Until I See Austerity Measures, market sell-offs are all NOISE: Aggressive tone from central banks sends TSX to biggest two-day drop since 2020 – April 23, 2022,
The market sell-off in the TSX based on central banks claiming that their going to get tough on inflation means ABSOLUTELY nothing until Canada’s Federal government changes policy. The consumer and asset price inflation Canada is experiencing revolves around government rules, regulations, and taxes on the Canadian economy. Although Canada tops the list on most debt level warnings, we’re not alone in the world with horrible government policies.
What worries me about Canada’s debt levels is less about the debt and more about the Federal Governments’ response to a debt crisis. a lot of Canadians are in a lot of debt, how bad is it? I don’t know, but if consumer price inflation rages on, we’ll figure it out eventually. If Canadians can weather the storm what incentive is there for the Canadian government to change course? On the flip side, if what I suspect will happen does happen-which is we see an uptick in bankruptcies, then what? Is the Federal government of Canada going to slash spending and cut regulations? It certainly doesn’t look like it from where I observe things.
What I see under both scenarios is an even bigger government for the foreseeable future and what this means for markets is that you’re going to want to put your money where the wealth is shifting too. Canada is a commodity-heavy country and Justin Trudeau is making commodity prices more expensive, who cares what ideology you subscribe to, Justin Trudeau is all about taxing, regulating, and bailing out people he imagines are worthy of his wealth redistribution schemes.
Now, everyone has their own definition of “cash is trash” my definition of cash is trash is that big government equates to consumer price inflation and economic deflation. I like to remind the reader that we’re on a rule-by-fiat monetary system, Canada is currently a beneficiary of this system as the Loonie is considered one of the world’s reserve currencies. The forex markets will often bailout the Canadian because of our reserve currency status this weaponization of the Canadian dollar allows the Federal Government to redistribute fiat Canadian currency domestically far easier than would be the case if Canada didn’t have world reserve currency status.
As the private sector props up the government, the economy will deflate, but economic deflation under this monetary system doesn’t equate to consumer price inflation, because the INTERNATIONAL value of the Loonie and the domestic purchasing power of the Loonie are two completely different things. If you’re confused think about the following. The minimum wage law and other Canadian government regulations led to certain manufacturing companies leaving Canada for countries like China.
Now when this happened, the Canadian dollar didn’t lose its FOREX value, it kept its value, but we lost manufacturing jobs? This means that as a Canadian business person, your purchasing power actually strengthened INTERNATIONALLY, but weakened as a Canadian consumer domestically. Once you understand this game, you comprehend why a sell-off under these conditions, will likely be temporary even as consumer inflation rages on and the Bank of Canada raises rates in a control environment.
Auto-loans are often tied to the central banks, that’s debt to watch for as rates rise, but credit cards are all about minimum payments, people in credit card debt will have to cut back on spending(economic deflation), but if you’re holding credit card debt you’re already paying 20% interest + insurance in many instances.
If home prices continue to go downward, what people forget is that a downward spiral in home prices equates to your house once again being a MONEY PIT! What does this do to the wealth effect?. Most people will hold onto an asset as long as they imagine it will payoff n the future, if you ask me, there are a lot of EMPTY homes and condos all over Canada, that are empty because the asset holders imagine they can sell for a profit at a later date.
If austerity measures aren’t coming, consumer price inflation will continue to eat away at people’s money, but even if the housing market crashes, that doesn’t mean that consumer prices are going to fall, a market crash might mean that consumer prices RISE! The housing market was already bailout by Trudeau with debt deferrals and The Canada Emergency Response Benefit (CERB). Meaning that he delayed the crash.
But notice that a delay in the crash has still resulted in higher prices for consumers? If the market crashes do you not think Trudeau will bail out the markets? Bailout the consumers? I certainly do, ofcourse when Trudeau does bailout Mainstreet, what’s going to shock everyone is that the prices are still going to rise, why? Because the government won’t be shrinking, it will be EXPANDING, on April 1st, 2022, the government gave itself a pay raise? The government doesn’t work for free, as a Canadian you’re paying for this and as Trudeau destroys the Canadian economy, people and entities dependent on the government will cheerlead this stuff, saying it was the right thing to do based on the circumstances.
So what I’m getting at is that until I see a call to shrink the government, or a NORMALIZED interest rate environment that would force the government to shrink, I don’t see how the markets are going to stay down, because there is a limited number of places in the economy to get a POSITIVE return on your money. Meaning that at best from where I sit, this market sell-off is merely money trying to find a new home.
Interesting times ahead!