REAL LONG INTEREST RATE The Bank of Canada 30 year Bond Rate less CPI and the TSX Real Estate Index
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Real Rates of return fall with the rise in CPI or the drop in nominal yields and are defined as "the nominal rate less CPI".
The chart above shows that in July 2017, the real long interest rate (purple plot line) moved up 59 beeps to 1.35% on drop of total CPI from 1.3% to 1.0%. The last near term CPI low was 0.8% in April 2015. CPI was 2% on the FEB 2017 print which is the BoC target but 8.4 years of ZIRP and NIRP has not changed the fact that CPI deflation is in a long term downtrend.
The July 2016 TSX real estate high (green dotted plot) after last month's farewell spike has now plummeted below its resistance ceiling. The real long rate troughs are happening closer together since the TSX real estate breakout in 1Q 2015.
The chart above shows that in July 2017, the real long interest rate (purple plot line) moved up 59 beeps to 1.35% on drop of total CPI from 1.3% to 1.0%. The last near term CPI low was 0.8% in April 2015. CPI was 2% on the FEB 2017 print which is the BoC target but 8.4 years of ZIRP and NIRP has not changed the fact that CPI deflation is in a long term downtrend.
The July 2016 TSX real estate high (green dotted plot) after last month's farewell spike has now plummeted below its resistance ceiling. The real long rate troughs are happening closer together since the TSX real estate breakout in 1Q 2015.
The ongoing commodity deflation reflects withering global GDP and although Canadian exporters benefit from CAD currency depreciation in the short term, importers and Canadian consumers have to trade more of those depreciated and often borrowed loons to maintain lifestyle.
My August 31, 2015 blog post "Japan-ification" charts CPI in Canada, the U.S., Germany and Japan since the 1950's. CPI inflation "ended" in the mid-to-late 1970's, to be replaced by asset and paper inflation.
It's worth noting on the chart above that the six 30 year real bond yield bottoms line up with the interim lows in the TSX Real Estate Index and made good entry points to go long real estate. Is the 7th on now?
Last month's TSX real estate rally blowing through resistance and the recent triple top formed since the summer of 2015 had shot up well over 200% since the 2009 Pit of Gloom. The seasonal slow down in real estate sales as well as perhaps a more secular turn in trend may leave last month's data spike high and dry as investors rethink their year end portfolio mix.
Mark your calendars, 2016 has been a hot one for real estate bulls and they have been able to make 2017 memorable as well despite sales resistance under the growing mountain of debt. That debt is under the influence of rising rates.
Mark your calendars, 2016 has been a hot one for real estate bulls and they have been able to make 2017 memorable as well despite sales resistance under the growing mountain of debt. That debt is under the influence of rising rates.
