Archive for August, 2011

24
Aug
11

Toronto Real Estate Prices Collapsing?

The Toronto Real Estate Board said that for the 416 GTA area code for a Single Freehold Home:

In May, the average price was $774,046.
In June, The average price was $744,747.
In July, The average price was $720,808.
Last week, The average price was $597,963.

Ok, so they dropped nearly $123,000 in 1 month????

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22
Aug
11

Are Canadian Banks in Trouble?

With the recent global debt crisis starting to become a more serious problem than originally thought, there seems to be a shadow passing over another G7 country previously regarded to be a banking safe haven (namely Canada). Is it really a banking safe haven or is it next on the banking crisis radar? Let’s look back in history to Canada when Brian Mulroney was Prime Minister. In the 1980’s two Alberta based banks Northland Bank and Canadian Commercial Bank failed after lending out millions of dollars to oil and real estate companies whom defaulted on their loans. In 1985 Mercantile Bank of Canada (based out of Montreal), at the time the 8th largest bank in Canada with $4.4 billion in assets fell into trouble.

The largest banks at the time rushed to the rescue by pumping hundreds of millions into saving the Mercantile Bank of Canada. It later got bought out by National Bank of Canada. Today, the top Canadian Banks have expanded both domestically and globally. Their residential mortgage portfolios have sky-rocketed with the recent real estate boom in Canada. They also hold on their commercial loan portfolios various facilities to most of the largest banks and financial institutions in the world and noticeably the European Union institutions that have recently been noted in the news for their problems and exposures in the European Debt Crisis. But at what cost? They have borrowed immense levels of money by creating debt to finance such huge growth.

Banks such as Scotiabank (being Canada’s most global bank) as well as others would be really negatively affected by a collapse in global banks. With Canada’s consumer debts and combined government debts (federal, provincial and municipal debts) hitting record levels domestically a bursting of the real estate bubble could be a double edged sword in their hands. Canada, once thought of as a country whose banks are much safer than America and the rest of the world has seen de-regulation in the form of loosening of lending requirements over recent years with Prime Minister Harper in power and Jim Flaherty as Finance Minister compared to when Paul Martin was Finance Minister.

The largest of the Canadian Banks RBC recently sold off it’s struggling American retail business arm Centura Bank to PNC Bank. The fact that the Canadian Banking powerhouse is exiting from the US as it’s economy struggles further is a very defensive move indicating further pain expected for time to come within the US Banking Sector. Unfortunately their Canadian counterparts BMO and TD have done the opposite and have been buying up US Banks recently to expand their market share in America at a time when the markets have caused stock values to increase dramatically compared to the crisis of 2008/2009. How will they fare if the US goes into another recession causing further strain on the US banking system?

With the 2008 collapse of Lehman brothers and AIG, Canadian banks like Scotiabank still had such financial institutions marked as highly rated safe and secure loans on their risk rating models after they became defunct. In fact Canadian banks accessed some of the TARP bailout money back in 2009 for their US arms of their business. As the European debt crisis spills over into the rest of the world, how can the Canadian Banks be saved as they would require billions of dollars of capital injections to bail them out, something the cash strapped Canadian government would have difficulty providing, especially still recovering with their finances from the precious recession in 2008/2009? Are the Canadian Banks heading into trouble?

12
Aug
11

Big Stock Market Crash Coming?

The Dow Jones has been volatile of late with 5 of the last 6 trading sessions in the top 20 of all-time in terms of point up/down.  Going back to 2008 (which held many of the records for all-time points up/down) there seems to be some strong similarities. With the Europe debt crisis contagion now spreading to the most powerful of European economies like Italy, Spain, France, UK and Germany, it has been over a year and a half since this crisis was first reported and it seems to be getting worse. With the US debt being downgraded for the first time in history, the debt crisis is making itself global.

The only solution for governments to contain their deficits is to cut spending. If you look back in history, each time governments have cut back spending a recession has commenced. In fact most if not all economic booms have heavily relied on heavy governments spending. Take a walk down history to the Great Depression. Contrary to Ben Bernanke’s opinion, in the early 20’s there was a depression and the governments turned on their monetary policy taps making credit very easy causing the roaring 20’s. Once the 1930’s hit, the debt hangover caused the government to make cut backs as well as the markets to further collapse after their violent rally after the initial 1929 crash.

Does this sound all but too familiar? Mutual funds and hedge funds are closing at a record pace due to lack of retail investors/subscribers, trading and investment firms are losing revenues and some generating big losses (run by big names such as the likes of James Paulson), overall volume is drying up and financing for non-big boy companies as well as IPO’s drying up. With the governments over-extended from the 2008 crisis, how can they protect from a crash to happen (especially with their pockets as empty as they are right now in terms of finances).  Is the recent volatility setting the stage for the biggest crash in the history of the stock market to occur?