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Trump’s attacks on central bank rate hikes risk creating future economic trouble: Don Pittis

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As markets have tumbled, U.S. President Donald Trump has been leading a charge against Federal Reserve chair Jerome Powell’s interest rate increases, and he’s not alone.

Investors watching markets slide have added their voices, worried that three rate hikes this year, one projected in December and another three next year will bring more carnage.

Bank of Canada governor Stephen Poloz faced similar criticism after last week’s quarter-point hike to 1.75 per cent.

But while skittish markets — during a month when markets are often skittish — have focused on small rises in interest rates as the death knell for the current economic revival, there are good reasons to think the worries of traders are baseless.

Hike happy 

As told by Trump, who fears that rising interest rates will wreck the stock market boom he has claimed as his own, the argument is pretty simple.

“Every time we do something great, he raises the interest rates,” Trump told the Wall Street Journal in an interview last week. The “he” in that quote is Powell, who Trump said “almost looks like he’s happy raising interest rates.”

Anyone who watches his public appearances knows the serious-minded Powell never looks especially happy. But, oddly, with a doctorate from Princeton and experience at the highest level of investment banking, Powell has seemed unconcerned that interest rate increases will somehow send the economy into a tailspin.

When he met with reporters after the Fed’s latest rate rise, he expressed confidence that the economy was going through one of its best times.

In the complex world of finance, no one knows the future, but one question market traders might want to ask themselves is, when it comes to economics and the state of the markets, should they trust the president or the Fed chair?

You don’t have to go too deep into the complexity of real-world economics to show that some sort of one-to-one relationship of creeping hikes in interest rates leading directly to a crashing economy and tumbling stock market is just not what happens.

Blaming the punch bowl

And maybe part of the blame should be directed at William McChesney Martin, the longest-ever serving head of the U.S. Federal Reserve, who created the famous punch bowl analogy.

The central banker, said Martin in a 1955 speech to a group of investment bankers, “is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”

Fear of the proverbial punch bowl being taken away may have accentuated October market jitters, but rate hike worries could well be overblown. (Everett Collection/Shutterstock)

So the question is: Do gradually rising interest rates really slam the brakes on a thriving economy, as this conventional reading of the punch bowl analogy insists?

According to a paper by longtime monetary policy expert Philip Turner, formerly at the Bank of International Settlement — the so-called central bank’s central bank — the relationship, if it exists, is not obvious. He points to the fact that interest hikes before the crisis of 2007-08 did little to rein in market excesses.  

“The substantial increase in the Federal funds rate from mid-2004, reinforced by higher policy rates elsewhere, did not prevent further increases in risk-taking in the financial markets during this period,” Turner wrote in a 2017 paper titled “Did central banks cause the last financial crisis? Will they cause the next?” 

A recent interview in the New York Times with Paul Volcker, the Federal Reserve chair who really did bring the economy down with high interest rates, was also a reminder that those times were completely unlike today.

Volcker’s scourge

When Volcker took office in 1979, the rate of inflation was already soaring in the wake of the first oil crisis and by 1980 had risen to 15 per cent. The savings of older people living on fixed incomes were melting away.

“Volcker comes in and he says, ‘Hey, guys, this is bad, this is very costly for the economy,'” says Christopher Ragan, currently in the headlines as head of the pro-carbon tax Ecofiscal Commission, but actually a specialist in monetary policy at McGill University. 

He says Volcker was forced to take extreme action, raising the Fed rate to a peak of 20 per cent, pushing commercial lending and mortgage rates to much higher than that. The economy was smashed. Unemployment soared. Businesses went broke. Farmers protested.

“You basically create a recession and you wring inflation expectations out of the system,” says Ragan. It’s not that central banks cause recessions, he says, it’s that central banks are forced to create recessions when people begin to expect high and sustained inflation.

If banks followed Trump’s advice and left the impression inflation could rise and rise — “Five begets six begets seven which begets eight,” Ragan quotes one central banker as saying — then eventually they could be forced to follow the Volcker strategy.

But that is not what is happening now. Instead, inflation expectations remain at about 2 per cent, and central bankers have no need to hike interest rates enough to create a recession, just enough to convince everyone that they will not let inflation climb out of the 2 per cent range.

“Every time inflation shows a tendency to rise, you raise interest rates a little bit,” says Ragan. “And people say, ‘Oh! The central bank really means it.'”

Ragan says there is no reason homeowners or market traders should be terrified that small rate increases will damage a strong economy.

“We are raising rates because the economy is sturdy and strong.”

Follow Don on Twitter @don_pittis

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Couple from Toronto buys dream home in Mushaboom

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MUSHABOOM – A couple who lived and raised a family in downtown Toronto developed a five-year plan in 2015 to purchase their dream home.

In September they moved into the home – located on Malagash Island in Mushaboom on Nova Scotia’s stunning Eastern Shore – that met and exceeded their best dreams for their retirement.

The Camerons, Bruce and Tanya, decided in 2019 they would explore the Maritimes to see what real estate was available to become their potential retirement home. In the spring of 2020, during a global pandemic, the real estate boom hit their city, and they were hearing the same for Nova Scotia. Our province was their first-choice for attaining their desire for an entirely different lifestyle – away from the busyness of the city.

“We had $300,000 to $350,000 as a home value in mind to buy. Our semi-detached located off Danforth in Toronto was priced at $850,000. We wanted to come out ahead, so we would be secure in retirement,” Tanya said.

Their century-old home had prime location near the subway and GO Transit Line for a great 13-minute commute downtown.

“We enjoyed our community,” explains Bruce “… we had great neighbours, young children around and street parties – lots of social activity.”

Bruce says, “Our agent suggested a starting quote of $899,000. We did not do any renovations and only some staging. Fifty couples went through and we received four significant offers. Six days later we sold – with zero conditions – and a price of over a million dollars. We just requested a closing of September 2020 to get the kids off to school – which we got.”

The couple got more than they had anticipated.

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Rabobank Announces Leadership Changes in U.S., Canadian Offices

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NEW YORK, Dec. 16, 2020 /PRNewswire/ — Rabobank, the leading global food and agribusiness bank, has appointed two of its top executives, Tamira Treffers-Herrera and Robert Sinescu, to become Co-Heads of North American Client Coverage, positioning the Bank for future growth in the region.

Treffers-Herrera has also assumed the role of Vice Chairperson and Head of the Atlanta office, where she additionally oversees Rabobank Mexico, which is led by Eduardo Palacios. Sinescu is the Head of the Chicago office, and also oversees Rabobank Canada, led by Marc Drouin, who was recently appointed as Canada’s General Manager.

Treffers-Herrera and Sinescu report to David Bassett, Head of Wholesale Banking North America, the Bank’s corporate and investment banking business for the region based in New York.

“Both Tamira and Robert have a demonstrated history of strong leadership, operational excellence and passion for our clients,” Bassett said. “Their broad experience and deep sector expertise will be invaluable in delivering dynamic results for clients while accelerating our growth trajectory in North America.”

Each office will have an even greater focus on key Food & Agribusiness sectors and clients: The Chicago office will drive growth in sectors including Dairy, Farm Inputs and Grains & Oilseeds, which are also key areas of focus for the Canada office. The Atlanta office will focus heavily on sectors such as Animal Protein, Beverages, Sugar, and Supply Chains, which are important sectors in Mexico as well.

“Rabobank is fully committed to our clients throughout North America, and we believe our new sector-focused coverage will improve our ability to provide knowledge-based, value-added solutions that benefit our clients,” Bassett said.

Treffers-Herrera was most recently based in London as CEO of Rabobank’s European Region from 2016-2020, where she took the organization through Brexit. Prior to that, she worked in the Atlanta office from 2002-2016. During her tenure in Atlanta, Treffers-Herrera served as Global Sector Head – Consumer Food & Beverages, and prior to that she was a senior banker for a portfolio of large beverage and consumer foods clients. She holds a Bachelor of Arts degree from the University of Kentucky, a Master of Arts from the Patterson School of Diplomacy and International Commerce and has studied at The University of Chicago Booth School of Business and Harvard Business School.

Sinescu has been with Rabobank for over 21 years and was previously General Manager of Rabobank Canada, where he oversaw all operations, business development, commercial strategy and relationships with regulators. In addition, he continues to serve as CEO of Rabo Securities Canada Inc. Prior to Canada, he was a senior banker, Head of Corporate Banking, European Sector Head for Sugar, and a member of the Management Team for Rabobank France. He holds a Bachelor of Science in Business from the Bucharest School of Business, a Master of Business Administration & Management and a Master of Science in Banking and Corporate Finance from Sorbonne University in Paris, and has studied at Brown University.

Drouin has worked with Rabobank’s Canadian team for more than nine years and most recently served as a senior banker, Head of Rabobank Canada’s AgVendor Program and a member of Rabobank Canada’s Management Team. He brings extensive wholesale banking experience within the Dairy, G&O, CPG and Supply Chain sectors. Drouin holds a Bachelor of Arts degree from McGill University and a Master of Business Administration in International Finance, Marketing and Management from the Schulich School of Business at York University.

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Real Estate

Greybrook Realty Partners & Marlin Spring Brand Jointly Owned Asset Manager – Greyspring Apartments

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TORONTO, Dec. 14, 2020 (GLOBE NEWSWIRE) — Greybrook Realty Partners and Marlin Spring are pleased to announce the new branding of their jointly owned investment and asset management firm, Greyspring Apartments. With a portfolio of more than 2,000 units and CAD$375 million in assets under management, Greyspring Apartments is focused on the acquisition and repositioning of multi-family assets throughout Canada.

The new name and branding is an important step in Greyspring’s evolution as an independent operating business. Formed in 2018 by long standing-partners Marlin Spring and Greybrook Realty Partners, Greyspring Apartments was established with the goal of building a leading asset management firm with a robust portfolio of residential rental real estate assets in primary and secondary markets across Canada.

Greyspring’s talented team of real estate, asset management and finance professionals is overseen and guided by the Management Board, whose members include Benjamin Bakst, CEO, Marlin Spring; Elliot Kazarnovksy, CFO, Marlin Spring; Sasha Cucuz, CEO, Greybrook Securities Inc.; Peter Politis, CEO, Greybrook Realty Partners; Chris Salapoutis, President & COO, Greybrook Realty Partners; Ashi Mathur, President, Marlin Spring; and Karl Brady. In addition to his role on the Management Board, Karl Brady leads Greyspring Apartments as its President. 

“We are pleased to announce the official name and branding of a business we formed with our partners at Marlin Spring a few years ago,” said Peter Politis, CEO, Greybrook Realty Partners. “Greyspring has been diligently focused on the execution of strategic value-add programs across its portfolio that are improving the quality of housing for tenants and overall asset values. For Greybrook investors, expanding from our core business in real estate development to the value-add space through Greyspring, has allowed us to provide our clients with investment opportunities that diversify their real estate investment portfolios.”

“Marlin Spring and Greybrook have partnered on many residential real estate projects in recent years,” said Benjamin Bakst, CEO and Cofounder, Marlin Spring. “To a great extent, Greyspring illustrates our approach to partnerships. We believe in, and strive for, responsible growth through deepening our relationships with our trusted partners. With Greyspring, we’ve formalized our focus on providing better and more affordable living experiences for Canadians. This vision aligns with our mission to deliver exceptional real estate value to all our stakeholders with an uncompromising adherence to our core values.”

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