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Deal Addict
Feb 22, 2011
1888 posts
1702 upvotes
Toronto
Jungle wrote:
Dec 2nd, 2017 3:00 pm
If growth stalls then Poloz won't hike.. problem is he doesn't control the bond market> pretty much the usa does and their economy is growing very well right now.

As of right now next year looks very possible for at least 3-4 rate hikes. Most economist are forecasting the same. Overnight credit swaps still predict first hike starting in March. I think POLOZ might start in Jan as data coming in better than expected. Remember we are not in recession anymore.

The economy finally has some momentum now, wage growth is coming in and inflation is coming. This should continue as more jobs are created, more people are employed, gov, private and business investments is at recent highs also pays off. The icing on the cake will be rising oil prices.

This is all trending and lots of positives for economy right now pressing into 2018. It would be foolish to say no rate hikes are possible based on the economic activity lately. No shocks seen in the near future yet.
Your last post was about how Canada is the leader in household debt. Wouldn't this indicate the growth is artificial and funded with debt rather than growth? How are you arguing the economy is terrible and amazing at the same time? Also 3-4 hikes next year is absurd, no one is forecasting that.
Deal Fanatic
Jan 27, 2006
6668 posts
1798 upvotes
Vancouver, BC
rjg4235 wrote:
Dec 2nd, 2017 2:21 pm
In my opinion you should avoid using absolutes. You can't know there will be multiple hikes in the near future. For all you know the numbers tank and there are rate cuts again. If all the doom sayers on here are right and the RE industry tanks taking the economy with it you think they will increase rates again? Even if you don't think it will happen how are you so certain there "will be MULTIPLE" rate hikes. How could you even know that when BOC doesn't?
Black swan events are a fact of life. You can't predict them and you can't will them into being. They happen without warning and often without preparation as people don't know what exact black swan event it will be. The only intelligent thing to do is not to worry to much about those types of events and do some general preparation (ie have extra funds available, don't go into too much debt....) so that you have options which may be limited but they are still options. The only prudent thing to do is to work with the existing numbers and look at trends as more often than not, trends will continue while black swan events are highly unlikely.

Housing related economy accounts for 20% of the economy. Even if RE goes down hill fast, there is no way that it will take out the entire 20%... A more reasonable crash would be 5% which is still a large amount! That's all the more reason for interest rates to go up now so if it does happen, a drop in rates can be used to boost the economy. Remember that a RE crash won't necessarily be caused by interest spiking as it might well be some other cause HOWEVER, lowering interest rates is a way to lessen the impact. So, if interest rates are low to start off with, there isn't much room to drop rates when it might be needed.
Deal Addict
May 31, 2007
4446 posts
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Gungnir wrote:
Dec 2nd, 2017 3:27 pm
Jungle, if everyone is almost broke as you say, and the Bank of Canada believes the same as you, what would motivate them to raise rates and cause a calamity? Shouldn't they go slow? I think the truth of the matter is not nearly as dire as you believe it to be.

Also, remember that the boc sets policy to control inflation, destroying the wealth of their countrymen in not in the mandate.
I believe they won't slow rates because their job is not to ensure RE owners keep equity. They also said their data dependant for decision. And BOC job is a little more than just inflation.Yes they are concerned about debt, they've said household debt is biggest risk to economy and they know we need to get out of this stage by raising rates. Because the next recession will be brutal However they have said :
“Our financial system continues to be resilient, and is being bolstered by stronger growth and job creation, but we need to continue to watch financial vulnerabilities closely,

3-4 rates hikes over one year is only 1% .. plus raising bond yields increase fixed rate, most have have fixed mortgages. Not to fast of increase considering historical rates are much higher. We're almost still at rock bottom.

Outside of RE the rest of the economy is much bigger, and growing much faster on a $ basis. The economy can handle a declining housing market. Losses will be transferred to homeowners via declining equity, and higher cash flow to service debt. Considering RE is unproductive, a loss or slow down many not be to concerning for the economy.
Deal Fanatic
Jan 27, 2006
6668 posts
1798 upvotes
Vancouver, BC
Gungnir wrote:
Dec 2nd, 2017 3:27 pm
Jungle, if everyone is almost broke as you say, and the Bank of Canada believes the same as you, what would motivate them to raise rates and cause a calamity? Shouldn't they go slow? I think the truth of the matter is not nearly as dire as you believe it to be.

Also, remember that the boc sets policy to control inflation, destroying the wealth of their countrymen in not in the mandate.
If Canada was on it's own island without any external trading partners or interactions, then you're right. But unfortunately, Canada isn't an island and external forces have a lot more control over the situation than you might think. The BOC can only buffer situations with interest rates and monetary policy, they can't control them as they don't have enough financial force behind them. If central banks can control inflation as you maintain, then we would not have had the run away inflation as we had late in the last century or how other countries with central banks have run away inflation today.
Deal Addict
May 31, 2007
4446 posts
1546 upvotes
rjg4235 wrote:
Dec 2nd, 2017 3:58 pm
Your last post was about how Canada is the leader in household debt. Wouldn't this indicate the growth is artificial and funded with debt rather than growth? How are you arguing the economy is terrible and amazing at the same time? Also 3-4 hikes next year is absurd, no one is forecasting that.
Every economy is in debt. GOV, CORP, Household ,etc. This is the life of growth. But low interest rates have caused bubbles now, after almost 10 years.

Since Canadians 80% of wealth is in RE, over 60% of household debt is mortgages, and RE is lower on the productive scale, I would say this is not a major lever for economy.

In fact RE is less than 20% of GDP now.
Sr. Member
Jan 17, 2006
617 posts
339 upvotes
Toronto
Jungle wrote:
Dec 2nd, 2017 5:18 pm
I believe they won't slow rates because their job is not to ensure RE owners keep equity. They also said their data dependant for decision. And BOC job is a little more than just inflation.Yes they are concerned about debt, they've said household debt is biggest risk to economy and they know we need to get out of this stage by raising rates. Because the next recession will be brutal However they have said :
“Our financial system continues to be resilient, and is being bolstered by stronger growth and job creation, but we need to continue to watch financial vulnerabilities closely,

3-4 rates hikes over one year is only 1% .. plus raising bond yields increase fixed rate, most have have fixed mortgages. Not to fast of increase considering historical rates are much higher. We're almost still at rock bottom.

Outside of RE the rest of the economy is much bigger, and growing much faster on a $ basis. The economy can handle a declining housing market. Losses will be transferred to homeowners via declining equity, and higher cash flow to service debt. Considering RE is unproductive, a loss or slow down many not be to concerning for the economy.
I agree that if economy will do well in next year they will bump rates couple times but it also will mean more demand for RE with prices go up especially in core of Toronto.
Good economy is good for Canada and will trigger more interest from foreign investors including for real estate segment.
Sr. Member
Oct 21, 2014
677 posts
460 upvotes
Burlington, ON
craftsman wrote:
Dec 2nd, 2017 5:19 pm
If Canada was on it's own island without any external trading partners or interactions, then you're right. But unfortunately, Canada isn't an island and external forces have a lot more control over the situation than you might think. The BOC can only buffer situations with interest rates and monetary policy, they can't control them as they don't have enough financial force behind them. If central banks can control inflation as you maintain, then we would not have had the run away inflation as we had late in the last century or how other countries with central banks have run away inflation today.
Right, but if we raise interest rates that will push up the value of our currency vs our trading partners. As our currency ascends in value, it makes US and other foreign goods and services cheaper and ours more dear, which will push our inflation rate even lower, and as we're still below our two percent target as of October 2017 (1.4%), raising rates will both reduce spending and make foreign goods and services cheaper. What we really don't want to do is spike our currency to make our exports noncompetitive while at the same time making existing debt which is needed to finance existing operations and expansion much more expensive, including but not limited to real estate. If we do that we won't be able to take advantage of the current booming world economy.

Canada is still recovering from 2008, so let's remember the lessons and be careful with monetary policy. This is so much more complicated than our mortgages.. which is why I really came around on B20, which is a sort of targeted rate raise on mortgages without actually shocking homeowners with much higher rates and keeping our exporters competitive.
Deal Fanatic
Jan 27, 2006
6668 posts
1798 upvotes
Vancouver, BC
Gungnir wrote:
Dec 2nd, 2017 5:53 pm
Right, but if we raise interest rates that will push up the value of our currency vs our trading partners. As our currency ascends in value, it makes US and other foreign goods and services cheaper and ours more dear, which will push our inflation rate even lower, and as we're still below our two percent target as of October 2017 (1.4%), raising rates will both reduce spending and make foreign goods and services cheaper. What we really don't want to do is spike our currency to make our exports noncompetitive while at the same time making existing debt which is needed to finance existing operations and expansion much more expensive, including but not limited to real estate. If we do that we won't be able to take advantage of the current booming world economy.
It's a balance but it's likely a balance that the BOC can only help keep in place but not actually keep in place. The Canadian dollar recently made a big move upwards due to the last set of economic data that was released even though just a bit before that, the BOC's own statement was one of a dovish stance.

As for taking advantage of the boom world economy, I would say that we are doing just now and if anything moving into a bit of an overheated territory which may make it much harder for the BOC to influence exchange rates if we don't move rates higher now. Remember that interest rates are just one of six things that influence exchange rates. If we move into overheated territory and the exchange rate moves up according (due to the other factors), then the BOC will have a limited ability to actually lower rates to moderate increases in the dollar as there won't be anywhere else to lower it to!
Gungnir wrote:
Dec 2nd, 2017 5:53 pm
Canada is still recovering from 2008, so let's remember the lessons and be careful with monetary policy. This is so much more complicated than our mortgages.. which is why I really came around on B20, which is a sort of targeted rate raise on mortgages without actually shocking homeowners with much higher rates and keeping our exporters competitive.
I would say that Canada is almost completely recovered from 2008 and with the US showing good signs of growth (nice GDP increases) they will drag us along whether we want to or not! Our current unemployment rate is the same as it was in 2007 so really there isn't much more of a recovery to go. As such, I expect that we would have completely recovered before the middle of next year.

And you're right, things are much more complicated than our mortgage rates but everyone seems to want to simplify things by saying that the BOC overnight lending rate has a direct correlation with mortgage rates which it does not. It does influence it but as an overnight rate, it's not the rate for longer term money! The bond market is the place for long term money and the major bond market is the US market which the US Fed has a much larger influence than the BOC.
Sr. Member
Oct 21, 2014
677 posts
460 upvotes
Burlington, ON
If we were really overheating, we should see spiking inflation. Inflation as measured by CPI (which has it's own flaws but that's a discussion for another day) was 1.4% as of October with a target of 2%.

This is why I believe we should let things play out, let B20 play out and let the first real worldwide expansion since the great recession play out. If we get a bit of a boom so be it; Canadians deserve a few years of really good growth and tight labor markets anyway. If inflation starts to creep up, tamp it down. If our currency starts getting too weak vs a basket of other currencies, we can raise then. Your point about the bond market ultimately controlling long term borrowing rates is very true, but psychologically to most homeowners they see the overnight rate controlling their rate at renewal because that's what the media largely says.

Ultimately, I don't think raising rates will cause the kind of crash that satisfy real estate bears. Something has fundamentally changed and now the GTA is seen as a worldwide destination for wealthy immigrants who are attracted to our stable government and relatively low real estate prices. Canada is an awesome place to live, so I think this trend will be with us for a long, long time.
Deal Fanatic
Jan 27, 2006
6668 posts
1798 upvotes
Vancouver, BC
Gungnir wrote:
Dec 3rd, 2017 9:16 am
If we were really overheating, we should see spiking inflation. Inflation as measured by CPI (which has it's own flaws but that's a discussion for another day) was 1.4% as of October with a target of 2%.
Moving a bit into overheated territory isn't the same as overheating. By the time the economy is overheating, then the fiscal policies and rates are trying to play catch up and as seen whenever inflation starts running, it's very hard to stop until after the fact. It's way better to draw things out a bit with higher interest rates (in the low/middle single digits) earlier than much higher rates later (in the low to mid teens). As a saver personally, I would much rather see much higher rates in the teens as I can pile huge sums of money into 5 year GICs and long term government bonds earning returns in the low teens and just sit on them for a decade or two of great returns. The economy would be a basket case however.
Gungnir wrote:
Dec 3rd, 2017 9:16 am
This is why I believe we should let things play out, let B20 play out and let the first real worldwide expansion since the great recession play out. If we get a bit of a boom so be it; Canadians deserve a few years of really good growth and tight labor markets anyway. If inflation starts to creep up, tamp it down. If our currency starts getting too weak vs a basket of other currencies, we can raise then.
No one is saying that we should raise rates dramatically over the next year... I believe people are taking gradually - ie 25 bps every few months). Big booms are generally bad as they are usually followed by a proportional bust (ie the higher the boom, the lower the bust). You have to remember that interest rate increases typically take 6 months to be seen in economic numbers so if you want 6 months into a big boom before increasing rates, you are really waiting a year before those rates take effect so that you know what is actually happening in the economy. During times of expansion, it's the best time to get ones fiscal house in order (both in debt reduction and interest rates) as more money is always flowing in so the government can take a bit off the top without much of an overall effect on the economy.
Gungnir wrote:
Dec 3rd, 2017 9:16 am
Ultimately, I don't think raising rates will cause the kind of crash that satisfy real estate bears. Something has fundamentally changed and now the GTA is seen as a worldwide destination for wealthy immigrants who are attracted to our stable government and relatively low real estate prices. Canada is an awesome place to live, so I think this trend will be with us for a long, long time.
I would temper that with the idea that people have to separate the concepts of a great place to live with a great place to invest. I would argue that what we are currently seeing is not the idea of a great place to live but a great place to invest. Just look at the returns investors have been making in the past years on their properties. Investing always comes first before the idea of living. It would be interesting to see what the vacant housing numbers are like in the GTA as they are fairly high in Vancouver. It would also be good to contrast that with Montreal as it looks like the market their is starting to heat up. A recent study for the Vancouver market has shown that for every 100 immigrant units needing housing (ie 1 unit may be 1 family or a single living by themselves), Vancouver has built 119 units of housing so the supply is outstripping demand on a pure 'living' requirement but since the prices are still high, demand looks like it's based on investment and not living.
Jr. Member
User avatar
Jul 8, 2010
194 posts
114 upvotes
Ontario
rjg4235 wrote:
Dec 2nd, 2017 3:58 pm
Also 3-4 hikes next year is absurd, no one is forecasting that.
Right, last year everyone was saying there will be no raise in 2017.... i know, you just adapt...
Deal Addict
May 31, 2007
4446 posts
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According to this article, the recent jobs report made market odds of Jan rate hike go from 40% to 66%

"The market’s reaction to the latest employment data was dramatic. Government of Canada (GoC) five-year bond yields surged higher by almost ten basis points, the Loonie registered its biggest one-day gain against the Greenback in almost two years, and the futures market increased the odds from 40% to 66% that the BoC will raise its policy rate in January."

http://www.movesmartly.com/2017/12/the- ... .html#more
Deal Addict
May 31, 2007
4446 posts
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BIG jump in Oct exports, particularly energy sector to support rate hike in Jan as things seem to be coming along better than expected:

"Especially strong was the rise in energy exports, primarily to the U.S. Exports of gasoline blending stock were up 44.5 per cent and diesel and fuel oils exports rose 18.4 per cent after a recent drawdown in U.S. inventories of refined petroleum products.

Higher exports of canola seed and canola oil helped boost exports of farm, fishing and intermediate food products by 7.7 per cent to $2.8 billion."

TD economist Dina Ignjatovic said the Bank of Canada is likely to look on the growth of exports as a positive sign for Canada's fourth quarter growth.

A healthy U.S. economy and a Canadian dollar hovering around the 80 US cent mark are helping the export sector, she said in a note to clients.


http://www.cbc.ca/news/business/canada- ... -1.4433460
Deal Expert
User avatar
Apr 21, 2004
41608 posts
10236 upvotes
Still no sign of inflation?

The Chinese/Vietnamese/South Americans etc. are exporting deflation which seem to keep inflation in developed countries checked. Didn't know 1 - 1 = 0 applied to inflation too.
Deal Addict
Jan 20, 2016
1435 posts
554 upvotes
Houston, TX
Jungle wrote:
Dec 5th, 2017 2:44 pm
BIG jump in Oct exports, particularly energy sector to support rate hike in Jan as things seem to be coming along better than expected:

"Especially strong was the rise in energy exports, primarily to the U.S. Exports of gasoline blending stock were up 44.5 per cent and diesel and fuel oils exports rose 18.4 per cent after a recent drawdown in U.S. inventories of refined petroleum products.

Higher exports of canola seed and canola oil helped boost exports of farm, fishing and intermediate food products by 7.7 per cent to $2.8 billion."

TD economist Dina Ignjatovic said the Bank of Canada is likely to look on the growth of exports as a positive sign for Canada's fourth quarter growth.

A healthy U.S. economy and a Canadian dollar hovering around the 80 US cent mark are helping the export sector, she said in a note to clients.


http://www.cbc.ca/news/business/canada- ... -1.4433460
Rising export do not lead to rising consumption inside the country and do not push inflation to the desired 2% target. Moreover, the last thing BoC wants if want to keep export in good shape - have loonie jumped to the USD (which would happened in case of rate hike).

Thus it's not so straightforward as someone wants to paint, and Poloz do not want to "hard" commit neither to hike nor to staying put, likely he will go with same smooth rhetoric as last few month looking on data, US , USD/CAD.

I'd rather expect that rite hike will happen next year, but in same way as last one happened - without any indication in advance.
Futures are just what market believe to happen, they already been wrong this fall (regarding Nov-Dec hike, which at some point was almost "guaranteed" with 90%, afair) do not be surprised if (rather when) they will miss it again.
Make the Trudeau drama teacher again!

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