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While other central banks have been busy increasing their gold reserves, Canada sold off all its gold reserves in 2016. The Bank of Canada ranks last globally out of 100 major central banks.

There is precedence in a central bank selling off its gold, and it didn’t work out very well. In 1999, when the price of gold was low at $282.40 an ounce, the United Kingdom sold half of its gold reserves, worth approximately $6.5 billion. The sale raised $3.5 billion. By 2007, the price of gold had risen to $675.00 an ounce, and the UK had lost more than £2 billion. This financial disaster, known as Brown’s Bottom, did not work out well. And Canada appears to be following in its footsteps.

With many uncertainties globally, Canada’s gold sale could have serious consequences.

Fed signaling interest rate hikes =
Fed shrinking balance sheet =
National debt rising rapidly =
Household debt rising =
Weak growth =
Rising inflation =
Geopolitical risks =

But hey, things are going to be fine…

6:49 PM – Apr 24, 2018

In this age of fiat currency, many people forget that gold is actually money, and has never stopped from functioning as a reliable store of value. Gold is a relatively liquid currency and one of the most highly traded.

According to Canada’s senior Finance Department economist Morneau, the reason for the gold sale was the cost involved in storing the gold and the fact that gold offers a poor return. That seems like strange logic since gold has outperformed the S&P 500 since 2000. The price of gold went from $35.00 an ounce in 1967 to over $1,300 today.

As former Federal Reserve chairman Alan Greenspan has said:

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

Oh Canada! Canadians Starting To Feel The Pain of Debt.

April 23, 2018

Oh Canada! Canadians Starting To Feel The Pain of Debt.

Many Canadians are facing the consequences of spiraling debt. The Bank of Canada has increased its key interest rate three times since last summer, prompting some of Canada’s larger banks to raise their prime lending rates. Forty-seven percent of Canadians are feeling the pinch, indicating they will not be able to meet ordinary living expenses without incurring more debt. More than half say that high-interest rates will make it increasingly difficult to repay existing debts, with 33 percent fear that rising interest rates will force them into bankruptcy.

Easy credit has provided Canadians with a false sense of security and enticed many into the housing market. With household debt already at an unprecedented level, many homeowners will not be able to refinance their current mortgage debt.

Canadians have succumbed to the lure of easy credit. Consumer household credit totaled $2.13 trillion, with residential mortgages making up 72% of that.

Easy credit and rising home prices have created a debt trap for many Canadians, and many face an uncertain future. With little savings to cushion a financial blow, Canadians have good reason to be concerned.

Canada’s household debt has exceeded its GDP for the first time, and most Canadians are living on a precarious edge. Faced with mortgage payments they find difficult to repay, 4 out of 10 Canadian homeowners are without the necessary funds to meet normal living expenses.

One of the problems is that income has failed to keep pace with rising debt. Those with debts beyond their ability to repay will be the most adversely affected.

So far, home prices have continued to increase, masking the overall debt problem. Any economic downturn, combined with little savings, could cause people to lose their homes. Homes can be difficult to sell in a tight market, causing delinquencies to rise.

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

Lesson From Canada: There Really Are No Rate Hike Targets

April 23, 2018

Lesson From Canada: There Really Are No Rate Hike Targets

Despite an inflation spike in Canada, Bank of Canada Governor Stephen Poloz says “Rate hikes Aren’t Mechanical.”

Bloomberg reports Poloz Says Canadian Inflation Spike Doesn’t Violate 2% Target.

Bank of Canada Governor Stephen Poloz said he’s not worried about inflation temporarily rising above the 2 percent target this year, and the acceleration by itself isn’t sufficient to warrant an interest rate increase.

Speaking Saturday to reporters in Washington, Poloz said a tolerance for temporary movements is exactly why the central bank uses a 1 percent to 3 percent range for inflation and doesn’t mechanically raise interest rates when price growth surpasses the 2 percent point.

“What I don’t want is for people to be spending this entire year asking me what I’m up to because inflation is above target,” Poloz said. “You need once in a while to remind people that there’s a range and that’s okay, the policy allows for this. We’re not violating our target in some way.”

Poloz said he even sees some incidental benefits from the brief acceleration. Since inflation has under-performed in recent years, a period above target could actually help reinforce expectations for inflation at 2 percent, he said.

“In that abstract way, it’s actually a positive thing because we’ve had an extensive period where it’s been below, so that period of slightly above is going to help reinforce that 2 percent average which we haven’t quite made in the last few years,” Poloz said. “There is no intention there. I’m just saying that’s a positive byproduct of that modest overshoot that’s happening.”

Lesson of the Day

If central banks in Canada, the US, Europe, anywhere really, want to hike, they will. If they don’t, they will find an excuse not to.

In the case of Canada, Poloz claims there is a benefit to higher inflation because it was too low, too long.

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

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

April 18, 2018

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…

Loonie Spikes As Canadian Consumer Prices Surge

March 23, 2018

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…

The Central Bank Bubble: It Will Be Ugly

March 21, 2018

The Central Bank Bubble: It Will Be Ugly

21
Mar

The global economy has been living through a period of central bank insanity, thanks to a little-understood expansion strategy known as quantitative easing, which has destroyed main-street and benefitted wall street.

Central Banks over the last decade simply created credit out of thin air. Snap a finger, and credit magically appears. Only central banks can perform this type of credit magic. It’s called printing money and they have gone on the record saying they are magic people.

Increasing the money supply lowers interest rates, which makes it easier for banks to offer loans. Easy loans allow businesses to expand and provides consumers with more credit to buy goods and increase their debt. As a country’s debt increases, its currency eventually debases, and the world is currently at historic global debt levels.

Simply put, the world’s central banks are playing a game of monopoly.

With securities being bought by a currency that is backed by debt rather than actual value, we have recently seen $9.7 trillion in bonds with a negative yield. At maturity, the bond holders will actually lose money, thanks to the global central banks’ strategies. The Federal Reserve has already hinted that negative interest rates will be coming in the next recession.

These massive bond purchases have kept volatility relatively stable, but that can change quickly. High inflation is becoming a real possibility. China, which is planning to dethrone the dollar by backing the Yuan with gold, may survive the coming central banking bubble. Many other countries will be left scrambling. Some central banks are attempting to turn the current expansion policies around. Both the Federal Reserve, the Bank of Canada, and the Bank of England have plans to hike interest rates. The European Central Bank is planning to reduce its purchases of bonds. Is this too little, too late?

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

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

March 20, 2018

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

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…

Bank Of Canada Holds Rates As Expected, Warns Trade “Growing Source Of Uncertainty”

March 7, 2018

Bank Of Canada Holds Rates As Expected, Warns Trade “Growing Source Of Uncertainty”

Amid uncertainty around NAFTA (and Trump tariffs), and slumping economic data, The Bank of Canada was expected to ‘hold’ and endorse the two rate-hikes priced into the curve (notably less hawkish than the growing belief in The Fed’s four-hikes), and that is what it did.

However, BoC reiterated that continued accommodation is likely to be needed and added that it “remains cautious” and will be “guided by incoming data” in which case, sell the Loonie…

It has not been a good month for Canadian economic data…

BoC also acknowledged the recent deceleration in household credit growth (from record highs) and that trade is a “growing source of uncertainty” and flagged lower than typical wage growth.

Key Excerpts:

BOC reiterates that “Governing Council will remain cautious in considering future policy adjustments” and be “guided by incoming data” and adds that while economic outlook “expected to warrant higher interest rates over time, some continued monetary policy accomodation will likely be needed” to keep economy near potential/inflation on target”

Of note, “Trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks”

Some housing demand “pulled forward” into 2017 from beginning of 2018 ahead of new mortgage guidelines and other policy measures”

Impact of housing policies, changes to mortgage guidelines and new provincial measures on housing demand and prices will take time to fully assess: “Notably, household credit growth has decelerated for three consecutive months”

The BOC says it will be guided by data in assessing the economy’s sensitivity to interest rates, evolution of economic capacity and “dynamics of both wage growth and inflation”

“Wage growth has firmed, but remains lower than would be typical in an economy with no labour market slack”

Inflation close to target and core measures have edged up, “consistent with an economy operating near capacity”; inflation fluctuating due to temporary factors

The Loonie has been chopping around on Trump tariff and NAFTA headlines all week. CAD is little changed after the statement…

Canadian Existing Home Sales Crash In January

February 15, 2018

Canadian Existing Home Sales Crash In January

After five straight months of acceleration, January saw Canadian existing home sales crash 14.5% – the biggest drop on record…

Home prices rose 2,3% over the past 12 months, but it appears a sudden close-eye on Chinese buyers has hit the market hard as Toronto home sales crashed a stunning 27% from December (prices down 4.4% YoY) and Vancouver sales down 10.5% MoM (prices up 18.1% YoY).

Canadian existing home sales are down 2.4% YoY.

Must be the weather, right?

This comes less than a week after horrific jobs data struck Canada – thanks to minimum wage-hikes.

The Canadian job market has never lost more part-time jobs – ever – than in January…

As a reminder, The Bank of Canada hiked ‘dovishly’ in January…

The BOC also noted that “while the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target.”

We suspect that hike-trajectory may slow further.

Oh Canada! Part-Time Jobs Crash Most In History

February 9, 2018

Oh Canada! Part-Time Jobs Crash Most In History

The Canadian job market has never lost more part-time jobs – ever – than in January…

Canada’s unemployment rate rose to 5.9% as total job losses for January dropped the most since 2009, but it was the 137,000 collapse in part-time jobs that stands out.

So what is driving this collapse?

Simple – Minimum Wage Hikes In Ontario.

Ontario raised the minimum wage 21 percent to C$14 ($11.26), making it the highest in Canada.

And as Reuters reports, the steep minimum wage increase that went into effect on Jan. 1 in Ontario, Canada’s most populous province,has had a rocky start as some employers cut workers’ hours and benefits to reduce its impact on the bottom line.

The provincial government, controlled by the Ontario Liberal Party, positioned it as a measure to improve the livelihood of workers in Ontario, home to the nation’s largest city, Toronto, and its capital, Ottawa.

Yet some employers responded by implementing hiring freezes, cutting hours of existing workers, eliminating paid breaks and boosting benefits costs.

Shocker – sending minimum wage costs soaring leads to less demand for low-skill employees?

Will they never learn?

Of course, some see a silver lining as average hourly earnings jumped 3.3% (vs 2.9% previous month) thanks to the min wage hike, the fastest pace since 2015.

But, it appears the minimum wage hike has sent more people ‘out’ of the work force as the participation rate plunges to its lowest since 1999…

As a reminder, The Bank of Canada hiked ‘dovishly’ in January…

The BOC also noted that “while the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target.”

We suspect that hike-trajectory may slow.

The reaction in the Loonie is quite chaotic…

Loonie Tumbles After Dovish Bank of Canada Hikes By 25bps, Warns Of NAFTA Uncertainty

January 17, 2018

Loonie Tumbles After Dovish Bank of Canada Hikes By 25bps, Warns Of NAFTA Uncertainty

As expected by a broad majority of economists, the Bank of Canada just hiked its overnight rate by 25bps to 1.25%, the first hike by a G-7 central bank in 2018.

In raising the rate, the BoC said that “recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity” however in a dovish twist the BOC added that “as uncertainty about the future of NAFTA is weighing increasingly on the outlook, the Bank has incorporated into its projection additional negative judgement on business investment and trade.

From the bank’s forecasts:

In Canada, real GDP growth is expected to slow to 2.2 per cent in 2018 and 1.6 per cent in 2019, following an estimated 3.0 per cent in 2017. Growth is expected to remain above potential through the first quarter of 2018 and then slow to a rate close to potential for the rest of the projection horizon.

The central bank also sees the following key indicators:

CPI Inflation Y/Y:

2017 Q2:1.3%, last 1.3%
2017 Q3:1.4%, last 1.4%
2017 Q4:1.8%, last 1.4%
2018 Q1:1.7%

Real GDP Y/Y:

2017 Q2:3.6%, last 3.7%
2017 Q3:3.0%, last 3.1%
2017 Q4:3.0%, last 3.1%
2018 Q1:2.7%

However, what appears to have spooked traders is the general dovish context of the statement:

Looking forward, consumption and residential investment are expected to contribute less to growth, given higher interest rates and new mortgage guidelines, while business investment and exports are expected to contribute more. The Bank’s outlook takes into account a small benefit to Canada’s economy from stronger US demand arising from recent tax changes. However, as uncertainty about the future of NAFTA is weighing increasingly on the outlook, the Bank has incorporated into its projection additional negative judgement on business investment and trade.

As a result of the unexpected dovish addition, while the loonie initially kneejerked higher, it has since given up all gains and is now near the lows of the day.

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

Stephen Poloz Right To Be Worried

December 16, 2017

Stephen Poloz Right To Be Worried

Bank of Canada governor Stephen Poloz cited numerous worries plaguing the economy during his speech to Toronto’s financial elites yesterday at the prestigious Canadian Club.

However, the title of Poloz’s presentation, “Three things keeping me awake at night” seemed odd, given positive recent Canadian employment, GDP and other data.

Poloz highlighted high personal debts, housing prices, cryptocurrencies and other causes for concern, along with actions that the BoC is taking to alleviate them. His implicit message was (as always) “We have things under control.”

But if that’s all true, then Canada’s central bank governor should be sleeping like a baby. So, what is really keeping Mr. Poloz up at night? Three possibilities come to mind.

The Poloz Bubble

Firstly, far from just a housing bubble, Canada’s economy shows signs of being in the midst of an “everything bubble.” Bitcoin, for example, hovered near CDN $23,000 this week. Stock and bond valuations are not far behind in their relative loftiness.

Worse for Poloz, who took office four years ago, his fingerprints are all over those bubble-like levels.

Canadian stock, bond and house prices were already at dizzying heights when Stephen Harper hired Polozwith the implicit expectation that he would juice up the economy, in preparation for what Canada’s then-Prime Minister knew would be a tough upcoming election.

Poloz didn’t disappoint, promptly delivering a nice Benjamin Strong-styled “coup de whiskey” to asset prices in the form of two interest rate cuts, which brought the BoC’s policy rate down to just 0.50% during the ensuing months.

Although Harper lost the election, loose BoC policy continues to provide the Canadian government with free money to borrow and spend as it wishes.

More broadly, the Poloz BoC’s current policy, like that of the US Federal Reserve, is to boost asset prices even higher in the hope that the resulting wealth effect will trickle down to spur economic activity among ordinary Canadians.

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

Is Cryptocurrency a Government Plot?

December 3, 2017

Is Cryptocurrency a Government Plot?

QUESTION: You have said that the future will be cryptocurrencies. The Bank of Canada has come out and acknowledged what you have been saying that such private issue challenges the government’s profit structure. Do you think electronic money will be viable sooner or later down the road?

ANSWER: Electronic currency is ALREADY the bulk of the money supply. When you deposit $100 in a bank, it lends out $90 from your deposit and your bank statement still reflects you have $100. However, the person who borrowed the money now has $90 in their account. The government did not “print” money to cover that extra $90, rather they just created “electronic” money.

So what is the big thing about cryptocurrencies? The idea is that it is money that will not depreciate and is strangely not “fiat.” Yet, it is no different than the electronic money created by the bank, which is also outside the strict domain of government.

If you just look at the price of Bitcoin, it demonstrates that this is merely a speculative boom indistinguishable from the Dot.COM Bubble, which also reflected a new era in technology. If Bitcoin was truly an alternative currency that was supposed to retain its value, the mere fact that the rice has soared like any stock proves that it is by no means a “store of wealth” that somehow is better than currency in which it must still be converted to use in the bulk of the economy.

If the power grid failed, everyone would be broke. You could not even buy food. Society would revert immediately back to barter. There are risks to any form of electronic money be it a bank or crypto. The government WILL move toward cryptocurrencies THAT THEY WILL CONTROL, not the private sector. I have stated before, they argue electronic money eliminates cash crime from bank robberies, drugs, prostitution, etc., but it introduces more sophisticated hacking computer crimes.

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

Yesterday’s “Watershed” Central Bank Announcement Which Everybody Missed

September 15, 2017

Yesterday’s “Watershed” Central Bank Announcement Which Everybody Missed

In what may have been a watershed moment in monetary policy – which awkwardly was missed by almost everyone as a result of the concurrent launch of the latest North Korean ballistic missile which immediately drowned out all other newsflow – late on Thursday, the Bank of Canada held a conference on inflation targeting and monetary policy titled “Bank of Canada Workshop “Monetary Policy Framework Issues: Toward the 2021 Inflation-Target Renewal” in which, in a stunning shift of monetary orthodoxy, BoC Senior Deputy Governor Carolyn A. Wilkins said that Canada was open to changes in the BoC mandate.

WILKINS: OPEN TO LOOKING AT `SENSIBLE’ ALTERNATIVES TO MANDATE

Or in other words, lowering or outright abolishing the central bank’s inflation target, or explicitly targeting financial conditions and asset prices.

While still early in the process, the BOC may be setting a precedent, one which other DM central banks may have no choice but to follow: If the Bank of Canada is going to look at alternatives to their mandate (with an emphasis on inflation), it – as several trading desks have suggested – could become the first central bank to officially change its mandate to reflect financial conditions that are too loose in the context of the current low r-star lowflation environment.

In practical terms, this would mean that instead of seeking chronically easier conditions to hit legacy inflation targets around ~2.0% while inflating ever greater asset bubbles, one or more central banks could simply say that 1.5% (or less) is sufficient for CPI and call it a day, in the process soaking up record easy financial conditions and bursting countless asset bubbles.

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

Bank of Canada Shuts Out Free Market Economists from Key Policy Conference – Peter Diekmeyer

September 8, 2017

Bank of Canada Shuts Out Free Market Economists from Key Policy Conference – Peter Diekmeyer

Next week’s Bank of Canada policy conference appears set to deliver standard talking points. Not a single free market economist has been invited and a BOC spokesperson confirmed that the alternative-financial press is also being shut out.

The BOC event, titled Monetary Policy Framework Issues: Toward the 2021 Inflation Target Renewal , takes place during a critical time for Canada’s central bank.

Bank of Canada economists emerged from the 2008 financial crisis red-faced, after having failed to predict the event in advance, despite the clear warning signs and having some of the country’s most respected practitioners on staff.

The BOC then had to bail out Canada’s big five banks, whose solvency the monetary authority is charged with overseeing.

Questions regarding Poloz’s “trickle down”economics

Things do not appear to have improved much under the reign of Stephen Poloz, its current Governor.

The Bank of Canada ranks last among the G-7 central banks in terms of its gold holdings, this during a time of record high Canadian household debts and one of the planet’s biggest housing bubbles.

There are also increasing questions regarding Mr. Poloz’s “trickle down” economics strategy, which consists of leveraging “considerable economic stimulus” to boost asset prices, in the hope that a resulting “wealth effect” will trickle down to the poor and the young.

Government-financed academics, officials and a government financed NGO

A quick look at the presenters at the upcoming event reveals the usual “broad range of opinions” that Canada’s central bank consults.

The 20 panelists, almost all of whom are financed or regulated by government, include:

Four Canadian government employees
Eight academics from Canadian universities, which draw the vast majority of their funds from government.
One presenter from a Canadian think tank that received a reported $30 million in government money
One representative representing Canada’s big banks, which were bailed out by governments during the last financial crisis.

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

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