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Top Links: Strategist warns ‘winter is coming’ for the Canadian economy

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

Macquarie strategist David Doyle warns that despite the current third-quarter economic snapback, "Winter is Coming" for the Canadian economy,

"We remain pessimistic on Canada's private sector growth prospects beyond a near-term boost from stability in energy capex, firm US activity, and an increased impact from federal infrastructure spending. Structural headwinds and a potential peak in housing investment and consumer leveraging are likely to pose significant constraints going forward. Accommodative fiscal and monetary policy should prevent a recession and result in a weakening currency. We continue to anticipate $0.69 CADUSD ($1.45 USDCAD) by end-17. While US nominal activity may pick up, this should have limited benefits for Canada."

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"@SBarlow_ROB Macquarie: 'Winter is coming' for Canadian economy pic.twitter.com/5w7bVtExJf ' – (Research excerpt ) Twitter

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Canada is No. 1 in hockey and also, according to UBS Group AG analysts, currently the world's best builder of housing bubbles,

"Vancouver's ranking soared to first from fourth place in 2015. Housing prices in the Canadian city have doubled in the past decade, prompting an outcry from local families struggling to afford homes that now chew up 90 percent of average before-tax income… 'A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a rapid decline in house prices,' UBS said. 'Investors in overvalued markets should not expect real price appreciation in the medium to long run.'"

"Vancouver, London Top List of Cities at Risk of Housing Bubble" – Bloomberg

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I found this story related to the one above, but readers can decide for themselves. A report from the brilliant Morgan Housel attempts to describe the difference between an asset bubble and the normal functioning of the business or credit cycle,

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"To me a bubble is when this cycle breaks. I have my own definition: It's only a bubble if return prospects don't improve after prices fall. It's when an asset class offers you no hope of recovery, ever. This only happens when the the entire premise of an investment goes up in smoke."

"The Difference Between a Bubble and a Cycle" – Morgan Housel

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Bloomberg's Tracy Alloway describes one of the primary reasons low oil prices have so far failed to kill off the drilling of new oil wells,

"Even as oil producers have planned $1 trillion worth of spending reductions between 2015-to-2020 — cutting staff, delaying projects, and squeezing contractors — they've continued to green-light new wells from the Norwegian Sea to Brazil, and from Uganda to the Gulf of Mexico. It's a development that has both baffled and frustrated the world's biggest producers of crude…

"[it's] because oil majors' urgent mission to slash costs includes standardizing the components used in drilling for oil – a development that has helped turn unprofitable wells into moneymakers, protected bottom lines, and allowed companies to keep pumping even in the face of crude prices that have more than halved over the past three years."

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"How Actual Nuts and Bolts Are Bringing Down Oil Prices" – Alloway, Bloomberg

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Tweet of the Day: "@LHSummers My latest blog posting: I expect that more than 1/3 of men btw 25 and 54 will be out of work at mid century. shar.es/1xZZd1 pic.twitter.com/PWif4zP4tD ' – Twitter

Diversion: "Elon Musk: Die For Me" – Gizmodo

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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