Canadian dollar climbs to three-year high-anyone buying US dollars?

[ubuy2wron]

Which Canadian bank would be regarded as the most exposed to a slump in the market? Basically, who has the highest exposure to construction and real estate development, which bank is giving out the most amount of mortgages, etc?

The greatest exposure would be either Genworth Financial a Cdn mortgage insurer or Home Capital Group (HCG) Canadas only  public sub-prime RE lender. The big 5 banks have been extremely prudent in their lending regarding mortgages as a whole. Their prolly is a ton of risk in the BC credit union inustry as well but I can not see any way to play that at all.

[ubuy2wron]

This is only my personal experience, but people here seem to hold two beliefs that, when combined, are dangerous:

 

1) Real estate is extremely expensive and has gone up way faster than usual in the past decade.

 

2) It can't go down, because real estate doesn't go down. And if it does, it's only going to be a little.

 

 

  Your kidding.... right!!!!

[Guest broxburnboy]

CAD higher than 1.10 US will probably oblige the Bank of Canada to intervene in the currency.

 

The Bank of Canada has only the one tool - interest rates, and they want to raise them, to keep inflation in check.

 

The only other way to manage the exchange rate is through fiscal policy - borrow and spend - higher deficits. It's a politician's dream, they can make endless promises to their support base, buy useless military hardware with US dollars, cut taxes and claim that deficits don't matter. It's a big job -outspending the Americans, but the three brass monkeys running the current national campaign are up to the task.

[finetrader]

The Bank of Canada has only the one tool - interest rates, and they want to raise them, to keep inflation in check.

 

Well i'm not a pro in central bank intervention, but i believe they can buy US dollar with Canadian dollar and levered the central bank instead of the governement if they have to.

 

Canada cannot decouple that much from the US on a currency stand point.

 

They will have to dilute 'peg' the loonie to keep up with the US dollar.

[Parsad]

Which Canadian bank would be regarded as the most exposed to a slump in the market? Basically, who has the highest exposure to construction and real estate development, which bank is giving out the most amount of mortgages, etc?

 

I don't short stocks, but if I could have a 5-10 year short on one company in Canada, it would be Mainstreet Equity (MEQ on the TSX).  I've talked about this company here before, and I even wrote a letter to Maclean's magazine after Peter Newman put out a glowing article on Bob Dhillon.  This is probably the most leveraged real estate company in Canada...maybe the most leveraged period!

 

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=388.0

 

http://cornerofberkshireandfairfax.ca/forum/index.php?topic=840.0

 

Basically Dhillon buys lousy properties, refinances the mortgage, borrows against the property and spruces up the place.  Then he raises the rents slightly, and reborrows against the property to buy other properties.  Rinse, lather, repeat! 

 

The problem is he's got $431M in properties and $451M in mortgages.  If rates climb 2-3% he's screwed, as he's only got $3M cash.  They had a $22M line of credit at the end of their fiscal year, but no mention of it in their last quarterly filing.  He says that the properties are worth $800M...I don't buy it!  Cheers!   

[EdWatchesBoxing]

http://uk.reuters.com/article/2010/10/06/uk-economy-bankofcanada-idUKTRE69501W20101006?pageNumber=1

 

I know it's from October, but the BoC seems to be concerned about the exchange rate.

 

It's shocking to me that Governments are accumulating debt without being able to afford it and encouraging people to borrow and spend beyond their means through low interest rates and tax cuts on consumption.

They should be doing the opposite: easing tax rates on income to encourage people to productive work, raising interest rates to encourage savings, raising the tax rates (GST in Canada) on consumption.

Fortunately, Canadian mortgage credit standards did not loosen to the point that

the US kind of gross overbuilding occurred... through no fault of the Canadian Banks, they lobbied hard for deregulation to allow them to "compete" globally. Government regulation 1, Corporate irresponsibilty 0.

There is not the supply overhang on the market that there is in the USA. Nor is there the demand destruction caused by unemployment, changing demographics, real CPI inflation and accumulation of municipal, state and national debt.

There may be a cyclical pullback in local markets in store in Canada, but fortunately we mainly produce vital commodities and services, the global demand for such is in a long term cyclical upturn.

 

The gov't allowed zero down, 40 year am for a while. They are moving in the right direction (getting rid of 35 year am), but I think it's already too late.

 

Canadian mortgage underwriting may not be a loose as it had been in the US, but the banks don't worry about the high ratio mortgages. They are insured, mostly by CMHC, so most of the risk does not fall on the banks. The bulk of the risk has been transferred to CMHC. Although there are no official "zero down" mortgages, there are cash back mortgages that conveniently give 5%, just enough for the min down payment. Even at a 7 to 10% correction, many people will be suffering. With certainty of rising rates, many will be paying way more monthly on a mortgage that's larger than the perceived value of their house. I see the GTA market going similarly to the way it was in the 90s. A slow bleed for years.

[finetrader]

^{Governor Mark Carney has said recently that there are "limits to the divergence" in policy between the Bank of Canada and the Fed, given Canada's trade reliance on its neighbour.}

 

That is exactly what I mean

[Guest broxburnboy]

This oil/commodities trade has lasted long enough IMO. It is hard to predict the future, but when the major topic on CNBC has become gold, silver, oil, copper and pork bellies then you know that we are close to the end of a major bull market. It may still last a while, but forget about a decade.

 

Oil at well over $100 a barrel is a major tax on the global economy. The Chinese also keep on raising interest rates to fight inflation. At some point, they will hit a brick wall like all economies having tried to orchestrate a "soft" landing. When this happens, commodities will come down the hardest. That is not to say that we will no longer need oil and other commodities, but that the froth will certainly come out. 

 

Once that happens, Canada will look pretty ugly along with its real estate bubble. Australia will be in the same camp. Currently, you can buy a small villa in Florida or in just about any State you like for the price of a bungalow or cottage with no land in cold Toronto or Montreal. Makes sense to you? I actually think that homes in Canada on a per square basis (livable inside/outside) have never been this expensive in the U.S. at the height of their bubble. The newly built houses that I have seen in most large U.S. cities in the suburbs were large, beautiful and on a nice piece of land. Very well laid out communities, close to whatever you needed. What you get up here for the same money these days is a joke.

 

World economies grew in the 80's and 90's, but commodities did nothing despite growing demand. Nowadays, the assumption is that commodities must go up in sync with global growth. I assume that supply and technologies will once again change the current mentality at some point.

 

Cardboard

 

Don't forget that the USD (and other currencies)are a commodity as well. There has been at least doubling of USD dollar debt (money in circulation) and USD denominated future obligations in the past decade. Everyone has them.

In the case of the other monetary commodities, their supply is static and their velocity (available spot supply is shrinking) sharply curtailed. When bartered in free markets, it takes an ever increasing number of USDs to buy a gram of gold. This is true of even the non monetary commodities that are more able to respond to demand by increasing supply. Ergo: the purchasing power of the USD is declining due to monetary inflation alone.

This is in keeping with classical economic theory although such understanding has been supplanted by neo-con "voodoo economics" that holds that the value of a USD is constant, monetary inflation be damned. The neo-cons therefore see commodities as being in a "bubble"..and value in Tbonds and paper contracts which will never be paid in full.

 

[beerbaron]

By the way, anybody looked at the latest St. Louis Fed data. So far FED 1, FFH 0. No wonder why everything is going trough the roof.

 

BeerBaron

[ubuy2wron]

By the way, anybody looked at the latest St. Louis Fed data. So far FED 1, FFH 0. No wonder why everything is going trough the roof.

 

BeerBaron

The amount of currency in circulation has jumped  but the amount of bank loans have increased at a very low rate hence the meagre growth in M2. The velocity as measured in the traditional sense has dropped like a stone. I believe however the banks are taking those dollars and basically gambling in the stock mkts and the commodity mkts those paper dollars are finding their way into financial assets hence the huge run up in both the stock mkt and the commodities mkt since QE2 was announced. That program has about 7 weeks left to run and then the taps are turned off. It is for this simple reason I am raising cash and starting to go short some of the commodities here and now. I hate pondering the macro picture cause it makes my head hurt but bargains other than the usual large cap suspects are not as plentiful. The silver market looks particularly crazy right here.

[Guest broxburnboy]

"  That program has about 7 weeks left to run and then the taps are turned off. "

 

This is a very dangerous assumption and if you proceed with your short strategy, potentially fatal to the outcome.

Consider that Bernanke has said many times that the FED will inject liquidity to forestall any deflationary circumstance... by helicopter if need be. He and Greenspan both have thrown new money at any serious decline in the stock market and a truly Herculean toss at the credit market implosion.

He has been true to his word so far and there is no reason to disbelieve that QE3 is just around the corner. The first step will be raising the debt ceiling right after the current pantomime in Congress is resolved with meaningless and trivial spending cuts.

[ubuy2wron]

"  That program has about 7 weeks left to run and then the taps are turned off. "

 

This is a very dangerous assumption and if you proceed with your short strategy, potentially fatal to the outcome.

Consider that Bernanke has said many times that the FED will inject liquidity to forestall any deflationary circumstance... by helicopter if need be. He and Greenspan both have thrown new money at any serious decline in the stock market and a truly Herculean toss at the credit market implosion.

He has been true to his word so far and there is no reason to disbelieve that QE3 is just around the corner. The first step will be raising the debt ceiling right after the current pantomime in Congress is resolved with meaningless and trivial spending cuts.

i will cover and go long if QE3 is announced I do not believe Bernanke nor any of the other Fed govenors are idiots. I DO belive some of the more rabid silver bugs are.

[twacowfca]

"  That program has about 7 weeks left to run and then the taps are turned off. "

 

This is a very dangerous assumption and if you proceed with your short strategy, potentially fatal to the outcome.

Consider that Bernanke has said many times that the FED will inject liquidity to forestall any deflationary circumstance... by helicopter if need be. He and Greenspan both have thrown new money at any serious decline in the stock market and a truly Herculean toss at the credit market implosion.

He has been true to his word so far and there is no reason to disbelieve that QE3 is just around the corner. The first step will be raising the debt ceiling right after the current pantomime in Congress is resolved with meaningless and trivial spending cuts.

 

This is the national pre election year, and next year is the election year.  90% of the time these years are very accommodative for credit.  If anyone thinks Bernanke will suddenly turn off the fountain at the end of June, I have a bridge in NYC that would make a nice addition to one's portfolio.  However, perception of what he might do still could lead to a little correction.

[ubuy2wron]

"  That program has about 7 weeks left to run and then the taps are turned off. "

 

This is a very dangerous assumption and if you proceed with your short strategy, potentially fatal to the outcome.

Consider that Bernanke has said many times that the FED will inject liquidity to forestall any deflationary circumstance... by helicopter if need be. He and Greenspan both have thrown new money at any serious decline in the stock market and a truly Herculean toss at the credit market implosion.

He has been true to his word so far and there is no reason to disbelieve that QE3 is just around the corner. The first step will be raising the debt ceiling right after the current pantomime in Congress is resolved with meaningless and trivial spending cuts.

 

This is the national pre election year, and next year is the election year.  90% of the time these years are very accommodative for credit.  If anyone thinks Bernanke will suddenly turn off the fountain at the end of June, I have a bridge in NYC that would make a nice addition to one's portfolio.  However, perception of what he might do still could lead to a little correction.

Given that "helicopter Ben" and pretty much every other fed govenor has made public pronouncements about seeing little need for further stimulus I find it interesting that the commodity bulls are certain that QE3-4 ... are just around the corner.The fastest growing demand for commodoities of all types  is by "Investors"  I recently read a piece by the Japanese fed which had tracked the differential in price movement of the new "financial Commodities" one that had an etf of some sort and the more traditionaly traded commodities. It became apparent to me that the tin producers of the world should start a tin etf immediately as we would almost certainly create a world wide tin shortage as the investors piled into the newest "hard asset". Wall street is doing right now to commodities what they did to housing. I have survived even thrived for 30 years ignoring the allure of the pied pipers tune aint gonna start dancing and following him now.