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Huge Debt Payments Come At Worst Time Possible For Canadian Drillers

Huge Debt Payments Come At Worst Time Possible For Canadian Drillers

The collapse in oil prices has significantly deteriorated Canada’s oil companies’ finances and has made repaying their debt more challenging. Over the past decade, Canadian firms have borrowed money to survive the previous oil crisis of 2015-2016 and boost production post-crisis. But now the second price collapse in less than five years is leaving Canada’s oil patch, especially the smaller players, extremely vulnerable as debt maturities approach.   

This year, the oil crash coincides with the highest-ever annual debt maturities in the Canadian energy sector, according to Refinitiv data cited by Reuters. In 2020, oil and gas firms have to repay US$3.7 billion (C$5 billion) in debt maturities, up by 40 percent compared to last year.  

The debt pressure adds to the Canadian energy sector’s new predicament with low oil prices, low cash flows, and low overall demand for crude oil due to the coronavirus pandemic.

Some companies are set to default on debts, while others are looking at restructuring options and refinancing. Banks are not generally too keen to own energy assets. But the banks may be the ultimate judge of who can refinance, who can stay afloat, or who can go belly up in this crisis, legal and industry professionals told Reuters.

Some of Canada’s oil and gas firms had not overcome the previous crisis when this one hit.

According to Bank of Canada’s recent Financial System Review—2020, the COVID-19 crisis led to widespread financial distress in all sectors, but “Canada is also grappling with the plunge in global oil prices, which hit while many businesses in the energy sector were still recovering from the 2014–16 oil price shock.”

The energy sector has the most refinancing needs over the next six months, at US$4.43 billion (C$6 billion), and faces the most potential downgrades, according to Bank of Canada.

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

Central Banks & the Hidden Agenda to Control Society

Central Banks & the Hidden Agenda to Control Society

We will be releasing this report this week which includes, as part of the Great Reset, the push to eliminate currency to move toward a digital currency world where they can track everything we do and allow for drastic increases in taxation. They have been suddenly justifying this by claiming that viruses can live on surfaces. So after using money in coins or paper since 700 BC, we have suddenly determined that money is too dirty and we need only digital money to be safe in the future.

The Bank of Canada is the latest to move towards this Gates coalition to control the world population in every way possible. They state on their website:

The Bank of Canada is embarking on a program of major social significance to design a contingent system for a central bank digital currency (CBDC), which can be thought of as a banknote, but in digital form. This project will require us to break new ground. It will take into consideration a wide variety of factors, including policy considerations, diverse stakeholder needs, difficult technical challenges and the development of a technical architecture to realize a CBDC pilot system. 

The future will never be the same. We are staring in the face of a totally new fascist type of authoritarian state. Anyone who disagrees is immediately called a “conspiracy nut” or a “right-wing zealot” because they will never debate the issues — they simply prefer to attack the messenger.

When Economic Depression Follows Pandemic, No Time to Waste

When Economic Depression Follows Pandemic, No Time to Waste

What the Bank of Canada and IMF see coming will demand bold stimulus.

ClubMonacoRobsonBoardedUp.jpg
On Vancouver’s Robson Street, the Club Monaco outlet is boarded up to prevent looting. Photo by Joshua Berson.

It is still sinking in that the end of the pandemic will not be the end of our troubles. On the contrary — we will likely see the end of the pandemic overlap with a full-scale economic depression, with COVID-19 waiting to make recurrent comebacks. Amid a global economic collapse, Canada will have to postpone hopes of recovery; for the foreseeable future, we will be in damage-control mode.

The IMF’s best-case scenario assumes that the pandemic “fades” in the second half of 2020, and “containment efforts can be gradually unwound,” permitting some economic rebuilding. Even so, “the global economy is projected to contract sharply by -3 per cent in 2020, much worse than during the 2008-09 financial crisis.” 

Strikingly, the IMF implicitly endorses a program that is socialist in all but name:

“The immediate priority is to contain the fallout from the COVID-19 outbreak, especially by increasing health-care expenditures to strengthen the capacity and resources of the health-care sector while adopting measures that reduce contagion. Economic policies will also need to cushion the impact of the decline in activity on people, firms and the financial systems reduce persistent scarring effects from the unavoidable severe slowdown; and ensure that the economic recovery can begin quickly once the pandemic fades.”

The IMF approves such policies in many of the advanced countries as well as in China, Indonesia and South Africa. It argues that “Broad-based fiscal stimulus can preempt a steeper decline in confidence, lift aggregate demand, and avert an even deeper downturn. But it would most likely be more effective once the outbreak fades and people are able to move about freely.”

The best-case scenario?

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

Bank of Canada Announces Provincial, Corporate QE

Bank of Canada Announces Provincial, Corporate QE

While the Bank of Canada kept its overnight rate at 0.25% as expected – as the alternative after three consecutive rate cuts would have been to cut below its effective lower bound of 0.25% and go NIRP – the central bank – which announced that the outlook is too uncertain at this point to provide a complete forecast – did surprise markets by joining the unprecedented QE bandwagon, when it announced that just like the Fed it would launch $10BN corporate QE (just investment grade for now, thank you, junk bonds coming next), while throwing in $50BN provincial QE to boot. It also

Some details, from the report:

The Bank is also announcing today the development of a new Provincial Bond Purchase Program of up to $50 billion, to supplement its Provincial Money Market Purchase Program. Further, the Bank is announcing a new Corporate Bond Purchase Program, in which the Bank will acquire up to a total of $10 billion in investment grade corporate bonds in the secondary market. Both of these programs will be put in place in the coming weeks. Finally, the Bank is further enhancing its term repo facility to permit funding for up to 24 months.

These measures will work in combination to ease pressure on Canadian borrowers. As containment restrictions are eased and economic activity resumes, fiscal and monetary policy actions will help underpin confidence and stimulate spending by consumers and businesses to restore growth. The Bank’s Governing Council stands ready to adjust the scale or duration of its programs if necessary. All the Bank’s actions are aimed at helping to bridge the current period of containment and create the conditions for a sustainable recovery and achievement of the inflation target over time.

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

Loonie Dips After Bank Of Canada Emergency Rate-Cut, Launches QE

Loonie Dips After Bank Of Canada Emergency Rate-Cut, Launches QE

The Bank of Canada has just gone full-Fed-tard by slashing rates to just 0.2% and launching a commercial-paper-buying program and has committed to buy C$5bn Canadian Treasuries per week…

Negative rates next?

Full Bank of Canada Statement:

The Bank of Canada today lowered its target for the overnight rate by 50 basis points to ¼ percent. The Bank Rate is correspondingly ½ percent and the deposit rate is ¼ percent. This unscheduled rate decision brings the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-19 pandemic.

The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil prices. The pandemic-driven contraction has prompted decisive fiscal policy action in Canada to support individuals and businesses and to minimize any permanent damage to the structure of the economy.

The Bank is playing an important complementary role in this effort. Its interest rate setting cushions the impact of the shocks by easing the cost of borrowing. Its efforts to maintain the functioning of the financial system are helping keep credit available to people and companies. The intent of our decision today is to support the financial system in its central role of providing credit in the economy, and to lay the foundation for the economy’s return to normalcy.

The Bank’s efforts have been primarily focused on ensuring the availability of credit by providing liquidity to help markets continue to function.  To promote credit availability, the Bank has expanded its various term repo facilities. To preserve market function, the Bank is conducting Government of Canada bond buybacks and switches, purchases of Canada Mortgage Bonds and banker’s acceptances, and purchases of provincial money market instruments. All these additional measures have been detailed on the Bank’s website and will be extended or augmented as needed.

Today, the Bank is launching two new programs.

Loonie Spikes After Canadian Core Inflation Soars To 10-Year Highs

Loonie Spikes After Canadian Core Inflation Soars To 10-Year Highs

Canadian inflation rose faster than expected in May across all eight major components, spiking the Loonie as it supports the BoC’s view that ‘the North’ is emerging from its growth slowdown (and Poloz argument that rates will need to go higher).

The headline consumer price index jumped 2.4% from a year earlier, compared with 2% in April and versus a median economist forecast of 2.1%, Statistics Canada said Wednesday from Ottawa. It was the highest annual rate since October, boosted by increases in food and durable goods prices.

Core inflation, closely watched by policy makers, surged, with the average of the three key measures rising to 2.07%, the highest since February 2012.

The largest upside contributor to CPI on an annual basis was shelter costs, which rose 2.7%. Food and transportation were also major drivers.

And the Trimmed Mean inflation print jumped 2.3% YoY – the highest since March 2009

Spiking the Loonie…

Presumably, BoC does not believe this spike is “transitory”.

Bankrupt, Eh? Insolvency Filings Soar In Almost All Canadian Provinces

The pronounced aftershock from what would historically be considered as very mild interest rate hikes in Canada is continuing.

Bloomberg reported that the number of consumers seeking debt relief was up 5.1% to 11,320 in November, according to the Ottawa-based Office of the Superintendent of Bankruptcy. Combining October and November’s numbers, there were 22,961 consumer insolvency filings, the most since 2011.

These new numbers come on the heels of the bank of Canada raising its key lending rate five times since the middle of 2017. Like in the US, the impact of rising rates on the economy is being “monitored closely”, which is a nice way to say “obsessed over by central banks in order to continue to force all asset classes to rise in price”.

Insolvency filings were up in every province except PEI, which was unchanged. Alberta saw insolvencies rise 16%. Filings in Ontario were estimated to have risen 1% in 2018 after declining for eight straight years. Insolvency firm Hoyes, Michalos & Associates Inc. estimates that Ontario will see a minimum of a 2% to 5% jump in insolvency filings in 2019. If rates continue to rise, they predict as much as an 8% jump.

66% of Ontario’s insolvency filings were consumer proposals, which is reportedly the highest year on record. You can view the country’s total insolvencies for November 2018 in the chart below.

We had previously offered a preview of this inevitable increase after October’s insolvency numbers also grew.

Chantal Gingras, chair of the Canadian Association of Insolvency and Restructuring Professionals stated in early December:

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

No “Poloz Put?” Ignore BoC Warning At Your Peril

No “Poloz Put?” Ignore BoC Warning At Your Peril

Governor Stephen Poloz’s warning last week that the Bank of Canada wouldn’t backstop fluctuating stock markets drew little attention.

“Is there a Poloz Put?” the central bank head asked rhetorically. “No.”

At first glance, the fact that only one BNN Bloomberg producer and a few smaller media picked up the story is hardly surprising.

Canada is a mere bit player in global central banking and financial markets, and the opinions of any Canadian official generally carry little weight outside of local circles.

However, in December 2017 Poloz provided investors a similar warning about Bitcoin, then trading near its all-time high, but which subsequently fell by more than 80%.

Investors would thus be foolish to ignore him now.

Consider:

One of the Fed’s main policy tools

First, a little background. The idea that governments are key drivers of stock prices may appear ludicrous to those who believe that Western economies are free markets.

However, as Moody Analytics notes, higher asset prices and resulting wealth effects are one of the Federal Reserve’s main policy tools for achieving its inflation and economic growth targets.

For U.S. stock traders operating today, most of whom have never seen a crisis that government hasn’t bailed them out of, the Fed’s most important manipulation is the existence of a tacit “put,” which ensures that asset prices won’t fall too far.

Former Federal Reserve Chairman Alan Greenspan, Ben Bernanke and Janet Yellen all intervened to boost asset prices at key points when the heavily-indebted U.S. economy appeared set to implode.

The Bank of Canada’s policies are less overt. While the central bank claims that it “does not target asset prices,” asset price manipulation is clearly direct “collateral damage” resulting from its other policy objectives.

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

For The First Time Ever, Bank Of Canada Buys Mortgage Bonds

Three weeks ago we reported that, the Bank of Canada announced for the first time that in order to prop up the sliding Canadian housing market help increase the tradeable float of its benchmark securities, the central bank would start buying government-backed mortgage bonds, also known as Canada Mortgage Bonds which are guaranteed by Canada Mortgage and Housing Corp.

Well, it took less than a month for the BoC to execute on its intentions, because on Thursday, the central bank purchased Canada Housing Trust bonds for the first time ever, scooping up C$250 million ($187 million) of the federal agency’s C$5.5 billion five-year notes which priced today.

Canada Housing Trust, the special issuer of Canada Mortgage and Housing Corp.-backed debt, priced the 2.55% bonds due 2023 at a spread of 40.5 bps over comparable debt issued by the country’s federal treasury, National Bank Financial, the lead coordinator of the deal, said. The housing agency first offered these notes in September at a relatively narrow spread of only 31.5 basis points.

As we reported at the time, the Bank of Canada said in late November it would broaden the range of high quality assets it acquires to include purchases of government-guaranteed debt issued by federal Crown corporations. While the central bank said the expansion is “only for balance sheet management” and would give it added flexibility to offset the continued growth of bank notes, the cynical skeptics immediately accused the BoC of implicitly stepping in to prop up Canada’s deteriorating housing market.

The expansion, the BoC said, would also provide more freedom to reduce its participation in primary Canadian government bond auctions and help boost the tradeable float, supporting secondary market liquidity.

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

Dear Canada, WTF?

Dear Canada, WTF?

Just hours ago, The Bank of Canada held rates steady and complained about various internal and external factors that were negatively impacting the Canadian economy…

Holding rates unchanged at 1.75%, the BOC cited almost everything that has gone wrong:

moderating global growth,
a “materially weaker” outlook for the oil sector,
a faster-than-expected deceleration of inflation,
a drop in business investment and downward historical revisions to output

And today we get this…

Canada added 94,100 jobs in November – the most ever! Sending the Canadian unemployment rate to a record low 5.6%…

So WTF!?

Loonie Slumps As Bank Of Canada Folds On Economic Enthusiasm

Amid near-record-low Canadian crude prices and a housing crisis, The Bank of Canada appears to have finally given up its narrative that ‘everything is awesome’.

The BoC walked back much of its enthusiasm about the nation’s outlook in a decision that kept interest rates unchanged, spinning bad news as good by saying that the economy may have “additional room for non-inflationary growth.” Of course, if the economy was growing faster, the BOC would simply say that the economy is growing… well, faster or “near potential.”

Instead, holding rates unchanged at 1.75%, the BOC cited almost everything that has gone wrong:

  • moderating global growth,
  • a “materially weaker” outlook for the oil sector,
  • a faster-than-expected deceleration of inflation,
  • a drop in business investment and downward historical revisions to output

Following the latest central bank dovish relent, the USDCAD jumped 0.8% to ~1.3374 after touching highest (i.e. the CAD dropping the most) in more than five months on the cautious language, a dovish outlook that could change expectations for 2019 BOC rate hikes.

Even with the dovish undertones, the statement reiterated that rates will need to rise to “neutral range” – which like the Fed it has no idea what it is – within its discussion of recent downside risks, to wit:

“Governing Council continues to judge that the policy interest rate will need to rise into a neutral range to achieve the inflation target.”

Still, the generally less-confident tone is an acknowledgement of developments over the past few weeks that have cast doubt on the strength of the nation’s expansion and prompted investors to scale back the expected pace of future rate increases.

The final nail in the hawkish case coffin was the key shift in tone (red rectangle below) which notes that while the Canadian economy growing in line with expectations, “data suggest less momentum going into the fourth quarter.”

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

Bank Of Canada To Start Buying Mortgage Bonds As Canadian Housing Market Cools

Ten years ago this week, the Federal Reserve announced it would start buying agency MBS. Asset purchases are now arguably a  standard non-standard monetary policy tool, as all three major central banks have since embarked in some form of asset purchases, and are currently in different stages of implementation.

And on Friday, the Bank of Canada became the latest to join the parade, when it announced for the first time plans to buy government-backed mortgage bonds in an attempt to boost its balance sheet and arguably, to stabilize Canada’s flagging housing market.

The move, part of a decision to include government-guaranteed debt issued by federal Crown corporations, will allow Canada’s central bank to offset continued growth in bank notes, the central bank said in an statement Friday. It will also give it flexibility to further reduce its participation at primary auctions of Canadian government bond “to help increase the tradeable float of those benchmark securities and hence support their secondary market liquidity.”

As part of this expansion, a “small portion” of its purchases will be Canada Mortgage Bonds, which are guaranteed by Canada Mortgage and Housing Corp.  Purchases of mortgage bonds will be conducted in the primary market starting later this year or early 2019, the central bank said. The key excerpt from Friday’s statement is blow:

As part of these changes the Bank plans to allocate a small portion of its balance sheet for acquiring federal government guaranteed securities by purchasing Canada Mortgage Bonds. These purchases will be conducted in the primary market, on a non-competitive basis, and are expected to commence in the latter part of 2018 or in the first half of 2019. The Bank will continue to adhere to its principles of neutrality, prudence and transparency and conduct its transactions in a manner that limits market distortions and minimizes impact on market prices.

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

Anatomy of the Housing Downturn in Vancouver, Canada

Anatomy of the Housing Downturn in Vancouver, Canada

It’s not pretty.

In 2018, “each month has brought weaker than normal sales, rising inventory, and continued downward pressure on prices” in Vancouver, British Columbia, writes Steve Saretsky, a Vancouver Realtor and publisher of real-estate blog, Vancity Condo Guide. The market faces another headwind: “With the Bank of Canada determined to reach a neutral rate of interest of between 2.5-3.5%, borrowing power continues to erode.”

The single-family price spike unwinds.

The hardest hit segment are single-family houses (“detached houses”). Sales volume in the city of Vancouver has dropped to 27-year lows for most months of the year. In October, sales plunged 32% year-over-year to 146 houses, the third worst October on record. The plunge in sales was first triggered by the imposition of a tax in August 2016 on nonresident foreign buyers – mostly investors living in China. This chart from The Saretsky Report shows sales volume in every October going back to 1991 (click to enlarge):

Inventory for sale of all types of homes combined – single-family, townhouse, and condo – in the city of Vancouver surged 24% year-over-year, “pushing prices lower across all property segments,” he writes. Within that group, townhouse inventory jumped 34% and condo inventory soared 74%.

But inventory of single-family houses edged down by 4%, to 1,556 listings, “primarily a result of sellers taking their house off the market and trying to wait out current conditions,” Saretsky writes. Given the decline in sales, months’ supply surged 35% to 10.7 months. “This has paved the way for buyers to negotiate steep discounts”:

We have now been in a weak detached housing market for over two years and as a result, price declines are becoming more noticeable and more significant. There is strong evidence from previous housing booms that volumes tend to lead prices by about two years, and for the most part that has been the case here in Vancouver.

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

Backlash Against War on Cash Reaches the Bank of Canada

Backlash Against War on Cash Reaches the Bank of Canada

A cashless society could have “adverse collective outcomes.”

In recent months, a slew of political and financial institutions have raised concerns about the march toward a cashless economy. They include:

  • The ECB warned that a phase-out of cash could pose a serious risk to the financial system. Depending too heavily on electronic payment systems could expose financial systems to catastrophic failures in the event of power outages or cyber attacks. The European Commission has also backed off is war on cash.
  • The People’s Bank of China announced that all businesses in China that are not e-commerce must resume accepting cash or risk being investigated, and cautioned businesses against hyping the “cashless” idea when promoting non-cash payments.
  • In Sweden, one of the most cashless societies, the central bank and parliament have spoken out in support of cash.
  • Cities too have spoken out, including Washington D.C., whose City Council introduced a bill that sought to ban restaurants and retailers from not accepting cash or charging a different price to customers depending on the method of payment they use.

Now, it’s the Bank of Canada’s turn to sound the alarm. In a paper — “Is a Cashless Society Problematic?” — it outlines a number of risks that could arise if the country went fully cashless.

The premise underpinning the analysis is that at some point in the future individuals and firms decide, of their own volition, to cease using cash altogether. In response, the central bank stops printing physical money because of the large fixed costs inherent in supplying bank notes.

In such a scenario, even though most individuals and firms freely choose to abandon cash, there could be “adverse collective outcomes,” the study warns.

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

Toxic Mix in Canada: Spiking Inflation, Variable-Rate Mortgages, and a Housing Bubble

Toxic Mix in Canada: Spiking Inflation, Variable-Rate Mortgages, and a Housing Bubble

What will the Bank of Canada do?

The Bank of Canada has nudged up its target rate four times, starting July a year ago, from 0.5% to 1.5%. It last hiked on July 11. But now it is facing inflation that suddenly and unexpectedly jumped at twice the Bank of Canada’s current target rate.

Canada’s Consumer Price Index (CPI) rose 3.0% in July from a year earlier, the hottest since September 2011, Statistics Canada reported on Friday. Consensus expectation was a rise of 2.5%, same as in June.

Prices rose in all major components. Prices for services – the largest part of consumer spending – jumped 3.2% year over year, up from a 2.2% increase in June.

In most provinces, CPI ran even hotter:

  • Alberta : 3.5%
  • Prince Edward Island: 3.4%
  • Manitoba: 3.3%
  • British Columbia: 3.3%
  • Ontario: 3.1%
  • Saskatchewan: 3.1%
  • Newfoundland and Labrador: 2.7%
  • Nova Scotia: 2.7%
  • New Brunswick: 2.7%
  • Quebec: 2.4:

But no problem.

Like the Fed and other central banks, the Bank of Canada has its “preferred” measures of inflation. And they’re a lot lower, of course. Which is the point. But unlike the Fed, it does not use a core index “without food and energy.” Instead, it has three measures (definitions) that have been statistically “trimmed:” CPI-trim, CPI-median and CPI-common.

Its stated goal is to keep inflation as measured by these three indices at the 2% midpoint of “an inflation-control range of 1% to 3%.” And this is how these three indices stacked up in July:

  • CPI-trim: 2.1%
  • CPI-median: 2.0%
  • CPI-common: 1.9%

Statistically trimming the hot items out of an index works miracles, though it makes this trimmed index even more meaningless to consumers because consumers, who live in the the real world, cannot trim those items out of their budgets quite so easily. So now, after a proper trimming of the index, the BOC is right on target.

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

Olduvai IV: Courage
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Olduvai II: Exodus
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