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Investment decisions are made because one believes there will be a reward. Globally, both corporations and households are drawing down their savings and making investments. But In Canada reward seekers are heavily conditioned.
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The "Sectoral Savings as a Percentage of Global GDP" chart suggests that households since the mid 1980's have been using up their savings to maintain lifestyle and since the start of ZIRP and NIRP in March of 2009, households with renewed zeal, have been moving cash out of their dwindling low interest savings accounts paired with record low borrowing costs to chase yields at risk.
Corporations since the mid-80's have amassed savings into record levels and after the smoke cleared in 2010, they resumed investment as well.
But in Canada as my Household Debt chart with overlays of GDP, Net Trade and Federal Direct Investment plots show, Canada has not been a net positive target for offshore investment money for the last 20 years. As we know the Alberta tar sands' appeal is troubled:
Carlos Murillo (Conference Board of Canada economist), predicts Canadian (oil sector) industry costs will jump by an average of 13 per cent per year between 2017 and 2021... the peak investment level was $62 billion in 2014... " The Canadian Press March 13, 2017
And the recency bias among households is working itself into heat exhaustion according to Bloomberg (May 8, 2017):
Expectations for Canada’s housing market are heating up, with more than half of respondents in a weekly telephone survey predicting home prices will rise, the first time the measure has topped 50 percent in records dating back to 2008... “Consumer sentiment on real estate has gone from hot to hotter,” said Nanos Research Group Chairman Nik Nanos... The latest burst of housing momentum has led policy makers to question whether it’s being led by supply and demand or by speculation.
If one is willing to leverage up and buy a negative yielding asset while the attendant stakeholders from government to loan creators are lining up to take a piece of the action, sellers will simply show up and sell it to you. That's a sure thing, just like the Canadian real estate market is speculative 101.
ITEM: "Toronto Homeowners List Detached Homes For Sale At A Record Pace - Toronto homeowners are listing detached homes for sale at a rapid pace, with new listings soaring over 61% last month." BetterDwelling.com May 10, 2017
ITEM: "Toronto Homeowners List Detached Homes For Sale At A Record Pace - Toronto homeowners are listing detached homes for sale at a rapid pace, with new listings soaring over 61% last month." BetterDwelling.com May 10, 2017
ITEM: China Commodity Crash Accelerates As Traders "Forced To Destock" ZeroHedge May 9, 2017
As Citi warned over the weekend, "We suspect that a good number of physical traders that are financially leveraged up to five times have been forced to destock due to rising short-term borrowing costs and the recent sharp price corrections... "Citigroup isn’t alone in saying that some traders may be compelled to sell holdings into a falling market as China tightens. Shanghai Cifco Futures Co. said this week signs are emerging that traders are dumping their holdings.
Imagine having to sell real estate in a falling Canadian market.
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