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Another Bearish Outlook, with not Much to Back it Up

12 May 2013

Who else is growing weary of all the doom and gloom reports surrounding the housing market, and nearly all that have very little in the way of actual facts and stats to back them up. And this time, the opinion that Canada’s market is headed for certain death doesn’t come from a Canadian economist or analyst, but a Swiss investor.

It was the Globe and Mail that ran the interview with Marc Faber, in which he pretty much gave Canada the “hopeless” stamp in all categories. Household debt and the housing market were his two main arguments on why he wouldn’t invest in Canada at all for the time being. But just how good are those arguments? And how closely should we be listening to someone who doesn’t even live in the country?

First he touched on the fact that Canada is “on the expensive side” in general right now, and that this pertains to our household debt levels as well as our home prices. And no, neither can be argued. However, he also states that our debt levels are higher right now than that seen in the United States.

That may be true, but it was also the Globe that just reported that in the U.S., “household debt rose at a 2.5 per cent annual rate in the fourth quarter. It was the steepest gain since the first quarter of 2008.”

That was the U.S. Federal Reserve that released those stats; and we think they’re a bit more reliable than whatever a Swiss investor happens to be glancing at at the time of interview.

And, touching on the fact that we’re such a pricey country right now, Mr. Faber said,

“I think Canada is a case where you  have huge leverage in the private sector and where the economy is slowing down, where you have a strong currency and where the price levels are now relatively high. I don’t think Canada is inexpensive anymore. I travel there all the time, it’s rather on the expensive side. I think there’s significant risk to the Canadian economy.”

But Mr. Faber doesn’t say exactly where he’s visiting in the country. Let’s face it, if you visit Toronto or Vancouver for a week, it’s probably going to be more expensive than if you were to visit Lethbridge or Brampton.

And just how big of a risk to the Canadian economy does he see? Well, a big enough one to predict a crash. Mr. Faber apparently knows that our market will crash, and when it will crash. He just doesn’t have a very good answer as to the why. When asked by the Globe what will precede the crash, his answer was,

“What was the trigger of the ’87 crash when markets fell 21 per cent in one day? What was the trigger of the Nasdaq crash in 2000? What was the trigger of the Japanese crash of 1989? What was the trigger of the 2007 crash that brought global stocks down 50 per cent? We don’t know these things ahead of time, but something will always move markets up and something will always move them down.

“I would guess at the present time, given markets from the 2009 lows have in many cases increased by as much as 100 per cent, that they are no longer very cheap. Something could come along, geopolitically or otherwise. I would be very careful about being overweight in equities. I still have 25 per cent in equities and 25 per cent in corporate bonds.”

So there you go. Even though he seems to somehow know that the markets will crash, even he says that “you can’t predict these things ahead of time.” The biggest question then is, why is he?

With all due respect to Mr. Faber, we think that the next time we want to get an analyst’s thoughts on where the Canadian market is headed, we’ll be sure to ask another Canadian. While it’s important to hear and outsider’s advice, and know whether or not foreign investors sees us a safe place, most people still seem to at least want factual answers when one comes in and starts spelling out the end of the world for us.

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