It has been fascinating to watch the Governments response to combatting the pandemic from an economic perspective. Remember, in Q2 2020, at the onset of the pandemic, labour income declined by $20B. However, government transfers not only plugged the hole in the leaking ship, they went above and beyond that. Government transfers to households grew by over $70B. In other words, government income support programs paid out $3 for every $1 in lost income in that quarter. While the policy response was certainly necessary, there’s been a lot of discussion about paying it back, and the possible moral hazards of essentially handing out free money. Ironically, we just found out this week that 30,000 Canadians will be able to keep $240 million in Canada Emergency Response Benefits despite originally being ineligible for the money. According to the National Post, the government has decided to forgive the debt of all self-employed Canadians who claimed an average $8,000 in CERB overpayments — worth a total of $240 million. The claimants did not meet the benefit’s eligibility criteria due to confusing government messaging. But of those people, roughly 6,500 already voluntarily reimbursed the government. In those cases, the government will take the unusual step

The Bank of Canada is suddenly worried about rising debt loads and extrapolative expectations in the nations housing market. Following the central banks update to their financial stability review, governor Tiff Macklem took to the airwaves, “Some people may be thinking that the kind of price increases we have seen recently will continue. That would be a mistake.” Adding, “Some of the vulnerabilities that we had before the crisis have come back and top of the list is vulnerabilities related to housing and household indebtedness and they have intensified,” Mr. Macklem said. “The message to Canadians is don’t extrapolate from the current rapid increases we have seen in prices. Don’t expect that those will continue indefinitely.” Of course, the irony is that the Bank of Canada is largely responsible for the imbalances created over the past 12 months. You’ll recall back in July when the Bank pleaded with Canadians to borrow money, hoping to stave off a deeper credit contraction. In July 2020 Macklem said, “Our message to Canadians is that interest rates are very low and they are going to be there for a long time.” Macklem added, “If you’ve got a mortgage of if you’re considering making a major purchase, or

During a Q&A this past week with Canadian university students, Bank of Canada governor Tiff Macklem acknowledged, “QE can boost wealth by increasing the value of assets such as the investments Canadians have in their RRSPs or company pension plans. But of course, these assets aren’t distributed evenly across society. As a result, QE can widen wealth inequality. We will look closely at the outcomes of QE here and elsewhere and will work to more fully understand its impact on both income and wealth inequality.” It is certainly no secret that the younger generation is bearing the consequences of a monetary policy that is designed to boost asset prices, after all these university students are not only short on assets but saddled with student debt. They remain rightfully skeptical that the system isn’t quite working for them. Ironically, the very last question in the Q&A period, a brave student asked, ““if lumber costs 250% more year-over-year and house prices are up 24% is it safe to say inflation is still 2%??” Unfortunately the system isn’t working for everyone. The inflation debate rages on, focused on a CPI that fails to discern between demographics. After all, a millennial in the city of

Inflation is picking up, this is particularly the case for commodities. Commodities jumped to their highest in almost a decade as a rebound in the world’s largest economies stokes demand for metals, food and energy. The Bloomberg commodity index is now up a whopping 50.54% from last year, and 20% year to date. “The surge in commodity prices over the past year now guarantees higher goods price inflation this summer,” IHS Markit Ltd. said in a recent report. Adding, “During the next few months, even top-line consumer price inflation in countries such as the United States will rise to rates not seen in nearly ten years.” The commodities boom is resulting in surging costs for homebuilders, who, at least so far, have been able to pass on these costs to home buyers. Lumber prices have more than quadrupled over the past 12 months, with lumber futures recently hitting an all time high of $1500 USD/ per thousand board feet. According to the National Home Builders Association, this has added an additional $35,872 to the cost of a new single family home. And thats just lumber costs. Copper prices have also soared to record highs, rising more than 30% this year and have

The Real Estate Board of Greater Vancouver is expected to release April’s housing data today. Brace yourself for some eye-popping media headlines. Home sales across Greater Vancouver surged 340% year-over-year. Yes you read that correctly. The move is almost entirely due to weak base-effects from last year, when housing activity collapsed at the onset of the pandemic. However, let’s unpack this a little further. April home sales still hit record highs, regardless of base-effects. The median sales price increased 15% to $920,000. I expect the Real Estate Boards home price index, which is the number the media likes to report on, should show gains of around 12%. Months of inventory for sale remains incredibly tight, at just 2.1 months of supply- a reading which suggests prices will move higher- and they will. All in all, the data looks incredibly bullish and the media will have fun gobbling this one up. However, for fortunate readers of this newsletter, i’d like to share a few additional insights. Despite the obviously bullish data, please keep in mind that the way sales data is reported means it is ultimately a lagging indicator. So while prices will continue to move higher over the coming months,