The stock market is not the economy. What happens on Wall St hardly ever mirrors Main St. Since ‘22, we’ve endured a super-steep rate-hiking cycle not seen in decades. Rates literally went vertical in a matter of months. And we know they take anywhere between 12-18 months to work through the economy so you’re probably wondering why the heck haven’t things cracked and if stuff hasn’t cracked yet, surely we’re outa the woods? This is the bizarre reason we have no recession despite rates going vertical.

And judging by the Mag7 performance (up is the only way right?) and the general market bullishness that’s going round, it’s easy to think all’s well. Of course, if you go to Twitter (and head to the realm of FinTwit) you’ll think the world is legit ending soon with rates crashing everything from houses to stocks and AI is the biggest bubble blah blah blah – 2 secret ingredients make for bubbles – but are we in one now?

But in stock market land it kinda feels like all’s fine. Maybe too fine? Is that a thing? 

And I guess it took me a trip to Toronto (a long, long 7hrs) to get a feel for what things are really like. Hint: it is not looking good. I’m not saying Toronto is by any means a barometer for what happens when rates rise (and it’s impact on ordinary people) but the cracks are appearing and being a tourist meant I was seeing it all through a different perspective.

Being a tourist I took the chance to see what the state of things is like somewhere else. And I can say things don’t seem “fine”.

Back home in London I am biassed. In this metropolis people aren’t as vocal with what’s going on and a lot of stuff seems to be blown up (thanks, media) so it’s hard to get a feel for it and maybe things just aren’t as bad as it is in Toronto. Over there, locals were more than happy to talk to me and I got some insights that I wanna share with you. 

I stayed in downtown Toronto and did a bunch of tourist things you’d expect from visiting any city like eating out, shopping and seeing the sights – the biggest and best of all was Niagara falls but we’ll get to that in a sec. Since I was only here for a few days I crammed it all in which meant taking a ton of Ubers. This meant I was able to hear what life is like now from a local’s perspective. Not some rich dude living in the suburbs.

Open about their financial struggles

What really struck me was how open they all were to talk to me about their experiences. They weren’t shy of talking about money or the state of the economy. They’re all worried about their jobs and the impact of high(er) interest rates. People are spending less so fewer Uber rides are needed. Psst: what the rise of the “lipstick effect” means for the state of the main economy.

I took a taxi from a bus stop near Niagara falls and the driver was so grateful for the $20 ride since business was dead. There were a bunch of yellow taxis waiting near that bus station and there weren’t any customers.

It was sad to see and even sadder to hear how it’s affecting the lives of ordinary, hard-working people. He said it’s just so quiet. People aren’t spending. The drivers I talked to told me how homelessness is creeping up. People are sleeping outside in the brutal cold. And he said there’s always someone who has it worse.

Then I arrived at Niagara falls and it caught my breath. Because it was just so beautiful (and just so cold!) I felt small standing next to it.

Nearby, there’s an entire mini-village of arcade sort of activities from upside down houses to 4D movies and all sorts of other things. But it was like a ghost town. People weren’t spending. I went to the 4D theatre and there were 2 others in the entire room. 

I spent one morning in Yorkville and had a snoop around the designer stores from Hermes to Tiffany to Rolex. They’re all empty though the Rolex guys were proud to say business is, and I quote “booming” but for the rest of the stores no one was shopping. At least in Rolex people tried their luck (hint: 99% of their watched are ‘for exhibition only’).

So seeing as I wasn’t going to shop at either I walked across to Starbucks. Much more in my budget! By which point it was lunchtime btw. I would have expected lines out the door. Nope. Store was quiet and I was able to order in under 3mins. It felt weird. Like this isn’t how things are meant to be.

Sure, covid had a whopper part to play in why towns are emptier (we’re all still WFH) but I miss how things were. During my internships simply crossing the road in central London was a biggie. People were everywhere. Swarms. Forget trying to grab a coffee at noon. So always got one around 3pm when it was quiet. Now, there’s no such thing as lunch rush anymore. 

So the “city buzz” is clearly gone. It’s more like city hush. I was with my dad and he went to a barber to get a trim. The hairdresser told him she has no idea how much longer they’ll be around for.

Haircuts are no longer the necessity they once were since we can all be a little scruffier for longer since we’re not seeing clients F2F or anyone really for that matter. It’s an “extra” not a must-have. The barber is staying open since they can’t exit their lease for another 16 months but once that’s up, they’re gonna shut shop she reckons.

It’s just so hard to sustain. And while we’re on the topic of grooming, the spa at the hotel I was staying at had a list of services. I almost choked when I saw the prices: $210 for a hydra-something-something facial. I asked the lady whether it was fully-booked and she said it’s empty. People are just spending less. It’s that simple. And clear as day.

Prices are still going through the roof – but what comes next? 

Talking to Canadians, the one thing that kept cropping up was real estate. My dad remembers when he first started visiting in Toronto back in the early 90s. He told me you could pick up properties in Toronto for $100k. And every time he flew into the city, prices just kept on going up and up and up.

Soon $100k became $200k and $600k and $800k and eventually $1,000,000. Right now, average house prices in Toronto are above that one-million-dollar mark. So you’ll need an average income of approx $210k so not to average anymore! Btw this income is at 5.7% mortgage (and 7.7% stress level). Mind-boggling. How people afford to live there, I’ve no idea. 

An Uber driver told me how him and his wife never want to be stuck chasing their tails. Paying off a mortgage well into their 70s. He said that’s no life at all. They rent an apartment and are waiting for rates to move their way through the economy. Then they’ll be able to get a cheaper mortgage.

But for now, they have no way of financing 7% interest on a mortgage. It’s not sustainable and he said it’ll only keep him chained to his job and the city. Now, there’s some hope that Bank of Canada will cut rates which will be a good thing for anyone looking to take out a mortgage. But as we all know – you really can’t count on anything. 

The low-interest-rate era pushed people across the city to buy a more expensive property since they bagged a 2% 5yr mortgage. It was free money! But when those mortgages are up for renewal we’re gonna see some nasty side effects. It’s easy to spend more as you earn more but this Uber driver seemed more financially secure than many high-earners.

He has savings + investments and is content with his lot. Make the most of what you already have while  working for something more. More money won’t solve your problems. It’ll just give you more money to deal with them. But usually if we’re serial spenders more money grows it; not shrinks it. 

Grappling with soaring mortgage costs

But on the other end of the spectrum, another Uber driver told me his mortgage had gone up from $3,000 p/m to $5,000 p/m!! He said he’s so angry banks allowed him to take on that size loan to begin with.

And he knows he’ll have zero chance of actually ever paying it off. It’s awful hearing this and I wondered why they were so open with us about their finances. Whatever it is, I’m glad they’re able to talk about money and get it off their chest. Something us Brits could learn from! 

All in all, things just aren’t what it seems. Stocks aren’t the real economy. I don’t wanna be all doom and gloom I just wanted to share with you what I saw and heard first hand. So be prepared for anything that comes.

Make no mistake, interest rates are making their way through the economy and people are being hit left right and centre. Remember – the stock market is NOT the economy. Talk to ordinary people to see what’s really going on and not to take our cues from the Mag7 outperformance that doesn’t seem to end (not that we’re complaining, obvs).

Happy Friday!

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.