China -- not Greece -- threatens Canada

China -- not Greece -- threatens Canada

China -- not Greece -- threatens Canada While advisors are smart to consider the possibilities of Greece being a contagion for other countries leaving the EU such as the UK, economist Dr. Sherry Cooper makes it abundantly clear that China, not Greece, is the more worrisome economic situation when it comes to Canadian investors.
“Oil prices have fallen sharply once again in recent weeks, driving the Canadian dollar down sharply yesterday,” Cooper wrote in her newsletter Tuesday. “Adding to the loonie's rout was the news that business spending plans for non-residential construction, machinery and software have been slashed, largely reflecting the cutbacks in the energy sector.”
The Chinese buy Canadian oil by the tanker load.
A further decline in Chinese stocks means the country has less money to invest here in Canada including the purchase of oil, natural gas and other energy resources. In addition, it’s possible the decline in stock prices in China becomes a domino effect in other parts of the world and Canadian markets would no doubt feel some pain given our preponderance for energy and financial stocks.
Not convinced that China is staring into the financial abyss?
The government is so desperate to shore up the market that homes are now acceptable collateral for borrowing to buy stocks,” Cooper writes. “China could well be setting the stage for another financial time bomb to match its local government debt and real estate bubbles.”
The Chinese middle class have invested heavily in stocks in part because of the government discouraging consumer real estate investment. As many have purchased stocks on margin and are now facing margin calls, the scramble for cash has the potential to further exacerbate the current economic slowdown.
“The Chinese stock market has always been volatile and anyone who has been invested for more than the past few months has done well,” Cooper says. “Nevertheless, the economic slowdown is troubling and already impacting commodity markets and resource-led economies all over the world.”
Canada’s at the top of the list.
See more: Advisors: China got you worried?
  • Dan Moore 2015-07-08 10:25:52 AM
    The real threat to the Financial/economic system in Canada is hypothecation with the defaults in the EU and China looming in my mind.

    The shadow banking system pledging Canadian banks pledging client deposit assets through the UK to obtain funding for themselves is common practice and unregulated and off balance sheet. Think RBC and the recent cut of credit rating from exposure to shadow banking re-hypothecation.
    The fact that these Canadian banks are allowed to do this around regulation and without their depositors knowledge says it all!

    Firms have been piling into re-hypothecation activity with startling abandon. A review of filings reveals a staggering level of activity in what may be the world’s largest ever credit bubble.

    Engaging in hyper-hypothecation have been Goldman Sachs ($28.17 billion re-hypothecated in 2011), Canadian Imperial Bank of Commerce (re-pledged $72 billion in client assets), Royal Bank of Canada (re-pledged $53.8 billion of $126.7 billion available for re-pledging), Oppenheimer Holdings ($15.3 million), Credit Suisse (CHF 332 billion), Knight Capital Group ($1.17 billion),Interactive Brokers ($14.5 billion), Wells Fargo ($19.6 billion), JP Morgan($546.2 billion) and Morgan Stanley ($410 billion).

    These contracts come ahead of bank depositors in the event of default and are many times the bank assets.

    Spreading your risk staying within CDIC guidelines and using multiple deposit accounts will mitigate some risk.
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  • Peter 2015-07-08 12:56:15 PM
    Not much has changed in the financial industry since the global economic meltdown of 2008-09. Advisors have to do a lot more compliance, but the Bay St and Wall St. still lie and cheat. Nothing matters but greed, bonuses and profits.
    The world economy is in shatters (despite the government and bank rhetoric) yet the markets are again at near record levels. What is wrong with this picture?
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  • Robert Roby 2015-07-08 5:18:25 PM
    Dan..well said. History proves that time and again the big boys put the screws to the small guy. This will never change. I hate to think what it would be like to live in a communist country or a dictatorshi
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