Tuesday, January 6, 2009

Happy New Year!

Happy New Year to all!

Overall, 2009 is looking a lot more difficult to forecast for the stock market (for me, anyway). My views on 2008 were clear (check in the archives if you wish) as I knew that we were headed into severe bear market territory. This year, I am not quite sure. I will publish an outlook at some point soon but this is still a work in progress.

The bear market rally scenario that I outlined back in November remains intact. I am 17% long currently and looking to continue to get longer. I am not sure if the rally peters out in February or if it extends until April. I will have to keep working on my thesis and see how things play out.

One thing is clear to me: The real economy is tanking and will continue to tank for 2009. There is too much complacency in Canada regarding the economy and a certain smugness that it is not as bad here as the US. We are starting to see signs in Canada that things are falling off a cliff here too. Car sales were horrible in December in Canada (after remaining strong until early fall). Home sales plummetted in November. The job market fell apart in November.

2009 will also be a horrible, horrible year for housing in Canada. Don't believe the industry garbage that Royal Lepage put out today, from the G&M "Housing market braces for correction, not crash", January 6, 2008:

Average Canadian house prices will fall by another 3 per cent in 2009, but
the drop will add up to a “correction,” not the sort of “crash” that has crushed
the U.S. market, real estate brokerage Royal LePage Real Estate Services said
Tuesday. Nationally, the average house price will fall to $295,000, from a
projected level of $304,000 for 2008, the Toronto-based firm forecast. This
follows a 1.1-per-cent dip last year from $307,265 in 2007.
Royal LePage also is betting that that the number of houses sold across the country this year will fall by 3.5 per cent to 416,000, although it expects to see both price and activity gains in several markets, including Regina and Winnipeg, where prices
remain below the national average.

What a joke!

  • 3% drop in prices! We are currently dropping at 5% or 10% depending which numbers you are using, and things are only getting worse. The carnage in the housing market accelerated this fall, when sales dropped precipitously. Inventories are building. Double-digit negatives are a given.
  • 3.5% drop in sales. I think that is a typo. It should read closer to 35%! November sales dropped by 42% from the prior year.
  • Price and activity gains in Regina and Winnipeg! Regina's housing market is going to plummet. It was the last bubble and using Potash stock as an indicator (down 70%), that local economy is in for some serious pain. The average house in Saskatoon has already dropped $40K (14%) since summer.

Given everything that happened in the fall of 2008, these types of predictions by industry groups should not be taken seriously at all. The banks are in on this crazy talk too:

Michael Gregory, senior economist with BMO Capital Markets, said despite the
slowdown in Canada “we won’t even come close” to what is happening in the
U.S. He pointed to stronger employment numbers and income growth here as well
as banking system that “continues to make mortgages” available to Canadian
consumers. But he cautioned that if unemployment numbers rise in Canada,
there will be a larger fallout for the Canadian housing market. “Anyway you
slice it, if you don’t have a job, you can’t get a mortgage and you can’t buy a

Talk about talking out of both sides of your mouth! Everything will be fine, unless unemployment goes up. Of course, it will go up. We are in a severe recession! Our unemployment rate is about half of what it was in the last Canadian recession (early 90s).

Amazing how anyone can put out such garbage in 2009, and there are few in the mainstream that are challenging it!


Drake Venture said...

The Saskatoon inventory is moving from MLS to Kijiji house rentals. Landlords have the intention of selling in the near future. The housing inventory has not been sold!

Anonymous said...

Absolutely love you blog. You really do have great insight. Housing is going to get ugly in Canada very soon. I am not sure how much legs this bear market rally has left though.

I think the next earning season is really going to make gains difficult, even Walmarts numbers looked ugly today. The only thing saving testing the lows in the next month are the Obama bounce and the hope he generates.

Once his honeymoon is over though I think S&P staying over 1000 for the first half of 2009 is going to be very difficult.

JET said...

For those interested, I'm tracking the Toronto numbers here (actually more metrics than they publish):


There's no way the drops will be that low! These guys are way to optimistic.

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