Juggling Dynamite

Danielle in conversation at the Vancouver Resource Conference on Monday. Here is a direct video link.

Here is an updated version of Cory’s TSX sector chart that I reference in this interview.

As the Canadian stock market rallied yesterday on energy and financials, important to note that the trends are still firmly negative.  The next chart offers top down perspective on the price trend in just energy sector shares (XEG) since May.  Note the lack of buying conviction in Wednesday’s anemic volume, rally (green bar far right).  Same goes for the financial sector, still down more than 9% in the past month.

A copy of the full slide presentation from my talk in Vancouver this week can be found here on the Venable Park website:  Financial Boom gone bust:  repricing assets for the new world order.

Another day, another central bank ‘shocks’ currency markets. Today it was the BOC’s turn, as Mr Poloz admitted Canada’s economy is tanking with the price of oil. Cutting the overnight rate by a token .25% to .75, the Canadian dollar index (FXC) is down just over 1.6% to a low last seen in the March 2009 depths of the great recession. The BOC did not mince words: while lower energy costs are good for some consumers, they are unequivocally bad for Canada. See: Bank of Canada ‘shocks’ market with rate cut.

“The bank warned that lower oil prices would take a sizeable bite out of economic growth in 2015, delay a return to full capacity and hurt business investment – a trend that has already triggered mass layoffs and production cuts in Alberta’s oil patch.

But the effects could spread further, threatening financial stability as a result of possible losses to jobs and incomes, according to the central bank.

“The oil price shock increases both downside risks to the inflation profile and financial stability risks,” the bank acknowledged. “The Bank’s policy action is intended to provide insurance against these risks.”

And all of this financial doom is predicated on the BOC’s still optimistic assumption of WTIC at $60 a barrel…a full 20% higher than the current level around $48, and 50% higher than WTIC’s potential $30 secular support range.

Although the mean reversion in oil prices was entirely probable, Canadian households and companies who have taken on record debt the past 5 foolish years, will take all of these adjustments very hard.

The race to force auto sales on to customers who cannot afford the payments, seems to have finally hit a wall:

“A top U.S. executive at Honda Motor Co. (7267) said competitors are doing “stupid things” to boost auto sales, including making seven-year-long car loans that harm buyers.

Automakers are increasingly selling vehicles with 84-month loans that reduce monthly payments while making it tougher to repay faster than cars lose value, John Mendel, Honda’s U.S. sales chief, said in an interview. The Tokyo-based company will avoid longer-term loans even as Nissan Motor Co. (7201) tries to supplant it as the fifth-biggest automaker in the U.S., he said.

“You’re ringing the bell on a new-car sale, but that customer is saddled — they’re stretched so thin,” Mendel said at the North American International Auto Show last week. Extended-term loans are “stupid not just for us, but for the industry.”

See: Honda warns about “stupid auto loans” driving US sales gains.

p.s   It’s not just US auto lending that went full nut job the past couple of years…the trend has been prevalent in most countries.