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WHAT DO ECONOMIC HEADLINES MEAN FOR US

September 5, 2017

This past week the news headlines have been nothing short of bleak but can we learn the right lessons?

LOONIE TAKES A SWAN DIVE

I blogged about this one when the dollar was hitting $1.03USD – if we all went out and bought up all the US dollars we could have, even with the bank fees, we would have made about a 30% ROI.  Did you buy USDs?  The loony is always up and down – it’s not the news, it’s what you do about it.  There are two factors driving the disparity between the USD and the Loonie the USD is up 20% against the Euro while the Canadian Loonie is down by about the same amount – so the US has increased and the Loonie has decreased.  If the USD comes back down, which is quite likely the Loonie will rebound slightly – so not the end of the world.

BANK OVERNIGHT RATES COULD HIT NEGATIVE NUMBERS

The same thing has happened in other economies – Japan for instance had a massive a problem with a protracted period of negative interest rates.  But that doesn’t mean that either you will get paid money for borrowing or that you will have to pay for the privilege of leaving your money on deposit.  In all likelihood interest rates on mortgages will continue to creep slowly upwards.

OIL PRICES DROP TO UNDER $37 PER BARREL

Oil prices have a tremendous impact on the viability of Alberta’s tar sands.  Lower oil prices mean that the conversion costs for tar sands oil is too high and we will see a trend of sell offs of smaller and over leveraged companies.  Some supply companies across the country will be severely impacted resulting in layoffs.  Unfortunately Canada has not done a good job in the manufacturing sector and has been overly reliant on resource sales.  The ripple effect of job losses will hit our pocket books quite hard.

HALF A MILLION MORTGAGES AT RISK OF DEFAULT

No one should be surprised to hear that number and it probably is in fact much higher.  Few home buyers, particularly first time purchasers, have enough money to put down as a downpayment.  The result is that faced with job loss or other cash flow issues voluntary liquidation will not solve the problem.  Many home purchasers would be financially more secure if they simply rented.  The mortgage industry in Canada is one that needs tighter regulation since it on’t readily regulate itself.