Are we smarter than the Bank of Canada?
And by "we," we don't mean "Nick and me."
We mean the collective "we".
The group of real estate investors who are actively watching the economy.
Did any of us really believe that Canada was going to raise interest rates in 2015 like we were being told?
We were told that rates would rise soon. And we were told this repeatedly just a few months ago.
And we were told the exact same thing in 2010.
And in 2011.
And in 2012.
We've written about "low rates forever" on this blog before, multiple times... Here's just one of the posts back in 2012, click here for it.
It's really not that hard to out-think the Bank of Canada's interest rate moves.
I mean, people make it sound complicated, but it isn't.
We're actually surprised at how easy it is to out think them.
Here's one of the reasons we know interest rates aren't going anywhere quickly, check out this chart from PeakProsperity.com:
That's the growth of credit since 1952.
Check out what happened in 2008-2009 ... that little blip caused some major financial problems, didn't it?
Now, look at the rate of growth after that blip.
Doesn't look as smooth and steady, does it?
The economy needs credit growth to continue growing and expanding.
If we don't get it then there are problems.
The main problem is servicing the growing global debt.
If the economy doesn't produce enough income to service its debt we got problems.
One of the ways to check income for individuals and for the government is to analyze its growth rates.
When incomes are increasing it's a sign the economy is humming away and growing and they are taxed so growing incomes means a growth in government revenues too.
Check out income growth in the U.S. since 2008...
That's after trillions of dollars in "QE" have been fired into the economy.
And consider this:
U.S. debt has grown 64% since 2009. Click right here to see the latest data.
Here's how many people in the U.S. are working...
That's the lowest rate since the late 1970's.
Not fun and not funny ... is it?
So if we can look up this data and feel pretty comfortable that rates are not going to rise in any real way soon why can't the Bank of Canada?
The U.S. buys 75% of our exports so they're kinda important to us.
Can we look at U.S. data to predict what we'll do in Canada around interest rates?
We think so, yes.
So if it's so obvious that the data isn't screaming that things are growing we have a question...
Internally does the Bank of Canada know they're not going to increase rates but don't want to admit it?
Wouldn't that be cool to know?
If anyone can get us some face time with Canada's Bank of Canada Governor please set it up ... we'll pay for the opportunity to chat (we'll ask that any payment go towards Canada's debt ... LOL!).
And consider this, there is a precedent for long stretches of low rates, just look at the beginning of this chart:
A couple of quick and important points:
1. We are not economists and don't pretend to be. But predicting interest rate moves in Canada is a lot about watching what the U.S. does. Keeping an eye on the data above can give us some great clues. And then mix in some Canadian data like "oil prices" and you can get a pretty good idea of what the Bank of Canada will do. Are we simplifying things? Yes. Has it worked pretty well? Yes.
2. Rates may go up soon, maybe even this year. What we're talking about when we talk about rates increasing is a large 2-3 or even 4% move in a short time frame. A quarter point or even half-point move isn't what we are considering a real big move in rates. At this point moves of those sizes are almost symbolic moves for headlines.
3. What are we missing? If there's a huge loss in confidence in the financial system then rates can spike up quickly, overnight even. We have to admit this and always be watching for it.
As real estate investors, Nick and myself feel like we're always walking around a little paranoid.
Feeling like we know what's going on but there's always a little uneasy feeling that anything can happen at any time.
Just yesterday we recommended that it's not a bad idea to lock in your interest rates on rental properties for as long as you can.
Fixed rates are low right now and if it will help you sleep at night lock them in ... for five years, for ten years even!
We still heavily use variable rates but as we mentioned we're constantly watching and ready to lock them in at a moments notice - knowing that when we do we may have missed the time to get the lowest fixed rates possible.
If you're interested in growing and protecting your portfolio it's in your best interest to begin studying this stuff.
Don't take our word on interest rates.
We're just two Mississauga boys who are trying to figure things out.
Be your own expert in this.
It'll give you confidence and the know how you need to create cash flow and wealth for you and your family.
Until next time ... Your Life! Your Terms!!