At Schneider Insurance, we follow the future, because it’s going to arrive whether we like it or not. The start of the new year is a great time for an overview of where things are at. This year, one of the pieces we reviewed over the holidays was produced by futurist Peter Diamandis on the massive changes 2016 brought about. As he points out, “99.99% of the world’s population don’t know this stuff is happening.
Not to be out done ;-), the past year has seem some fundamental changes to the foundation of how our economic system is driven. Here are some of the things we’ve seen and enter 2017 with as the new normal…
1. Negative Interest Rates are now on the table in Canada
Canada welcomed a new/old Federal governing party to its first full year in power after a 10 year hiatus. One of the many changes they immediately made was to put a “Negative Interest Rate” Policy on the books as an economic tool should Canada suffer a major economic downturn.
Like other countries now employing this strategy chiefly Denmark, Sweden, Switzerland and Japan this policy penalizes savers by charging interest on savings accounts instead of paying interest. The purpose is to drive savings into investments to stimulate the economy.
Under this policy home owners with variable rate mortgages are actually paid by the Bank to keep the mortgage on the books. Currently the negative mortgage rate in Europe is (- 0.50%). Homeowners with a fixed rate mortgage would continue to pay the higher contractual rate until renewal of the term.
2. First ever “Red Flag” warning from the Bank of Canada (BOC) and CMHC (click here) Toronto and Vancouver housing markets are a real problem for first time homeowners. Worse historically high housing costs and personal debt loads are at all-time highs.
This threat to the Canadian economy is largely ignored by the public and Banking institutions who continue to lend money to protect their “Brand”.
As a result, should the housing market collapse the partial solution is #1 above.
The BoC has created a video you can view which understates their concern.
Should the housing market collapse those whose financial house is in order will have a tremendous Real Estate investment opportunity.
3. Peak Oil – when world consumption peaks and what will replace it?
The experts have agreed to disagree. Peak Oil is is an intellectual analysis of when Oil consumption levels off world wide and assumes declining consumption thereafter. The earliest reports come in at year 2030 and the latest at year 2050. They do agree that North American and European consumption will continue to drop while the balance of the world will continue to increase consumption from current worldwide levels.
What makes this “Peak Oil” call different is the alternative fuel options for automobiles.
Ford has only just announced that it will expand a Michigan plant to produce autonomous (self driving) and electric cars rather than build a new one in Mexico. We will see a lot more on both these types of cars.
Yamaha, among others has developed a self driving motorcycle in case anyone believes there is a ceiling to autonomous vehicle development.
Oil will always be in use even if not as a fuel as our clothes, tires, tools, toys and furnishings all use oil products and are, obviously, an everyday part of our lives.
4. Interest Rates set to Rise
Interest rates and inflation are linked economically and will rise and fall together. After many years of low interest rates since the 2008 market correction (ie. US housing market collapse) the opposite will now be the norm.
Inflation has averaged 1.8% over the last 16 years and that too will change, rising upward, as we go forward.
Inflation makes old debt look smaller and easier to pay back. Assuming you can continue to earn income that rises with the inflation rate. The USA is focused on this because the 18+ trillion owed to China will be devalued as inflation rises. It also speaks to the US concerns in preventing or at least minimizing China’s penchant to manipulate its currency to advantage. Advantage to Equity investments as one way to keep pace.
5. A businessman in the Oval Office
A lot of people have voiced concerns over the change in US politics due to the recent presidential election results.
The big news is that the “establishment” lost the White House and the new leader of the free world is to be a businessman rather than a lawyer or career politician. The reaction is not much different than when President Ronald Regan (also a Republican) was elected.
The biggest miss on the election results itself is if both parties discounted their biggest state wins (Texas = GOP and California = DNC) the Republicans and Donald Trump would have not only won the Electoral college vote but also the popularity vote by a modest 597,825 votes.
So far the stock markets like the change and it appears that NASA is going to get a lot more money too.
Historically, Donald Trump is, at age 69, the oldest president elect to win office for the first time. One might believe is first concern would be a lasting positive legacy in the history books.
The next 4 years will at least be interesting.