I’ve got 3 big ones but also 3 facts that shouldn’t be ignored.
I got a call last week from a distraught acquaintance who’s come to the conclusion he has to sell his house because, simply put, he can’t afford the increase in mortgage payments. His 5 yr fixed mortgage taken out in November 2017 at 2.64% is now up for renewal at just over 5%, which essentially doubles his payments.
I’ve been getting a lot of calls like that lately. People are suddenly aware of the impact of rising interest rates or the dramatic fall in crypto or their tech stocks. Some are just asking for advice about dealing with the huge rise in prices of just about everything.
The changes people are being forced to deal with are incredible. For example, on March 1st you could still get a 5 year variable rate at 0.9% but now the rate has increased to 4.75%. Over half of Canadians have reached the point where their monthly payments don’t even cover the increased interest cost, so they’re not paying down any principal at all.
Numerous polls have found that over half of Canadians are worried about making ends meet. Deloitte released a poll last week that found 76% of us have cut back spending in other areas because of rising food prices.
Canadians suffered the biggest drop in their personal net worth on record in the 2nd quarter. Down $900 billion with RBC forecasting the losses will grow to $1.6 trillion by June of next year.
I have to admit I’m not always sure of what it takes to get people’s attention, but there are no shortage of things going on that directly impact our financial lives whether we’re paying attention or not.
To borrow the old JP Morgan line – you can ignore finance and economics, the problem is that they won’t ignore you.
But the stakes are higher today than any time in the last 50 years – both personally and collectively. As I’ve been saying, if we thought 2022 was chaotic, volatile and dangerous to our financial health – 2023 will be worse. And I suspect in ways that are difficult to imagine. And hasn’t that been the case with so much of what we witnessed this year.
Like the 1500% jump in the bank rate in 7 months, gasoline hitting over $2.42 a litre on the West Coast, a diesel shortage in the US northeast that threatens shortages this winter, the collapse of the crypto market and NFTs, while former tech high flyers fell 70, 80 even 90%.
Here’s the first of 3 forecasts: The energy crisis is not close to being over. While there are a few countries like Brazil and Guyana who are looking to dramatically expand their oil production it will not be near enough to offset increasing demand from China when its Covid lockdowns end, let alone the increased demand from emerging market countries.
The implications are huge, along with the opportunities in the markets, which is why at the 2023 World Outlook Financial Conference on February 3rd & 4th in Vancouver, energy markets will be a major focus.
Forecast #2 The US Dollar will remain the “go to” currency for safety…and opportunity:
As I’ve said many times – if I could “know” the value of just one variable it would be the US dollar. Maybe not a surprise given that commodities are traded in US dollars, which means that any country that is importing oil, rice, wheat, natural gas etc is at a tremendous disadvantage. Worse still for those countries that also issued debt in US dollars.
I won’t go into details other than to say that the US is the only country that can simply print money and exchange it directly for commodities. And that’s a big advantage in a world of increasing scarcity and prices. It’s more complicated than that but that’s the gist of why China, Russia and other countries would like to see US dollar dominance decline.
But will it? My bet is no. A small percentage of trade can be denominated in other currencies but the US dollar will remain the recipient of major capital flows for years to come. Since 2014 on MoneyTalks we have recommended buying dips in the US dollar. Unless political and financial problems in the EU, Ukraine, China/Taiwan ease, economic growth prospects pick up in the EU and UK, and the energy crisis is solved, I think the probability of that changing is low.
As late as 2019 there was competition for capital flows between the US, UK, Japan and EU – that is no longer the case. Today the US is clearly the dominant destination for capital seeking safety.
Forecast #3 – Did we really think that we could add record amounts of debt without consequences?
Fact: government debt is at record highs but so is private sector debt. Consider private debt to GDP in Canada (thanks largely to real estate) is now higher than it was during Japan’s peak in the early ’90s when single parking spaces in downtown Tokyo were selling for $175,000 US or the Imperial Palace was worth more than the entire real estate market in California.
The sovereign debt crisis/defaults aren’t a matter of “if” but “when.” It’s already happening in emerging markets but will spread to the Western World. Rising interest rates and rising entitlement costs guarantee that the current system will break. The key is to understand how central banks and government respond.
So far the response to every crisis from the pandemic to record energy prices has been to “print” more money – to further devalue the purchasing power of currencies. This is why we have been forecasting that a Monetary Crisis would begin in earnest in 2022. Over 50 emerging market countries are already experiencing a dramatic decline in the purchasing power of their currencies. For example, since January versus the US dollar the Sri Lanka’s rupee is down 49%, Cuban peso down 59%, Turkish lira down 29%, Argentinian peso is down 29% …you get the idea. And it’s not just emerging market countries.
FACT: The Japanese yen is hovering around 20 year lows while the British pound hit a 37 year low in September. Canada’s oil exports have helped shield us – only a 13% drop in the last 18 months.
My point is that you can’t afford to not be prepared.
How to protect yourself from the big three – the Monetary, Sovereign debt and energy crises is the focus of the World Outlook Financial Conference, February 3rd & 4th, 2023 – not just how to survive but how to thrive. And we’re getting some of the best analysts in the English speaking world to help including, for the first time, respected analysts like Kevin Muir, the Macro Tourist – Tony Greer, The Navigator, along with Greg Weldon.
We’ll also hear from the incomparable Martin Armstrong, who the Wall Street Journal called the highest paid financial advisor in the world. Multi winner of Timer’s Digest Timer of the Year, Mark Leibovit along with one of Canada’s top oil and gas analysts, Josef Schachter will be with us.
We’ll also feature our annual World Outlook Small Cap portfolio in conjunction with Keystone Financial’s Ryan Irvine and Aaron Dunn, which has never failed to achieve double digit returns. Of course, past performance is no guaranteed of future returns but I like our chances.
Fact #3 –the biggest immediate threat financially is the Liquidity Crisis. (that’s called a teaser because I’ll wait to elaborate at the Conference and in a future letter – otherwise this note is will be way too long – and we do know how I can go on …and on)
What A Surprise
In case you haven’t guessed by now, I want you to join us at this year’s Conference. We’re excited to back live, in person.
I am absolutely sincere when I say that I’d pay to hear the recommendations of any one of our analysts – let alone the whole group. I know what some of them get paid to privately consult for mutual funds, investment firms and pension funds and I can say with 100% certainty that the World Outlook is a heck of a deal.
But you decide. After decades of broadcasting I certainly understand that a lot of people aren’t interested in economics or even their personal finances, (but enough about the media.) As the old saying goes – “change brings opportunity” but it sure as heck help to know what’s coming.
My sincere best wishes.
Mike
P.S. CLICK HERE for more information and to purchase tickets.
P.P.S. Our early bird ticket campaign ended last weekend, but I have arranged a special addition just in time for the holidays. There are only 100 available so check it out HERE
