The financial news of the past week or so explains a lot about why Donald Trump's unlikely presidential campaign is hanging in.
Eight years after the global financial crisis and ensuing recession, economies around the world are still not delivering the kind of growth that makes people feel like they're getting ahead. There's a personal finance lesson in all of this. Your financial success rests on your ability to make smart decisions about saving and investing – there won't be any big salary increases, higher returns on savings and fabulous stock market gains to bail you out.
Supporters of Mr. Trump, the political outsider, are acting out their anger about all kinds of things. But a big part of their story is a feeling that the economy is failing them. There was zero encouragement for these people last week when the U.S. Federal Reserve scaled back its economic outlook for this year. The announcement followed a surprisingly bad U.S. jobs report for May.
Canada was supposed to benefit from a U.S. economic resurgence. But with disappointing growth in the United States and continued weakness in energy, the latest growth numbers suggest that we're also still shuffling along. Our economy is maddening – up nicely in January, down a little in February and a bit worse in March. The Bank of Canada says the wildfires in Alberta will keep second-quarter results similarly in check.
We get the interest rates our economy deserves. So it's no surprise that yields on government bonds have been falling lately. Government of Canada bond yields are not too far off their 12-month lows – a 10-year bond got you a yield of 1.1 per cent late last week.
In Germany, Europe's dominant economy, 10-year bond yields briefly went negative this week for the first time. There's so much uncertainty in the financial world today that investors in a few European countries are willing to either make nothing or effectively pay the government to hold bonds.
Canada's economy has held up comparatively well since 2008, but the decline in oil prices has hurt. Oil rallied earlier this year, but the latest burst of bad economic news includes a price pullback. At least you have a chance of cheaper fill-ups at the gas station.
Hit harder in the last recession, Americans have more to be angry about than us in an economic sense. Recent polls and studies in the United States have found some alarming things. One shows that nearly half of Americans have no retirement account savings. In another, about 46 per cent of respondents said they would have to pay for a $400 emergency by borrowing or selling something, or they wouldn't be able to find that money at all.
My sense is that Canadians on the whole are in better shape. But the underlying issues supporting Mr. Trump's campaign are still a factor in our national personal finance picture. A weak economy limits opportunities to get ahead. Investing-wise, low government bond yields tell us that there is little hope of being able to make a decent return from conservative investments in the months and perhaps years ahead. If you're a cautious investor, you're going to have to either increase the amount you put away or turn to stocks.
Here's the problem with stocks. There's a growing consensus that slow economic growth and an aging population are going to squeeze future returns to less than we've become used to over the past couple of decades. If you subscribe to Carrick on Money, my twice-weekly e-mail newsletter, then you'll find a link to a sobering article in Wednesday's edition that shows how the returns from diversified portfolios have already started to decline (sign up for Carrick on Money at theglobeandmail.com/newsletters/subscribe).
High household-debt levels in Canada document our use of cheap borrowed money to cope with economic limitations. A lot of this borrowing is in mortgages taken out by people who think that owning a house is the only financial sure thing in today's world. But if a slow economy means that stocks are losing velocity and bonds are stuck in the doldrums, can housing get an indefinite free pass?
Getting mad like Mr. Trump's supporters won't help your bottom line. Governments have no idea how to restore the kind of prosperity that people over the age of 35 remember, so it's up to you. In today's economy, you have to be smarter and save harder.
Rob Carrick