Monday, 3 March 2014

Daily Reads: 1. Middle Class. 2. Pimco.

The Star: Closer reading of StatsCan report troubling for middle class

Most of the net worth increase in Statistics Canada survey is due to phenomenal inflation in home values, not in income growth.


"First, most of this net worth increase is due to phenomenal inflation in home values. The median value of residences was up almost 50 per cent since 2005, which includes the period in which Canada was in recession (when, other things being equal, one would expect house prices to flatten or decline). Anyone who thinks these increases are normal and will continue indefinitely believes in Santa Claus or still holds stock in Bre-X."

"Do these numbers suggest a financially thriving middle class? Hardly. They paint a picture of a population that has unprecedented access to credit at historically low interest rates. The principal residence has become a new version of the ATM machine, allowing people to access credit against equity in their house to fuel consumption. This is a relatively new phenomenon in Canada. But is it a good and sustainable thing for personal finances and the national economy?"

Pimco takes more bearish stance on Canada
Mar 2, 2014
Pimco, the world’s biggest bond investor, has slashed its exposure to Canada – one of its top country holdings – as it predicts home prices will start to fall this year amid broader concerns that it could be the next global housing bubble ready to burst.”
“Pimco’s flagship $237bn Total Return Fund, managed by Pimco founder Bill Gross, halved its exposure to Canadian debt – which includes provincial bonds – to 2 per cent of its portfolio in the third quarter from almost 4 per cent a year earlier, according to data compiled by Morningstar.”
““I’ve been talking with clients and writing about how the housing market is overvalued,” said Mr Devlin. “The change this year would be that I actually think it starts this year.””

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