Wednesday, September 24, 2008

Merrill Lynch gets it!

Merrill Lynch gets it! : (I encourage you to read the report linked here)

Finally, some one in a big position (David Wolf, Chief Strategist, Merrill Lynch Canada) published a report basically saying what this blog has been discussing for a long time:

Canada is no different than the US (or the UK): We are more indebted than they were and our housing market is tracking the US with a 2 year lag (I have discussed this recently as a 1 year and a few months lag, but this is a minor detail). Also, the report says that the lack of a credit crunch thus far in Canada is more a concern than an comfort given the impending housing crash.

In various media articles, CREA, PM Harper and CIBC denounced this view. BMO said that while they are not as pessimistic, they are cautious on housing.

In the G&M today (courtesy of Canadian Press, "Canada could face housing woes, Merrill warns")

Benjamin Tal, an economist with CIBC who has been following closely the ups and downs of the housing industry, said Wednesday he sees no “trigger” threatening Canada's housing and mortgage market.

“To see a crash in the housing market you need a trigger,” Mr. Tal said.

“The trigger in 1989-1990 was extremely high interest rates. The trigger in the U.S. was subprime mortgages. We're still missing the trigger for Canada.”

Good point, Mr. Tal: I agree that a "trigger" is needed.... Hmm, maybe:

1) Biggest credit crunch since the Great Depression
2) A near crash last week in the global stock markets
3) Commodity bubble crash
4) A recession in the US and Canada
5) Falling house prices in Canada feeding into a vicious circle
6) Overprime
7) No more 0%

Take your pick...

While ML the company was nearly toast a few weeks ago, they actually have some good research these days. Their US top dawg, David Rosenberg (a Canadian, by the way) has been correctly talking about the US housing crash for years.

ML is saying what is becoming obvious. The Big Banks are talking their book so they won't say this until it is obvious. While Wolf has been one of the "no housing bubble" people until recently, he has now changed course. Perhaps the recent events at his parent company in the US woke him up to the reality of a credit crunch? Or perhaps Rosenberg has convinced him?


jen said...

Great post! The gargantuan elephant in the room can no longer be ignored, apparently.

The financial news just keeps getting more surreal, as well:

SEC plans action against Royal Bank

RBC top of the list for federal regulators in auction-rate securities probe

I've got some calls to make, apparently.

Thank you for your blog.

Alan said...

8) median mortgage payments significantly greater then median rent in an economy with stagnant wages for the last 30 years.

BBC said...

Wether or not the powers that be or the economists mislead us it seems as though the Canadian Public has been willing to admitt our fate (check out the Globe's comment numbers...over 300, on that column). The truth will set us free! Adil, you were one of the brave ones who put yourself on the line with your blog....thanks for the hardwork and honesty!

Adil Burney said...

thanks for the kind comments! I truly appreciate them all.

Anonymous said...

I intended to buy at a -10% bargain in Toronto, but yesterdy TD rose variable rates from their prime-1 (3.75%) to their prime+1 (5.75%). At a 400000 mortgage, is mean aprox.50% more in interest, which no buyer will accept (except suicidal ones).Ameno.