Juggling Dynamite

With inflation cooling and unemployment rising, rate cuts are coming into view. Permanent job losses have already accelerated in line with the onset of the past three recessions since 1995 (see arrows and grey bars below, courtesy of Game of Trades). Since 1969, the longest Fed pause time between the last rate hike and the first cut was 14 months (July 2006 to September 2007), and the average was just under five months. Since 1986, the average pause time has been eight months. In all cases, recessions began at or shortly after the first rate cut, with the stock market bottoming 13 to 33 months after the last Fed Hike. March will be eight months since the last hike this cycle, and so far, the stock market remains near its 2021-22 cycle high.

Like households, many corporations locked in term debt when interest rates were at all-time lows in 2020-2021. For this reason, even as rates leapt in 2023, corporate interest payments in the US were just 7% of profits, the lowest share since 1948 (shown below courtesy of Bank of America). This starts to change in 2024 as a record level of corporate debt comes up for renewal every month at higher interest rates. Delinquencies and defaults are rising on all debt types, and this tends to widen credit spreads (lenders demand higher compensation for credit risk/higher rates for borrowers) even as central banks lower overnight rates.
Capital shifting away from corporate credit and equity risk typically flows into government bonds, driving their price up and yields down (10-year yield in red below. since 1989, courtesy of my partner Cory Venable) as recessions unfold (blue bars) and stock markets plummet (S&P 500 in blue).
This hour-long discussion is big-picture rich and worth a mull:

On today’s episode, Danielle DiMartino Booth, CEO and Chief Strategist at QI Research, and George Goncalves Head of US Macro Strategy at MUFG for a discussion on what to expect from the Fed, economy & markets in 2024. Will the Fed be able to avoid a recession as markets price in a soft landing? Here is a direct video link.

When Canadians sell a property for less than is owed in the mortgage, lenders are entitled to pursue any balance remaining plus interest, fees, and legal costs; this includes garnishing bank accounts and income.

For those in debt strife, it’s wise to speak with an Insolvency Trustee to consider if you may be a candidate for bankruptcy or a consumer proposal that negotiates outstanding sums down to a feasible repayment plan and often allows debtors to keep their home and other assets. See more here.

The latest MNP Consumer Debt Survey found Canadians’ current debt perception at an all-time low, with 63% of respondents saying they were worried about their ability to repay their loans.

“Spending on credit has served as a relief mechanism for many to keep up with increasing costs, especially for lower-income Canadians. We see from the data that the burden of repaying that debt is exacerbating the growing financial strain for many households, particularly amid higher interest rates,” says Grant Bazian, president of MNP LTD, the country’s largest insolvency firm. “Most things cost more and debt repayment costs more. That leaves more Canadians feeling pessimistic about paying off debts, making ends meet, and about their financial futures.”

Meanwhile, most Canadian mortgages face much higher interest rates on term renewals every month through 2024-2026. Adding to costs, the City of Toronto just announced plans for a 10.5% property tax increase, and other cash-strapped municipalities are likely to follow suit. For-sale listings are rising daily in most areas, and the price drops for any selling are significant. This is not likely to turn around quickly. Fewer transactions and lower prices also mean less land transfer tax revenue for provinces.

🚨🇨🇦 $640,000 Loss.. Dear God.

🤯The is the biggest $ loss I’ve seen in Brampton from the top.

🏠 People who bought in 2022 who are selling now are seeing devastating losses. 📷

💰How many are selling because their payments have jumped? Why else would you sell so soon? 📷

🙏… pic.twitter.com/69cB6k7sSh

— Jason G. (@jasongofficial) January 10, 2024

📢 $320k Down the Drain in Kitchener 💸

📍Kitchener, ON 🇨🇦

More bloodshed for homeowners who bought at the top of the market. 📉

Bought in February 2022 for $300k over asking, this Kitchener end unit townhome was just sold after a month on the market for a $320k loss. 💔

Not… pic.twitter.com/spyDD0cBgO

— Shazi (@ShaziGoalie) January 10, 2024

“Interest Rate Hikes Spell Disaster”

Over 40 Families Can’t Close on Carleton Place Homes as Prices Crash from $900K to $500K!” 👇🏽 pic.twitter.com/g8JgB7F7tp

— Shazi (@ShaziGoalie) January 11, 2024

There are so many incredible developments in financial markets right now it isn’t easy to choose what to write about. And there are so many complex interconnections. Suffice it to say the throughlines are rampant financial fraud and unusually high capital risk, with very few people positioned to prosper in 2024.

Just one area of glaring danger for retail buyers is the cesspool cryptocurrency space.

In March 2021, Canadian regulators bowed to pressure from sell-side companies and approved the first Bitcoin Exchange-Traded Funds (ETFs) for trade on Canada’s TSX. As of late 2023, 11 Canadian cryptocurrency ETFs were trading, and all had lost heavily since inception.

Since October, however, prices of everything crypto rebounded on rumours that the US Securities and Exchange Commission (SEC) will also succumb to sell-side lobbying and soon approve Crypto-based ETFs. Over ten crypto ETFs are awaiting approval despite high-profile fraud and a lack of regulatory framework governing crypto exchanges.

Ironically, yesterday, as a lawyer and Better Markets CEO Dennis Kelleher appeared on Bloomberg explaining the madness of crypto ETFs for retail consumption, the SEC’s  ‘X’ account was hacked to issue a false BTC ETF approval notice.

Crypto-related prices surged on the fake news, and perpetrators no doubt sold into the strength they’d fabricated. You can watch these developments in real-time in the clip below. Here is a direct video link. Overnight, news hit that the SEC had not approved the BTC ETF. Yet, at least.

Crypto-grandaddy Bitcoin is leading the space lower this morning but remains +65% since October 8 and 30% below its cycle peak in November 2021.

As would-be-investors repeatedly discover, packaging speculative, illiquid securities inside opaque retail wrappers does not make them any less speculative, illiquid or dangerous for buyers. But the salesforce has enormous incentives to convince us otherwise so that we will hand them our cash. Customer accounts/portfolios are seen as distribution channels for the risk assets that capital-raisers seek to offload. Buy and holders, beware.