High Yields To Pull Asset Prices Down | Danielle Park

Bitcoin

Across the shows: 6 speakers in other episodes, 3 bullish and 3 bearish calls, past 30 days

• Danielle Park · Croft Financial GroupBearish

  Bitcoin is weak again and may signal a risk-appetite downturn that could hit the tech-led S&P 500.

  Her thesis is that Bitcoin's rise was propped up by free money, regulatory laxity and a policy-friendly Trump White House, plus meme coin enthusiasm and a belief that there is no alternative to stocks. After halving, Bitcoin bounced but is weak again in the latest selloff. She watches it as a barometer of risk appetite. Tech is holding up the S&P, which holds up the economy and high-end spending, so the S&P could follow Bitcoin's lead.

  “it came down by half, bounced a bit, but I think that it's weak again in the recent sell off.”at 48:13

US stock market outlook

• Danielle Park · Croft Financial Group

  Rising stock prices ease financial conditions and prop up high-end spending, masking tightening beneath the surface.

  Park argues that the stock market has been a self-fulfilling prophecy in supporting high-end consumption while the rest of the economy tightens. Tech companies can still borrow and raise money at very cheap rates, even as higher rates bite elsewhere. The rally is easing financial conditions overall, but she says that is true for a few key players, and the strain is building under the surface.

  “I think it's much more the stock market that has been a self fulfilling prophecy in the sense of supporting consumption at the high end.”at 23:58

• Danielle Park · Croft Financial Group

  US stocks are overdue for a correction; buy-and-hold returns likely negative over the next three years.

  Stocks are 'way overdue by every metric.' The ten-year CAPE is over 41, up from 35 when they last spoke, and the equity risk premium (forward earnings yield minus the ten-year yield) has hit an all-time low. The S&P 500 yields only about 1% and the Dow about 1.3%, so dividends offer little cushion. Breadth is poor: about 70% of stocks are down 10% and 60% are down 20%, and the S&P has been negative since August, with a few mega-caps (Nvidia and Meta) holding the index up. Market cap to GDP is above 200% in the US, Japan and Canada, well past the level Buffett warned about. Past tops in 1929, 1962 and 2000 were followed by long periods where bonds beat stocks. She expects a material correction; the next decade could be as flat as the 15 years after 2000, though recent drawdowns have been sharper and quicker. Persistent real rates above zero would be a headwind. Her forecast covers a holder with no rebalancing and no ability to buy near a selloff low.

  “from current levels, if you were holding and didn't do any pairing or reweighting ... then you're likely gonna have negative returns.”at 1:15:22

• Danielle Park · Croft Financial Group

  After a major equity drawdown, US stock losses could take a decade or more to recover.

  Park argues the path back could be long. After the 2000 tech crash it took about fifteen years to recover the losses, and after the 2008 top Canada's equity market took six or seven years to regain its peak. She calls this possible but says the wild card is how extreme policy responses get.

  “over ten years from here. It happened after the 2000 tech drop, it was fifteen years of making back losses. And it happened after the 2008 top, it took Canada six or seven years to get back to the peak equity market.”at 1:15:43

Canada, Australia & other developed economies

• Danielle Park · Croft Financial Group

  About 12% of Canadian mortgages face roughly 15% jumps at renewal, and defaults have already doubled.

  Canada's pandemic-era five-year fixed mortgages are resetting. Per the latest Bank of Canada estimate, about 12% of outstanding mortgages are due for renewal over the next twelve months, with roughly a 15% increase in rate. The peak renewal wave was in 2026 and is easing into 2027, but the shock is still ahead. Mortgage defaults have already doubled from 2022 lows, which were historically low because credit was free. Park notes that defaults are the last thing a homeowner wants, so their rise signals real stress. Canadian mortgages are mostly five-year fixed, and early exit typically carries a penalty, which limits refinancing relief.

  “there's still about 12% of outstanding mortgages that are going to be up for renewal and face about a 15% rate increase.”at 27:38

• Danielle Park · Croft Financial Group

  Canadian home prices have further to fall; they are still 35% above 2019 and about 10x income in major cities.

  Canadian home prices have been falling for about four and a half years. Park says that still isn't enough: national average sale prices, though down about 29% in real terms and 20% in nominal terms from the peak, were still around C$668,000 in August and 35% above 2019. Canadian home prices are about 8.9x median household income nationally and about 10x in Toronto and Vancouver, against a historical norm that she considers much lower. Upscale single-family homes north of Toronto are down 30–40%, and some have cut asking prices by half without selling. Sellers are holding listings off the market and carrying costs into another winter. Park concludes that prices must fall further before affordability is restored, even though lower rates could help.

  “So the fact that we in Canada have had falling prices for four and a half years, I think we've still got quite a bit further to go.”at 32:07

• Danielle Park · Croft Financial Group

  Canadian rents are falling as second-home sellers and returning rental supply add stock; more listings expected by spring.

  Second-home owners are finding that properties cost a lot in carrying costs and headaches and no longer earn Airbnb income at the peak of easy money, so they're motivated to sell. Some listings were pulled from the market, but she sees that as rage delisting, not holding, and expects more listings by spring. Short-term rental stock that had been half of some major cities' rental supply is returning to the long-term market, and asking rents nationally are down almost 5%. Buyers are renting instead because it is cheaper. Shelter is a third to 40% of CPI, so falling rents will be disinflationary. Immigration is a smaller factor than thought, since revisions show it held up better, and it affects rents more than home purchases. She expects the Canadian and US adjustment to run a couple more years; Canada's cycle is 4.6 years in, versus 5 to 7 years typical.

  “asking rents in Canada have come off nationally almost 5%. And that's a function of this increase in supply.”at 39:49

US Treasuries & yields

• Danielle Park · Croft Financial Group

  The ten-year yield's sharp rise is a risk-correction trigger; the correction has started but has a long way to go.

  The US 10-year Treasury yield rose from about 2.26% to about 5.32%, its highest level since 2002, and is up roughly 10x from the 2020 ultra-low. It gained about 130 basis points in seven months. At the peaks of the 2000, 2007 and 2022 credit and equity cycles, the yield rose only about 80 basis points, and that was enough to trigger a risk correction. Park believes the same correction has started this time, and that the rate of change, not the absolute level, is why this episode matters so much. The 10-year is the base rate for fixed-rate loans, including mortgages, so the move hits borrowing across the economy.

  “we saw this gain of about 80 basis points and that was enough to trigger sort of the risk correction phase that I believe has started this time as well, but we still have a long way to go.”at 17:51

• Danielle Park · Croft Financial Group

  Treasuries should rally once the Fed starts cutting; a 3-5 year duration is the sweet spot for now.

  Treasuries have underperformed stocks over recent years because the rate spike cut their market value from zero-rate levels, and their low yields compounded slowly. After past stock peaks in 1929, 1962 and 2000, yields were high enough that bonds compounded to maturity while stocks fell, and bonds then beat stocks for a long time. Treasury prices have typically risen as the Fed starts cutting, and that is when stocks fall the most. Fixed income yields are back above 4% globally. The 20-year Treasury yields about 4.2%, so there's capital-gain potential when cuts come. Volatility is too extreme for people who don't want a wild ride, so she keeps portfolio duration in the 3-5 year range until there is more clarity.

  “And that is typically when the treasury performance kicks in again, where prices start to rise.”at 1:06:03

Oil & fuels

• Danielle Park · Croft Financial Group

  The oil price surge after the Iran war, not US deficits, is mainly driving the global rise in rates and inflation.

  Since her last call in December, the Iran war broke out and pushed fuel prices sharply higher. Diesel is near $10 and gasoline is above $4 a gallon. Those costs flow into many economic inputs and hit household budgets immediately, which makes people fear runaway inflation and fuels the inflationary response behind the rate rise. Park says this is global, not just American, and so she doesn't think the rise in yields is mainly about US debt or deficits.

  “I don't think it's just specific to The US. I really do think that this is something we're seeing encouraged primarily by the surge in oil prices.”at 18:20

• Danielle Park · Croft Financial Group

  High oil prices sow the seeds of their own decline through lower demand and more supply.

  Oil prices, like most commodity prices, self-correct. The higher they go, the less they incent demand and the more they suppress it, while encouraging more supply. Her view is that the recent rebound and Iran-related resurgence won't last indefinitely. Gasoline spikes also change behaviour: people carpool, walk, bike and switch to hybrids and EVs. That efficiency response is part of what self-corrects the price.

  “oil prices, they do sow the seeds for lower oil prices. Just like most commodity prices, the higher they go, the less they incent demand”at 43:35

AI infrastructure & data centers

• Danielle Park · Croft Financial Group

  The data-center buildout's economic boost comes mainly from physical construction, since most chips are imported.

  Park says AI-related spending has mostly been the build-out of data centers. Most chips and equipment are imported from abroad, so they add less domestic spending than headline capex implies. The physical construction happening in the economy is what has given the buildout a strong multiplier effect. She treats AI capex as a real but partial support to growth, alongside the stock market's wealth effect. She is careful to frame it as one force among several.

  “most of the chips and purchases of equipment actually are coming from abroad and they're being imported into The US to support this buildout. But it's the actual physical building that's going on in the economy that has had a good multiplier effect.”at 23:36

• Danielle Park · Croft Financial Group

  AI firms are spending more while revenue per user weakens, signalling overbuilt capacity and a late investment cycle.

  She notes that as AI companies spend more and more on capex, revenue per user has been weakening. Cheap capital has given firms a strong incentive to build out AI capacity, and investors keep piling more money in. She expects that build-out to continue while pricing pressure pushes revenue down, which makes her think the investment cycle is late.

  “But it's interesting that as the companies themselves are spending more and more, ... the revenue per user has actually been weakening.”at 45:40

US inflation

• Danielle Park · Croft Financial Group

  Higher rates should bring disinflation and some deflation, helping consumer prices as pandemic-era inflation unwinds.

  Park argues that easy money during the pandemic inflated housing, autos and many consumer goods, and the economy is still reeling from that aftermath. Because rates have risen, she expects more disinflationary pressure, with deflation in some goods and disinflation in others. She calls this ultimately helpful. The argument is a mechanism-based one: tighter money reverses the pandemic-era price boost. She does not give a timeframe, and her view sits alongside her earlier point that oil is driving the current inflation spike.

  “But the fact that rates have come back up means that we're likely to see some more disinflationary pressure, deflation in some things, disinflation in others. And ultimately that will be helpful.”at 7:37

Market sentiment, positioning & volatility

• Danielle Park · Croft Financial Group

  Leveraged speculation will be flushed out as rates rise, hurting unlevered holders and the economy too.

  Park agrees with the host that margin debt is still near all-time highs and that rising costs of capital will clear it from the system. She says the pain will extend beyond people with margin debt to anyone holding levered assets, and to people who have speculated over the past few years and borrowed heavily. Those who are not leveraged are still swimming with the leveraged, so when the tide goes out everyone is affected. The damage bleeds into the economy and could cost jobs. She describes the reset as a painful but positive step toward credibility and sustainability.

  “you're swimming with people that are highly leveraged. ... So when the tide goes out, it affects everybody that's swimming with those people. And it bleeds through to the economy often as well, which is also a negative and job loss is possible.”at 11:37

US deficit & government debt

• Danielle Park · Croft Financial Group

  Higher rates force fiscal discipline; Canada cut spending after a 1990s rate spike, so it can be done.

  Park disputes the view that US deficits are the main reason yields are rising. US government debt is about 116% of GDP and total debt about 256%. Yet Japan and Canada carry more debt and have much lower yields, and China's fiscal deficit is larger. She points to Canada in the 1990s: deficits rose every year until about 1995, then a bond-market confidence scare (the Mexican peso crisis, followed by a Moody's rating revision) spiked rates. Canada's government then cut spending at every level, its credit rating recovered, and it ran surpluses until the GFC. She argues higher rates are good because they force discipline on households, corporations and governments alike, though a crisis is usually what forces the hand.

  “But again, why are higher rates good? Because they force better behavior. They force more fiscal discipline among other things at all levels, not just households, but corporations and governments too.”at 21:54

China's economy

• Danielle Park · Croft Financial Group

  China's property bust is still deepening after six years; she sees China leading this global housing cycle.

  After the GFC, China reinflated the world economy by building out real estate, which supported commodities demand and helped economies like Canada's. Park argues China then overbuilt, and its builders have been going bankrupt since. Real residential property prices have kept falling nationally for six years. Mortgage rates in China are about 3%, yet prices are still falling, which she takes as evidence that the problem is the price level, not the rate level. She sees China as the leading indicator for this cycle and argues that Canada's four and a half years of falling prices suggests more downside is still ahead.

  “So I think that's instructive because I believe they're leading us in this cycle.”at 32:07

US housing

• Danielle Park · Croft Financial Group

  US home prices need more downside: the median sale price is about 5.2x household income, well above norms.

  Park judges affordability with bottom-up multiples rather than the drop from the peak. The US median existing home price is about 5.2x median household income, still well above the historical norm. The US average sale price is 54% above 2019 levels. The average sale price was about $434,000 in July, and Park says prices have come off much less than in Canada. Roughly half of outstanding US mortgages now carry rates above 4%. Refinancing applications fell 56% year over year in September, showing that homeowners are locked in and that the old habit of refinancing to borrow more has stopped. Around 30% of Americans are now 55 or older, own more than half the housing stock, and one in five over 50 owns multiple properties. Park expects this pent-up sell-side supply from boomers to keep prices under pressure. She concludes that prices must still fall before they re-align with what households can afford to service.

  “So when you look at the median existing home sale price in The US today, you're about 5.2 times the median household income, and that is still significantly higher... than the historic norm.”at 34:29

US consumer

• Danielle Park · Croft Financial Group

  US consumer financial stress is rising, with delinquencies climbing and confidence back at 2007 levels.

  US data show a pickup in delinquencies across consumer loan types. US consumer confidence is back in line with 2007, and multiple job holding is at cycle-peak highs from 2007, which means people are taking on extra work to meet payments on record debt. Unemployment is still low, but it lags, so the job-market deterioration hasn't reached the top line yet. If unemployment rises, the stress will intensify and push people to downsize or cut debt. She sees a remarkable number of parallels with the 2007 peak, and says it isn't just the oil and rate spikes but many moving parts together.

  “you're starting to see this pickup in all kinds of delinquencies. ... And the fact that US consumer confidence is back in line with 2007.”at 42:42

Banks

• Danielle Park · Croft Financial Group

  Canadian banks look overpriced versus US banks, with higher-for-longer rates and rising defaults threatening earnings.

  Financials now make up about 37% of the TSX, well above the usual 32-33%, driven by passive index inflows into those names. Canadian banks are trading at about their most expensive relative to US banks, even though US banks lead the credit cycle and have been falling since August. Canadian banks are down about 7-8%. In a higher-for-longer environment, loan demand weakens, capital markets activity drops, and defaults rise, all of which hurt bank earnings. She thinks Canadian financials have overdone the optimism.

  “this is Canadian banks trading at their basically most expensive relative to US banks. And US banks tend to lead this credit cycle.”at 49:51

International equities

• Danielle Park · Croft Financial Group

  The TSX is vulnerable; low tech exposure won't protect it because global markets are highly correlated.

  The TSX was held up by a precious metals and materials surge, with banks and brokers launching new metals funds as they did for crypto, which drove prices to peaks. Financials now make up a record share, and the index topped in 2000 just after the Nasdaq. It followed the 2007 downturn closely and took years of sideways grinding to make new highs. The gains from the metals mania are too large to be sustainable. Canada's low tech weighting doesn't offer the diversification people hope for, because the TSX sells off with other markets when risk-off hits, as in 2000. Japan and Germany also move together with the US. Correlations are unusually tight.

  “So I think the TSX is kind of vulnerable at this point.”at 51:33

US dollar

• Danielle Park · Croft Financial Group

  The dollar still acts as a safe haven, but it could underperform significantly once the system is cleaned out.

  Rate-blowup forecasts (runaway deficits and dollar collapse) aren't ruled out, but so far the dollar index is rebounding during this week's risk-off move. Prices have stayed in a rising channel from the 2008 bottom. She thinks once the dead weight in the system is cleared, which she sees as essential to a sustainable restart, the dollar could easily begin to underperform significantly. For now it still benefits from flight-to-safety flows.

  “we could very easily see the U.S. Dollar begin to underperform significantly”at 53:56

Autos & EVs

• Danielle Park · Croft Financial Group

  High gasoline prices are pushing a shift to EVs and hybrids, which will help self-correct oil prices.

  There is a big move to alternative fuels and EVs. About 60% of cars bought in China are now electric, Europe is a huge market, and interest in hybrids and EVs is rising in Canada and the US. This follows the same self-correcting mechanism, where high gasoline prices push people toward more efficient ways to drive. That efficiency shift helps bring oil prices back down.

  “it's also transitioning this huge move to alternative fuels and EVs. I think 60% of the autos purchased in China have been electric now.”at 55:00

Gold & precious metals

• Danielle Park · Croft Financial Group

  Gold and silver trade like risk assets, are overbought after an ETF-driven surge, and may disappoint.

  Gold has acted like a risk asset over the past year. Its January surge came from renewed ETF enthusiasm and retail buying, which pushed it to extreme overbought levels. Even after a big correction, it still looks overbought. Silver is back at extreme overbought, and in 2011 it had terrible returns after a similar peak. She finds it suspicious that gold bulls cite central banks as net buyers while calling central banks hopeless at monetary policy. Bullion holders can have durable reasons, but money needed for something else shouldn't be parked there. Zero rates pushed investors into alternatives like gold, and as higher rates return, income-paying assets look better.

  “I'm afraid to say that it has acted like a risk asset in the last year.”at 55:53

Credit markets

• Danielle Park · Croft Financial Group

  High-yield spreads have widened back to 2022 levels, and investment-grade spreads have further to widen.

  Spreads on the riskiest, CCC-and-below debt were compressed to all-time lows during the zero-rate era. They have now widened back to November 2022 levels. Investment-grade spreads still have a long way to go. About $1.4 trillion of investment-grade corporate debt comes up for refinancing between now and 2030, at much higher rates. That refinancing burden takes capital away from M&A and buybacks, which companies funded cheaply when money was free. Corporate debt is one of her favorite places to earn yield, and she plans to buy it once it reprices.

  “But investment grade still has a long way to go.”at 59:54

US rates & the Fed

• Danielle Park · Croft Financial Group

  Markets price Fed hikes, but cuts should follow as oil falls or demand is destroyed.

  Markets have priced in four potential Fed rate hikes over the next year, after pricing cuts as recently as February. She thinks cuts will eventually come. A drop in oil prices, perhaps from Middle East resolution or from demand destruction, would bring down fuel prices, and she expects that to lead back to a cutting cycle. Movement through the Strait of Hormuz is a potential driver. In past peaks where yields got this high and began to grip the economy, the Fed started cutting. She notes that stocks have typically fallen the most once cuts begin, since central banks chase the market all the way down.

  “But at some point here, I think that you are going to see cuts because if we, for example, get any sort of drop in the price of oil”at 1:05:24