Oil Breaks Down: Should Stock Market Bulls Be Worried?
From CHRIS KIMBLE, technical market analyst:
Currency depreciation on top of foreign buyer taxes and real estate sales that are plunging against a backdrop of rising inventory is evaporating paper profits for would be Canadians.
Locals whether they own or rent are not spared either. A dropping CAD is raising import costs while the Trumpster builds a wall of worry out of trade tariffs and that worry is especially provoking to the over leveraged in Canada.
Is King Dollar Creating A Bullish Head & Shoulders Pattern? by Chris Kimble June 28, 2018
"...the widening nevertheless reflects an increasing scarcity of dollar funding..." Bloomberg March 20, 2018.
Scarcity of Dollar funding means we should prepare for a rise in the $USD:$CAD pair. In terms of Canadian real estate I chart it in USD here. A strengthening USD means higher import costs for Canadian consumers at a time when interest rates are trending up.
Our Canadian national proclivity to fund our lifestyles via debt rather than income continues to produce a negative Net Trade and FDI, a flattening GDP and growing record household debt levels, charted here.
Why Consumer Debt is Canada's Greatest Economic Risk
While we wait for the Clinton Trump toss up at Hofstra U. tonight, let's look at some data that affects everyone on the continent, ie: manufacturing wages measured in USD since the gloom of 2009 in Canada, the U.S. and Mexico. I have been showing for some time now, that Canada's net Federal Direct Investment balance has been negative for nearly 20 years and last year it widened significantly.
The chart above shows that Canadian manufacturing wages have jumped 21% in the last 7 years while in the U.S. they have gone up only 12% and in Mexico they have DROPPED 7% to US$2.10 per hour. (no typo - that's US$2.10/hr)
Canadian households have become highly indebted (168% debt to income) via government insured credit and animal spirit peer pressure. The IMF has been sounding the alarm bell at least since 2011 "Households, however, already have done enough borrowing, at least when it comes to real estate. Any further buildup of debt only risks a painful collapse." That's what they said 5 years ago.
Canadians are just $200 away from being overwhelmed by debt, new survey finds Financial Post September 28, 2016
> Calgary-based MNP LLP, said 56 per cent of those polled — up from 48 per cent surveyed six months ago — are close to facing negative cash flow should they take on up to another $200 in monthly debt.
>The online survey of of 1,502 Canadians conducted between Sept. 6 and Sept. 12 also found 31 per cent are already not paying their bills on time, making them technically insolvent, MNP says.
> A survey this month from TransUnion found 718,000 Canadians can’t even absorb a 25-basis point increase in interest rates without being in a negative cash flow situation. One percentage point would drive 917,000 over the edge, the credit rating agency found.
> In another recent study, the Canadian Payroll Association said 48 per cent of Canadians couldn’t make ends meets if they missed just one paycheque – a dire picture of a country living paycheque-to-paycheque.
> MNP said there is some positive news about debt costs. More Canadians now say they are concerned about their debt: 52 per cent, up from 43 per cent six months ago.
The latest sales/inventory ratio suggests that the risk of sentiment change is occurring in Vancouver (not yet in Toronto); but our very high labour cost relative to our U.S. and Mexican trade channels is going to put pressure on the Bank of Canada and the Federal Government to let the CAD/USD continue dropping (Bloomberg May 2016) "Currency depreciations would help many of the U.S.'s G7 partners (Canada, France, Germany, Italy, Japan, UK, & EU) a lot while hurting the U.S. little, if at all. In other words, a G7 currency war would be fine as long as the U.S. remained a pacifist."
A lower CAD/USD will help Canadian exporters to some degree but not enough to compete directly with Mexico and other low labour cost and low-bar regulatory regimes (China, Vietnam, Indonesia etal). A lower CAD/USD will also put more inflationary pressure on import costs into Canada reducing disposable consumer income that will affect consumption of domestic services including the demand for credit while debt repayment schedules may have to have their amortization terms lengthened especially if earnings growth slows.
ITEM: BlackBerry Abandons Its Phone New York Times September 28, 2016 - In recent years, BlackBerry has cut thousands of jobs and closed several operating centers, including one in this city (Halifax), over the last three years. A company spokeswoman declined to discuss any future layoffs.
A lower CAD/USD will not be favourable to the foreign buyers of Canadian real estate who purchased in the last 7 years if their own currencies do not drop as much as the CAD. Will they continue to hold a wasting asset that produces a negative cash flow?
The hysterical mania of buying real estate in Canada will come to an end when we see listing inventories rise, perhaps in 1Q 2017 if a shift from greed to fear manifests.
"Vancouver in Canada has been identified by Swiss bank UBS as the global financial center with the riskiest housing bubble."
"Currently, house prices in Vancouver seem clearly out of step with economic fundamentals, and are in bubble risk territory."
Well a mid-70 cent is what it was in the pit of gloom in March 2009 and in terms of FX, we are almost there without any major correction in North American equity, bond or real estate markets... yet.
Commodities on the other hand are depressed (peaked more or less in 2011) and getting more so as the USD climbs the worry wall.
The other target low that might need a retest of course is the January 2002 post-dotcom crash low when the Loon looked like a 60 cent dollar. Market makers don't like the long side of the Loonie trade anymore as the Net Speculative Positions Chart below suggests.
The average price comparison of Vancouver, Toronto & Calgary Single Family Dwellings denominated in CAD and USD along with notations of significant changes in the spot price of WTI crude oil and the currency spread is on my monthly UPDATED CHART HERE.
History, Charts & Curated Readings
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense
Balance Of Trade
Rent Or Buy