October 30th Weekly Recap

Download this week’s special report by Jim Willis:
Future of Energy – Short Term Global Crude Outlook


Stark Warning About Canadian Real Estate

Week-end Savant Report Summary for October 30, 2015
By Jordan Wirsz

This week proved to be a capitulation week for a number of markets. Gold has fallen substantially from recent highs, closing today (Friday, 10-30) about $1140, which is well off the $1190 market it had a few weeks ago. This drop was precipitated by Venezuela dumping loads of their gold holdings to fund their expenses. It was rumored that Venezuela might have sold as much as 80 tons of the precious metal, only confirming that gold is no longer valuable enough in foreign government’s minds to hold on to in tough times. The bottom line for this move in gold and Venezuela’s actions continues to be a few key points:

  1. The commodity markets still can’t get ahead of themselves. Commodities are in a bear market cycle – nothing is going to change that, even more of the low interest rates, or countries in trouble.
  2. The Fed keeping interest rates low isn’t propping gold up, so as soon as the Fed DOES increase rates, we’re likely to see some serious selling in the gold market.
  3. The fear factor that keeps gold propped up just isn’t there anymore. Equities are remaining quite strong, the economy is clicking along, oil prices are very low, real inflation is low, and consumer spending is up… Not much to be worried about!…Except in Venezuela, in which case gold is just another commodity you can sell to fund your country a while longer…

I do want to take a few moments to talk more about the Canadian real estate market, however…This is very important for ALL investors with exposure to Canada in any way.

The Canada Mortgage and Housing Corp. (CMHC) came out this week with stark warnings for homeowners in Canada. Overvaluation is pretty evident throughout the country. Home prices have INCREASED in the last 12 months, even though economic activity has slowed and the natural resourced based economy of Canada is struggling. This is usually evident of pricing bubbles riding past the peak of mainstream economic indicators. Keep in mind, real estate prices do not decline/increase as fast as other asset classes do, because there is a time lag in closings and sentiment in what is NOT a moment by moment liquid market. One thing is for sure, however, Canadians are paying close attention to real estate values. The average sale price of homes in the top 20 percent of the Vancouver market is about $2.6 million to $2.7 million, but only about $830,000 in the rest of the market. It’s the upper end properties that seem to be pulling up the averages. In Vancouver, Canada’s priciest city, CMHC says it is only now detecting ”moderate evidence of overvaluation.”

Mark my words, the Canadian real estate market nationwide is in for a double digit correction that could easily exceed 25-30%. Now is NOT the time to be buying Canadian real estate, and if you are a seller, now is not a bad time to start taking action to get out. Here is what Canadian home prices look like in comparison to the U.S.

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The Canadian economy may or may not prove to be as resilient as the U.S. economy after the crash. Natural resource based economies usually take some time to recover, as opposed to straight consumer based economies such as the U.S.

Now on to the equities markets – This week, U.S. equities continued to rally the recovery, but most technical indicators that I look at are overbought. There is little catalyst for increasing prices in equities in the short term – “melting up” is likely the way we go higher, or “drifting down” will be the way we start back into correction mode. At the time of writing this weekly update, the S&P is showing a reversal on the day with a new high for this month, which is a technical indicator of weakling momentum to the upside. If you are a short term investor in equities, it may be prudent to consider lightening your positions if you’re in a profit position. No one knows whether we head higher from here, but my personal bet is sideways to down for equities in the near term. As you can see, the stochastics are in overbought territory with some indecisiveness but turning down at the moment…We may have a little room to run higher, but there is a bigger probability of some downside until we are out of overbought territory, in my opinion.

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Click here to download a special report from Jim Willis, one of our incredibly bright and insightful contributors, money managers, and my good friend. Jim is very knowledge in the energy markets, and his articles are well worth your time.

Stay tuned next week on more apartment housing information as well as the coming wall of commercial loan maturities – we’ll talk about where the opportunities are, where the risks are, and what I’m doing to position my portfolio for 2016 and 2017. We have a GREAT webinar planned for our Savant Report subscribers in November – be sure not to miss it!


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