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Canada's Business

by Bruce Whitestone




Irrational exuberance II

The North American stock markets continue to defy gravity, ignoring dire predictions that a Donald Trump victory would bring a catastrophic decline. Despite this new found optimism, warning signs are everywhere.

Share valuations are reaching new highs based on expectations for American personal and corporate tax cuts, heavy infrastructure spending and an uptick in growth.  However, stock valuations are in the high end of a typical trading range and are priced for perfection. How much longer can they defy gravity?

Interest rates have been extremely accommodative since the 2008 financial crisis. This has subsequently penalized savers, encouraged a “risk-on” approach to portfolio construction and allowed for unprecedented levels of debt.  Currently, Canadians have very high debt-to-income levels.  Therefore, any significant increase in interest rates will threaten Canadians’ ability to prosper.

Housing markets in Canada remain particularly susceptible to a downturn. It is axiomatic that Canadians feeling of wealth is very tied to home prices. Likewise, low interest rates have fueled the appetite for home ownership. Share price gains in the metro Toronto and Vancouver regions have been fueled by foreign buying, and attractive mortgage rates. Many estimates have house prices overvalued by as much as 20 to 30%.   Therefore, a price decline coupled with interest rate increases would threaten Canadians’ financial stability.

President elect Trump’s protectionist stance threatens current trade relations with both Canada and Mexico.  In Britain, the Brexit vote threatens EU trade relations with Britain, one of its biggest trading partners.  These and other potential barriers to trade will threaten economies globally.

Both Canada and the U.S. offer fiscal stimulus as economic salvation. New bridges, highways and public transportation will ease the movement and flow of goods, yet will not necessarily provide a significant uptick in GDP. In any event, how much can a program of economic stimulus provide a boost in the face of ever-rising government deficits and ultra-low interest rates?

China has been seen as a global economic engine. Yet despite Central Party control there is growing social unrest, with over-leveraged housing and stock markets threatening economic stability. India, which is also looked to hopefully, remains mired in a strangling bureaucracy and corruption. Global growth may not be what we would hope or expect from these economies.

We may well see a continued upward trajectory in markets for a while, but there are too many road signs warning of dangers ahead for us to ignore.

 

Vol 49 Issue 50

 
 

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Community Guide Spring 2017

COLUMNISTS

Barrie Hopkins
Barrie Hopkins
Barrie Hopkins
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Bruce Whitestone
Ray Wiseman
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Stephen Thorning
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Recent Columns

Bits and Pieces

  • Signature bonnet
  • Digital pantomime
  • Connect the dots
  • Generation gap
  • Little things
  • Tylenol kick
  • This Little Piggy
  • Nature's best
  • Canada's Business

  • The decline of civility
  • Irrational exuberance II
  • Speak up
  • An enduring register
  • A government assessment after one year in office
  • Gauge signals
  • Unpatriotic
  • Inevitable
  • Comment from Ottawa

  • The Syria question
  • Reflecting on 2016
  • Open, transparent combat mission?
  • Bad for businesses
  • Have your voice heard on electoral reform
  • Open and transparent?
  • Assisted dying
  • Leadership bid
  • Life-wise

  • Retirement
  • Canadas scarcity of calamity
  • Often we mirror our parents
  • Putting up with put-downs
  • A tale of two landlords
  • A letter from the campsite
  • Two shades of black
  • Precious memories
  • Queen's Park Report

  • Back to work
  • Merry Christmas
  • Remembering them
  • High-cost hydro
  • Six important issues
  • Emancipation Day
  • Great Lakes
  • Happy Canada Day
  • Special to the Advertiser

  • Death of JFK changed the world
  • Split Decision

  • Alternative voting methods
  • Student immunization records
  • Hydro rate cuts in Ontario
  • Housing developments in rural areas
  • Wi-fi on school buses
  • Rental fees for community groups
  • Municipal tax increases
  • Selling naming rights for public facilities
  • Staying Connected

  • It’s all about staying connected.
  • Stray Casts

  • Final lines: Its been great
  • Thorning Revisited

  • Oatmeal brings good times to Monkland Mills
  • Fergus’ Monkland Mills established in 1856
  • Arthur fans took their hockey seriously in 1950s
  • Augustus Jones determined present-day county boundaries
  • New Fergus hospital well supported by communities
  • Fergus beer brewing business ended with a bang
  • Town of Fergus’ first brewery opened in 1867
  • Crayons manufactured in Palmerston in 1950s
  • Valuing Our History

  • Railway passenger service waxed and waned over the 1900s
  • Tanner’s woolen mill in Mount Forest burned twice in a year
  • Elora principal George Edgcumbe ended his career in disgrace
  • Peter Perry a memorable principal of Fergus High School
  • Fire gutted Fergus building owned by Robert Kerr in 1931
  • George L.A. Thomson enjoyed career with American railroads
  • Department of Highways vowed to keep roads open in 1931
  • J.B. Perry of Fergus penned most successful local book of 1920s
  • WriteOut of Her Mind

  • Rock on
  • What I want
  • Own it
  • The puck drops
  • Sunshine & time
  • Family time - or else
  • It still means everything
  • Supreme embarrassment
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