Sunday, January 13, 2013

"Guaranteed" Predictions Jan 2006

Some Predictions for this New Year

Jan 6 - 2006 - Source

So, here we are – peaking timidly over the ridge of rubble left from 2005, into the valley below which contains a shiny new year. What can we expect from the economy, investments, markets and governments? 
Hey, follow me. No problemo.
: ) 

First, let’s not forget what this current year
brought – higher interest and mortgage rates. The highest energy and gas prices in history. 
Editor note, that will be that pesky "deflation"
A slowing economy. Political corruption, intrigue and an ongoing federal election. Lots of natural disasters amid warnings the global environment is officially fritzed. Soaring stock markets. The rise of China. A high-flying Canadian dollar and low-flying Conrad Black.
All in all, it was a memorable 12 months, but definitely not one of the better years in the last 10. More importantly, 2005 contained some trends and harbingers that give us a good glimpse of what is to come. So, here we go. 
Some stuff that I 100 per cent personally guarantee is going to happen: 
(1) Interest rates will jump. Yes, the current prime rate of 5 per cent is up three-quarters of a point from just half a year ago, which has had a substantial impact on variable rate mortgages and the borrowing habits of tons of people – and there is more to come, kids. In fact, the Bank of Canada, worried about inflationary trends, the dollar, the US economy, energy and a host of other factors, will be upping the key rate at each opportunity. 
Editor note, CBs increasing rates because of deflation once more?

That means a prime of 6 per cent by this time next year, which – of course – represents a 20 per cent rise in the cost of a variable rate home loan. 
(2) So, the next certainty is this: A stampede to lock in. Zillions of homeowners who have benefited nicely from having a VRM (variable rate mortgage) for the past half-decade (wisely following my advice), will increasingly be pulled into a fixed-rate deal. This (lower payments) is being eroded by the rate rise, and secondly because the big banks are hot to get people on fixed rates. This locks in their own costs in a changeable rate environment and, to convince you to switch, will be offering some great deals over the next couple of months. Think hard and long about taking the plunge.
(3) The housing market will soften faster than anyone imagined. Hey, even one the economics department of one of the big banks has started a “bubble watch” newsletter, just a few months after publishing a report saying no bubble existed. 
Well, as I said here a l-on-g time ago, it does. And it is going to be belching air quicker than anyone has suggested. As rates rise, affordability falls and suddenly people who paid $1 million for houses worth a heck of a lot less will be wondering who they are ever going to sell to for the same price.  The answer: Nobody. 
Note: Contrarian indicator use prevents entry again
(4) The stock market is going to be hot, hot, hot. Why? Simply because as the real estate market turns cold, billions of dollars that flowed there looking for a good return and little risk will be flowing back out again, in search of exactly  the same thing. 
With a vibrant energy sector, with a pivotal election behind it, and with a strengthening American economy, our financial markets will build on the success of last year, and head straight into uncharted territory. 
(5) This will be the year the RRSP comes back. Shunned now for almost five years, this once-popular investment vehicle will start seeing billions flowing into its tax-sheltered environment, to be invested once again in growth assets like mutual funds.  
Why? Because all those silly Boomers, who thought real estate was the be-all and end-all of financial nirvana, are now starting to push 60 years old and realize they have diddly when it comes to liquid financial assets. When you need cash, after all, you can’t just sell off an extra bedroom or a piece of your backyard. But you can liquidate some stocks or a piece of your mutual fund portfolio. 
Hopefully not too many people were following Turner's guaranteed 2006 predictions, borrowing against housing equity, to invest into mutual funds  and needing to liquidate in 2008, 2009, however we fear there probably were, for a second time round, having already failed once with this strategy pre 2000.
Some eternal investment principles will be remembered again.  So I am calling for a watershed year, one in which a lot of popular logic will be questioned, and found wanting. 
The smart money has already started to move out of over-inflated real estate, and into financial assets. 
People are consolidating debt, replacing nondeductible debt with that on which interest is a legitimate tax expense, as they are rediscovering the inherent long-term value of stocks and the wisdom of hiring smart portfolio managers. 
Like every year, it will be a good one if you know what’s coming

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