Juggling Dynamite

Danielle was a guest with Jim Goddard on Talk Digital Network, talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.

Reminder: while equity bear markets typically start from full employment and an expanding economy, the bulk of cycle losses (81%) happen once recessions begin (blue bars below since 1933), when the unemployment rate is jumping, and central banks are slashing monetary conditions once more.
Canada’s TSX has gone nowhere since June 2021, but propped up by a nearly 20% weight in (late cycle) oil and gas, it’s so far just 9% from its April 2022 peak. Past recessions have seen the cyclically-sensitive TSX drop more than 40% as fossil fuel demand finally implodes. Financials (30% of the TSX) lead the market cycle and the Canadian finance sector (XFN) is off 16% since March 2022. The US financials ETF (IYF) is -9% since it peaked in November 2021 and the US regional bank index (KRX) remains -29% since January 2022.

If central banks start cutting in 2024, the equity market should bottom months later. We aren’t there yet. Rising loan loss provisions crimp bank earnings and are part of what triggers the next leg down. The discussion below illuminates.

Bay Street Veterans discuss what Canadian banks being hit by higher-than-forecast provisions for loan losses signal regarding the economy. David Rosenberg, Founder and President of Rosenberg Research says Canada’s household debt is concerning. Meanwhile, Ed Devlin, Founder of Devlin Capital, Senior Fellow at C.D. Howe Institute and Former Head of Canadian Portfolio Management at PIMCO says there is a lot of distortion happening because of immigration, including housing prices not coming down as fast as expected amid rate hikes. Here is a direct video link.

Each week, more people realize they have too much overhead and need to cut costs. Our family knows several people in all different age groups who bought or borrowed against real estate during the pandemic and are now trying to sell. It’s not going well. It is a very stressful, sad time, and I empathize with those in pain.

As I noted then, most would-be investors and buyers in popular cottage and ski areas borrowed against their primary residence to get downpayments. Now, they have expensive mortgages on all property types.

Meanwhile, new home inventory, single and multi-family, continue to flood the market monthly, especially in areas with the highest demand during the low-rate mania pre-2023.

Those hoping to sell properties for 2020-2022 prices need to face math. Most are hoping for a buyer-ability that is no more. The average Canadian home sale in October was $656k, nearly 20% lower than the $816k average in February 2022 (CREA data).

In the segment below, Reventure’s Nick Gerli reviews similar trends sweeping many US markets, where the median new home sold in October at $409, -18% year-over-year. It’s called a real estate cycle for a reason.

Home Builders are cutting the price of new houses across the US Housing Market, with prices dropping 18% YoY. The biggest one-year decline in new home prices in US History, even bigger than the decline in the 2008 crash. Here is a direct video link.