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Fear Factor?

Dear Bitcoin and crypto investors. I’m sorry. Who could have seen this coming just a few months ago? I mean it’s not like interest rate hikes, potential recessions, inflation, war, famine, pestilence and an energy crisis were all happening at the same time right? There was no market “signal” that the risk trade was coming to a sudden and terrifying end.

 

Well of course all the signs were there, they were as obvious as the fact that a PDF cartoon of a monkey smoking a f-ing joint wasn’t worth millions of dollars. And that companies like Terra and Luna and Coinbase and Netflix and UST and Tether and anything that the atrociously overrated Cathie Woods and her ARKK Fund invested in was hopelessly toxic, overvalued and due for a massive correction.

 

Or that the housing markets in the Greater Toronto Area, the Lower Mainland and select regions in the United States were also massively over-valued and sitting on a knife’s edge?

 

But here we are. It has all tipped over. The crypto party invites have been shelved. Some companies are down more than 90%! And the real estate runaway train has just hit a wall. Tech darlings that were once high flyers are suddenly shedding value like it’s dandruff. Some names have given back all their gains since 2020 and more.

 

The video linked below sums it all up very nicely.

 

Video

 

And all it took was a 1% increase in interest rates.

 

Holy. Crap.

 

It’s a grim lesson to learn. Investing isn’t easy. It never is. The people who don’t understand risk always get their ass handed to them. The stock market is the house, they are the mark. It never fails. Especially for people who don’t embrace fear. Fear matters. It helps with risk assessment.

 

For example, are you afraid of losing all your money? Yes? Then don’t invest in Monkey PDFs. Especially don’t invest in Monkey PDF fractionals. Don’t buy assets you don’t understand. Like crypto and crypto dealers.

 

See? Fear doesn’t have to be debilitating, it can be healthy and help you preserve some of your hard won financial wealth when the risk trade turns against you. It’s estimated the crypto crash has wiped out somewhere north of $500 billion in wealth and that the tech selloff can be measured in the multiples of trillions. I was kind of afraid that would happen.

 

Fortunately, you can always invest in oil and companies, as long as you aren’t afraid of dividends, P/E’s less than infinity and the scorn of the ESG crowd.

 

All of this fear discussion is a nice segue I think into a discussion of some things out there in the big bad world that we should all be afraid of, to some degree, as we continue to navigate this hellscape that is the 2020s.

 

And as (bad) luck would have it, today is Friday the 13th, a day not only for goalie masks and slasher films, but also sober reflection.

 

So, with all that fear built up inside of us, and myself as well, and that whole Friday the 13th superstition, here are a few things, aside from the crypto wipe-out, that I am currently afraid of, if only to show you that a) you are not alone in your fears and b) I can be every bit as irrational and, to be honest, nutty, when it comes to fearfulness.

 

I will do the real world stuff first and then get into the more quirky and endearing terrors I harbour, to lighten the mood.

 

And let’s face it, the current market should be enough to make anyone run into their lair hiding! So here you go, in no particular order, some serious fears and some … not so serious.

 

I am afraid of an unopposed Liberal minority

 

This one is a little complex so bear with me. We all know that in the last election, the Liberal Party got a smaller minority than they had previously, prompting the Conservative Party of Canada to defenestrate yet another leader who dared to try to win votes east of Manitoba. And now we’ve seen the Liberal Party make its moves to consolidate and hang onto power as if they were a majority with the new arrangement they struck with the NDP.

 

Our besocked hair man in chief is clearly wanting to serve a full term, and why wouldn’t he? The opposition Conservatives hate themselves and are currently leaderless, the NDP is broke and willing to do pretty much anything to stay relevant and the rest of the parties don’t matter.

 

Never mind that the Liberals seem to be able to do what they want in a minority position, we all know that the Liberal Party (the Natural Governing Party) craves nothing more than absolute power, so when the opportunity presents itself, they go for it. As an impartial observer, you have to admire their ruthlessness.

 

So here we are. The Liberals are basically unopposed. And that makes me fearful. And they are free to enact their agenda, which admittedly has some decent ideas, of massive spending hikes into one the most precarious economic environments I can recall.

 

The Liberals’ Achilles heel is their utter disdain for and lack of ideas on the economy and their slavish devotion to climate change. The former needs to be a priority over the latter. It must be. But I don’t think the current government incarnation actually gets that. And it will be to the detriment of Canadians.

 

Is there a chance that the Liberals call a snap election to test a new conservative leader before 2025? Not really. Is there a chance the NDP can grow some cojones and topple the LPC? Not a chance.

 

I don’t care where you sit on the political partisan continuum, but this is a frightening prospect for Canada.

 

And if you roll in my sub-fear, that the CPC will select as leader the unelectable in a general election Pierre Poilievre, the freedom-loving, crypto fan boy, shawarma-buying, central bank bashing, money-printer hating, elite poking, gatekeeper abhorring, Justinflation excoriating, basic finance misunderstanding, banker threatening, real estate grifting, Jordan Peterson-reading dilettante populist, we should be prepared for at least another five years after 2025 as well. Perhaps a permanent liberal majority. Ugh.

 

I am afraid that Climate Change has irreversibly crossed into New Religion Territory

 

This isn’t new. We have actually been there for a while. The disciples of climate fear and fear-mongering all long ago realized that they needed an army of true believers to push forward the more radical levels of change. Before we go down that road – yes, climate change is real. Yes, it is readily identifiable as man-made.

 

But the rhetoric, the sweeping generalizations, the endless hyping of disaster scenarios, all of this is an investment in a diminishing return and leads to inevitable backtracking and skepticism when scenarios don’t pan out as precisely predicted (snow in Texas – global warming isn’t real!) or hypocritical policy stances are put forward (no KXL, we are electrifying everything, stopping drilling in Texas and, oh, by the way, OPEC we need more oil so Jimmy in Arkansas isn’t paying as much at the pump).

 

As the lines harden and the New Church of Her Lady of Climate Inevitability gathers more devotees and adherents, I worry that the polarization we see in seemingly every other aspect of life will continue to harden in climate land, especially as the costs of energy and climate salvation (not transition anymore) become more obvious to the income inequal proletariat.

 

The more strident the warnings, the bigger the doomsday scenarios, the more skeptical the fence sitters become. There is a reason the “Boy Who Cried Wolf” is so relevant at this moment.

 

The energy transition is a massively complex, multi-generational endeavour that will cost trillions of dollars, upend the traditional economic order and benefit/displace billions of people. Having the high priests of Global catastrophe preaching relentlessly to us regular folk from the comfort of their private jets about imminent disaster and chaos isn’t going to cut it. Look, we get it. Calm down. Back off. There is no such thing as Fiat Climate Rescue.

 

I am afraid that this next/last oil and gas boom may pass us by

 

This seems like a weird one to say for an industry participant. But ironically, it stems partly from the first two fears above. We are actually in the midst of a significant upturn in the Canadian energy sector, driven by the building out of actual infrastructure to move product, the knock-on effects of the OPEC+ supply issues, the Russian invasion of Ukraine, the pandemic induced collapse in demand and investment and subsequent sharp recovery across most consuming sectors, the massive runup in prices and our unique position as a massive supplier of oil and gas.

 

All the pieces are lined up for a big run.

 

So why am I afraid?

 

An unopposed Liberal majority government besotted by and beholden to the Necromancers of the climate movement and an unapologetically pro-industry (certain parts), stuck in the past provincial government run by a lame-duck ideologue constantly at each others’ throats and unwilling to work together to milk every last iota of rent and profit out of the molecules we are producing suggests that we may never realize our potential because neither side can get out of their own way.

 

In the meantime, the global economy seems to keeling over, no small thanks to the tech meltdown mentioned above, pandemic-induced supply chain constraints and the inflationary effects of the high energy prices we currently love on the producer side but hate on the consumer side.

 

I’m afraid of interest rates, inflation and asset bubbles

 

Who isn’t right? Interest rates are so high on credit cards… Wait, no. That’s not what I am talking about.

 

I am afraid that the years of central banks printing money like there is no tomorrow and pouring so much vodka in the punch bowl has given us all alcohol poisoning.

 

Low interest rates are great when you need to resuscitate an economy. But when you have 7% + GDP growth and record low interest rates, all you are doing is artificially inflating the asset bubble. And with central banks clearly being slow off the mark, is it any wonder that house prices went out of control, risk-analysis went out the window and inflation spiked?

 

So now rates are finally going up. The central banks are doing now what they should have done a year ago and are trying to tame the beast, and the markets hate them for it.

 

So what happens to the asset bubble? Well first off, it’s not filled with anything as benign as warmed-up air – think instead something highly volatile, like hydrogen. Like the Hindenberg. Remember what happened to that one? The spark? If the 100 bp rate increase by the Fed was enough to wreck the entire tech sector, one can only imagine what another 50 bp will do to housing.

 

I’m sure glad I locked in when I did. At 1.5%.

 

I’m afraid of a hard landing and global recession

 

This is a follow up to the last fear. Rates rise too much or the impact on markets is too severe and suddenly you are in hard landing territory. The goal of any central bank in an inflation fighting cycle is to tap the brakes on the economy by gradually raising rates so the air comes out slowly. But in a highly volatile market like we have right now, the risk of a hard landing is massive. The Fed and the Bank of Canada do not have a lot of room for error and the policy tools are limited.

 

If the implosion of the crypto world is anything to go by, we should be massively fearful of a correction in those housing markets that are so obviously over-priced and the knock-on effects that will have on local, national and worldwide economies.

 

There are warning lights flashing all over the place, from emerging economies getting crushed by high energy prices to potential food shortages exacerbated by climate change and the Russia-Ukraine conflict to market selloffs and their impacts on consumer confidence and purchasing decisions.

 

My recession-likelihood indicator gauge is currently running at 75%. This is higher than pretty much any analyst out there, but my spidey-senses are all on super high alert.

 

Sorry.

 

I’m afraid we are going to be stuck in pandemic stasis for years

 

Okay, this is a weird one. But bear with me. As a family we are all fully vaccinated – parents, kids, grandparents, cousins, siblings, the whole enchilada. Which is great. It’s our way out. But it seems increasingly clear that not everyone wants a way out. And much like the Harbingers of climate doom, there is a cohort, on either side of any actual reasoned debate about pandemic policies, that profit, thrive and depend on a continuation of the pandemic.

 

This suggests to me that it – the pandemic – is never truly going to leave us. We will be dealing with flare-ups, variants, vax vs anti-vax, lockdowns, panics, mask mandates and random protests for years.

 

So the full  return to normal that everyone so desperately wants is probably not going to happen for the foreseeable future – it’s going to be hard to go back to the way it was when so many people have a vested interest in keeping the conflict going.

 

For the record I’m not suggesting a wholesale abandonment of pandemic protocols, or any reduction in our vigilance, certainly not in the short to medium term, what I’m suggesting is that the pandemic is going to be with us, influencing how we live our lives, travel, interact, work, study and exist for a lot longer than anyone wants or thinks they can mandate from a seat of government.

 

I hate to use the term “live with it” because it has such negative connotations, especially here in Alberta, but… that’s clearly what needs to happen, because it isn’t going anywhere.

 

I’m afraid of Putin’s Paranoia

 

This one is stating the obvious of course, but Vladimir Putin’s war against Ukraine is a threat to the post Cold War way of life and world order and runs a serious risk of escalating into a much broader conflict. While the Ukrainian forces continue to outperform any and all expectations, the reality is that Darth Putin, the Sith Lord of Moscow and his dastardly minions have access to tactical nuclear weapons that I fear they would be tempted to use if the humiliation of their forces continues. And this would drag NATO further into the conflict in ways that could lead to many adverse outcomes with devastating results.

 

Will it happen? Well certainly not as likely as a recession, but it’s just anther vegetable in the soup pot of doom.

 

I’m afraid I’ve just torpedoed my reputation as Captain Happy

 

Yes, lots of doom and gloom here.

 

Fortunately, I’m not afraid that all of this crap is all going to come to a head at the same time, because that would make me the most paranoid person around. And of course, there are degrees of fear – some of the preceding items are really more of a passing fear as opposed to a paralyzing terror. The coming recession is actually my biggest real world fear.

 

Random, crazy fears? I have those too. Consider the following.

 

I am terrified of wasps.

 

Not, not that kind. The flying insect ones. Oh, and bees too. You can ask my wife. A bee or wasp flies by and I turn into a frantic, arm-waving lunatic. Which of course just triggers the flying hypodermic needle to come back at me with renewed furour, whereupon I will throw anyone I happen to be with to the proverbial wolves and seek shelter until the offending yellow-jacketed evil swine has moved on. It is often suggested that these fears come from some deep-seated repressed memory, but let me assure you that the memory I have that started this fear is crystal clear. It was a bee. I was a kid. It somehow crawled in my pants overnight. I put said pants on in the morning. The rest is paranoid history.

 

I have a pathological fear of mustard and mayonnaise.

 

Yes. It’s true. I sometimes pretend it’s an allergy. It’s not. It’s an embarrassing aversion. And I know it’s weird. Don’t try and convert me. Or hide it. I’ll know. It’s a thing. Sue me.

 

I am afraid of turbulence

 

Not flying. Not taking off and landing. Not helicopters. Not planes. Not heights. Just turbulence. The aeronautic equivalent of a bumpy country road. Yup. Turbulence.

 

I am afraid for my kids.

 

This is kind of the generic joe of fears, but really, what kind of a world have we created that our kids will more than likely be the first generation to have a lower quality of life than their parents.

 

I am afraid that my suddenly energy heavy portfolio won’t perform as expected

 

This is a perennial fear. From the gas stocks I’ve been sitting on since 2014 to newly selected investments, I am always struck by the energy sector’s ability to defy expectations – in either direction. That said, I have it on no less an authority’s say so than Roger Baker that this time is different. So there’s that. Phew right? Misplaced fear!

 

Bonus extra fears:

 

I am afraid the Leafs will win a Stanley Cup before my favourite team does….

 

Who am I kidding? This is absolutely not a fear. Especially since my favourite team every year (aside from Montreal and Calgary) is the team that wins the Stanley Cup and isn’t Toronto. I’m not fussy.

 

I am afraid that within ten years Murray Edwards will own the balance of the Canadian oilpatch he doesn’t already and we will all be working for him.

 

Admit it, aren’t we all a little afraid of this?

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