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Top Links: Why Bank of Canada should squash the housing bubble

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

Jeffrey "the new Bond King" Gundlach was the most prominent among the few financial heavyweights that predicted a Donald Trump election win. His reasoning contains important prediction son the future of the U.S. economy,

"Hillary Clinton was a uniquely bad candidate, he said, because of her failure to beat President Obama in 2008, followed by her problems with the email server … Why did Trump win? Gundlach said that people felt abandoned by the economy, with the median worker having suffered low or negative wage growth since 1973. This came while the top 5% realized a 51% real increase in their purchasing power … 'The ownership of wealth has shifted,' Gundlach said. 'But those trends are about to reverse.'"

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Higher wages and sharply lower corporate profit margins are the two most likely extensions of this view.

"How Gundlach Predicted Trump's Victory" – Advisor Perspectives (pdf)
Related: "Bill Gross says Donald Trump won't deliver on his populist promises" – Quartz

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TD Bank became the second major domestic lender to raise mortgage rates in response to rising bond yields. The move highlights the dangers to rising interest rates to Canadian consumer spending – record high household debt levels mean sharply higher monthly payments as rates rise, and a decline in disposable income.

"TD hikes mortgage rates, but won't follow RBC's lead" – Berman, Report on Business

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In a somewhat related story, FT Alphaville's Matthew Klein presents the academic argument that central banks should intervene in asset bubbles similar to the Canadian housing market. Mr. Klein reports that the previous consensus was that "central bankers should limit themselves to "cleaning up" after busts, rather than worry whether they can "lean" against booms" but that the problems the Fed is enduring in 'cleaning up' after the financial crisis suggest to some that preventative measures to stem asset bubbles are necessary,

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"Even if crises are rare and even if tighter monetary policy doesn't do much to reduce this risk in absolute terms, [new research conclude that] crises cause such immense permanent damage that the benefits from modest prevention can still be large."

"Don't clean — lean!" – Klein, FT Alphaville (free to read with registration)
"Sudden rise in rates could send home prices reeling, CMHC warns ' – Report on Business
See also: "Why Trudeau's Tighter Mortgage Rules Are Likely Canada's Last" – Bloomberg

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BHP Billiton PLC, the world's largest miner, does not believe the post-election rally in metals can last,

"China's determination to push through with restructuring in its steel and coal sectors, and the nation's increasing willingness to favor imports over domestic material, has buoyed prices alongside other short-term catalysts, according to Mackenzie.

"'The reality is that once some of things go through, unless we see more supply disruptions, the market fundamentals would suggest some of those current numbers will drift back,' he said. Oil and natural gas are better placed to deliver gains into 2018, Mackenzie said last month."

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"World's Top Miner Expects Iron Ore, Coal Price Surge to Cool" – Bloomberg
"Copper miners dig deep to meet tech-fuelled demand" – Financial Times

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Tweet of the Day: "@boes_ And U.S. dollar real effective exchange rate makes fresh 12-year highs this week " – (chart) Twitter

Diversion: "We Finally Know How London's Famous Killer Fog Formed" – Gizmodo

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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