Scotia Bank’s rose coloured glasses

Scotia Bank released a report today with a downright rosy appraisal of our current economic situation here in Canada.  Two points I want you to see:

1)  They are examining the exact same data I present to you every day, yet come to completely different conclusions

2)  Remember, they’re somewhat bound in what they can say when it comes to real estate in Canada, as they require perpetual credit expansion to ensure profitability.  In  fact, last week I wrote a piece about why the banks must lie through their teeth.  It may be worth re-reading before we look at this gem from Scotia.

The data

Let me show you the data they examine in their report.

“Canadians have become bigger borrowers. By one common measure — debt-to-income — we are establishing new record levels of indebtedness well above the euro zone average, and closing in on other high-debt advanced nations, including the U.S., the U.K. and Australia (chart 8). By mid-2010, household credit market liabilities as a share of disposable income totalled 144%, just shy of a high of 146% in March.”

“Rising debt levels also reflect increasing homeownership. Supported by favourable demographics, a strong economy and steady job gains, and mortgage market innovation, Canada’s homeownership rate is likely hovering around a record 70% today, up from  62½% in 1991. With its relatively more rapid rise, Canadian homeownership has edged out the U.S. and the U.K., and rivals Australia”

Favourable demographics?  I disagree!

So, home ownership rates and debt levels are supported by, “a strong economy and steady job gains, and mortgage market innovation”. Funny, I would have argued that the strong economy and job growth were supported by artificially high home ownership rates and unsustainable debt levels.  One of us has this dead wrong.  It’s not me!

“The steady rise in household debt mirrors rising household wealth.”

Moot point!  This argument was used extensively in the US prior to their real estate melt down.  Debt to assets looks reasonable….until the largest asset starts to drop in value!  Check out this discussion between Art Laffer and Peter Schiff to see what I mean.  Laffer’s laughable argument is at 1:40.  Schiff responds at 2:10.

 

Back to the report:

“Notable, however, has been the continuing ramp-up of Canadian household borrowing
over the past year and a half when many other advanced nations, the U.S. and the U.K.
included, were deleveraging. In Canada, many households emerged from the recent
global downturn less damaged than their G7 counterparts in terms of job losses and
wealth declines, and more confident to take on additional debt. Unprecedented low
interest rates, unsettled equity markets and the home renovation tax credit all helped to
spur an increase in housing investment.”

Once again, they’ve got this completely backwards.  It was consumer’s willingness to go into debt that allowed us to kick the can down the road emerge relatively unscathed.  As David Rosenberg noted, virtually all of the economic growth from the recession lows has been the result of:

1) inventory restocking by businesses

2) real estate spending and the associated economic spin-offs.

The Conclusion:

So despite noting the exact same concerns that I have, though often getting the root cause wrong, what was the ultimate conclusion of the report?

“There are important domestic and international economic factors…that mitigate the risk of a big reversal of fortune. Today’s situation is much different than the early 1990s…”

“…these advantages insulated Canada from the worst of the global recession and today still lessen the risks  associated with household sector imbalances.”

It would make you laugh if it were not for the fact that people will actually believe this crap!  As I’ve said before, keep the BS detector cranked up.  They’re starting to lay it on hot and heavy right now in an attempt to keep the sheeple in the pen.

Think for yourself!  Don’t take my word for it.  Don’t take the bank’s word for it.  Weigh it all out and come to your own conclusions.  Then position yourself accordingly.

-Ben

 

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One Response to Scotia Bank’s rose coloured glasses

  1. Get Real says:

    Great post Ben.

    Cannot log on to Garth’s website “The greater fool”. Seems like it has been hacked again

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