Calls for a "soft landing" seem premature
Talking heads unreliable since they present wishes, not facts
It seems we are treated to a daily parade of talking heads parsing every miniscule change in the 10-year treasury interest rate or the consumer price index (CPI) as evidence we should pile into stocks or bet on bonds in the expectation of one, two, three or four “rate cuts” by the Fed in 2024. Absent from the parade is a level-headed economist who admits that (a) he has no idea whether rates will rise or fall and recognizes that in an election year, actual outcomes may be widely different than sensible ones and (b) the level of inflation is at best only mildly influenced by interest rates and is significantly related to energy and housing costs, both essentially ignored by the central bank who rely more on “core inflation” which omits these two elements that make up over half of citizens’ household budgets. Inflation shows few signs of ending, with the “unexpected” rise in December 2023 resulting from - you guessed it - higher cost of energy and housing.
In Canada, the inept policies of Prime Minister Justin Trudeau virtually assure worse outcomes on both fronts. Incapable of managing anything effectively, the Trudeau takeover of Trans Mountain Pipeline saw the project delayed by years and its costs increase tenfold with direct effects on Canadian energy prices. His lack of approval of more pipelines and more LNG terminals strangled our natural gas industry. Trudeau’s uncontrolled levels of immigration which outpaced homebuilding by a wide margin made it certain housing costs would keep rising beyond most Canadian’s ability to buy a home.
Source: Bloomberg
Trudeau’s policies are so bad it would be charitable to attribute them to his stupidity. No one is that stupid, not even Trudeau. A better conclusion is they are intentional an designed to damage Canadians and make them more dependent on government, creating excuses for higher taxes, higher government borrowing and a larger bureaucracy, all essential steps to turn Canada into a socialist country controlled by an autocratic Liberal party.
Rival Pierre Poilievre exudes common sense and recently stated that if elected as Prime Minister he would tie future immigration levels to the rate of homebuilding as reported by Bloomberg. Imagine, a federal policy grounded on the concept that increased population needs somewhere to live and failure to build enough homes results in higher housing costs and greater homelessness. I guess that tautology was omitted from Trudeau’s education in drama or his Finance Minister Freeland’s education and experience in journalism?
I admire Tiff Macklem’s efforts to try to walk the line between telling the truth and telling Canadians his policies are working and will “tame inflation” even though Macklem is smart enough to know that is an unlikely outcome unless energy and housing costs are curbed and barriers to home building (including higher rates) and barriers to expanded oil & gas output (including the carbon tax, Impact Assessment Act and appointment of a climate nutter as Minister of Environment) won’t manifest themselves in lower costs of residency or energy. Watch the Liberals blame the war in Ukraine, Houthi rebels attacks on shipping, or the Arab-Israeli conflict as the reasons Canada suffers any diversion between actual results and Liberal election promises, with the rhetoric already drafted to shift to blaming Donald Trump if he ousts Joe Biden this November.
Sell-side analysts needs to calm down and put clients’ interest ahead of fees and commission and tell investors that not only is the market over valued today, the outlook will worsen unless governments narrow deficits, cut the size of the bureaucracy, reduce or eliminate needless taxes like the carbon tax in Canada, and impose actual regulation on the cryptocurrency Ponzi scheme that is rife with fraud and large enough to create economic havoc when it ultimately collapses, which I see as inescapable without effective regulation.
There is hope. Both Trump and Poilievre are front runners to replace the toxic Biden and Trudeau “progressive” administrations in America and here at home, and we are less than two years from having both governments turfed from office. In the meantime, investors should expect to see the S&P 500 index fall to the 4,000 level and earnings multiples contract to the 14 to 15 times range from the ~25 times level today where it is unsustainably high.
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