Friday , 28 October 2016

Oh Canada! Are You Prepared For What’s Likely Coming?

Chilling references to a potential (likely) financial crisis in Canada keep cropping up in official statistical data releases. First it was concerns about the housing bubble there and the high level of personal debt to income, now it’s about how hard manufacturing is getting hit there in spite of the loonie (Canadian dollar) dropping 17% against the US dollar in the past 15 months. It really begs the question “Oh Canada, Are You Prepared For What’s Coming?”

The above edited excerpts, and the edited/paraphrased copy below, come from an article* by Wolf Richter ( originally entitled Manufacturing in Canada Sags, Triggers Chilling References to Financial Crisis which can be read in its entirety HERE.

Falling Manufacturing Sales

Originally the hope was that a lower Canadian dollar would boost manufacturing through increased exports but the theory didn’t work out. Manufacturing sales fell 2.1% in April, seasonally and inflation adjusted and are now down 7.3% from July 2014, the largest and steepest such decline since the financial crisis of 2008. As a result, inventories have been piling up causing the all-important inventory-to-sales ratio to jump to the highest level since July 2009.


Soaring Inventory-to-Sales Ratio

From the business point of view, growing inventories and lagging sales can turn into a capital-intensive nightmare. Inventory is money. There are only two ways to bring inventories down: increase sales or cut back on orders. If businesses are not able to crank up sales across the entire country to bring down these inventories, they’ll trim their orders to suppliers, which tends to ricochet through the broader economy and trigger all kinds of secondary fireworks. Oh, and new orders fell 5.6% in April!


Related Articles from the Vault:

1. Smug Canadians Ignoring Looming “POP” In Housing Bubble

Canadians are using their appreciating homes as ATMs (as Americans did in the early 2000′s before their housing crash) and the funds being borrowed are not just for home improvements, but in many cases to fund living and lifestyle expenses.

2. The Canadian Housing Bubble Will NEVER Blow Up – Supposedly! Here’s Why

The Canadian housing bubble will never blow up. There’s simply too much “plankton” in the water. It keeps the “food chain” healthy and offers ample nourishment for the “big wales and sharks” and shorting the Canadian housing bubble is useless. Here’s why.

3. Canadians Take Note: Country’s Economy Will Blow Up If This Event Happens There

With interest rates being pushed lower year after year, interest expense as a % of disposable income has been declining in Canada and, for the moment, these low interest rates keep the whole thing glued together but, were interest rates to ever rise, Canada’s economy would blow up. Here’s why.

4. Canada’s Housing Market Most Overvalued In the World – and Could Burst At Any Time!

Canada’s housing bubble has been a sight to behold. Home prices only dipped 8% when the US housing market crashed. Then it re-soared. Now, across the country, home prices are 26% higher than they were at the already crazy peak in 2008. In Toronto, they’re 42% higher! There is a major drawback Canada’s housing bubble beyond the fact that it will eventually crash with terrible consequences.

6. Implosion In Canada’s Housing Market Is Inevitable! Here’s Why

The Canadian housing market is deep into bubble territory. We all know that bubbles can go on for longer than most people think but with the crash in oil prices and people fully believing their own hype, the market is set up for a big fall from grace. Canadian households are deep into debt and make American households look like penny pinchers. Here are five charts showing that the implosion in Canada’s housing market is inevitable.

7. Continued Low Oil Prices Could Seriously Damage Canada’s Economy – Here Why & How

Over the last 14 years, house prices in Canada have increased by 150%, twice as fast as in the U.S…[and] far outpacing household incomes. Any increase in interest rates would prick the bubble, and its implosion would trigger all sorts of mayhem to the point that the Canadian government has expressed concerned that such an event would be a significant risk to the “stability of the financial system”.

9. Toronto’s Epic Condo Bubble Suddenly Turns into Condo Glut

In May, prices in Toronto rose another 5% from a year ago. For all types of homes, prices are now 42% higher than at the crazy peak of the prior bubble and, based on data from Canada Mortgage and Housing Corp., the number of completed but unsold condos in Toronto spiked in May to 2,837, an all-time record high. The magnitude of this spike far exceeds the monthly ups and downs in recent years, and exceeds even those dizzying spikes in the late 1980s and early 1990s when the Toronto condo market went completely haywire. Now all we need for this condo market to remain “well-behaved,” despite soaring starts and unsold inventories, is for a lot of buyers with a lot of money to emerge very quickly from China or wherever and “absorb” these units and all the units still coming on the market. Or else, this is going to turn into one epic condo glut.