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Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk

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Ratings agency Fitch had already warned about Canada’s magnificent housing bubble that is even more magnificent than the housing bubble in the US that blew up so spectacularly. “High household debt relative to disposable income” – at the time hovering near a record 164% – “has made the market more susceptible to market stresses like unemployment or interest rate increases,” it wrote back in July.

On September 30, the Bank of Canada warned about the housing bubble and what an implosion would do to the banks: It’s so enormous and encumbered with so much debt that a “sharp correction in house prices” would pose a risk to the “stability of the financial system” [Is Canada Next? Housing Bubble Threatens “Financial Stability”].

Then in early January, oil-and-gas data provider CanOils found that “less than 20%” of the leading 50 Canadian oil and gas companies would be able to sustain their operations long-term with oil at US$50 per barrel (WTI last traded at $47.85). “A significant number of companies with high-debt ratios were particularly vulnerable right now,” it said. “The inevitable write-downs of assets that will accompany the falling oil price could harm companies’ ability to borrow,” and “low share prices” may prevent them from raising more money by issuing equity.

In other words, these companies, if the price of oil stays low for a while, are going to lose a lot of money, and the capital markets are going to turn off the spigot just when these companies need that new money the most. Fewer than 20% of them would make it through the bust.

To hang on a little longer without running out of money, these companies are going on an all-out campaign to slash operating costs and capital expenditures.The Canadian Association of Petroleum Producers estimated that oil companies in Western Canada would cut capital expenditures by C$23 billion in 2015, with C$8 billion getting cut from oil-sands projects and C$15 billion from conventional oil and gas projects.

However, despite these cuts, CAPP expected oil production to rise, thus prolonging the very glut that has weighed so heavily on prices (a somewhat ironic, but ultimately logical phenomenon also taking place in the US).

Then on January 21 – plot twist. The Bank of Canada surprised the dickens out of everyone by cutting the overnight interest rate by 25 basis points. So what did it see that freaked it out? A crashing oil-and-gas sector, deteriorating employment, and weakness in housing. A triple shock rippling through the economy – and creating the very risks that it had fretted about in September.

“After four years of scolding Canadians about taking on too much debt, the Bank has pretty much said, ‘Oh, never mind, we’ve got your back’, despite the fact that the debt/income ratio is at an all-time high of 163 per cent,” wrote Bank of Montreal Chief Economist Doug Porter in a research note after the rate-cut announcement. Clearly the Bank of Canada, which is helplessly observing the oil bust and the job losses, wants to re-fuel the housing bubble and encourage consumers to drive their debt-to-income ratio to new heights by spending money they don’t have.

And what Fitch worried about concerning the housing market in July – that “high household debt relative to disposable income has made the market more susceptible to market stresses like unemployment…” – is now coming to pass.

On Wednesday, Statistics Canada rejiggered its job creation and unemployment numbers by slashing the number of jobs created in 2014 to a mere 121,000. December proved to be even drearier than previously reported: a total of 11,300 jobs were lost.

Now layoffs have begun to cascade through the Canadian oil patch, with 20,000 to 25,000 job cuts already announced so far. They will trigger additional job cuts in other industries. Plus Target’s 17,500 cuts to hit when it leaves Canada. Alberta’s Labor Minister, Ric McIver, told AM 770 on Saturday that the number of unemployed workers would jump by 22%. And he exhorted the government and employers to think long-term about retaining skilled workers for whenever the good times might return.

John Garth Turner, former Member of the House of Commons and now best-selling author in Canada, explained it this way:

The fewest number of people are currently working in Canada since back in 2000, which is a big black eye for a government that slashed interest rates, crushed the dollar, and added $170 billion in national debt over the last six years. Now it doesn’t even have the stones to bring forth a budget, or warn people from scarfing down more debt when the party’s clearly over. Sad.

The oil industry in the US too is dead-serious when it talks about slashing operating costs and capital expenditures. Preserving cash is suddenly a priority, after years when money was growing on trees. And cost cutting has reached frenetic levels. Read… Oil Price Soars, Rig Count Plunges Worst Ever, But Bloodletting Just Beginning  

 

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Mon, 02/02/2015 - 03:44 | 5733965 Renfield
Renfield's picture

Canadians have had no morals since at least the turn of the century, no spine since sometime in the late '70s, and no integrity ever. "Peacekeepers"? Not while Canadians continue to suck White House warmonger cock.

As a country, Canada's moral compass can be seen on display any night walking the corner of Church & Jarvis. The only thing Canadians dread worse than having to take a stand, is finding themselves unpopular. The joke is that now Canada is quickly becoming as friendless as its smarter older brother, the United States.

Mon, 02/02/2015 - 09:36 | 5734349 shovelhead
shovelhead's picture

Hoser. Go hang yourself with a shit rope.

You don't see any Canadian stoners bustin caps for Uncle Sam. Those are just the guys who sucked at hockey and needed something else to do. As long as Canada has stoners, their morals will be fine.

Rule # 1: Don't be a dick.

       # 2: Don't Bogart

I forget the other ones but those pretty much cover your shit.

Canada will be fine. They have weed and real maple syrup. Have you ever eaten pancakes with real maple syrup after rippin a bong?

Fuckin awesome, eh?

Mon, 02/02/2015 - 03:40 | 5733963 Radical Marijuana
Radical Marijuana's picture

Strange comment, litemine.

I was born and raised on the barbaric fringe of the British Empire, known as British Columbia, although I am currently living in Québec. I will not allow anyone to assert any monopoly on morality, which attitude extends to cover both you and I.

Since I am Canadian,

by definition, I hold

Canadian Morals.

Sun, 02/01/2015 - 23:54 | 5733552 ExploitedCitizen
ExploitedCitizen's picture

I suspect oil will rise back to $80 sooner than later.

Canada is running on borrowed money and immigration.

Mon, 02/02/2015 - 00:56 | 5733739 Canadian Dirtlump
Canadian Dirtlump's picture

Using srsrocco's supply and demand data as well as understanding in some measure how commodity ( and all other ) markets are gamed I tend to agree.

 

As a guy who lives the oil market everyday in canada i can say there is no shortage of concern but also many juniors and probably others who are well hedged given the hysteria of peak oil. As a pipeline and facility company we are concerned but not despondent. There is work but we are looking at overall asset levels and rightsizing.

My bet is we see yet a cresting peak in north american production with an accompanying evisceration of the north american industry focused in the tar sands and us shale oil.

Once that is digested we can recover and if there is geopolitidal strife then it will be even quicker.

As to the canadian housing bubble. I have remarked before that cashing out of the cdn market and refusing to get back in was a major factor in the end of my marriage.

After being called scrooge numerous times due to my silver stack and watching me ex leverage a house on among other things my engagement ring and my monthly support i dearly hope to see the real estate market here experience a grand mal seizure just before the oil market recovers.

 

My convictions will be right. The timing is murky though. If this is the end of the line then none of the prognosticating matters and I guess im more ready then most too. Eh.

Mon, 02/02/2015 - 09:08 | 5734288 onthesquare
onthesquare's picture

dirtlump:

Joe Kennedy would be proud.

It is odd that the BofC making all those warnings to slow down spending then, up against heir harpers wall, lowing interest rates.  No independent thought here.

Sun, 02/01/2015 - 23:49 | 5733521 q99x2
q99x2's picture

Buy Low and Sell High bitchez.

Sun, 02/01/2015 - 23:29 | 5733426 35 Whelen
35 Whelen's picture

It'll be interesting, a year from now, what ZH take will be on things if the Canadian Housing bubble just deflates only a bit; and oil charges back to $100 or better for Brent.  Keeping in mind that the real estate "bubble" is not related much to the oil industry as it is focussed on Vancouver and Toronto.

The Oil and Gas sector, including mining (Mining is huge in Canada BTW), is worth 8% of Canada's economy.  Oil, therefore, is well south of 8%.

As I've said on ZH before; the single biggest impact in Canada will be felt to Government revenues in Alberta, and some in Saskatchewan, and a fair bit federally.  Job losses will be largely felt in Alberta.

The North American oil and gas sector is incredibly efficient and quick to react.  They are still pumping like crazy around here, and the bigger players are heavily hedged so they are still in the money.  But, drilling has all but stopped ... I don't think you realize the world of hurt ya'all are in for.

My prediction ... enjoy your low gas prices.  By this time next year it'll all be just a memory. The best solution for low oil prices; is low oil prices.  $90 oil by this time next year if not a lot more.

 

Mon, 02/02/2015 - 08:37 | 5734242 oudinot
oudinot's picture

35: Canadain oil exports are (or were) 40% of ALL Canadian exports.

Mon, 02/02/2015 - 21:33 | 5737283 35 Whelen
35 Whelen's picture

A number of pieces just came out nationally about the structure of Canadian GDP.  Oil, Gas, and Mining are 8% total as reported by Stats Can.  It's a fact; at least according to the official Canadian Records Organization.

Mon, 02/02/2015 - 11:52 | 5734841 CCanuck
CCanuck's picture

oudinot,

Where did you get that number? Not doubting it, just looking for a reference.

Thanks

Ccanuck

Mon, 02/02/2015 - 00:30 | 5733667 FIAT CON
FIAT CON's picture

1st. Oil Sands is considered mining.

2nd. I cannot see oil reaching a higher price than supply and demend dictate, speculation will play a roll but not as much as the world economy, which by the way is in the tank.

Demographics is the decider, Our financial system ie. the economy is designed that more and more debt needs to be created or else, and with the baby boomers retiring and not spending and borrowing there is not enough youth under them to keep the ponzi game going. This should have been predictable.

Rememer as the baby boomer grew up they needed schools, toys, cars, college, homes, and now there is nothing but old folks homes and hospitals needed. 

 Will our quality of life diminish?

 Will our children have the same quality of life?

 I think we can see that this is not going to happen for them.

 

Sun, 02/01/2015 - 22:46 | 5733341 Radical Marijuana
Radical Marijuana's picture

Canada is desperate to diversify its markets, since it's dependent on USA:

http://newworldorderg20.wordpress.com/2014/11/12/canada-gets-yuan-trading-hub-status-would-be-too-obvious-if-u-s-got-it-first/

Yuan trading-hub status a major win for Canada

http://www.vancouversun.com/life/Islamic+banking+boom+Canada/10682520/story.html

Islamic banking set to boom in Canada

Sun, 02/01/2015 - 23:57 | 5733554 litemine
litemine's picture

We shall see. The Canadian Federal Government, which is controlled by Ottawa will proceed with pipelines both West and Energy East. We will create Jobs by refining and sell our Oil overseas. We again needed to learn that America has NO FREINDS and we will cut them out of our resource equation. The $US. is on the verge of collapsing and the high value of outstanding loans will come back to the FED which is owned by the private Bankers who have you Government manipulating Numbers . The official unemployment numbers hold the Too FEW Americans that hold jobs, the savers that are having their savings stolen in a spot where the debt placed on your youth will make them slaves to the Rich.

It's Minions like yourself that is a paid Shill or racking profits in your stock prices. The stocks that are climbing hold not real values and the rug shall be pulled out from these that Gamble. Are you Happy what your deeds are doing to your country Men, Women and Children?    Hell is coming, so is the revolt that has started in Europe.......It will grow.

Mon, 02/02/2015 - 00:18 | 5733635 Big Brother
Big Brother's picture

The $US. is on the verge of collapsing

You clearly have not looked at the DXY lately.  

Canada = no IP w/almost entirely a Class 1 economy = Dutch disease.  

As long as oil is traded in dollars it's going to be a long slog.  I will visit Gunisao Lake again when the USDCAD hits 1:1.4.

Mon, 02/02/2015 - 00:07 | 5733595 nightshiftsucks
nightshiftsucks's picture

Yeah cause China's economy is real and they're going to grow at 7.5% forever/sarc

Sun, 02/01/2015 - 22:41 | 5733325 demur
demur's picture

Governments print money buy bonds and pay socialist benefiaciaries. Sociaist bendficiaries pay taxes on printed money. Welcome to the new world economic order. 

Sun, 02/01/2015 - 22:38 | 5733319 Renfield
Renfield's picture

I'm waiting for all the hotshot traders on here to start swapping stories of how they got rich shorting Canadian banks. That's if there are any left here who are still... courageous... enough to be picking up the pennies that are lying out there quietly on the road.

Mon, 02/02/2015 - 10:00 | 5734425 AbbeBrel
AbbeBrel's picture

Humm good point - the Royal Bank of C is not feeling too Royal -

It is holding a 20% off sale in the last month alone (NYSE:RY), and the P&F chart suggests it had a nervous breakdown in Jan, target 44 (another 20% down)...

http://stockcharts.com/def/servlet/SC.pnf?c=RY,P&listNum=

Sun, 02/01/2015 - 22:36 | 5733314 Schacht Mat
Schacht Mat's picture

B of C lowered the rates to try to help people ride out the downturn; they are betting on the oil pirce drop lasting less than a year.  Unfortunately for Canada, I would take the other side of that bet.  Oil will be down for at least 18 months unless of course the table is rigged and there is a black swan in the works (say a war with Russia) that causes a sharp increase in demand and/or a reduction in supply.  Since I doubt the B of C would be allowed to become aware of such an event, I'm guessing they are trying to extend and pretend.

Sun, 02/01/2015 - 22:27 | 5733283 0b1knob
0b1knob's picture

Canada  added $170 billion in national debt over the last six years.

So they added like two MONTHS of US deficit spending in six years?   How lame.

Mon, 02/02/2015 - 09:16 | 5734299 onthesquare
onthesquare's picture

$170 billion six months ago was worth more then than now.

How many F35s could we buy now from our merican cousins?

Anyone voting for harper and baird is an idot but, then again, consider the alternative?  We are so F**ked

Sun, 02/01/2015 - 23:11 | 5733353 Radical Marijuana
Radical Marijuana's picture

Ob1knob:

One should include provincial debts.

However, your attitude is basically correct that the Federal Reserve Board, (or China's central bank for that matter, etc. ...) have created enough "money" out of nothing in the previous six years to be able to buy everything that could be sold in Canada several times over!

Regarding details about the ways in which government and personal debts increased in Canada over the last 6 years, I REPEAT the link to what I commented previously regarding this story: Oil & The Looming Canadian Housing Bubble Crash:

http://www.zerohedge.com/news/2015-01-02/guest-post-oil-looming-canadian...

I am starting to WORRY that the BAD trends are going to get personal for me in the future. As long as Canada overall stayed blowing bubbles. then I appeared to be similarly situated. However, after the Canadian bubbles pop, then I too expect to get personally splattered by the evil events! All of the economics that I have been academically discussing may well start to get much more real to me and many others, who were previously still relatively comfortable in Canada.

Mon, 02/02/2015 - 07:00 | 5734127 new game
new game's picture

the list grows: japan, china, australlia, europe, russia, ussa, mid east turmoil at 45/bbbl, and now canada-all in aa state of economic demise. we can add brasil, india, and at least 20 more coutries in contraction and/or turmoil. all good according to reports by the matrix controlled planners. neo-conic progressive socialistic run societies pushing the rope. the rope is the noose of debt unserviceable soon...

ps. rm - i was splattered in 08-09 by mericas hsg bubble bust. it isn't fun trying to recreate my value in another vein. we find what we are made of. set aside your knowledge because nobody cares what the fuck you think. the matrix only needs your labor to exploit without any sort of compassiion. the world has become sterile in the (for the most part)workplace, ie nomi price nails it - paridyme shift towards sociopathic "take the last drop b/4 it's gone" attitude. reeks of desparation with an under current of violence starting verbal...

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