HISTORY & READINGS at Brian Ripley's Canadian Housing Price Charts & Plunge-O-Meter

Credit Cycles

12/10/2015

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First In ~ First Out

According to StatsCan, in 2001 after the dot.com blowout and the markets then turned to commodities, there were +/- 329,129 employees working in the Oil, Gas & Mining industries per year in Canada and in full year 2014 that number had increased by 60.8% to 529,248.

This includes "support activities" but not the peripheral jobs in the general economy that depend on the spending by those oil, gas and mining employees.

In the chart above, the top panel shows U.S. non-financial corporate debt to GDP at levels where credit defaults start hitting the front page. The lower panel shows the cumulative flow of investment funds in the U.S. and illustrates that institutional money is way ahead of private client money in getting out of the way of market risk to the downside.

According to the New York Times December 8, 2015 "If It Owns a Well or a Mine, It’s Probably in Trouble".

“The world of commodities has been turned upside down,” said Daniel Yergin, the energy historian and vice chairman of IHS, a consultant firm. “Instead of tight supply and strong demand, we have tepid demand and oversupply and overcapacity for commodity production. It’s the end of an era that is not going to come back soon.”

Some energy experts are even beginning to express concerns that sovereign wealth funds of Saudi Arabia and other wealthy Persian Gulf and oil-producing countries will redeem their money from investment firms in the coming year to shore up their balance sheets. If they do, the moves could initiate more instability in global equity and debt markets.

The full article is worth reading for Canadians who are also heavily leveraged and require employment earnings to satisfy debt repayment on assets that have insufficient equity to refinance.

Credit lines drying up for oil companies?

Notice the comments about the competition between Sunni (Saudi Arabia) and Shia (Iran) oil.

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Distress (bonds trading over 1,000bps) has been spreading across the HY space. From its starting point in energy a year ago, it has now reached other commodity-sensitive areas such as transportation, materials, capital goods, and commercial services. But it did not stop here and is also visible in places like retail, gaming, media, consumer staples, and technology – all areas that were widely expected to be insulated from low oil prices, if not even benefitting form them.

In other words, what was until a year ago a purely "energy" phenomenon is now an "everything" phenomenon, despite promises by every prominent economist that plunging energy prices are great news for the economy.

$35 Oil Stress Test

12/2/2015

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Imagine $35 Oil for 5yrs

A US-Style Canadian housing correction possibility is a potential that CMHC's CEO Evan Siddall discussed at a private audience presentation in New York, November 30, 2015 if oil remained at an average price of USD$35 per barrel for 5 years.

The top chart are oil prices since the OAPEC (Arab members of OPEC plus Egypt & Syria) oil embargo. Note the 22 year period of sub-$35 oil prices not long ago.

The bottom chart is Bloomberg's energy sector projections from their annual New Energy Finance Summit, April 14, 2015.

SCENARIO 1:
Oil averaging $35/bbl for 5 years

26% drop in Canadian home prices
12.5% peak unemployment

SCENARIO 2:
Global deflation and a US-style Housing Correction

30-44% drop in Canadian home prices
12-16% peak unemployment

"Canada’s home price growth since the 2008 recession has outpaced that of the U.S., Australia, and the U.K. It also reiterated risks to housing include high debt-to-income and concentration of net worth in housing." Financial Post November 30, 2015 (My Household Debt and Earnings charts are updated monthly - BR)

Donald Sadoway "Science Serving Society"

Energy 2064 with Professor Donald R. Sadoway

The Bill Gates Backed Canadian Building a Better Battery

"How do you store the energy generated by turbines when the wind isn’t blowing, the power from solar panels when the sun isn’t shining?” Read the Globe & Mail June 2015 report.

Credit Cycles

Credit lines drying up for oil companies?

$35 Oil Stress Test

Donald Sadoway "Science Serving Society"

Energy 2064 with Professor Donald R. Sadoway

The Bill Gates Backed Canadian Building a Better Battery

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