In late January a hive of activity on independent trading apps like Robinhood drove up the share price of obscure and forgotten companies like AMC and Game Stop. The Economist referred to this new financial philosophy as ‘swarm trading’ and it came to prominence thanks to millions of ‘beer-league’ day traders taking out a glorified hit on hedge funds attempting to short stocks.
This new breed of investor counts many traditionalists but what’s really making headlines are the eight million or so professional amateurs on Twitter and a Reddit forum called r/WallStreetBets disrupting the market in a massive way. That’s ‘massive’ with a capital ‘m’ for the hundreds of millions of dollars it cost firms like Melvin Capital who held a short position. It might be hard to feel bad for the suits on Wall Street who make money on the decline of companies. But one consequence that can’t be ignored is the increase in volatility as new investors flood the market with inexperience and fresh capital.
SPIN CLASS, SOURDOUGH, AND STOCKS
March 2021 unfortunately marks the unofficial one-year anniversary of the pandemic. The year of forced confinement has negatively impacted millions of peoples’ lives. However, thanks to staying home, low interest rates, and government subsidies, we’ve also seen an increase of money in people’s pockets. In a recent Globe and Mail article, CIBC deputy chief economist Benjamin Tal said: “We are seeing reduced spending (borrowing) on credit cards and less borrowing for necessities due to government money. We also see optimization of credit with people transfer debt to lower interest rate products.”
With a surplus of time and money, some chose Pelotons, some chose sourdoughs, and others chose day trading.
On May 19, 2020 the head of the Canada Mortgage and Housing Corporation Evan Siddall testified before the House of Commons finance committee. He raised concerns around low interest, job losses, government subsidies, and a temporary bubble in the Canadian housing market that would pop with disastrous effects. He forecasted a decline in housing prices of 9 – 18%.
He couldn’t have been more wrong.
A recent Globe and Mail article details in pin-point accuracy how across the country, housing sales and prices, have risen and continue to trend upward. Every month seems to set a record for volume and sticker price. In past issues of the Dorr Report we’ve documented how many Canadians upsized to larger homes in the same city, as well as others making a break for cottage country.
ONWARDS AND UPWARDS
In the foreseeable future a few things are becoming clearer. There is an abundance of cheap money and it’s not going anywhere. That means Canadians will continue to pounce on record-low mortgages and drive house prices into another stratosphere. We may not see the same record numbers roll in month-after-month but with the spring real estate season around the corner a housing market slow-down seems unlikely.
In the stock market, the ‘to the moon’ crowd continues to grow and The Economist believe this is no flash in the pan. The industry has been disrupted and the damage is done. As more and more individuals gain access to markets cheaply, decision making and asset value will be increasingly decentralized. They believe “this digitisation holds huge promise” but with it comes a significant spike in volatility.
Whether you’re rolling the dice in the stock market or investing in real estate one thing is for sure, a house always wins.
Dorr Capital is a boutique mortgage investment corporation specializing in land and construction loans in the GTA. www.dorrcapital.com 416-484-9747
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Update – June 29/2021
We have launched RealAlt Investments – a Mortgage Fund Trust, licensed under the Exempt Market Dealer, investing in Land & Construction development, building communities in Ontario. For more information please visit this web page on our site.