When Bad News Is Good News

The Real Estate Espresso Podcast

When Bad News Is Good News

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When Bad News Is Good News

Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce.

On today’s show, we’re looking at the latest ~~RAID📝rate~~ announcements. ~~RAIDS📝Rates~~ continue to fall today, and there were two ~~RAID📝rate~~ announcements only hours apart.

This morning, the Bank of Canada reduced its benchmark lending rate by a quarter point. Weakness in the labour market was the top-sided reason for the drop in rates.

The Bank of Canada lowered its rate to 2.25% as of October 29, and it’s continuing a rate-cutting cycle that began in June of last year, this specific rate cut probably marking the end of further cuts for now.

The decision directly affects mortgage rates across Canada, especially variable-rate mortgages, which tend to adjust more immediately in response to changes in the central ~~Banks📝bank’s~~ rate. Canada’s chartered banks have all announced rate reductions in tandem with one another. The Royal Bank is decreasing its prime rate by 25 basis points from 4.7% to 4.45%. That’s effective tomorrow, October 30th. All the other banks have followed suit.

This afternoon at [2:30], Chair Powell stood at the podium as he does every six weeks and announced the results of the two-day Federal Open Market Committee meetings. The Fed ~~drop📝dropped~~ their benchmark rate also by a quarter point to a target range of 3.75 to 4%. This is the second consecutive rate cut by the Fed, a move aimed at supporting a labor market that has shown signs of weakening while inflation continues to run above the Fed’s 2% target.

Most of the time, the decision at the Federal Open Market Committee is unanimous. Today there were two dissenting votes. Voting against the action were Stephen ~~Murren📝Mirren~~, who preferred to lower the target range for the federal funds rate by half a percentage point, not a quarter point, and ~~by📝~~ Jeffrey Schmidt, who preferred no change at this point in time.

Now, Stephen ~~Murren📝Mirren~~ was the architect of the President’s economic policy based on a paper that was published November of last year. This prominent paper, called A User’s Guide to Restructuring the Global Trading System, has attracted a lot of attention after its release, and it was during the transition period following the 2024 US federal election. The paper outlined a systematic approach for overhauling international trade by integrating tariff policy, currency reform, and national security concerns into a unified strategy to reinforce the American industry.

Now, this particular policy has its roots back in 2010 when Stephen ~~Murren📝Mirren~~, who I would say had a once-in-a-lifetime opportunity to ~~what was happening in~~ 📝see what was happening in currency markets. He was a new graduate from Harvard ~~School of Economics📝Economics~~, and at that time he saw that heavily managed currencies in some countries, specifically in Asia, were significantly devalued ~~well~~ relative to where they should be.

He got ~~he got~~ 📝a front row seat ~~the way~~ 📝to the way China manipulated currency channels to ensure the ~~run name be📝renminbi~~ stayed way undervalued vs. the dollar. He recognized that Beijing was jiggering its currency to artificially ~~U.S., in a scheme that kept the dollar far overpriced. He watched the accumulation of Chinese currency reserves in dollars, specifically Federal U.S. treasuries, to the U.S.~~ 📝support exports to the U.S. in a scheme that kept the dollar far overpriced. He watched the accumulation of Chinese currency reserves in dollars, specifically federal U.S. Treasuries, to the U.S.~~ and in fact other countries around the world and witnessing these abuses—higher tariff rates, the theft of intellectual property, all of these policies so detrimental to the U.S.—and nobody was doing anything about it.

Now, Stephen ~~Mirren📝Mirren~~ is at least temporarily on the Federal Open Market Committee, having filled a seat vacated by Arianna Kugler after her resignation in August of this year.

Now, right now the Fed is flying blind. They don’t have any official economic data to assist with their decision-making. The federal government is currently shut down over their budget dispute between Democrats and Republicans.

Some numbers suggest the US economy is growing at a rate of 3.2%, but we know that 2% of the current GDP is based on infrastructure investment and artificial intelligence. That kind of capital ~~expediture📝expenditure~~ is investment for the future, and it’s not really current consumption within the economy. So if we were to back that out, then we would actually be growing at a rate of 1.2%.

We also know that the real GDP numbers presented by the Bureau of ~~Labor and Statistics📝Labor Statistics~~ and the Bureau of Economic Analysis have all kinds of adjustments ~~make📝that make~~ the numbers look better than they are in reality.

And when you start to look at all of the corporate layoffs and the rising unemployment rate, it’s very reminiscent, at least to me, of the 2001 recession that was led by layoffs in the tech sector.

Yes, there were 600 people eliminated at Meta’s AI unit. That could just be a readjustment, and that’s in fact what they’re saying. That particular business unit had become overly bureaucratic and it was hampering their agility and execution.

But then you’ve got 30,000 people cut at Amazon. That was justified as being a correction for the post-pandemic over-hiring. 34,000 at UPS. Part of that is a result of Amazon ~~’s~~ shifting its transportation services to its in-house airline called ~~Primaire📝Prime Air~~ and its own in-house trucking system.

GM cut 3,400 jobs this week. Paramount Skydance is cutting 2,000. Target is letting go 1,800. Applied Materials 1,400. Rivian, automaker Rivian, is letting go 600. ~~Chatter Communications📝Charter Communications~~ 1,200. These are big numbers, and you don’t see these kinds of numbers in a growing economy.

So the likelihood is high that the U.S. is already in recession, but it’s politically unpalatable to say that out loud. And what’s more, there’s no data being collected or reported. So the economy can limp along under the cover of a government shutdown.

Then there’s the government shutdown itself. Those families are not getting paid right now. Even though they may get their back pay, you can guarantee that they’ve cut back on discretionary spending. That’s a few million people who are not traveling to resorts or dining out in fancy restaurants.

So while the news of lower interest rates is welcome, the rates are in fact a reaction to a faltering economy where just this week alone more than 75,000 people lost their jobs. And I’m not counting the smaller layoff announcements, only a few hundred people in that total.

So the drop in rates is absolutely welcome for real estate investors, but it’s also coming with it signs of a weakening economy, which is not great news as you think about that.

Have an awesome rest of your day. Go make some great things happen. We’ll talk again tomorrow.

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