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        Wusses?

        It’s hard to imagine anything losing 40% of its value overnight. But that happened to oil. What a mess. And while that was sending Alberta’s premier into a raging Tweetstorm, people in NS were trying to understand a mass murder. On top of a pandemic.

        These are not easy times. I thought about that as the SAVD (Self-Anointed Virus Cop) who lives beside the park yelled at me again when I walked Bandit along the edge of a deserted field. ‘Go home,’ he screamed. ‘And stay there.’ I ignored him. Bandit, too. He’s deaf now. We walked on.

        Did you see the poll today?

        While angry protests against lockdowns, quarantines and empty businesses erupt in the US, Canadians are reacting in a far different way. Is it our cautious nature? Or all the new money Ottawa is sending households? Look what the Angus Reid survey found: close to 80% say it’s too early to open stores or workplaces. Almost a third believe we should stay locked at home until sometime between July and October. And even if restrictions were officially lifted, most would choose to continue self-isolation. At home, in their yards. Yelling at guys walking dogs.

        Source: Angus Reid

        Our political leaders and the media did a fine job of scaring the crap out of us. Polls found that by two weeks ago 70% of adults believed they’d get the virus and 60% felt their symptoms could be severe. So far 0.094% of Canadians have tested positive and of those 4.5% died. Most have been the aged, with about half being nursing home patients. Globally 96% of folks who get the bug experience mild symptoms. But the fear of death has apparently reached 100%, so the economic consequences may be more profound than we all suspected.

        The virus has shackled economic activity, crushing the demand for energy and leading to oil prices that hit $10 US, then went into free fall – to less than zero for futures on Monday (crude was over $50 a few months ago). Negative oil. Astonishing. It’s ugly for Canada, where the black stuff remains our biggest export. No wonder Jason’s head is imploding. But an even bigger component of the economy now is residential real estate, and that’s where Monday’s poll really bites. The oil-house combo suggests Canadian economic recovery could be a lot slower than that of the States, where authorities (and citizens) seem more willing to let the virus spread through the herd. That may be logical. It may be suicidal. Time will tell.

        What do these things mean for investors?

        Social pressure’s likely to keep Canada shuttered until well into the summer. Maybe longer. The odds of a pile of small businesses not opening again – despite Ottawa’s payroll subsidy and zero-interest, partly-free loans – are 100%. If the restaurants and bars do swing open, customers may be too chicken to flock back. Theatres, concerts and sporting events are toast. This will be a year without vacations, condemning Airbnbs, festivals, hotels, tourist destinations and artists. The cruise business is kaput, which hurts both coasts. Airlines will stagger back, but the restoration of lost routes will depend on demand – which is based on public confidence (and as of today everybody must wear those damn masks).

        In short, in an economy where two-thirds of all GDP is dependent on consumer spending, what people believe, matters. So when 77% says, ‘keep ‘er shut’ you have an idea of what to expect.

        Given this fear – valid or not – how do you invest?

        First, look at this gauge of consumer confidence in Canada. Yikes,

        Source: Nanos Research, Bloomberg

        When so many are fearful, the world brims with opportunity. That should go without stating. But people too afraid to go out of their houses to earn a living are unlikely to be astute investors. Hence anyone looking to buy a house from a virus-motivated vendor will probably do well. People on the market now are highly motivated. Capital Economics said Monday houses prices in general will fall 5% during the pandemic. That’s probably light – but still means $75,000 off the average Toronto pile.

        In terms of a financial portfolio, look at the beaten-down energy sector. Amazing. Given the economic contraction in China and the big hole coming in US GDP (maybe 30-40%), demand has crashed. The oil supply depots are full. It’s not worth digging the stuff up. The decline is historic. We were back to prices of 20 years ago on Monday morning. By afternoon the stuff was worth less than nothing.

        This will change. The economy will rekindle, and the world still runs on oil, despite Mr. Musk. My fancy portfolio manager and analyst buddy Ryan says crude at $50-60 a barrel in 2021 is a definite possibility, once the surplus inventory is burned off. “I believe we’re close to the bottom.” So when something everybody needs loses 100% of its value in four months, guess what you should do?

        There’s more. Look at poor REITs, pummeled because of the virus’ impact on commercial landlords and office towers empty of cubicle slaves. That will change. The world may have more online shopping and remote workers going forward, but this prime real estate will continue to pump out income. And then there are the poor preferred shares, yanked lower in terms of market value by central bank interest chops. The yields are delicious (near 6%), and it’s a certainty rates will gradually augment as economic activity resumes over the next two years. Tax-efficient capital gains happen when you buy low and sell high. This is low.

        Will most people miss this stuff? You bet.

        Will they stay home, scared? Yup.

        Will they overstate risk? Guaranteed.

        And they shall reap what they sow.

        The V factor

        At this time last year (the third week in April) 202 houses – detached and semis – sold in Toronto. This year sales were 30. Gulp. That’s a decline of 85%, showing just how nasty the virus has bitten. In all of the GTA (six million souls) the collapse was almost equal, at 80%.

        Condos? Even worse. Sales of 231 in Toronto last year fell 86% to 32, and faded by 87% in the rest of the region. And look at this graphic showing the condo sales-to-new-listings ratio in the Big Smoke over the last few months. From 120% in February it crashed to about 10% last week. No showings, no sales. No sales, no market.

        Toronto condo sales plop as pandemic panic pops

        Not unique to Toronto, either. The same is happening in Vancouver, Victoria and Montreal. In Alberta it’s a full-blown economic crisis. In the flatlands, it might as well be January – things are frozen solid. So the questions are simple. Is this temporary and will demand/sales explode in August? Or is this a new normal – sellers afraid of buyers poking through their stuff; no more open houses; skittish mortgage lenders; people seeking distance over convenience?

        Here are some of the current realities. Several of them will stick.

        • The suburbs are suddenly looking good. Back-to-the-land is back. Your hippie parents would understand.

        For the last decade moisters flocked to the city. The denser the population, the better. More social interaction. More connections. Nightlife, networking and collaborative workspaces. Commuting was dissed and hated. Cars eschewed. Condos ruled. Walk to work. Live in a loft with dangly pipes and a bike elevator, next door to Starbucks.

        The virus changed that, of course. City cores are germ factories The subway’s a death chamber. Maybe you’re breathing the same air your neighbour is. Yuck. Besides the Mills are now in full family-formation mode, so bringing up junior in a sea of concrete isn’t such a hot idea. Wouldn’t a back yard and a pooch be nice?

        You bet. Just watch the renaissance happen. Minivans. Barbeques. Lawnmowers. Ant spray. The works. And the whole rural thing is the next phase. Now that nobody needs to actually go to work anywhere, why not?

        • Sales have crashed. Listings have crashed. Prices are holding as a result. However people selling really have to sell. Buyers have bargaining power.

        As the virus hit and sales crashed, sellers retreated. Listings have dropped everywhere, which means average prices have remained reasonably steady as less demand meets lower supply. But this also means those who have kept their properties on the market really, really, really need to sell. Choice may be more limited, but the potential bargains are multiplying with each week this mess continues. If you’re in a position to strike with a meaningful, actionable offer, then go for it. You can even include a few conditions, if you want, like a home inspection. And write in what you fancy. Some furniture. The garden tractor. Dog.

        • Getting a loan is getting harder. A lot harder.

        Yes, the virus has done a great job of dividing us into two groups – the creditworthy, bullet-proof elite (civil servants, teachers, first responders, essential service workers) and the tenuous riff-raff (small business owners, hairdressers, construction dudes, corporate vice-presidents, airline pilots, financial advisors, electricians). Credit is available and cheap, but risk has jumped dramatically. After all, 12% of all the mortgage-holders across the nation have asked for deferred payments, indicating distress. Four in ten Vancouver homeowners now say they’re approaching poochedness. The tide has gone out. Many are naked.

        Lenders and brokers are therefore spending more time looking at a borrower’s job stability and financial status than in the past. When a pandemic arrives which infects few but bites everyone, even high-paying glam jobs can be wiped away in weeks. If you’re buying or refinancing, make sure you grovel – or get a job at Service Canada.

        • Condos are the past. Dirt is the future.

        The condo market is in shambles. Pay attention. This could happen again. And again. The virus may return, widely or in pockets. For weeks or months. Nobody knows. But meanwhile whole condo buildings are sealed to non-residents. Showings are kaput. Inmates are worried about common areas, elevators and garbage rooms. Airbnb has collapsed and thousands of units will be coming on stream as a result.

        Inherently people now want more space, distance, security. This will fuel interest in properties with their own plots of land, windows that open and gaps between residential structures. Besides, at $1,200 per foot (or above), urban condos in Toronto and YVR had become excessively, insanely, irrationally expensive. Lately the $1-million-plus-unit market has withered and died. There is a watershed moment coming for the cliff dwellers. Many will be shocked as they slide into negative equity.

        Will these realities hold? Or is it impossible to see the future clearly through the fog of pandemic-inspired mass panic and economic destruction? Will house lust inevitably overcome the infection of fear?

        Time will tell. But a cabin with three laying chickens and a creek suddenly beckons.