Suncor Energy Inc T.SU

RE:RE:RE:RE:RE:Hang on to our Hats

[Chad123]

Bring it on....Canadians deserve what they asked for.

Experienced wrote:

bigbear4511 wrote: I feel 2008 was a manufatured collapse.  They were raising way to quickly.   After 2008 it took them so long to raise .25%.  Almost ten years or so.   Yes it is hard to predict. One or two base point raises should take a bit of froth of this economy to a more balanced economy.

Experienced wrote:

Bigbear7405 wrote: Watch it will be one interest rate hike and then pause for a year. The fed will say something like we want to see how this .25 percent hike will work its way into the system. So we will pause for now.

Experienced wrote: The market action and pursuit of new highs has been predicated on two major themes.


1...The US Fed would continue to be accommodative by keeping interest rates low and also through the continuing purchase in the Open Market of US deficit financing.

2...the democrats would continue to pump trillions into the US economy and that money would go to the stock market because interest rates would continue to be very low.

Last week, The Fed Chairman said "Not so fast".  The Fed will stop buying US Government debt by the end of next March and then would start increasing interest rates through 2 or 3 rate hikes.  The market absorbed The Fed policy change with thought that even with a hike of say 75 basis points, interest rates would still be so low that the expected trillions in Government spending would still find a home in the stock market.

Today, Joe Manchin said he would not support the Biden Build Back Better proposal which would have pumped trillions into the US economy over the next 10 years.  So in effect those trillions of stimulus are off the table for now.

This combined with The Fed action last weeks, for intents and purposes means that "the party is over".....higher interest rates and no money.  Will be interesting to see how the market reacts, but a safe bet would be not well.

Lack of fiscal stimulus of this magnitude, as any first Economic student would know means less demand in the economy, lower prices and higher unemployment.  In simple terms, commodity prices such as oil are likely to fall as well as the whole market.  Businesses that are highly levered and in debt will suffer from lower demand and higher borrowing costs.

So hang to your hats,things could get rough for the next while depending on how this all plays out and whether the Democrats can pull a rabbit out of the hat and find a way to buy off Manchin.

 

That's quite possible.  They have done that many times before.

Seems like there is lots more than usual to digest these days in terms of making investment decisions.  That said, my spidey sense is feeling a lot like it was in mid 2006 and early 2007 before all H broke lose.
 

 

Interesting point.

Here's my take.

I will be the first to admit that I was not as smart as the guys on "The Big Short".  But I did it see it coming.  The big clue was the leverage ratios of the big banks in the US.  They were in excess of 30X.  I remember being in a meeting where there was a major Income Fund manager giving a presentation before things went south.  His message was that the housing market in the US was about 5% of the total economy and so we didn't need to worry about it.  At question period, I put my up hand and asked..."OK housing is only 5% but the leverage numbers in the banking system are 30X so 5% times 30 is a big number.  Don't you think that matters?"  He said, "NO!!!"

The result?

I was shouted down by the others in the room.  The rest is history

What did I do back then?....I went to almost 100% cash. I bought back in in May of 2009 couple of months after the turn in the market.  So yes I missed the first leg of the move.  But I still did OK. Right now I am at 30% cash only because I think the market has a bit more runway left before all H breaks loose.

Subsequent to all that we have got in the US the Dodds Frank Act which was supposed to fix the leverage issue.  It did for a while. But over the succeeding years it has been essentially ignored.  We don't have the same leverage numbers today as we did back then but...they are creeping up and the banks are back to their old tricks to "fix" the numbers.  On top of that we have excessive leverage in the household sector like we did in 2006/07.  Even on the news tonite i saw a piece where they said the average household in Canada is spending 47% of their after tax income just on their mortgage!!  This is not a good thing.

Soooo..back to your point,  With that level of leverage a few basis points in the interest could have a big impact on the economy and hence my cautiousness.

Over the years we have basically built an economy on a house of cards and it will not take much for the Big Bad Wolf to blow the house down.