Good morning! This morning our new Bank of Canada governor, Tiff Macklem, carried through with his pledge in July to keep rates at this level for at least 2 years & left rates unchanged at this morning’s policy announcement. Central banks around the world seem committed to letting inflation run hot by keeping rates low. Let’s not forget that low rates has most certainly NOT created meaningful inflation for the last few decades, so what would be different about this time around?
Following 2008 the massive amount of money supply creation (which pales in comparison to what we’ve seen in the last 6 months), went almost exclusively into propping up financial assets. What’s different this time around is a commitment to the fiscal side & putting money into the hands of the ppl & the economy, not just wall street. Governments are creating debts, then printing money to pay for those debts. What could go wrong?
On a recent CNBC interview one of the greatest & most successful investors of the last few decades, Stan Druckenmiller, came out saying for the 1st time in a long time that he is actually worried about inflation & that we could easily see 5-10% inflation in the coming years. Ironically, he also pointed out the rising risks also going the other way towards deflation, as every period of deflation is preceded by an asset bubble. With companies are soaring 30%, 40%, 50% on news of stock splits (which add zero value to a company), when bankrupt companies are seeing their stock prices double while their bonds are trading at a few cents on the dollar, when sports bloggers like Dave Portnoy are calling Warren Buffet washed up while they tout the mantra of stocks only go up, it’s hard to argue we are in anything but a mania driven bubble.
So we have 2 risks – deflation & inflation. What does that mean for your mortgage?
Fixed rates are incredibly low right now. You can lock in rates at or under 2% for the 1st time in Canada’s history. Could mortgage rates go lower? Yes. Could they go negative? No. Are we already very close to zero? Yes!
Now on the flipside to that, could inflation impact the central bank’s commitment to keeping rates low? Yes! Could we see a major breakout of rates from this multi decade downtrend towards zero? Yes! Historically have inflation breakouts taken shape quicker than most expect? YES!
The way I see it, mortgage rates are incredibly attractive right now. They could go a bit lower, but they could also go A LOT higher. What impact would having a mortgage rate that’s 0.5% lower have on your life? What about a rate that’s 2% higher?
These are some of the questions I’m having with clients right now & if you’d like some help mapping through these scenarios, please get in touch.
I’m Ryan. Thanks for watching. Have a great day.