Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
The steady drumbeat of domestic housing market doomsayers has intensified in recent day after the CMHC warned of bubble conditions last week, and Monday, Merrill Lynch warned that Canadian real estate is "inching towards instability."
A report on trading strategies from Bloomberg doesn't seem related to Canada's housing market at first, but I think it is. The article argues that the "availability heuristic" is the downfall of most investors,
"Amos Tversky and Daniel Kahneman found that people make judgments about probability by asking about which events come most readily to mind (and hence are cognitively 'available').
"For example, if you know someone who was recently in a car crash, you will probably overestimate the likelihood that the average person will get into a car crash. Hence the availability heuristic can produce 'availability bias,' in the form of excessive fear (when it is easy to recall bad outcomes) and excessive complacency (when bad outcomes do not readily come to mind)."
How does this relate to housing?
The financial crisis is fresh in Canadians' minds even nine years later, and people are expecting the end of the domestic housing expansion to look like 2008 because that example is "available" in their minds. For me, however, the lack of credit default swaps on bad securitized Canadian loans means that when our housing slowdown happens, while undoubtedly causing significant financial pain, it will be far less dramatic than 2008.
"Canada's housing market 'inching towards instability,' U.S. bank warns" – Babad, Report on Business
"The Mistake That Separates Most Traders From the Pros" – Bloomberg
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Oil prices are heading lower as OPEC nations, notably Iraq and Iran, ramp up production. As this chart shows, U.S. crude inventories are already sharply higher than 2015 which casts some doubt on the short term outlook for crude.
At the same time, however, U.S. Energy Secretary Ernest Moniz recounted his belief that global supply and demand for oil will be in balance next year which means the glut will soon be over.
"Iraq's southern oil exports rise in April to 3.364 mln bpd" – Reuters
"U.S. Energy Secretary sees oil supply, demand rebalancing in a year" – Reuters
"As oil plows through $45 a barrel, U.S. producers rush to lock in prices" – Reuters
"IEA chief says oil price bottoming depends on global growth" – Reuters
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The Economist goes right up to the line of calling Canada a victim of Dutch Disease, while warning of a difficult domestic growth path,
"For a decade much of Canada's growth has come from natural resources, especially oil and gas. That allowed Canada to ignore its weaknesses as a producer of knowledge-intensive goods and services. In the World Economic Forum's ranking of countries' performance in innovation, Canada comes a dispiriting 22nd. As a share of GDP it has the lowest level of "technology exchange"—money spent on or earned from patents, designs and other forms of know-how — among the 15 countries tracked by the Conference Board of Canada, a think-tank."
"More particle than wave: A geeky prime minister wants to make the country more inventive" – The Economist
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Financial risks continue to mount in China, the world's second largest economy, while Canadian investors, if our web traffic statistics are any judge, continue not to care. Business insider details the view of short selling hedge fund manager Jim Chanos that China is an 'over-indebted tinderbox.'
Monday, Royal Bank of Scotland presented a publicly-available slideshow concluding that non-performing loans in the Chinese banking system amount to a full 25 per cent of the total. And that's not even their bear case.
"Here's the moment Jim Chanos knew betting against China was a once in a lifetime opportunity" – Udland, Business Insider
"@RBS_Economics #China's NPL problem. We estimate that it could be around 25%. " – (includes chart, link to full slide show) Twitter
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Tweet of the Day: "@wef Which countries have the most cost-effective healthcare? wef.ch/1S7lsiE #health pic.twitter.com/1LZcR3wTOo " – Twitter
Diversion: Every statistic regarding U.S. painkiller use and abuse is staggering to me. "Americans consume vast majority of the world's opioids " – CNBC
Scott Barlow