Juggling Dynamite

This is a worthwhile discussion.  Lots of food for thought.

You can make the argument that Fed policy was the largest single driver sending financial asset prices every higher over the past 10 years. You can also make the case that the horrible performance of both stocks AND bonds this year are due, as well, to the Fed reversing its easing policy, and embarking on a tightening regime. All, mind you, to combat raging inflation, which can also be argued the Fed is primarily liable for. And with the Fed now hiking rates and kicking on Quantitative Tightening, right as GDP started shrinking in Q1, will it pop the bubbles in the financial, housing and jobs markets, plunging us into recession?  Here is a direct video link.

In October 2017, Bitcoin rose to $19,376 before plunging to $3200 by December 2018 and trading below $5300 to March 2020.  Then, pandemic lockdowns, government subsidies and payment deferrals enabled financial speculation as an international obsession.

As shown below, the price of Bitcoin exploded to $67,000 by last November as a world of cling-on companies, copy coins, and ‘meme’ bets came along for the ride.  Unsurprisingly, they’ve been crashing together since. So far, Bitcoin has fallen 56%, while many other tokens have lost more and gone to zero.

Many people who could not afford to gamble piled in for the slaughter as prices went skyward; some borrowed to buy.  This was horrible to watch, as usual. Worse was seeing so-called investment gurus encouraging and leading financial suicide with statements like this one from Real Vision’s Raoul Pal in November 2021:

“I started a buying a bunch of other coins, tokens, stuff that I really didn’t know a lot about. So, I just took a small weighting, like 20% of my portfolio, which is now 100% crypto, and has been for quite a while now, since maybe May of last year. So, I bought a basket saying, ‘I’m an idiot, I don’t really understand any of this stuff, but I want to see how it trades.’”

The 60-something ‘expert’ claims that he started the Real Vision platform to democratize finance and enlighten ‘do-it-yourself’ investors, and then broadcast as prices peaked that he had put 100% of his savings into crypto assets to “see how it trades.” A 22-year-old classmate of my son lost $80,000 in Luna.

Complete madness and zero accountability because people like Pal and other influencers make their revenue promoting ‘investment’ products and ideas, not risk management.

Financial-tainment has made the world even more dangerous for the gullible.

News from the mortgage frontline in Canada…worth a listen.

What’s Happening to Mortgages Now That Rates Are Up? with Ron Butler | DFI30 | Well it appears that real estate prices are down in many parts of Ontario after record increases. Not surprising since the Bank of Canada has indicated it will raise rates again. But what has this done to mortgages? What’s happening when people renew? How has mortgage qualification changed? Enter Ron Butler, mortgage broker extraordinaire. On today’s podcast, Ron is back to give us an update on what he’s seeing on the ground with respect to mortgages. Here is a direct video link.

It’s worth noting that after Toronto home prices topped out in 1989, they fell an average of 28% to 1996 and did not recover 1989 levels until 2002 (see table below).  I remember this vividly. The pattern is pretty typical of housing bust cycles historically, and yes, it can happen here again.  Different cycle, similar behaviour = similar outcome.