Skip to main content

Globe Investor Merrill Lynch: Canada’s housing market a symptom of a larger problem

A sold sticker is seen placed on a for sale sign outside a house in east Vancouver, B.C., on Sunday September 20, 2015.

DARRYL DYCK/THE GLOBE AND MAIL

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

Merrill Lynch economist Carlos Capistran published a report arguing that the Canadian housing bubble is a mostly a symptom of excessive debt, and not the primary problem, and the Bank of Canada should signal rate hikes immediately,

"'The downgrade of six of Canada's largest banks by Moody's on concerns about Canada's financial vulnerabilities further stresses our point that Canada has an overheating credit market that needs to be cooled down,' he said. 'We believe consumers are also vulnerable to an economic downturn and will be more so if the Bank of Canada fails to curb credit growth and excessive risk-taking.'"

Story continues below advertisement

There are some extremely interesting and surprising charts in the research report. In one, Mr. Capistran shows that the current pace of homebuilding is in line with demographic fundamentals, and new homes are not scarce. The report also contends that the year over year growth in mortgage debt is falling, which would not be the case in a full-fledged bubble and also that mortgage debt as a percentage of total consumer debt has remained stable.

"Canada Should Signal Rate Increase to Cool Lending, BofA Says" – Bloomberg
"@SBarlow_ROB ML has 'MAN BITES DOG" view on Cdn housing market, see tight credit" – (research excerpt) Twitter

=====

Streetwise reporters Tim Kiladze and Jeff Lewis report that the deal to issue $2.8-billion in Ontario Hydro stock is in deep trouble,

"Ontario's move to unload a $2.8-billion stake in Hydro One Ltd. has hit a standstill after investors balked at the stock sale, leaving underwriters with as much as half of the shares unsold. The province's cash-strapped Liberal government announced the huge offering Monday, selling 120 million shares at $23.25 apiece to a syndicate of investment banks on a bought-deal basis. That means the shares were purchased up front by the underwriters in hopes of reselling them quickly to public investors. But tepid investor demand for the issue means the underwriters, led by Royal Bank of Canada and Canadian Imperial Bank of Commerce, were holding as much as $1.4-billion worth of stock as of Thursday, according to people familiar with the situation."

"Hydro One stock sale hits a wall" – Streetwise

=====

Story continues below advertisement

This report might only interest me, but it appears that as soon as academics find consistent market anomalies, hedge funds are writing algorithms to make them go away while making a profit,

"An 'anomaly' means a market inefficiency -- a way to get extra reward without taking on proportionally more risk…Finance, especially the study of market returns, is fundamentally different than other fields of science, for one big reason -- when humans are the object being studied, they react and change the rules of the game ... If an academic team finds a way to beat the market, it's very possible that traders, who tend to have better funding and are far more numerous than professors, are already onto it. It's also possible that traders scan academic papers and trade on the anomalies as soon as they read about them, thus making those anomalies vanish."

"Ivory Tower Wonks Help Traders Make a Quick Buck" – Smith, BloombergView

=====

Tweet of the day: "@anasalhajji The US is scaring #OPEC on both sides: #oil supply and oil demand!" – (charts) Twitter

Diversion: "The timeless literary criticism of Northrop Frye makes sense of the president's odd, clichéd 'tantrum style' of public speaking" – Macleans

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter