Bonds and Stagflation, Gold and Trump Rules, Real Estate Plunge
Dear investor, markets are in a state of disarray. I have been commenting for the last two years that we are in a period of stagflation, like the 1970s/80s. Most investors, analysts and talking heads have no experience with this market environment and have trouble understanding what is happening and where the economy and markets are headed.
Back in the late 1970s and 80s when I started investing I traded a lot of options on bond and foreign currencies futures. There was a lot of fluctuations in these markets and although I cannot brag that I made a lot of money, I can say I learned a lot from the school of hard knocks. I traded the British pound, Japanese Yen, Swiss Franc, Canada/U.S dollars, Bonds, Precious Metals, Energy, Cocoa and Sugar. My biggest win was Nikkei Put warrants when the Japanese market collapsed.
One of the biggest misconceptions now is the Fed and Central Banks can control interest rates and bring them down. Many investors and home owners too, have been counting on lower interest rates by now and in the near future. I have been harping for the last two years that we would be lucky to see rates come down 1% to 1.5%. And so far, that is all we have got. It does not matter what the Fed or Central Bank (CB) does, it is what the market does. Sure the CBs try to influence the market and most of the time, they are successful, but it is not working now, as I have been warning.
I have been commenting for some time that the market has had enough of the government out of control spending, and now we can see more proof. It seems each U.S. President or government leader in other western countries think they deserve to spend more than the previous leader. Trump (2016) spent more than Obama and Biden more than Trump and now Trump is out doing Biden, on track to borrow more than two trillion dollars this year. The U.S. budget deficit for fiscal year 2025 has reached approximately $1.15 trillion through the first five months, which is about 38% higher than the same period in 2024. There was an excellent chart at NY Times today.
Previous spikes in government spending as measure against GDP occurred in periods of war. However, since 2000 it has all been about propping up the market and economy with excess money printing and government deficit spending. This has resulted in more inflation that is not going away until governments and Central Banks reign in their excesses. It almost seems that they are determined to blow up the current monetary system to create a new one.
Fitch downgraded the U.S. previously, now Moody’s is preparing to do the same. Moody’s downgraded its outlook on U.S. sovereign credit from “stable” to “negative.” The agency warned of mounting interest payments, a lack of credible fiscal reform, and worsening political gridlock.
The market barometer of U.S. interest rates is the 10 year treasury chart shown below. With Fed rate cuts, we did manage to see the treasury rate fall from around 4.75% to 3.75% and now rates are back up.
Investor appetite for U.S. debt is waning, or at least will have to be at higher interest rates. Last Wednesday, the auction of 20-year Treasury bonds was so weak that the 20-year yield climbed to over five percent, and long-dated debt yields hit levels not seen since November 2023. The auction saw investors accept a yield of 5.047% on the 20-year note, compared with the past six auctions’ average of 4.613%.
The market is anxious about Trump's big beautiful bill passing in the House. It increases spending and will also reduce taxes so reduces government tax revenues. Trump claims the economy will boom with his policies and bring in way more tax revenue. As with all governments, this is usually wishful thinking.
Canada is the same or worse. The Trudeau government was projecting record spending and deficits and new PM Carney is pushing much more, out of control spending. The Canada 5 year bond is the best market barometer in Canada and we can see it came down from around 4% to 3%.
Some Golden Rules
Gold doesn’t need a vote in Congress or a promise from the Treasury. It doesn’t get downgraded. It doesn’t default. And it isn’t printed into devaluation.
Make your voice heard, buy gold and silver. It is used in every economy everywhere. Your fiat money is useful in one place only, your own country and a few others at best. Staying in paper currency is your choice and your vote to stay in government garbage money.
Gold is not consumed and it is the only thing that is eternal. Gold is money that cannot be destroyed and never rusts. Gold is nobody's liability and the only thing other than fiat currencies that Central Banks hold as reserves. One does not buy gold, you save it.
And Some Trump Rules
I am happy to report there is some sanity in Canada that knows what Trump is about. Brian Lee Crowley, managing director of the Macdonald-Laurier Institute, a Canadian think tank. He argues, actions reflect Trump’s broader goals, his negotiating style, and Canada’s role in U.S. strategy.
“Donald Trump is looming so large in the Canadian consciousness right now,” Crowley said. “I have seen a lot of my compatriots running around like chickens with their heads cut off saying, ‘oh my God, Donald Trump is a madman, you can’t understand what he’s doing.’”
But Crowley argues Trump’s strategy makes more sense when viewed through his priorities: restoring America to its “top nation status,” standing up to China as its “great rival,” recovering the promise of America “for the people who were left behind,” and bringing an “energy renaissance” to the American economy.
As for his negotiating strategy, Crowley says Trump inherited the American tradition of a “showman,” describing himself as a deal-maker and appearing unpredictable.
“I think he’s scaring the pants off the people that he wants to make deals with and bringing them to the table frightened out of their wits—this is just the way he works,” Crowley said.
“They’re letting him distract them with the shiny object up here, and getting caught up in his tactics, and forgetting to think about his strategy. And I think his strategy is quite clear.”
As I have said, there is method to the madness.
What we already know, but maybe the Carney government will wake up?
The latest edition of the Business Development Bank of Canada’s (BDC) 2025 Venture Capital Landscape report paints a continued poor environment. “Of all the insights from the report, Canada’s high dependency on foreign capital, while not news, is particularly alarming in today’s landscape. It’s a collective wakeup call to the industry and major Canadian corporations: fostering Canada’s culture of innovation, here and now, is a must have going forward,” says Geneviève Bouthillier, EVP, BDC Capital.
Key highlights include:
Canada’s VC performance deteriorated last year with a 10-year net internal rate of return (IRR) at 10%, thus deepening the gap with the U.S. The U.S. IRR performance still fares well while Canada lags behind.
Seed, early and later stages saw a decline both in terms of dollars invested and deal volumes.
Fundraising activity has slowed, with a median time to fund raise remaining at four years for the second consecutive year.
Artificial Intelligence (AI) captured 30% of all VC investments,indicating its pivotal role
More than half of all investments in Canada (57%) went towards the information and communication technology (ICT) sector last year. Life sciences and the energy and clean technology (ECT) sectors came second and third in terms of investments.
Exit activity continues to be constrained, except for a few big-ticket deals, while the initial public offerings (IPO) drought continued. Only 7% of Canadian unicorns exited in 2024. This created a tough market, with significant capital locked in, while awaiting more favorable conditions to realize returns.
The report is confirmation in the lack of investment in Canada that I have highlighted a number of times, but what is more. The median time to fund raise was 4 years. In today's tech market, your technology will be pretty obsolete in 4 years. Just another factor why Canadian start ups struggle.
And remember, Policy Horizons Canada is a Privy Council think tank studying socioeconomic trends that offers reports and predictions to the highest level of government. The organization’s most recent report paints a shocking picture of a dystopian future facing Canada in 15 years. The authors predict productive people will have fled the country, leaving secured gated communities for a small, privileged class while an underclass majority is locked into a cycle of despair and reverting to hunting and gathering to feed themselves.
Housing Markets.
The S&P CoreLogic Case-Shiller Home Price Index for 20 cities (seasonally adjusted) slipped 0.1% M/M in March, less than the +0.3% consensus and slowing from +0.4% in February, according to data released today. “Home price growth continued to decelerate on an annual basis in March, even as the market experienced its strongest monthly gains so far in 2025," said Nicholas Godec, head of Fixed Income Tradables & Commodities at S&P Dow Jones Indices. One month is not a trend, but this may be the early days of a start in U.S. housing price declines.
I was checking the construction crane index and made this chart. Condos are still in free fall.
Although the number of active cranes in Toronto has collapsed, it still is the highest number of any North American city. In total, Toronto had 106 active cranes, followed by 42 in Los Angeles, 24 in Calgary, and 17 in Seattle.
Driving crane count are residential developments at 56 cranes, followed by mixed-use developments at 33. The remaining 17 cranes are spread across a number of healthcare, education, transportation, commercial, cultural, sports, and public assembly projects.
Condo sales in the Greater Toronto Area tumbled in April, with a 30 per cent year-over-year decline, according to the Toronto Regional Real Estate Board.
The average price of $678,048 was 6.8 per cent lower than the same period a year ago, and is down 16.5 per cent since the peak of the market in 2022. Price declines in London and Barrie have been even steeper.
The condo market decline is spreading into all of real estate in general
April 2025 saw active listings in the GTA housing market skyrocket to the highest level seen in almost 29 years. Home listings are up significantly year-over-year as active listings shot up 51% year-over-year to 27,386 listings by the end of April 2025. That’s a 17% month-over-month increase, and puts the GTA at the highest level of active listings since May 1996, when it reached 28,024 active listings.
The average home price in the Greater Toronto Area (GTA) housing market in April 2025 was $1,107,463, 4.2% lower year-over-year than in April 2024
Seven consecutive rate cuts by the Bank of Canada had brought some hope that the housing market may see a price boost as buyers return from the sidelines. Instead, we have seen a larger influx of sellers waiting to list their homes than a return of buyers, as evidenced by higher listing volume. And as you can see in the chart below, mortgage rates have come down a bit more than 1%, from 5% to a little under 4%. That said, the problem I have been harping about is to get way worse. All the 5 year mortgage renewals in the next 1.5 years will be those at under 2%. These mortgage holders will see huge increases this year and the rest of 2026.
The Shit about to Hit the Fan
If you think the real estate market has been weak, it is probably just getting started. In 2025 about 1.2 million Canadian mortgages are expected to come up for renewal. From 2025 to mid 2026, about 60% of all current mortgages will be up for renewal.
For example, on a $500,000 mortgage, a 50 basis point increase in the mortgage rate could cost you approximately $1,675 extra per year (assuming a 20-year amortization).
The CRE says prices have dropped over -17% on average in Canada since the peak. Real Estate is about location and I predicted prices in Ontario would probably drop -30% and even as much as -40%.
As of April 2024, many locations in Ontario saw an over -20% drop and prices have fallen another 5% to 10% or so, this means we are hitting my projected -30% decline in some areas and this market is going to drop much further.
As of April 2024 Brock had the steepest decline, with average home prices falling from $1,168,477 to $800,000, a 31.8% drop. Oshawa and Clarington also saw significant decreases, with property values dropping by 26.5% and 25.7% respectively. Overall, 64% of cities in Ontario, including Brampton, Essa, Pickering, Burlington, Vaughan, and Ajax, experienced decreases exceeding 20%.
And since this time, as I point out above the condo market has collapsed and recently home listings in the GTA have soared. I believe we will see my projected -40% decline in many areas.
All forecasts and recommendations are based on opinion. Markets change direction with consensus beliefs, which may change at any time and without notice. The author/publisher of this publication has taken every precaution to provide the most accurate information possible. The information & data were obtained from sources believed to be reliable, but because the information & data source are beyond the author's control, no representation or guarantee is made that it is complete or accurate. The reader accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Because of the ever-changing nature of information & statistics the author/publisher strongly encourages the reader to communicate directly with the company and/or with their personal investment adviser to obtain up to date information. Past results are not necessarily indicative of future results. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial adviser & is not acting as such in this publication.