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Condo market near 'boiling point'? There was much talk this week about condos and bubbles, notably in Toronto, but elsewhere as well.
As The Globe and Mail's Bertrand Marotte, Jacqueline Nelson and Richard Blackwell reported, the construction industry continued to make gains in April as housing starts climbed to an annual pace of 244,900. Driving the increase, Canada Mortgage and Housing Corp. reported, was construction of multiple units, such as condominiums.
In Quebec and Ontario, starts surged 56.5 per cent and 12.2 per cent, respectively, largely because of those multiple units.
Looking at those numbers, economist Robert Kavcic declared that condo construction has now reached the "boiling point," and that the housing market threatens to overheat in some segments and some regions.
"The bubble-mongering that has been going on seemed overplayed for some time, given that housing starts were running only slightly above household formation (about 180,000), on average, for the past three years," Mr. Kavcic said.
"But that is no longer true with starts now moving well above underlying demand, and accelerating in recent months," he warned in a report about the CMHC numbers.
"It's important to note that the heated building activity is very much contained to the multi-unit segment in a handful of cities. While single-unit starts edged up just 0.6 per cent in April, multis surged 27.4 per cent to the second highest level since 1978 - the trend away from building detached homes in favour of condos continues unabated, particularly in Toronto, Vancouver and Montreal."
David Rosenberg, the chief economist at Gluskin Sheff + Associates, agreed that construction is "far outpacing" natural demographic demand.
"No doubt the Canadian economic backdrop is solid overall and mortgage rates are at low levels," he said. "But at some point, the Bank of Canada will no longer be playing the role as the boy who called wolf, and mortgage guidelines are already being tightened up."
Some economists do see just softer times ahead for the overall market, however.
"Given that April's surge was driven largely by the multi-unit segment, we suspect that this level of home starts is not sustainable," said Dina Cover of Toronto-Dominion Bank.
"Moreover, unseasonably warm weather in many parts of the country surely brought some new home starts forward. As such, we expect to see some give-back in the coming months."
- 'Canadian condo craze' gets crazier
- Condos: Who will be 'stark naked' when tide changes?
- Buying a home with just 5% down? Make sure you love it
Fiscal blinders Michael Hewson of CMC Markets summed it up well this week:
"For quite some time now Europe's leaders have pretended that the only solution to the euro zone crisis was more austerity, completely blind to the growing voter discontent in Europe. This weekend's events in Greece, France as well as Germany should have dispelled that notion once and for all, as voters delivered a bloody nose to the incumbent governments and also brought closer the prospect of a clash between the German approach to how Europe should go in the future, and pretty much everyone else's."
While Greece became the focal point for the markets, the message across Europe was indeed clear: The people have had enough, and policy makers need to begin to focus more on economic growth amid a backlash against the harsh austerity that has marked the post-crisis era.
Athens remained in the grip of a political stalemate through the week, raising questions about its bailout, whether it will ultimately default, and even whether it will stay part of the euro zone. Angela Merkel and others in the 17-member monetary union warned Greece it must stick to its reforms, and the country appeared headed for another election.
"Irrespective of what happens in the coming weeks it looks increasingly impossible that Greece will be able to implement the types of reforms asked of it in the face of such voter opposition, increasing the likelihood that the country will have to leave the euro," Mr. Hewson said.
In France, Socialist winner François Hollande prepared to take over as president from Nicolas Sarkozy next week. And in Spain, the situation deteriorated further.
"In less than two years, we are now up to a total of seven European leaders or ruling parties that have been forced out of office, courtesy of the spreading government debt crisis - tack on France now to Ireland, Portugal, Greece, Italy, Spain and the Netherlands," Gluskin Sheff's Mr. Rosenberg remarked this week.
"Even Germany's coalition is looking shaky in the aftermath of the faltering state election results for the CDU's (Christian Democratic Union) Free Democrat coalition partner," he said in a report.
"This is quite a potent brew - financial insolvency, economic fragility and political instability."
- France and Greece spur new era of uncertainty
- Can Hollande, Merkel find middle ground?
- The running of the bears: Why Spain could be next
- Spanish bank reform disappoints investors
- Pressure mounts on Greece to stick to the austerity plan
- Kevin Carmichael's Economy Lab: Why Germany holds the key to Europe's economic revival
- EU sees euro zone contraction in 2012
Jamie Dimon's very bad week As Jamie Dimon put it, "obviously it puts egg on our face."
It was a lot more than that, actually. The huge hit to JPMorgan Chase & Co. chilled global bank stocks and sparked a new outcry from those in favour of bank reform.
Mr. Dimon, chief executive officer of the Wall Street giant, shocked the markets late Thursday by disclosing a $2-billion (U.S.) trading loss, over just six weeks, from a failed hedging plan. And it's likely to grow.
Just what happened, and how it happened, was complex, but The Globe and Mail Streetwise columnist explains the theories well.
"It's not the one-time loss that is the biggest concern here," said Derek Holt and Dov Zigler of Scotia Capital, referring to a new set of banking regulatory reforms known as the Basel rules.
"Markets should have had cause to believe that a lesson had been learned in the crisis, but this has markets dumping bank stocks ... on renewed concerns of improper oversight provided by both internal checks and balances and regulators. It couldn't have come at a worse time for opponents of the Volcker rule, especially since the bank was among the more vocal opponents of tighter capital rules in a country that is still wrangling with Basel II, let alone Basel III."
- Tim Kiladze's Streetwise: How did JPMorgan lose $2-billion in six weeks?
- SEC chief says regulators 'focused' on JPMorgan
- 'London Whale' took big bets beneath the surface
- JPMorgan admits to 'stupid' loss in trading
In the markets Given the turmoil in Europe, the fiasco at JPMorgan, and signs of economic softening in China, it could have been worse.
The S&P 500 lost more than 1 per cent, while Toronto's S&P/TSX composite shed 1.5 per cent.
"One theme from the Q1 earnings season has been a clear slowing in emerging market demand, particularly in China, and that became even more apparent with the slew of April data released this week," said BMO Nesbitt Burns' Mr. Kavcic, citing the slew of indicators, from trade to retail sales.
The resource-heavy Toronto exchange, he added, continues to lag U.S. markets.
"Note that the correlation of daily returns between the TSX and China's CSI 300 over the past year has been about twice that of the S&P 500 ... suggesting that Canadian equities are more exposed to a deeper slowdown in China, though not nearly as exposed as those in Japan and Australia," Mr. Kavcic said.
Three things There was some controversy this week over Mark Zuckerberg's black hoodie, and his wearing of it while kicking off the Facebook IPO road show. Personally, I think the concerns are silly and that corporate folks should wake up to the fact that there's a new generation, and they don't dress the same. But if you must ... Betabrand offers an executive pinstripe hoodie for $148 (U.S.) that it promises will ship by June 22 at the latest.
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This is completely beside the point, but I got to pondering the colours in the proxy battle between activist shareholder Bill Ackman and the board and management of Canadian Pacific Railway Ltd., which comes to a head May 17.
Blue is the colour of the card to be voted for Mr. Ackman's dissidents, who, at this point, look like a shoo-in. White is the colour for CP, whose leaders appear to be headed for a defeat rare in corporate Canada.
So with that in mind ...
Color Wheel Pro says of blue: "It is often associated with depth and stability. It symbolizes trust, loyalty, wisdom, confidence, intelligence, faith, truth, and heaven ... Blue is a masculine color; according to studies, it is highly accepted among males. Dark blue is associated with depth, expertise, and stability; it is a preferred color for corporate America."
As for CP's colour: "White is associated with light, goodness, innocence, purity, and virginity. It is considered to be the color of perfection. White means safety, purity, and cleanliness."
I always took white to mean surrender.
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Tweets of the week:
From @IainDey: "Angela Merkel arrives at the Greek border. 'Name?' asks border guard. 'Merkel,' she says. 'Occupation?' he asks. 'Not yet.'"
From @BorowitzReport: "Facebook's timeline feature helps you remember what year you became friends with people you don't know."
From @pourmecoffee: "For all he's done, it would be nice if Obama gave George Clooney a presidential pardon for Leatherheads."
Required reading this week Ottawa is promising to tell Canadians a lot more about foreign takeovers. That's a good thing, Barrie McKenna writes, but well short of what the government pledged in late 2010.
The Detroit Three auto makers suddenly can't make enough vehicles, a development that could benefit Canada and give the federal and Ontario governments the upper hand. Greg Keenan and Steven Chase report.
RIM's new chief marketing officer will be under intense scrutiny as he attempts to craft a new message for a North American audience that is increasingly shunning the BlackBerry, Iain Marlow writes.
Telus Corp. backed down on a share consolidation plan in the face of opposition from a U.S. hedge fund, but chief executive officer Darren Entwistle wasn't ready to admit defeat, Rita Trichur reports.
The billions Asian energy firms have invested in Canada in recent years have flowed almost exclusively into oil and gas fields. Now, writes Nathan VanderKlippe, the second act is beginning.
What to watch for next week It's shaping up to be a jam-packed week, with a lot for investors to digest.
European finance ministers meet Monday and Tuesday amid the debt crisis and the many questions surrounding Greece.
This will be followed Tuesday by a look at how the economies of the euro zone fared in the first quarter of the year. The 17-member monetary union is believed to be in the midst of a mild recession, and Tuesday's report could confirm that.
RBC Dominion Securities projects the data will show that gross domestic product contracted by 0.2 per cent, quarter over quarter, which would mean the currency union meet the technical definition of a new recession.
On Wednesday, Statistics Canada releases its monthly report on how the country's manufacturers fared. Economists believe the report will show shipments from Canada's factories rebounded, by about 0.3 per cent, from February's dip.
"Canada's manufacturing sector was a star in the latter half of 2011, although signs of slowing in January/February have raised some doubts about the pace of the industrial sector's recent revival," said Emanuella Enenajor of CIBC World Markets.
"We are expecting to see a healthy gain in factory shipment volumes in March, enough to suggest that Canada's factory renaissance, largely helped by resurgent U.S. auto demand, is still alive."
On the corporate front, the fight for control of Canadian Pacific Railway Ltd. comes to a head on Thursday, at a shareholder meeting in Calgary.
Activist investor Bill Ackman of Pershing Square Capital Management, now the railway's biggest shareholder, has been waging a fight, proposing a dissident slate of seven directors, and wants to replace chief executive officer Fred Green with Hunter Harrison, the former CEO of rival Canadian National.
Anything can happen, of course, but Mr. Ackman has been winning support for his team.
Several major companies are also scheduled to release quarterly results, including Onex Corp., Home Depot Inc., Power Corp. of Canada, Deere & Co., Sears Canada Inc., Target Corp., Gap Inc. and Wal-Mart Stores Inc.