Monday, May 14, 2007

Myth Debunking?

One of the reasons that bears use when we talk about how we expect a correction in the RE market in the near future is how it's happening south of the border. Now, we all are well aware that this time it's different, that people do want to be here, and that everyone will retire here, but how will a correction in the US markets, both RE and equities, impact people's ability to retire here?

The last stats I read stated:
Of Canada's 2000 imports, 74 percent came from the U.S., while 86 percent of Canada's total exports were shipped to the United States. The volume of Canada-U.S. trade last year was far greater than the total amount of Canada's trade with all of its other trading partners combined.
Those numbers are daunting; this is how they look:

So what exactly do we offer up to the US that they want in such abundance? Our dollar is high (actually, their dollar is low, our's isn't that high when you compare it to the Euro or the Pound over the same time lines as in comparison to the US greenback), so that should slow down the exports right?

Conversely, because of the relative parity of the two currencies, our imports from the US should climb during this period. As my rudimentary economics (I hesitate to use this word) skills comprehend it, much of our trade with the US is in energy and natural resources and it goes something like this: We ship the sh$t to them raw, then buy it back refined. As in the crude flows south, the gasoline flows north, and the logs go south, and the chairs go north. Of course there are always exceptions to this, but that is a sweeping generalization that is likely correct if I was to not be so lazy in my linkages in this blog.

We know the forestry industry is in its worst recession since 1982. So that leaves the energy sector to keep the economy a pumpin' (pun intended). The same stats suggested that BC's energy sector is plagued by a 14% decrease in drilling (that's where we get the gas and oil from) between late 2005 and 2007. We import electricity, partially because we export a lot of it, but that is a market mechanism I do not understand, but it makes sense that that isn't making everyone rich enough to buy RE in Victoria. I know the mining sector is hot, only because my stocks are doing well, but those are piddly numbers compared to Oil and Gas as we see below. And I can still buy mining stocks at far superior price/earnings ratios than O&G.

Those are national numbers too. BC's take of that is paltry compared to Alberta, Atlantic Canada and Saskatchewan. We're about the minerals and the forests primarily. Our O&G sector has definitely grown, but the producers are busy producing in the tar sands, so unless you own their stock, you're likely not getting rich off of it directly.

I found this article very interesting; it's all about how Canada's economy is de-coupling from globalization. That should protect us from economic downturns in the States then right? Except it won't and it has some serious negative consequences for our economy to boot:
On the whole, this de-globalization is a negative development. Canada is reallocating labour and other resources away from export industries (which are highly productive, and pay wages 25 percent above the rest of the economy) to purely domestic sectors, many of which (like fast food, retail, and personal services) feature dead-end jobs and lousy productivity. Indeed, this de-globalization is a key reason for Canada’s abysmal productivity performance this decade, despite all the business-friendly policies we’ve implemented in the name of “efficiency.”

Now, I'm not really agreeing with the author. Especially on issues like free-trade. I imagine most people in our nation have benefited greatly from NAFTA. But this curious de-coupling within a free-trade arrangement leads me to believe that growing pains are a comin'.


Vicguy said...

I don't buy this de-coupling from the USA, we are married like common law partners are, it isn't official but we know we are. If China pulls back and our mining resources tank then all we have is the oil and gas which is getting owned more and more by US and international coporations.
What happens if a serious recession happens and heaven forbid oil and gas prices actually go down ? Alberta could take a big hit like the late 70's. There are alot of analysts calling for lower oil prices as the latest expansion comes to an end, growth slows and manufacturing takes a hit.

As far as the Island being an affordable place to retire,if your loaded its great,if your not,you stay in small town BC or Alberta where your kids and friends are. I met many retirees in the Okanogan when I lived there several years back who had zero desire to move down here,they hate the ferry/trapped on an island idea,hate the rain and don't mind the winters. I know the Okanogan has gone up big but it will get hit like the rest when the walls come down.

Village said...

Osoyos is my retirement area. It should be just developed enough with a Walmart, FutureShop and Canadian Tire by the time I'm ready to retire in 20-25yrs. =)

greg said...

Village -

please don't mention Osoyoos, it is the last unknown gem in the Okanagan.

BTW, all those stores are in Penticton, hope none get any closer...

hhv said...

I don't like osoyoos at all... you people should move to kelowna or vernon, far away...

Anonymous said...

Ok, lets step back from the silly Victoria real estate agent hype. I've lived here for 20 years and believe me folks, Victoria is still just the "land of the newly wed and nearly dead".

Victoria, for it population size, has average sports entertainment facilities with 3rd rate (at best) sports entertainment (see Salmon Kings from the ??????? league), outdated and inadequate performance facilities (admitted by our own booking agents and theatrical community), conservative and anti-young anything local government. They still seems to think the average Victorian is a 70 year old 1st generation decendant of British peers...who knows, maybe their right.

Sure Victoria is pretty but sorry folks, so are a 100 other towns in this great country. Victoria is way overpriced for a town that is really just a glorified retirement park...ouch, that hurt.

Victoria insulated from global recession and the historical inevetibility of downward trends in housing prices? Oh my, oh my, what funny little town this is.

Vicguy said...

I was in Osoyoos in 2000 and it was 40 degrees, even on a boat and jumping in the lake I almost melted and I had been up there for many summers previous,that was frigging hot.
Can you imagine with global warming how hot it might get up there ? I'll stick to the coast thanks,plus the smog in the valley in the summer and winter when the wind dies for a week or two at a time with all the increased population was really brutal too. Nice place but I wouldnt want to live there again.

Anonymous said...

Victoria also has the highest amount of homeless per capita in Canada and many more are moving from Vancouver since they are trying to clean up the East Side.

We have had friends from Toronto, Wpg. Europe come here and they can't believe it.

This is also a negative for retirement here.

Village said...

When I'm old and perpetually cold I'll enjoy Osoyoos heat. Winters might be another thing. I can't stand driving through Kelowna and Vernon.

But back on topic, wouldn't it serve that the US is de-coupling from globalization as well. They are losing manufacturing jobs, technology jobs and well it appears in everything except barista's and financials. Can an economy survive on just on those two. I'd wager on that answer being no.

olives said...

From the Housing Bubble Blog:

The Canadian Press. “Forestry company Tembec Inc says it will shut down its Kirkland Lake, Ont. engineered wood products mill for at least two months to cut inventories because of the slumping U.S. housing sector.”

“‘Demand for lumber is down sharply, driven primarily by the dramatic decline in the level of housing starts in the United States,’ said Dennis Rounsville, president of Tembec’s forest products group. ‘This decline in demand has resulted in both lower prices for lumber and reduced operating rates in sawmills across Eastern Canada.’”

The Prince George Citizen. “Tolko Industries reacted Monday to continuing poor lumber markets and other cost issues by announcing a series of temporary sawmill shutdowns at its Interior operations.”

“‘The decline in U.S. housing starts, which has resulted in depressed commodity pricing, coupled with a strengthening Canadian dollar and high transportation costs have forced us to make these difficult decisions,’ said Mike Harkies, general manager solid wood and kraft papers for Tolko.”

“Lumber prices, driven downward by slumping U.S. housing starts and an oversupply of existing unsold homes, have dropped below the $230 US level, significantly lower than the highs of $400 US reached in 2004 and 2005.”

“The price levels, coupled with the impact of a higher Canadian dollar compared to the U.S. currency, haven’t been seen since the early ’90s, said forest industry analyst Kevin Mason.”

“‘It is very ugly out there,’ said Mason.”

hhv said...

Our economy has definitely shifted towards more service related jobs... but remember the immense push for skilled trades workers?

Lumber prices are just the beginning. 2010 construction is on pace. There will likely be no big push to finish like there was in Athens 2004. I think the next set of stats to come down will be labour-related ones. Think you that some of those US tradespeople may start popping up in BC and Alberta to reduce our so-called shortage?