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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

August 3, 2015 | Democracy

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

 

It may mean nothing. Or something. In the first two days of last August 168 houses sold in Calgary. This past weekend just 57 deals were inked  – a 66% decline.

Of course a year ago oil was fetching $96 a barrel. This week it’s back down to $45. On Monday that dragged the loonie to barely above the 76-cent mark, and sparked speculation that 65 cents is coming. On the second day of a l-o-n-g federal election campaign, with the NDP ahead a stunning 10 points (says the Toronto Star), it’s hard to imagine anything else will matter come October, save the economy.

Here’s why.

Oil is likely going lower, and all the talk of a quick rebound has ended. Commercial vacancy rates in Calgary are exploding. House prices in Fort Mac have dropped 9% in just a few months, along with rents and wages.

Manufacturing in China has been on the slide lately, cutting demand for Canadian resources. And Iran says it will start pumping oil with a vengeance just days after economic sanctions are lifted. More supply, lower prices. Lower dollar. Less economic activity. Fewer jobs. More inflation as imports soar in cost. Not good.

The contrast with the US is getting downright worrisome. US household spending was up again in June. Incomes there climbed for the third month. On Friday the latest employment data is expected to show another healthy increase, paving the way for the first Fed rate increase in a decade on September 17th. The American economy is in a slow grind higher, while we’re in a rapid grind lower.

Look at the heartland for a moment. Yeah, I know latte-sipping, Vespa-rising, fur-bearing metrosexual hipsters from 416 or YVR never think of Alberta or Saskatchewan, but maybe you should. Thin on people and huge on commodities, the prairies are now seeing a real estate boom and rosy future fizzle in real time.

Nitrogen prices have tumbled thanks to slagging demand. Climate change is messing with the crops. Oil is half-price. House sales will tank by at least 13% this year, says CREA (so you can probably double that). Housing starts have dropped by half over the past thirty months. Economic growth will be something close to half a per cent. Or zero. Retail sales are falling. One in ten manufacturing jobs has just been lost. Unemployment in general has spiked. And fewer people moving west has caused apartment vacancy rates to soar, so rents are now falling.

As you know, the Canadian economy has contracted every month during 2015. The Bank of Canada freaked as a result and cut interest rates twice. In fact the move from 1% to one-half a point is a dramatic and clear admission of trouble by the guys who know more about the economy than anyone. Even the people in this blog’s comment section.

Oil is Canada’s biggest export. So no wonder we’re running the fattest trade deficit ever. The worst month in history was March. The second-worse month was May. When a country sells way less than it buys, net wealth is transferred to others. That is exactly what’s happening with us. It’s another reason for the weak dollar – which makes all those imports cost more.

The net effect should be clear by now. Economic torpor brings low rates which penalize savers and retired people. Higher inflation hits those on fixed and lower incomes. Recession and job stress are lethal to real estate, hitting the middle class. And negative growth means young people don’t get hired into the good jobs they expect. Meanwhile the ‘balanced’ federal budget has been turned into another deficit, robbed by crappy times and the political decision to give another $2 billion to people with children.

Is more government spending and higher taxes the answer? A bigger deficit until the storm blows past? Even lower mortgages encouraging bigger debt? Legislated wage increases despite slower times? Do we tax corporations more despite the consequences? Raise the minimum wage? Increase retiree pensions? Subsidize child care? Who pays?

Over the next two months this pathetic blog will waddle through the issues, and assist you in making an informed decision. But it will also help you prepare.

The scariest part? All those people who watch Love it or List it and think TFSA is a designer drug, each get a vote.

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August 3rd, 2015

Posted In: The Greater Fool

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