According to ex-Lehman Brothers trader and a financial writer Jared Dillian the Canadian economy, which is hit by a sharp decline in oil prices, is struggling with a property market approaching the peak of a massive bubble.
As Canada’s mortgage market is not covered by any form of back-up security, leading to a expected property crisis that will last much longer than in the USA, where the loans are backed, Dillian said in an interview with Mauldin Economics.
The former trader says when the bubble bursts, it will be quite different from the sharp and sudden crisis in the USA in 2008, due to the structure of the Canadian mortgage market.
Almost all mortgages in Canada are “recourse mortgages”, with homeowners behind on payments are not able to able to walk away from.
Dillian expects the Canadian dollar, currently trading around 1.30 against the US dollar, to drop to 1.60 against the greenback in the wake of the possible raising of interest rates by the US Fed with the Bank of Canada either to cut the rate or leave it at the current 0.5%.
The key rate must be cut below zero in 2018. Dillian said the shorting of the Canadian dollar is seen as “one of the best macro opportunities over the next couple of years.”
Quickly growing consumer debt is another concern for Canada’s economy. According to Dillian, if economic data remains poor the outlook will remain far from perfect.
Last week, the country’s Prime Minister Justin Trudeau said the economy was facing real challenges, in part because it is so dependent on trade. Trudeau didn’t say if the government would be able to stick to its plan to limit the current budget deficit to $22.6 billion.
RT.com / ABC Flash Back Monetary News 2018.