The Canadian economy is booming and investors are flooding in. Is it too good to be true?
Todd Korol/Reuters
Bob Haber and David Madani are foreigners who have spent a lot of time studying Canada. Haber, an American, was chief investment officer at fund giant Fidelity Canada for 12 years and tracked Canadian stocks from his base in Boston. Meanwhile, Madani, a New Zealander, spent a decade with the Bank of Canada as a forecaster and policy analyst. Both are outsiders with an acute understanding of the inner workings of the Canadian economy. That is where the similarity ends.
Last December, Haber’s new book, Go Canada: The Coming Boom in the Toronto Stock Market and How to Profit From It, hit bookstores. Haber, who now runs his own investment firm in Boston and manages a series of Go Canada funds for Toronto-based Canoe Financial, has emerged as one of the most enthusiastic proponents of Canadian investments at a time when the world can’t seem to get enough of us. With Canada’s strong economy and wealth of resources, Haber predicts the S&P/TSX Composite Index could double to 30,000 points within 10 years. “Global growth and all the free money out there are coming together and investors are realizing the best place in the G7 for them to put their money is Canada,” he says. “Things are in gear for Canada to really outperform.”
Madani’s outlook couldn’t be more different, though it tends to get drowned out amid the Canuck euphoria. Last fall, he joined Capital Economics, a prominent U.K. investment research firm, to cover the Canadian market from Toronto. He says the boom in commodities is due for a reversal. More importantly, Canada’s red-hot housing market has soared into the danger zone. By his estimates, house prices are set to plunge at least 25 per cent, and will drag the economy down with them. “Housing has gotten crazy, it’s a bubble,” he says. “These things always have an unhappy ending, and Canada is not going to be any different.”
So there you have it. Canada is either primed to be a world beater, or we’re about to go down the tubes. There’s arguably never been a time when forecasters have been so divided in their views of Canada’s economy. That’s partly due to the seemingly Herculean way we shrugged off the global recession while almost every other developed nation tanked and continues to struggle"”a feat that can’t help but arouse a bit of too-good-to-be-true anxiety.
David Stobbe/Reuters
But the division of opinion has to do mostly with the two particular engines that have driven our success"”resources and real estate. Both are cyclical. Prices rise and fall as supply and demand shift. Only that’s no longer seen to be the case in Canada. Never mind that some experts now say the surge in commodities exceeds anything we’ve seen in two centuries, or that by many measures the housing market sits at multi-decade highs. Those who see good times ahead are convinced the phenomenal gains reflect a fundamental shift in the global economy. In short, it requires one to ascribe to the four most dangerous words in the world of investing: this time it’s different.
As it is, the love-in for all things Canadian is in full swing. In January, giant U.S. retailer Target announced plans to take over hundreds of Zellers stores in 2013, its first expansion beyond America’s borders. The company expects big things from shoppers here; Target believes its new Canadian stores will help drive annual revenue, now around US$67 billion, to more than US$100 billion over the next few years. And Target is just one of many big name U.S. retailers, including J.Crew, Kohl’s and Marshalls, banking that Canada’s prosperity can make up for sagging sales on their home turf.
Canada is also the toast of international think tanks and world leaders. They praise our sound financial system, which seemingly avoided the traps that engulfed other nations’ banks. Conservative legislators in America and Britain sing the virtues of our relatively sound government finances. Like a cherry on top, the Economist magazine once again just selected Vancouver as the world’s most livable city, with Toronto and Calgary also making it into the top five.
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Every bubble bursts, and this one will as well. If we use the profits from this run of good fortune to pay off debt then we will be fine. If we run up huge debts, they we will be in trouble.
But I don't think this is just our bubble…it's the world's bubble. The biggest threat to our economy in the short term is a drastic reduction in demand from China or the collapse of the US. If either of those things happens, the whole world is toast.
Average wage: 38,000 Average small house price: 275,000 (mine on west coast, 2 bedroom single floor falling apart: 360,000) Add in almost no real apartments for rent in much of Canada and you get a serious problem.
Something is going to have to give, sooner or later. Government doesn't want to encourage apartments for fear of popping the housing bubble. After all, Canadians wouldn't have to buy a house if there was affordable apartments available.
And few in their right mind would buy a house if you stood a good chance of going underwater, especially if there is decent cheap apartments available. Write your MLA and MP and tell them you want affordable apartments. Give apartment builders and owners the same kind of tax breaks that housing and condo builders and developers get.
We might even be able to put some homeless in-doors.
More apartments might be built if their property taxes weren't so much higher than houses. If you were a builder and you had the choice of building an apartment to rent out the units (and pay 4% property taxes every year, while home owners only pay 1%), or a condo where you just sell each unit and let the new owners pay their 1%, then the condo looks like a much better deal.
Nonsense! If there was going to be a recession we would have had it by now.
Better pull your head out of the sand before it's too late.
Don't fool yourself. Economic cycles affect ALL countries. The countries who feel that they are an "exception" to the rule are the ones who suffer the most. There were recessions in SE Asia when there weren't recessions in North America. The US remained strong during a number of European downturns. Japan has lurched from stagnant period to stagnant period while Korea has boomed. The US fell into recession while we stayed strong in Canada. (This time!) The unique circumstances of each country or geographic area lead to unique timing of boom/recession periods.
Well.. *I* got it..
That's what I was thinking too!
The current govt. created a housing bubble with 0/40 mortgages, then 3/35 and 2 mos. ago said they'd change the regs which will change in 2 days. Why didn't they announce it to take effect the next day as did Australia. Their last announcement has created all the greater fools to buy overpriced homes because the RE industry (biggest newspaper advertisers & scam artists) warn the ignorant masses they better buy now or they'll be priced out forever. This govt also wanted to deregulate the banking sector when in opposition. The banks are laughing as CHMC (we taxpayers) will be on the hook for billions in losses. This con artist govt will do and say anything to hoodwink the electorate.
Your full of Sh!t. Both were permitted first under Paul Martin. Nice try idiot! Conservatives closed down both options with 35 y set to end this fall.
CMHC-insured 0%-down, 40-year amortizations were first introduced in 2006, after Stephen Harper was elected prime minister. The minimum requirements changed to 5%-down, 35-year amortizations in July 2008.
When the financial crisis hit in late 2008, Jim Flaherty directed the CMHC to insure more mortgages to keep demand up and buoy the housing market.
In January of this year, Flaherty announced that the minimum requirements will now include a 30-year amortization (instead of 35 years). The changes officially take effect on Friday March 18th 2011 (not this fall). Hence the surge in buying, especially entry level properties, across the country over the last few weeks.
Stop lying.
how much of the increase in price is due to those policies compared to the increase from foreign buyers?
the bubble will burst when the overseas money slows. who knows when this will be
Banking on a commodity supercycle would mean this cycle is different. That's usually a poor long term bet! http://www.theglobeandmail.com/globe-investor/inv… Valuations are stretched and we're wary at Steadyhand- http://www.steadyhand.com/globe_articles/2011/03/…
'the best place in the G7 for them to put their money'
Mmmhmm look who's in the G7
France, Germany, Italy, Japan, United Kingdom, United States.
Puuuuure flim-flam here
Does anyone else find it amusing that one of the impartial sources for this story was a person who manages Canadian investment funds? Oh, and his analysis is that “investors are realizing the best place in the G7 for them to put their money is Canada.” Duh. That's a shocker.
Heh….no conflict there eh?
In the minds of Liberals, yes it's to good to be true. Or at least they wish it were not so.
Everyone should thank Conservative voters and Stephen Harper for the Canadian economy being in good shape.
Imagine if the world's recession had given the socialists in the Liberal/NDP/Bloc coalition an excuse to go on a borrowing and spending spree – unemployment would be higher, taxes would be higher, investors would be fleeing – and your house would be worth half of what it cost you!
The same socialists nut-bags that balanced the federal budget in the 90s?
Perhaps you don't follow along, but we have new socialist nut-bags, and in order to grab power they would have to form a coalition with even crazier socialists – that would be a lethal combination for our economy. In the 90's the IMF ordered us to clean up our act – no government would have had a choice but to stop reckless spending.
And Preston Manning's presence in the House should not be underestimated.
What part of this government's fiscal policy could not be fairly described as a "borrowing and spending spree"
Thanks Conservative voters and Stephen Harper – thanks to you the Federal debt set to hit historic high. Thats' according to those socialists at the Canadian Taxpayers Federation:
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