Juggling Dynamite

Last week, Equifax Canada reported that 286,000 businesses in this country missed a loan payment last quarter.

In the Greater Toronto Area, the number of mortgage lenders repossessing homes and selling them has climbed roughly 60 per cent year over year.

Ninety-day-plus mortgage delinquency rates are climbing in Greater Toronto, Greater Vancouver and Canada generally, according to data from RBC.

Scott Terrio, an insolvency expert, recently told The Globe and Mail that he is talking to homeowners who are “teachers, firefighters, cops. Two years ago, I was doing two to five meetings a day, now I’m doing 10,” said Mr. Terrio.

The debt-fueled housing boom from 2015 to 2022 is costing Canada a fortune. See Debt is Catching Up With Canadians:

It is a personal one for people who dreamed too big and extended themselves too far. They are now reckoning with the consequences of going all in on real estate during the early 2020s boom – crushed credit ratings, legal action, consumer proposals, powers of sale and bankruptcy.

We are seeing the fear of missing out giving way to the fear of losing everything. The Financial Consumer Agency of Canada’s five-year plan to improve financial literacy, which launched in 2021 and cost taxpayers millions over the years, can’t compete with the stickiest financial lessons that hard times will teach.

Canada won top prize at the International Monetary Fund last year for the most household debt as a percentage of GDP in the G7, surpassing with ease the U.S., the United Kingdom and Germany. Italian households carry about a third of the household debt to GDP that Canadians do. In laymen’s terms, Canada is the most vulnerable G7 country to an economic recession and falling housing markets.

The segment below is a worthwhile update on property and mortgage trends in the Greater Toronto Area and beyond.

Toronto home prices have returned to pre-pandemic levels, but financial stress is mounting for homeowners. This video analyzes the surge in power of sale listings, which have risen by 60% year-over-year, and explains the underlying dynamics, from interest rate hikes to rising unemployment. Lenders, particularly individual private lenders, are more frequently initiating power of sales, contributing to a growing inventory of distressed properties. The video also delves into the renewal wall, the impact on the broader market, and the potential for financial contagion. Viewers will learn how to identify these distressed listings and understand the legal process behind power of sale in Canada. With predictions showing the peak of distress occurring around late 2026 or early 2027, this comprehensive analysis offers crucial insights for both buyers and sellers navigating this challenging real estate landscape. Here is a direct video link.

At the end of June 2025, the Global Exchange Traded Fund (ETF) industry had 14,390 products, with 28,447 listings, from 876 providers on 81 exchanges in 63 countries (source: ETFGI). As shown below, since 2007, the $16.99 trillion USD of global market value was 5.7x the $2.948 Tn in 2015 and 20x the $831 billion of 2007.

In the first half of 2025, global ETF assets increased 14.5% on robust monthly inflows totalling $897.65 billion in June alone–the highest on record and the 73rd consecutive month of net inflows. iShares Core S&P 500 ETF (IVV US) gathered $13.81 Bn, the largest individual net inflow.

The top 10 Exchange Traded Products (ETPs) by net new assets collectively gathered $3.13 billion in June–8 of the 10 in the precious metals space (see table below). iShares Physical Gold ETC (SGLN LN) gathered $680.44 Mn, the largest individual net inflow.

A world of heavily promoted investment products holding similar assets in different marketing wrappers offers much less diversity than imagined. Three companies, Vanguard Group, BlackRock Inc. (iShares owner), and State Street Corp., now collectively control more than 75% of US ETF assets.

Nearly 60% of the capital in US markets has been passive (as shown below since 2009), characterized by automated buying, without anyone conducting investment analysis or selection. So much for the timeless adage that we should only invest in things we understand.

Chartered Financial Analyst Michael Green has been a leading voice on the reality and dangers of passive flows. He updates on the latest trends in the segment below, noting that most market participants are utterly unaware of what’s happening with their money.

Michael Green of Simplify Asset Management explains how passive investing distorts markets and will create a bubble. He also discusses how the Pension Protection Act further spurred passive investments, especially since vast majority of people have ‘absolutely no idea’ what is happening with their retirement funds. Here is a direct video link.

As we have seen repeatedly, passive inflows fuel risk-complacency and extreme over-valuations, but they do not hold market prices up permanently. If passive flows were crash protection, we would not have seen recurring market freefalls in recent years, even with employment near-cycle highs.

Market sentiment turns at the margins. Inflows continue until job losses rise enough to curtail and reverse them. Job losses are increasing now. There’s also the 43% of assets that active funds and trend-following managers direct, along with share buyback programs that typically retreat as prices fall.

Concentrated masses with little cash and the same long-duration assets magnify downside risk and the need to sell the same holdings simultaneously. We’ve seen this film before.

Like last September, financial markets have high hopes for rate cuts and dovish comments from the US Fed and Bank of Canada today.

Futures markets are pricing 150 basis points of Fed cuts by the end of 2026 (taking Fed policy down to 2.75% to 3%) and 75 basis points from the Bank of Canada (reducing the BoC target to around 2%). But a lot can happen over the next 15 months.

Grossly inflated asset prices are extra vulnerable to any disappointments.

There’s no doubt that labour markets have weakened over the last year, but inflation readings remain above target.  Financial strife is spreading through the economy. Easing of the overnight rate will be welcomed by debtors, but not enough to remedy the insufficient income that’s ailing them.

As far as Canada’s ongoing housing debacle, supply is coming onto the market at more than double the rate of demand, with August new listings up +2.6% over July. Properties “For Sale” have risen 8.2% year over year.

Economically impactful, new housing starts tumbled 16.3% month over month in August to a five-month low of 245.8k units annualized, sharply below the consensus forecast of 280k units.

Meanwhile, financial undertakers remain in high demand. Insolvency Trustee Scott Terrio reports carnage from the front line.

The segments below offer context on similar trends in America.

Credit scores are falling at the fastest pace since the Great Recession as Americans struggle to keep up with the high cost of living and the return of student debt payments. The national average FICO score dropped by two points this year, the most since 2009, according to data released Tuesday by the analytics company. Although credit scores remain significantly higher than during the Great Recession, they are down for the second year in a row. FICO found a growing share of borrowers are falling behind on car loans, credit cards and personal loans. Here is a direct video link.

Consumer sentiment in the US is sliding to near historic lows as Americans grow increasingly frustrated with the economy. But don’t tell that to stock traders. The S&P 500 has hit four record highs this month. Here is a direct video link.