Suncor Energy Inc. T.SU

RE:RE:RE:Is the sky really falling?

[alvarez2]

Experienced wrote:

LiLy2021 wrote:

 

Obscure1 wrote: 5 year fixed mortgages at TD are currently 2.85%

5 year variable closed mortgages are currently at 1.55%.  
 

Obscure, TD is offering bank prime -1.34 for 5 year variable closed mortgage. I know because I just renew for one of my rental properties. Nobody should be paying 1.55% for a mortgage these days. That's highway robbery. :-D. The biggest mistake I made in personal finance was to deleverage too early. 

The sky is not falling and it will remain blue and clear for as long as the rate of inflation is higher than the interest offered on fixed income. Times have changed. I heard people say back in the 80's they were paying 18% for loans, but then they were also getting 18% on deposits. Look at the current situation. 1.26% mortgage and 15% inflation and .2% on premium savings account. (TD E-savings offers even less).  People have no  options other than taking on more risks than they're comfortable with to ward off this inflation blow. 

 

This market, if it will topple, it's because of excessive debt. People are fearless when it comes to piling on debt. From HELOCs to margin to car loans and credit card loans...just look at the banks' record earnings for a rough idea. 

Cheap debt is like booze. You're awaken for a moment to sobriety only to plunge right into drunkenness. The feds can raise rates all they want. If rates are not high enough to compensate for loss of purchasing power, we'll just see this party being in full effect. I'm buying anything and everything I can get my hands on--things the government can't print out of thin air, such as good companies like SU. 

@NPCexe:  Today's SU's erection was not due to the effect of Viagra. :-).  We'll see many more days like these to come. Hope we'll be trading in the low 40's after the next ER. I can't believe it's anything less than stellar. 

I agree that negative real interest rates are stimulative and that combined with outsized deficit financing by Governments make for record stock market prices.  This is basic economics.

Where I disagree with you is the statement that I highlighted.  In your post you said you heard about the high interest rates in the early 1980s.  Well I actually lived through that period as a home owner with a mortgage.  But the real story and why I have a disagreement with your statement is that the story about the high interst rates in the early 1980s started many years before that and more specifically in the early to mid 70s.  

The mid 70s we had wage and price controls to try to tame inflation.  At that same we saw excessive budgetary deficits by Governments which eventually lead to a crowding out of business and consumers in the debt markets and this lead to a massive hike in the interest rates.  During this time we also saw a lowering of consumer spending which is about 70% of the economy.  Both of these factors lead to a significant decline in stock prices in percentage terms.  Right now I see the same thing happening as I saw back then.

I also have a problem with the notion that as long as real interest rates are below inflation we will continue to see blue skies.  Yes they are certainly blue right now but that won't last foreever.  In the US for example about 45% of the people pay no income tax and are living paycheck to paycheck.  This is a significant proportion of the people who are suffering from the high inflation and pretty much spend everything they make and don't save.  As inflation rises these people will have no choice buy to cut back on their purchases and this will ultimately result in lower profits and hence lower stock prices.  This is why I posted earlier that while the sky is blue now, there are storm clouds on the horizon.  How long it takes for that storm to hit is the unknown - what is known is that it is coming.

Rest assured that the so-called experts and pundits on TV know this but are driving up markets to make a few bucks before they then switch to OMG but they will have certainly sold their stakes to those that got sucked in with their rhetoric before they say OMG and bring the market down so they can reload.

I certainly don't know when the sheet will hit the fan but my planning assumption is that it will be late this year and unless something significant happens to change that view, By the end of the year I will be holding a much higher than normal cash position in my investment accounts so I can reload at cheap stock prices along with the manipulators that work on Bay Street and Wall Street.

Good post and I agree with your assessment of where things are at today. Timing is difficult however as it's better to be in the market early than late the same holds true for planning the exit.