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COVID-19 Are we F*cked ?

This is being written during March 2020 the COVID-19 Pandemic. At the time of publishing things were quite confused and unsure, but this is my simple opinion of where we in Canada may stand financially.

We are f*cked.

Is this me being overly alarmist? I hope so, but there are countless areas that are not likely to ever recover from the Pandemic.

As an addendum, this is added in September, and we are talking about having another lockdown. In Ottawa if you don’t follow the COVID protocols you will be fined $5000.

Travel and Vacation Industry

Dead.

  • The Air BnB industry and that side dodge is done. People will not be travelling much, for the next year or two. What happens to all those condos in Toronto that were bought with that in mind?
  • Cruises and Cruiselines? Good night, they are now synonymous with the Pandemic, if they recover it will be not in the near future.
  • Travel bloggers? Freebies are not going to be given out much, I think this gig is going to curtail or die off too. At this moment, Las Vegas is closed. This is not the W.C. Fields joke about visiting Philadelphia, this is Vegas, which never closes.
  • Airlines? These may recover if business travel returns, but they are going to take a beating, and will ask for a bail out.

Real Estate

F*cked

  • Construction sites are shutting down, thus screwing up the whole system.
    • People who are buying the new properties need to sell, but will have nowhere to go.
    • No one is buying a house right now, and when will they start?
  • Mortgages are being called and payments are being missed, renters are not being given reprieves either. What happens next? People being kicked out on the street? I doubt it, but you really don’t know right now.
    • Big wave of homelessness? I hope not, but the economic models aren’t there for this.
  • Over priced real estate may soon be worth less than their financing (i.e. mortgage), will we seeing folks walking away from their expensive high-rise downtown condo?

The Stock Market

F*cked currently having daily circuit-breaker calls.

  • Advisors are telling their customers to sell now, thus locking in their losses. They are following the buy high, sell low credo, that is not synonymous with getting rich.
  • FIRE and the entire early retirement craze should be forgotten for now. The markets have eviscerated those lofty goals for now.
  • The markets may rebound completely as it did in 2008, but surprisingly not as many folks got rich on that rebound as you might think.

Employment

F*cked, we had a weird job dynamic already, (the side gig world) but now it is F*cked.

  • My kids’ generation has had to have 3 part-time jobs to add up to a full time job, but none of those jobs exist right now. Restaurant jobs, are gone mostly due to the restaurants being closed. Retail jobs are gone, stores are closed.
  • The growth industries are:
    • Delivery, that is about it. Everything is being delivered now, but does anyone make any money doing this?
    • Government, because there is going to need to be a big government to deal with a broken country. Is this a good thing? I don’t think so, but I am a small L libertarian.
    • Debt, the world of debt is going to explode in terms of big money. Payday Loans, alternate loans and Bankruptcy Trustees are going to make big money in the short and mid term.
  • Will industries other than Travel go in the crapper? Lots of potential there
    • Retail, when folks don’t have a job, they aren’t going to be buying a lot of stuff.
    • Cars? If interest rates stay low, they may be OK, but if interest rates go up, this could make folks keep their old cars.
    • Oil and Gas already is in the crapper, with gas at 70 cents a litre, which makes it not worth working on the Oil Sands in Alberta.

Inflation

Coming, much like the four horsemen.

  • Governments are injecting Infinite money into the economy to try to prop it back up. I am not an economist, but even I know this is the recipe for Inflation (ever hyper-inflation). If money loses value, prices go up. Most folks don’t remember the 1970’s but this could be where we are heading (if not worse).
  • If we end up in an Inflationary spiral Interest Rates will have to be used to control things, and that is a world many folks have not lived in. I have seen 19% CSB’s in my lifetime, will I see them again?
  • Predatory loan companies making money on this? Absolutely.
  • Bankruptcy trustees may not be able to keep up with the tsunami coming at them.

Alarmist Clap Trap?

I really hope so. I hate to think we are financially f*cked as badly as I am guessing we are, but these are uncharted financial waters. I am not an economist, but I have lived for 60 years, and seen a lot of financial changes, and this one has me scared.

I hope we all come out of this with our health, and if we have that, all this other stuff can be dealt with, in some fashion or another.

Remember when we said, Get Out of Debt, it gives you options? This is what we meant.

What to Do?

First thing, take this article as simply a warning of what could happen. Next, make a plan for your financial world for:

  • The next week, what are you going to spend on? Why? Can you afford it?
  • The next month, assuming this stays the way it will.
  • Six Months, where hopefully around Autumn things start to turn around in terms of normalcy.
  • An overall recovery plan.
    • How are you going to recover your savings?
    • What is your retirement plan, given what has happened?
    • How do you plan around something like this happening again?
      • Hint: GET OUT OF DEBT !

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How to Motivate Savings

Consumers rarely do anything unless they feel they get something out of it. I keep wondering what savings motivating system banks could put in place?

Canadians are notorious for loving rewards systems, where they can accumulate points for later purchases, maybe something like that? A points system that would pay more monthly, the more money you had in your savings account?

I think I am on to something here, if banks paid people these points that they could use to purchase things, that might motivate people to save more money.

A Savings Motivating Refinement

What if this point system allowed you to swap points for money? Better still what if you didn’t accumulate points for having more savings, you accumulated money? Money that would be added to your account balance, and then the next month you might accumulate more money because of this added money?

This is possibly the greatest idea ever to motivate consumers to save money, isn’t it?

Click here to find out more about this Interesting Idea

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Inflation at 2011 Levels ?

We found out that Inflation is now at 2011 Levels, at 3.0% on a year-over-year basis. So what? Remember the Bank of Canada’s ideal rate is 2.0%, so this will most likely reinforce another Bank of Canada rate increase (in October). Now the B of C’s calculated Inflation is only 2.0% , but I don’t think they can ignore this kind of jump.

I haven’t commented on inflation for a while, but this report is important, for a lot of reasons. With the tariff wars that are going on, inflation is going to continue to rise (IMHO), and that will mean higher interest rates. Maybe someone will find sense and stop this Testosterone Laced bullsh*t trade war, but I doubt it.

Note also that Interest rates going up, contribute to Inflation (see the table below). Interesting spiralling effect. Stats Canada used to put out a more detailed report, but they have discontinued that report.

Biggest Inflation Contributors Over Past Year

July 2017 to July 2018
% change
Main contributors to the 12-month change
Main upward contributors
Gasoline 25.4
Air transportation 28.2
Food purchased from restaurants 4.4
Mortgage interest cost 5.2
Purchase of passenger vehicles 2.0
Main downward contributors
Telephone services -5.1
Traveller accommodation -4.1
Natural gas -5.7
Digital computing equipment and devices -3.5
Prescribed medicines -2.8

Consumer Price Index Increases by Category

CPI by Category

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The Consumer Price Index for the period ending September 2017 is 1.6% (year over year). The Bank of Canada’s goal is to keep the inflation rate under 2.0%. The Bank’s own measurements have inflation running at either 1.5%, or 1.8% depending on which definition you choose. Both are below 2.0% as well.

Let’s slice the onion and see where the CPI upswing came from.  The Year over year the high/lowlights are:

Main upward contributors:

  • Gasoline (+14.1%)
  • Homeowners’ replacement cost (+4.0%)
  • Food purchased from restaurants (+2.7%)
  • Travel tours (+7.3%)
  • Air transportation (+6.4%)

Main downward contributors:

  • Electricity (-8.6%)
  • Women’s clothing (-4.6%)
  • Telephone services (-3.1%)
  • Furniture (-3.3%)
  • Men’s clothing (-2.7%)

Given Gasoline is fluctuating again, what does the CPI look like without it? Have a look:
CPI With and Without Gasoline
Homeowners’ replacement cost is another add-on to home ownership to keep in mind as well. The drop in Electricity was expected with Ontario’s rebate program, but what will happen when the program ends? It is a rebate, not a price cut.

By overall category is also quite interesting:
Inflation by category for September 2017

2017 Inflation Discussion

Reports on inflation in 2017 so far.


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Low Inflation Means No More Interest Hikes ?

It would be imprudent to assume that low inflation, will mean no more interest hikes. The Bank of Canada has wanted to lower interest rate stimulation, and they will continue with this policy. They may slow down their rate plan but rates are going up.

Stats Canada on Friday published the monthly inflation report. The report overall shows that inflation is running at 1.0%, but as usual those numbers are deceiving. The detailed report shows a better view on things.

Main upward contributors:

  • Homeowners’ replacement cost (+4.1%)
  • Food purchased from restaurants (+2.5%)
  • Travel tours (+7.0%)
  • Traveller accommodation (+7.1%)
  • Natural gas (+10.0%)

Main downward contributors:

  • Electricity (-5.3%)
  • Gasoline (-1.4%)
  • Women’s clothing (-2.5%)
  • Men’s clothing (-2.9%)
  • Household appliances (-3.3%)

I am glad to see groceries specific are not mentioned here, but food purchased from restaurants took a bump. The generic graphic gives you a better overall view though.

Inflation by Category

Inflation by Category for June 2017

B of C Final Words on the Economy

The Bank of Canada has the following view on the Canadian Economy.


Growth in the Canadian economy is projected to reach 2.8 per cent this year before slowing to 2.0 per cent next year and 1.6 per cent in 2019.

That seems to be a very modest view on things, however, it all depends on what happens down south. Is it safe ? I have no idea.

2017 Inflation Discussion

Reports on inflation in 2017 so far.



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