We see people bidding up house prices even though we are in a pandemic and what may turn out to be one of the deepest recessions in history. This is not only true for British Columbia, but we can also see a lot of the real estate market across Canada which is red-hot especially in the market for single-family homes. While this defies all rational logic, it is where we are. People are looking for the security of owning a home even with people losing their jobs and getting pay cuts.
Herd Following is a theory stumbled upon in 1906 when Francis Galton observed a competition. The competition was for persons to guess the weight of an ox. When all the guesses were averaged, the total average gues was 1,197lbs. The actual weight of the ox was 1,198lbs. Since then, there have been a lot of studies on the theory of collective intelligence which have shown similar results.
Information from the Canadian Bankers Association indicates that around 15% of mortgages have been deferred, this is a total of 743,000 mortgages. As the days go by, we see that “the reopening” is not going as well as we would’ve wanted it to go. We see infections getting higher and more businesses are going back to closed doors and working from home. Look at Apple, they have closed seven of their area stores in Houston and 14 of their stores in Florida since the reopening. Of course, they have enough cash to afford to close their stores, but other businesses are not as fortunate with a lot of white-collar jobs been axed.
What are the Banks Doing?
We see central banks flooding the system with liquidity so much so that free-market price discovery is almost entirely out of the window. And so now we see cash finding its home in hard assets.
What Does This Mean for Society on a Whole?
We are getting to that tipping point and this is certain to have long-lasting effects on our society. There are several possible outcomes that we must be ready for.
What We’re Watching
- Bond Yields Trading – these are currently at their lowest level in history.
- The US is currently not showing a V shape recovery in current business conditions and this is right across the country.
- Small businesses that are bringing back all employees account for only 50% of the total small businesses in the US.