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Congrats! Canadians Just Set A New Record For Borrowing Against Their Homes

Congrats! Canadians Just Set A New Record For Borrowing Against Their Homes

Congrats! Canadians Just Set A New Record For Borrowing Against Their Homes
Canadian real estate related debt tapering? That would be ridiculous! Filings obtained from the Office of the Superintendent of Financial Institutions (OSFI) show, after a brief decline in January, the balance of loans secured by residential real estate hit a new high in February. More interesting is the segment of loans being used for personal consumption, is growing at the fastest pace in years.

Securing A Loan With Home Equity

Loans secured by residential real estate are exactly what they sound like. They’re loans that you pledge your home equity in order to secure. The most common example would be a Home Equity Line of Credit (HELOC). You know, the same type of loan the Canadian government is discretely paying to teach you how to borrow. There’s also more productive uses, like when you start a new business and need to use your home as security – just in case you aren’t able to pay your loan shark bank back.

Either way, debt is debt. The big difference to note is a loan secured for personal reasons, is considered non-productive. The borrower isn’t expected to take a calculated risk, in order to earn more money. A business loan is considered productive, since it might generate more money. This isn’t just our opinion, banks actually classify these loans separately in their filings. Today we’ll go through the aggregate of these numbers, then break them down segment by segment.

People Used Over $283 Billion In Home Equity To Secure Loans

Loans secured by real estate hit a new all-time high in February. The total balance of loans secured with real estate racked up to $283.65 billion, up 0.77% from the month before. This represents a 7.79% increase compared to the same month last year.

…click on the above link to read the rest of the article…

Canada Home Prices Fall from Year Ago for First Time since 2009

Canada Home Prices Fall from Year Ago for First Time since 2009

The magnificent house price bubble wheezes.

With 2017 mortgage pre-approvals having now expired, the first wave of buyers facing OSFI’s ground breaking mortgage regulations are being put to the test. The regulations, also known as B-20, require all borrowers to pass a stress test at an interest rate 2% higher than the qualifying rate.

Early symptoms appear rather obvious. National home sales slid for the month of March, falling 23% year over year, and pushing the average sales price down 10%. Overall, it was a bearish quarter for Canadian housing, first quarter sales fell 16% year over year.

Much of the declines were felt in the single family housing market in Vancouver & Toronto, with many buyers unable to qualify at the recently inflated prices. The average sales price of a single family home in Greater Vancouver now sits at C$1.6 million and C$1 million in the Greater Toronto Area (GTA).

Chief economist of the Canadian Real Estate Association, Gregory Klump, noted the squeeze as “tighter mortgage lending rules, which make it harder for home buyers to qualify for uninsured mortgages, are also shrinking the pool of qualified buyers for higher-priced homes.”

To little surprise this reflected in the national home prices across Canada. The Q1 2018 average sales price declined by 6.27% from Q1 2017. It was the first year-over-year percentage decline since Q1 2009.

The impact of the mortgage stress could become more apparent moving forward, particularly if borrowing rates continue to rise. As of today, a homebuyer hoping to purchase the typical home in Greater Vancouver (as per the MLS benchmark price of C$1.084M) would require a minimum down-payment of C$216,800 and a verified income of C$175,000, assuming a 5-year mortgage at a generous 2.99% interest rate.

…click on the above link to read the rest of the article…

 

Loonie Drops As Bank Of Canada Holds Rates (As Expected)

With Canadian economic data at its most disappointing in 20 months, domestic trade-wars over oil pipelines exploding, and a housing market on the verge of collapse, The Bank of Canada held rates unchanged (as expected), sending a weak signal that sparked Loonie selling

Bank of Canada Holds Benchmark Overnight Rate at 1.25%

2018 has not been a good one for Canada’s economy…

but BOC writes off 1Q growth weakness, saying it will rebound in 2Q.

Slower economic growth in the first quarter primarily reflects weakness in two areas. Housing markets responded to new mortgage guidelines and other policy measures by pulling forward transactions to late 2017. Exports also faltered, partly owing to transportation bottlenecks. Some of the weakness in housing and exports is expected to be unwound as 2018 progresses.

Also says the economy will be slightly above potential over the next 3 years, crediting federal and provincial budget measures.

But the FX market is not buying it…

The central bank played down a faster-than-expected pick-up in inflation as temporary, arguing the shocks of higher gas prices and minimum wages in some provinces will dissipate by 2019.

These releases codify Poloz’s narrative the expansion can be prolonged without fueling inflation.

Key highlights (vis Bloomberg):

  • BOC reiterates that “Governing Council will remain cautious with respect to future policy adjustments” and be “guided by incoming data”
  • BOC: “Higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed”
  • Inflation expected to average 2.3% over 2018, from 2.0% previously; Core measures have edged up to near 2 percent, “consistent with an economy operating with little slack”
  • Wage growth is firming, but Bank “will continue to assess labour market data for signs of remaining slack”
  • Bank of Canada makes upward revision to 2019 growth: GDP expected to grow 2.0% in 2018 and 2.1% in 2019, from 2.2% and 1.6% respectively;
  • Housing will not contribute to growth in 2018 and 2019, exports will not contribute to growth in 2018 (from +0.6pp previously)

…click on the above link to read the rest of the article…

Four Flashpoints of Volatility

Four Flashpoints of Volatility

1 – Trade Wars Flashpoints, From China to Canada and Mexico

Wall Street has knee-jerk reactions to any trade war related headlines.

There are legitimate reasons to be concerned about trade wars. The world is increasingly more connected than ever. Many major American companies that are household names such as Starbucks (SBUX), Boeing (BA) and Apple (AAPL) rely on their exports (and imports) from China for a sizable portion of their overall sales and profits.

If China continues to retaliate against trade war policies from the U.S. with harsh measures of their own, it could hurt revenues of those firms.

But, here’s the latest revelation:

China wants to keep more of what it makes — in China — across a variety of sectors. Trade wars elevate the Chinese government’s desire to do that. The country has just recently launched a new $1.6 billion initiative called “Made in China 2025.”

The strategy entails an increase in research and development spending. That would cause Chinese companies to rely less on international technology and equipment. The more China buys internally, the less it will buy American products or need to export to the U.S.

What all of that could mean is that similar products in the U.S will become more expensive for consumers. That would hit directly at stock of those companies, making them more volatile.

While headlines from the White House continue to target China, our regional trading partners are undoubtedly some of the most important, and currently some of the most fragile.

To the north, Canada is playing up its optimism over NAFTA talks. Rhetoric is one thing, reality is another. It’s important to look at what institutions are doing, not what they’re saying.

Canada is currently enhancing its participation in several other trade agreements, including an updated Trans-Pacific Partnership that does not include the U.S. In the wake of Brexit, Canada has also made important trade links to both Europe and the U.K.

…click on the above link to read the rest of the article…

RBC Warns Cracks “Starting To Show” In Canadian Credit

One often wonders if the government will ever realize that, due to its policies, its “solutions” often wind up turning into bigger problems than the ones they set out to address initially? Not only that, but this has been the case for decades, and it will continue to be the case until we “engineer” ourselves into a crisis that is too big to fix or too overwhelming to print our way out of.

Every day we discuss various aspects of a system that ends up far worse off due to a government apparatus that is convinced it knows best and that intervention and interfering are the solution to the problem. In essence, much of the financial crisis of 2008 was a result of the government interfering in the housing market in years prior, combined with the Fed not being able to forecast the crisis, despite widely ostracized skeptics such as Peter Schiff stating repeatedly that the housing market was heading into the abyss.

Today, we face a new set of challenges as a result of the way governments and central banks dealt (or rather, didn’t) with the 2008 financial crisis. In the United States there are bubbles forming in student loans and subprime auto lending,  while mortgage debt and consumer credit both look to soon be out of control yet again.

Meanwhile, the problem is spreading geographically and today we are presented with yet another “solution turned into problem”, and as Bloomberg reports, RBC now sees “cracks” in consumer credit becoming a problem yet again, this time in Canada. The combination of low interest rates and the cheap and easy access to capital has yet again gone from being a solution to a problem, as Canadian lenders are seeing delinquency rates “roll” out in time and duration.

…click on the above link to read the rest of the article…

Disaster Hits Canada’s Oil Sands

Disaster Hits Canada’s Oil Sands

Transmountain pipeline

Kinder Morgan said it would halt nearly all work on a pipeline project that is crucial to the entire Canadian oil sands industry, representing a huge blow to Alberta’s efforts to move oil to market.

Kinder Morgan’s Trans Mountain Expansion is the largest, and one of the very few, pipeline projects that has a chance of reaching completion. Alberta’s oil sands producers have been desperate for new outlets to take their oil out of the country, and the decade-plus Keystone XL saga is the perfect illustration of the industry’s woes.

Keystone XL is still facing an uncertain future, and with several other major oil pipeline projects already shelved, there has been extra emphasis on the successful outcome of the Trans Mountain Expansion. That is exactly why Canada’s federal government, including Prime Minister Justin Trudeau, has gone to bat for the project.

But, despite federal approval, Trans Mountain still faces a variety of obstacles that have bedeviled the project for some time. It appears that opposition from First Nations, environmental groups, local communities affected by the route, and the provincial government in British Columbia have forced Kinder Morgan to throw in the towel, at least for now.

Kinder Morgan said on Sunday that it suspended most work on the $5.8 billion Trans Mountain Expansion.

Environmental groups hailed the announcement. “The writing is on the wall, and even Kinder Morgan can read it. Investors should note that the opposition to this project is strong, deep and gets bigger by the day,” said Mike Hudema, climate campaigner with Greenpeace Canada, according to Reuters.

…click on the above link to read the rest of the article…

Alberta’s Aggressive Renewable Energy Push

Alberta’s Aggressive Renewable Energy Push

Industry

One Canadian province has set its sights on generating almost a third of its electricity from renewable sources by 2030. This will take some US$7.77 billion (C$10 billion) in investments by that year to add 5 GW of renewable capacity, creating more than 7,000 jobs.

The province is Alberta—the center of Canada’s oil industry.

Alberta has been aggressively pursuing renewable energy, switching power plants from coal to gas, and last December, organizing its first renewable power bidding round, which ended with commitments from three energy companies to develop four wind power projects that will add a combined 600 MW to the province’s renewable capacity.

Now, the government is preparing another two bidding rounds, to take place later this year, and it is raising the local carbon tax to fight emissions.

As of January 1 this year, Alberta’s carbon tax has jumped to US$23.30 (C$30) per metric ton. That’s a 50-percent increase although it’s still lower than the carbon tax that will enter into force in neighbor British Columbia from April 1, at US$27 (C$35) per ton.

An urge to go green is not the only reason for the steep tax increase, however. It is expected to help the government’s efforts to balance its books.

In the current fiscal year, Alberta’s Finance Ministry has projected a deficit of US$6.8 billion (C$8.8 billion). This is a decline on last year’s figure and the deficit should continue to decline over the next four years until the province returns to a surplus, albeit moderate, in fiscal 2023-24. The carbon tax will contribute to the deficit shrinkage but it won’t be even close to enough for Alberta to swing into the black.

…click on the above link to read the rest of the article…

 

U.S. Rig Count Continues To Rise As Canadian Rig Count Plunges

U.S. Rig Count Continues To Rise As Canadian Rig Count Plunges

Sunset oil rig

Baker Hughes reported another 5-rig increase to the number of oil and gas rigs this week.

The total number of oil and gas rigs now stands at 995, which is an addition of 186 rigs year over year.

The number of oil rigs in the United States increased by 4 this week, for a total of 804 active oil wells in the U.S.—a figure that is 152 more rigs than this time last year. The number of gas rigs rose by 1 this week, and now stands at 190; 35 rigs above this week last year.

The oil and gas rig count in the United States has increased by 71 in 2018.

Canada continued its severe losing streak, with a decrease of 58 oil and gas rigs, after losing 54 rigs on top last week, and a 29-rig loss the week before. At 161 total rigs, Canada now has 84 fewer rigs than it did a year ago.

Oil prices managed to climb substantially this week and were up again today prior to data release as the Saudi Energy Minister, Khalid al-Falih, said that he expected the production cuts to last into 2019. Other factors buoying prices are tensions in the Middle East after Saudi Arabia insisted that it would pursue nuclear power plans with or without the support of the United States, and would even work on developing nuclear weapons should Iran do the same. Weighing on prices this week is U.S. crude oil production, which continued its uptick in the week ending March 16, reaching 10.407 million bpd.

…click on the above link to read the rest of the article…

 

Loonie Spikes As Canadian Consumer Prices Surge

Oh, Canada… growth is stagnating, housing bubbles imploding, and now inflation is surging

Canadian Consumer prices surge 2.2% YoY (well above expectations of +1.9% and January’s +1.7% YoY)

Core prices – which exclude more volatile items like energy and are considered a gauge of inflation pressures – inched higher for a fifth month to 2.03 percent, which is the fastest since 2012.

Statistics Canada cited higher prices for gasoline, cars, and mortgage interest costs as main contributors to annual inflation. The minimum wage increases in Ontario also seem to have had an impact, with food purchased from restaurants pushing up nationwide prices by 4 percent from a year ago.

Faster-than-expected inflation could add pressure on the Bank of Canada – which has kept the expansion going with low interest rates – to keep hiking borrowing costs to more normal levels.

And the Loonie is surging…

 

Poloz to Queen’s University debt slaves: don’t worry about the “poverty effect”

Poloz to Queen’s University debt slaves: don’t worry about the “poverty effect” - Peter Diekmeyer (19/03/2018)
Kingston – Bank of Canada Governor Stephen Poloz got a warm welcome following a key policy presentation at his alma mater last week

“These are exciting times,” Poloz told a large crowd at Queen’s University . “Students here will shape the future. I cannot wait to see how it turns out.”

Afterwards, during a press conference with local and student media, Poloz brushed aside speculation about a possible “poverty effect” caused by rising interest rates.

Poloz cited a strengthening Canadian economy and downplayed suggestions that central bank rate-tightening cycles—which crashed global stock markets in the early and mid-2000s—would do so again.

Yet while the extent of a “poverty effect” in the overall economy may be open for debate, there are growing signs that central bank actions are impoverishing Canadian youth.

Consider:

Trickle down central banking

During the 1980s, economists derided US President Ronald Reagan’s policies—which cut taxes in the hope that they would spur economic growth—as “trickle down economics.”

Yet the Canadian government has adopted similar tactics.

The Bank of Canada’s “wealth effect” policies are intended to drive up asset prices in the hope that richer consumers will spend more, thus boosting the overall economy.

For example, if a Queen’s University economics professor sees his stock portfolio double, he might then buy extra lattés at the campus Starbucks, thus creating more jobs.

Sadly, the wealth effect hasn’t been working for the country’s youth— 44% of the 4.5 million Canadians aged between 15 and 24 are out of work.

Worse, trickle down central banking requires constant borrowing, at a pace faster than GDP growth.

As Renaud Brossard , executive director of Generation Screwed noted recently, such policies stick Canadian youth with nearly all of the country’s debts.

…click on the above link to read the rest of the article…

 

Canada’s Pipeline Challenges Will Force More Tar Sands Oil to Move by Rail

Canada’s Pipeline Challenges Will Force More Tar Sands Oil to Move by Rail

Gogama oil train derailment in Ontario

The Motley Fool has been advising investors on “How to Profit From the Re-Emergence of Canada’s Crude-by-Rail Strategy.” But what makes transporting Canadian crude oil by rail attractive to investors?

According to the Motley Fool, the reason is “… right now, there is so much excess oil being pumped out of Canada’s oil sands that the pipelines simply don’t have the capacity to handle it all.”

The International Energy Agency recently reached the same conclusion in its Oil 2018 market report.

Crude by rail exports are likely to enjoy a renaissance, growing from their current 150,000 bpd [barrels per day] to an implied 250,000 bpd on average in 2018 and to 390,000 bpd in 2019. At their peak in 2019, rail exports of crude oil could be as high as 590,000 bpd — though this calculation assumes producers do not resort to crude storage in peak months,” the International Energy Agency said, as reported by the Financial Post.

To put that in perspective, however, the industry was moving 1.3 million barrels per day at the peak of the U.S. oil-by-rail boom in 2014.


Graph of American crude-by-rail volumes. Credit: U.S Energy Information Administration

And Canada has plenty of capacity to load oil on more trains, which means if a producer is willing to pay the premium to move oil by rail, it can find a customer to do it. The infrastructure is in place to load approximately 1.2 million barrels per day.

…click on the above link to read the rest of the article…

 

Canada Is Facing A Heavy Crude Crisis

Canada Is Facing A Heavy Crude Crisis

Canada Oil

Canada’s benchmark heavy crude oil widened its discount to WTI to the largest in six trading sessions on Thursday, as additional storage capacity in Alberta and data about lower crude-by-rail shipments added concerns over the domestic oil glut, as TransCanada’s Keystone Pipeline has yet to return to normal pressure levels following a leak and temporary shutdown last November.

On Thursday, Western Canadian Select was trading at a discount of US$27 a barrel to WTI. The discount widened to the biggest level, US$30.55 a barrel, in four years on February 5, after a selloff following the temporary shutdown of Keystone in mid-November.

This week, market participants were digesting news about increased storage capacity and January crude-by-rail data. Crude-by-rail exports out of Canada fell by 11.3 percent month on month in January to 140,959 bpd, according to the latest data by Canada’s Crude Oil Logistics Committee, quoted by Platts. Analysts had expected rail crude exports to be either flat or down, because Canadian rail operators and customers had reported delays in shipments due to extreme weather.

In addition, Kinder Morgan Canada and Canadian midstream operator Keyera said earlier this week that they added two additional tanks at the Base Line Terminal for service ahead of schedule. The two tanks add an additional 800,000 barrels of crude storage to the 1.6 million barrels currently in operation.

Meanwhile, data from Canada’s National Energy Board (NEB) showed that the Keystone Pipeline, which was restarted on November 28 after a shutdown on November 16, had throughput volumes of 582,000 bpd in December, following a slump to 298,000 bpd in November.

…click on the above link to read the rest of the article…

 

Loonie Tests 2018 Lows As Canada Existing Home Sales Crash To 5 Year Lows

The Canadian Dollar dropped, testing the lows of 2018, following CREA data showing existing home sales crashed to the lowest since 2013 and price appreciation slowed dramatically.

Home sales via Canadian MLS® Systems were down 6.5% in February. This marks the second consecutive monthly decline following the record set in December 2017 and the lowest reading in nearly five years.

February sales were down from the previous month in almost three-quarters of all local housing markets, with large monthly declines in and around Greater Vancouver (GVA) and Greater Toronto (GTA).

Toronto home sales are down 8.2% MoM!

Vancouver home sales are down 15.8% MoM!

Actual (not seasonally adjusted) activity was down 16.9% year-over-year (y-o-y) and hit a five-year low for the month of February. Sales also stood 7% below the 10-year average for the month of February. Sales activity came in below year-ago levels in 80% of all local markets in February, including those nearby and within Ontario’s Greater Golden Horseshoe (GGH) region.

“The drop off in sales activity following the record-breaking peak late last year confirms that many homebuyers moved purchase decisions forward late last year before tighter mortgage rules took effect in January,” said Gregory Klump, CREA’s Chief Economist.

“Momentum for home sales activity going into the second quarter is also likely to weighed down by housing market uncertainty in British Columbia, where new housing polices were introduced toward the end of February.”

Furthermore, CREA notes that the Aggregate Composite MLS® HPI rose by 6.9% y-o-y in February 2018. This was the 10th consecutive deceleration in y-o-y gains, continuing a trend that began last spring. It was also the smallest y-o-y increase since October 2015.

and the kneejerk reaction in the market is to sell the Loonie, now trading back at 2018 lows – the lowest since July 2017..

Expert Commentary: How Trump’s Trade War Affects Canadian Oil

Expert Commentary: How Trump’s Trade War Affects Canadian Oil

Trump

Last week, the first salvo of a global trade war was fired: US tariffs on steel and aluminum.

Like the “shot heard round the world,” the American protectionist move has politicians and economists in industrialized nations strategizing with their spreadsheets. From Porsches to prosciutto, every country is scouring trade numbers to see what can be tit for tat in the event of all-out global trench digging.

Canadian industries, on the other side of the bridge from where the shot was fired, have their helmets on. The volley is a prod to put all things we peddle—and to whom we peddle to—into perspective.

Steel, for instance, has much in common with oil, natural gas and petroleum products businesses. Both are products sourced from a plentiful domestic endowment of resources — iron ore and hydrocarbons. Both fight for market share in a fiercely competitive global market. Both have long been vulnerable to the vagaries of government policy. Both are hugely important to their provincial economies, Ontario and Alberta respectively. And both are dominantly exported to the United States.

But that’s where the comparisons end. We sell a lot more barrels of oil than rolls of steel.

Sifting through the eye-rubbing data tables on the Statistics Canada website, exports of “iron, steel and articles thereof” in 2017 were $14.0 billion. About 86 percent of those exports were sold to the United States. Aluminum and articles thereof was $12.6 billion. It’s not clear which product sub-classifications, if any, may be subject to US tariffs. Nor do we know if nuts, bolts, fence posts, and other value-added articles thereof will be included. But let’s assume everything is thrown into the Trumpian blast furnace.

By comparison, exports of Canada’s oil, gas and petroleum products last year—during a period of depressed prices—were almost $107 billion, 91 percent of which went south of the border.

…click on the above link to read the rest of the article…

Why Canada Defends Ukrainian Fascism

Why Canada Defends Ukrainian Fascism

Why Canada Defends Ukrainian Fascism

Canada has a reputation for being a relatively progressive state with universal, single-payer health care, various other social benefits, and strict gun laws, similar to many European countries but quite unlike the United States. It has managed to stay out of some American wars, for example, Vietnam and Iraq, portrayed itself as a neutral “peace keeper”, pursuing a so-called policy of “multilateralism” and attempting from time to time to keep a little independent distance from the United States.

Behind this veneer of respectability lies a not so attractive reality of elite inattention to the defence of Canadian independence from the United States and intolerance toward the political and syndicalist left. Police repression against communist and left-wing unionists and other dissidents after World War I was widespread. Strong support for appeasement of Nazi Germany, overt or covert sympathy for fascism, especially in Québec, and hatred of the Soviet Union were widespread in Canada during the 1930s. The Liberal prime minister, William Lyon Mackenzie King, hobnobbed with Nazi notables including Adolf Hitler, and thought that his British counterpart Neville Chamberlain had not gone far enough in appeasing Hitlerite Germany. Mackenzie King and many others of the Canadian elite saw communism as a greater threat to Canada than fascism. As in Europe, the Canadian elite—Liberal or Conservative did not matter—was worried by the Spanish civil war (1936-1939). In Québec French public opinion under the influence of the Catholic Church hoped for fascist victory and the eradication of communism. In 1937 a Papal encyclical whipped up the Red Scare amongst French Canadian Catholics. Rejection of Soviet offers of collective security against Hitler was the obverse side of appeasement. The fear of victory over Nazi Germany in alliance with the USSR was greater than the fear of defeat against fascism. Such thoughts were either openly expressed over dinner at the local gentleman’s club or kept more discrete by people who did not want to reveal the extent of their sympathy for fascism.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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