Danielle was the 3rd guest on This Week in Money with Jim Goddard yesterday, talking about recent trends in the world economy and markets. You can listen to an audio clip of the segment by advancing the play bar to 26:17.
With plunging commodities and evaporating underwriting, to rising defaults in debt-laden households and top-heavy realty markets, Canadian financials have come into a rough patch. And they have earned it. In a cruel twist of Bank of Nova Scotia’s hideous slogan: Canadians are starting to discover that they are “Poorer than they thought”. See: Half-empty office buildings on the rise in Calgary, Edmonton and Cracks begin to appear in Canadian bank earnings.
The question is how much do Canadian financial shares have to give back in order to pay penance for their most recent era of reckless excess. As shown in this chart of the sector (XFN) since 2005, the potential downside this time should give sober capital cause for pause. Having fallen just over 10% since April–evaporating 3 years of dividend income in 4 months–the sector would need to lose a further 45% just to retrace QE-mania over-pricing since 2010. That would make for a total decline of 55% since the April 2015 peak and be perfectly in line with the loss cycles seen in both the 2001 and 2008 meltdowns. But would that be enough this time?
With leverage in the Canadian banking and realty sectors higher today than at any time in the past 20 years, and with Canada now at the end rather than the start of a commodity supercycle, this time finance shares could have even further to mean revert (possibly the green band marked above).
Holders and indexers of the broader market TSX–that is presently some 36% weighted in financials–should also have their eyes wide open.
The only people gargantuan student loans serve are those growing fat on the higher education sector and associated services. For the rest of us from students to taxpayers, this business model is perfectly toxic. The fact that schools should have a duty to place the best interests of their students first, is no where to be found in yet another grotesque greed chapter. This is what happens when the private sector and free market forces become disfigured by gushing government money. Everyone is left weaker in the end. The days of all-you-can-eat credit must end now. See: Schools lobbying for unlimited student loans
For the past nine years, graduate students in the U.S. have had almost a blank check to take out as much as $80,000 a year in government-backed loans to pay for tuition and living expenses. Republican Senator Lamar Alexander of Tennessee thinks that’s too much. He’s introduced legislation, backed by his Democratic colleagues Michael Bennet of Colorado and Cory Booker of New Jersey, to limit borrowing to $30,000 a year, with a cap of $150,000. Programs with especially high costs could appeal to the U.S. Department of Education to let their students borrow up to $15,000 more each year.
Colleges, whose lobbyists and trade associations have succeeded in defeating just about every attempt to control rising tuition costs over the last decade, are trying to soften Alexander’s proposed law…
The presence of university lobbying in Washington dates back at least to World War II, when the federal government began awarding large research grants. “The people running the government were graduates of the top schools, so they” wanted their own schools to get the grants, says Gerald Cassidy, a Washington lobbyist who represented dozens of colleges and universities over the years before he retired in December. In the 1970s and ’80s, many institutions brought their lobbying in-house, opening Washington offices.
Cory’s Chart Corner
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