Monday, May 31, 2010

Overheating Economies and Terroirs?

My friend Ted sent me two data points today:  Canada GDP + 6.1% and India GDP + 8.6%.

Wow. Steamy.  I immediately realized that I'd recently read a story about not the overheating economy, but ACTUAL overheating in India (temperatures in excess of 120 degrees!), and out of control forest fires in Canada.  Talk about bringing the metaphor of the "overheating economy" to the real world...

"Canadians are spending more and more of their disposable income on housing. In Toronto, 44% of disposable income goes to housing and in Vancouver the figure is a whopping 68%. The trend is likely not sustainable."

"The trend is likely not sustainable...."  Understatement?


Anonymous said...

That GDP # out of Canada hammered their BAX 90 day CBA futures as folks are now expecting a series of interest rate hikes, the first one coming in June. I plan on getting long these contracts or long call options on these contracts soon.

Canada is in the midst of a housing bubble and is leveraged to China and its ravenous appetite for commodities. It is our hemisphere's version of Australia. Interest rate hikes will take the steeam out of housing and China is slowing down in a significant way.

Those hikes are about to turn into no action/cuts.

Anonymous said...

Well, as we've seen before, you go into foreclosure in Canada, and you do not walk away from your negative equity.

So IF there is an impending housing bubble that will crash some time in the future, IT will certainly mean a very hard time for the average Canadian.

I would suggest that Canada is big in minerals, energy, technology and ag. Perhaps it is simply that the average Canadian is benefiting from the boom in the-afore-said sectors, and there is a scramble for developed RE.

Fuel55 has posted much about this.


Fuel55 said...

Let's remember Canadians dont walk from their homes since only a fraction of homeowners have less than 10% equity and there are consequences.

As for 68% of income going into housing in Vancouver - true if the average wage earner bought the average house. But sorry kids people earning $100K a year aren't living in houses in Vancouver. They renting or living in the boonies. Vancouver owners are either lifers who bought 40 years ago or families with $1M in equity and $250K+ in family income.

Anonymous said...

Thanks for the input.

I bought a few March 2011 BAX contracts this morning.

I think there is a good chance the BoC doesn't hike today and these things pop nicely. If they do hike, I think its priced in and they don't fall by much.

Kid Dynamite said...

great points Fuel55 - very important clarifications that aren't fleshed out in the stats

Anonymous said...

Nice pop in the BAX futures even though the BoC hiked since the statement along w/the hike was dovish. In at 98.08, out less than 90 minutes later at 98.21.

Easy game ... sometimes.