behind the meteoric spike in home sales and prices throughout huge swathes of the nation. A transfer here would have a direct, clear and noteworthy impact to cool home. ”

National Bank says: greater prices, no problem

National Bank’so notion is that households are prepared to navigate greater prices. The research says individuals ’re in good condition, there are many favorable events and forces. 

About advisor.ca. … 

“‘The success of this financial recovery will be dependent on Canadian consumers in the forthcoming months. There are lots of reasons to be positive,’ the [National Bank] report stated. To begin, households enjoyed a record boost in disposable income and the savings rate from 2020.

“‘Excess savings–which we now peg at 8 percent of GDP–are now hibernating in deposit accounts and are ready to be tapped by households once without any COVID-related restrictions,’ the report stated.

“‘At precisely the identical time, household finances also have been given a boost by rising real estate prices and powerful financial asset yields –generating the “most powerful positive wealth effect since 2009,’ the report mentioned. ”

But on the subject of borrowing and rates of interest, we might want to take that notion with a grain of salt. Growing rates could quickly or finally become a concern for many recent first-time buyers who’ve removed massive mortgages. That’s the elephant in the real estate room. 

Here’s a tweet that highlights the current real estate activity in Canada:

Selected Canadian Real Estate and Housing Starts for February #canada #realestateagent #cdnpoli #novascotia #ontario #mls #viewpoint pic.twitter.com/GwRLUeXfQm

— Burnsco (@garquake) April 1, 2021

Canadian regulators are taking a close look at crypto platforms

In last week’s column, we discussed the incredible adoption of bitcoin ETFs and closed-end funding by Canadians. The new bitcoin ETFs brought 17 percent off most purchases in February 2021, and that popularity has led to a ETF fee price war. 

This week we heard that Canadian regulators are getting their collective minds round the cryptocurrency trend. Regulators announced new advice for cryptocurrency dealers in Canada. From Advisor.ca: “IIROC, CSA perform note to crypto-trading platforms. ” 

When I first read this headline, I guessed ETFs and closed-end funding could be influenced, but this is not the case. It is status quo on the regulatory front for Canadian bitcoin ETFs and closed end funds. (Here is my explainer article on the ins and outs of how bitcoin.) 

Having an ETF or closed-end fund, the fund company or ETF supplier will deal with the bitcoin or ethereum assets on your behalf; the assets will be stored and held by a third party custodian. In Canada, All the funds Utilize the U.S. firm Gemini as the sub-custodian. (More on Gemini along with their regulatory requirements later in this post.)

This tweet against Mags on the approved funds in Canada reveals the custodian structures. Gemini retains the keys into the bitcoin. 

Here is actually the #Bitcoin #ETF & Fund/Trust comparison you were looking for Raising palms

Canadian ETFs (Approved), publicly traded on TSX: $BTCC, @PurposeInvest, retains $BTC $BTCX, @CIGlobalAsset, BTC $EBIT, @EvolveETFs, BTC $HBIT, @HorizonsETFs, BTC Futures1/ pic.twitter.com/0yTNXSLNFw

— MAGS (@Crypto_Mags) March 11, 2021

The new regulatory attempts will merely impact platforms or exchanges, both national and foreign, directly facing Canadian traders that are trading digital assets. In an effort to attract these programs into the regulatory regime, then they might need to enroll as the primary order of business. For instance, in Ontario, the deadline to get in touch with regulatory authorities is April 19, 2021. Presently most of the platforms are filed with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), a government agency responsible for tracking and policing money laundering and terrorist financing. 

It will be a two-year procedure at which the crypto advantage platforms are enrolled as limited traders, with ultimate registration with IIROC that oversees all investment traders and trading action in Canada. The interim approach is intended to allow companies to continue working while beginning to deliver their businesses in keeping with the new advice. 

And for the ones that enroll, it may not be business as usual; there will probably be some new guard rails. As an instance, Wealthsimple Digital Assets, now the sole CTP enrolled as a limited dealer, permits clients to commit a maximum of $30,000 (Cdn) in crypto in a 12-month period. 

Can U.S. businesses even bother?

There is a concern that the major US platforms that many Canadians use will not bother to jump through the regulatory hoops. And now there’s not any Canadian bitcoin custodian accessible. 

The requirements even for the first registration are considerable. And as Lori Stein, a partner and regulatory expert by law firm Osler, Hoskin & Harcourt LLP, provided in a telephone conversation, including the U.S. markets, Canadian compliance processes and standards is a foreign concept. To qualify for registration, foreign exchanges would need to have personnel in place with particular registrations and qualifications (such as a chief compliance officer), and they’d also likely have to employ legal experience that may navigate the Canadian regulatory waters. It will be costly and time-consuming.

It is quite possible that most or all of the U.S. programs will take a pass Canada. In the grand scheme of things crypto, Canada is a very small market. 

What is the possible outcome? This by Brian Mosoff, chief executive officer of Toronto-based Ether Capital Corporation… 

“It’s unclear at this time which platforms intend to participate with the regulators and continue towards appropriate registrations. It is highly possible that any platform that does so will not have the ability to offer the number of assets that traders are accustomed to trading, at least for the near future. ” 

Mosoff adds that it may add up to cover more and get : 

“Canadian crypto investors may potentially be driven on programs that they don’t have a desire to use and that are higher-cost than existing U.S. or international platforms. They could wind up with poor offerings, with much more restricted products and greater prices. ”

Crypto funds may continue to utilize Gemini 

In what’s an odd twist, even though Gemini does take a pass on enrolling as a dealer in Canada (to provide assets directly to Canadian traders ), they could still continue as a sub-custodian. 

Gemini is providing services to this Canadian funds as a sub-custodian, together with Cidel since the Canadian custodian. This is permitted for public investment funds even when holding funds beyond Canada. This could continue to be permissible even though Gemini decides to not enroll as a dealer in Canada.

It’s never boring at crypto land. The law and attorney “stuff” is filled with drama, twists, surprises and turns. 

It is the regulatory environment that will steer the direction of crypto from Canada. 

Suez Canal blockage leads to inflation worries…and entertaining memes

Among the stories (and source of many jokes) of this previous few months was the blockage of the Suez Canal. The container ship Ever Given rushed right into a sand storm and was beached. It blocked all traffic moving via the Suez Canal. 

All of the sudden Twitter and Google denizens became experts in shipping and international trade routes. Incredibly, 12% of global trade moves through the artificially-constructed Suez Canal. It was enlarged from its natural state to allow for shipping. Ditto for your Panama Canal needless to say. 

We heard that the boats used to transfer products around the planet can be massive– even the Ever Given dwarfs the Eiffel Tower. 

The dimensions of this ship stuck in the Suez Canal #evergreen #suez #suezcanal pic.twitter.com/nWjipIZGuv

— Leaf of Life (@_Leaf_of_Life) March 31, 2021

International supply chains were already challenged due to the pandemic. Many goods and components are all in short supply, and that supply-and-demand imbalance can result in greater prices. Ever Given additional layer into the inflation view. Ever Given blocked $400 million each hour trade, each hour to the 10 days it was lodged. 

From this CNBC post. … 

“The delays have been pricey. … Nike and merchants Crocs, Gap, Peloton, Footlocker, Five Below, Williams Sonoma, Steve Madden, Whirlpool, Urban Outfitters, and Tesla all mentioned supply chain problems impacting their company this past year.

“Brian Bourke, Chief Growth Officer of SEKO Logistics informs CNBC, the blockage is creating the perfect storm for merchants that are struggling to restock. ”

$300 per day to lease a subcompact car?

And here’s an extra sign of supply and demand and prices to come, perhaps. Did you realize it costs $300 per day to lease a Kia Rio? From that post… 

“‘We’re looking at prices of $500 per day in some places,… Last week we were seeing $5-a-day leases in Hawaii. You’d never noticed that. You ’d kill for a car for about $300 per day’. ” 

Pockets of inflation might be waiting on the opposite side of this pandemic. Are these prices coming to Canada this Summer? 

Don’t be surprised if you run into a inflation sticker shock. 

Debt and deficit spending: 50 years in the making

I just had to share this particular source and article with MoneySense readers. John Mauldin is a must-read, IMHO. This is his article “The 1970s never ended. ” 

Mauldin suggests the financial storm and events put in motion several 50 decades back are still in movement now. It begins with President Richard Nixon carrying the U.S. buck from the golden standard. The dollar was pegged to, or backed by, gold. You could not just print paper money on a whim (or press a button and create hundreds of billions of dollars( as happens now ). 

From this article, and on Once the trouble started:

“The U.S. would hold most of the planet ’s golden, assuring different countries can convert their gold reserves at a fixed $35 per oz rate. Basically, this connected other countries to the U.S. buck.

“Bretton Woods ‘worked’ for almost 20 decades but without any side effects, perhaps not unlike now ’s euro problems. … Starting in the mid-1960s, various European countries began demanding payment for their dollars in gold. They wanted the U.S. to balance its budget, and this had gone wildly into deficit because of the Vietnam War. ”

These days we are in the middle of a different type of war (together with COVID) and, obviously, we’ve got the deficit spending and alarming debt amounts to move along for the ride. 

The first modern day pandemic and war took a historic reaction by governments and central banks. 

This Mauldin Economics article will help shape your perspective on gold, debt, and fiat currency. Given that, we might appreciate the usage of gold or bitcoin (what I prefer to call “new gold”-RRB- in a portfolio. 

The unfortunate trend of this separation between haves and have-nots is also on display in that place. These are clear, consistent and continuing trends that are perhaps even being hastened. 

Machines and modernization of the work force have been the wedge between the wealthy and the working classes. Look to the article for some shocking graphs. 

“One explanation for this is the productivity we talked about earlier. It actually shows up to the capital equipment and engineering which is purchased to lower the cost of labour (robots, bank ATMs, computers, automatic production lines and lots of others). Everything reduces the flow of income going to labour whilst raising income for machine-owning capitalists. ”

The ability (or not) to put money into stock markets exacerbates the wealth disparity. We have the companies that own and develop the machines and technology. 

Purchasing is a hedge against the future. 

Dale Roberts is a proponent of low-fee investing who blogs in cutthecrapinvesting.com. Find him Twitter @67Dodge. 

The article Making sense of the markets this past week: April 4, 2021 appeared initially on MoneySense.

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