April 20, 2010
In perusing the Globe and Mail business section this morning, there were three articles right at the top of the page that really stuck out for me. The first was Mark Carney stating that rates were likely to begin rising in the summer given the more positive Canadian economic outlet. The second was that the dollar jumped a penny on the expectations of rate increases. The third was indicating that 62% of Canadians plan to retire with debt.
This summer is going to be a scary time, I think. When rates begin to increase, it’s likely that international investors will increasingly come to Canada seeking higher yield. Why? Because while Canada will be raising rates, other countries will not be. That’s going to only push the loonie higher.
And a higher loonie is not a good thing for the Canadian economy. We are export driven, so an increase in the value of our currency makes our goods less competitive internationally. That’s scary, too.
Also, with higher levels of debt burden and 2/3 of Canadians worried that interest rate hikes will impact their ability to make mortgage payments, the rate hikes could cool down the housing market too quickly. That’s also a bit scary.
The bottom line is, a lot of our growth has come from the housing market which is going to stall with further rate hikes and the new mortgage rules. Throw in the wildcard HST and it’s hard to say what the heck is gonna go down. I’m scared. And that picture is scary. Okay, that’s it. Signing off.