Housing supply

BMO chief economist debunks ‘myth’ of housing supply in Canada

A daily digest of research and analysis from Globe and Mail market strategist Scott Barlow

BofA Securities’ global quantitative strategist Nigel Tupper maintains a growth model he calls “Global Wave” to gauge the strength of economic growth. The components are industrial confidence, consumer confidence, capacity utilization, unemployment, producer prices, credit spreads and corporate earnings revisions.

The model now clearly indicates a slowdown in growth,

“The global wave dropped again this month and has now dropped for five months. Weakening earnings expectations and moderating confidence are weighing on the global wave. The US Fed seems focused on raising short-term rates to deal with inflation which has the potential to weigh on the global economy. A slowing global wave suggests a defensive stance for investors. Unusually in a downturn, supply issues lead to higher energy and commodity prices that support earnings expectations for some cyclical sectors, so energy and materials may be an exception in this. slowdown… The components that contributed the most negatively to the global wave this month were the global earnings revision ratio which continues to decline as downgrades gather pace, and global consumer confidence and confidence global industrial sector which have fallen in more than 70% of countries.

“BofA: ‘Global surge dropped again this month and has now dropped for five months'” – (research excerpt) Twitter

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BMO Chief Economist Doug Porter adamantly denies that Canada’s housing affordability problem has been caused by a lack of supply,

“How many times have we all been told over the past year that much of Canada’s housing market rage is due to the fact that we have ‘the lowest housing supply in the G7 ”? … First, Canada’s supply is not particularly far from the OECD average, and certainly not significantly different from that of the UK, US or Australia. (And we’ve repeatedly pointed out that given a younger population than Europe or Japan, we would naturally have a lower ratio – kids don’t own homes.) Second, a technical point, Canada doesn’t is actually NOT lower than the US, so it’s not even the lowest in the G7. Yet somehow our average home prices are (about) 60% higher on average than in the US, with essentially the same level of supply per capita. Yes, we must do all we can to encourage supply; but clearly there is more at work here than that. “

“BMO’s Chief Economist Disagrees Canada’s Housing Bubble Was Caused by a Lack of Supply” – (research excerpt) Twitter

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Citi Commodities Analyst Ephrem Ravi believes the strong rally in commodities is coming to an end,

“Many investors believe that the Russian-Ukrainian crisis reinforces an emerging commodity supercycle. Citi’s view is to tread lightly on this thesis. The outperformance of commodities from 2020 was the normal result of an economic shift from recession to growth, where commodities typically outperform. It was followed by the first energy crisis of the energy transition, reinforced by fears of supply disruptions from Russia/Ukraine which in fact inflated the prices of raw materials. Neither a new surge in demand nor a new supply shortage due to lack of investment is universally on the horizon for commodities. … headwinds from China’s continued lockdowns, likely reduction in European economic growth, rising US interest rates and challenges to emerging market growth given currency depreciations and capital flight are playing a role.

“Citi: ‘The world will likely see the end of a strong commodity cycle'” – (research excerpt) Twitter

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Derivation: “Taiwan publishes military invasion survival guide for its citizens” – Gizmodo

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