FINANCIAL ICEBERG

Always consider hidden risks

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CHARTS

Canada Imports and Exports

Canadian Economy Tumble

( From CPB, Statistic Canada , Globe And Mail , BOC, Motley Fool )

Global World Trade Volume

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Given the historical relationship between cross-border trade and global economic activity, report from the Netherlands Bureau for Economic Policy Analysis that world trade volumes seem to be consolidating but are within a hair's breadth of turning negative on a year-over-year basis suggests that another global downturn is on the cards. ​Weak economic data from Europe, China, Japan and the U.S. reinforced fears of a deeper global downturn.​Europe's troubles continued to hit exporters around the world. ( see graph below ).

Canada is not immune of a global slowdown

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Because exports contribute to near 30% of GDP for Canada, our destiny is tied to the global economy.



Canada's merchandise exports declined 0.9% in december. ​​Volumes largely accounted for the declines in imports and export. Exports declined to $37.6 billion as volumes fell 2.1%, while prices rose 1.2%. Decreases in exports of energy products as well as motor vehicles and parts were partly offset by an increase in metal ores and non-metallic minerals. Exports to the United States fell 4.0% to $27.6 billion and exports to countries other than the United States rose 8.5% to $10.0 billion. ( See graph below )

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Retail Sales

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Because retail sales makes around 71% of total gdp in Canada, it is crucial to the economic activity.



​​Following five consecutive monthly gains, retail sales declined 2.1% to $38.6 billion in December. Excluding sales at motor vehicle and parts dealers, retail sales decreased 0.9%. In volume terms, sales declined 1.6%. ( See graph below )



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The Canadian Economy has been caught in a Perfect Storm : World demand slowing, commodity prices weakening and Canadian consumers extremely leveraged... We will go through the main factors why I think so

Wholesale Trade

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Wholesale sales fell 0.9% in December to $49.0 billion, after rising 0.7% in November. The decrease was largely a result of lower sales in the computer and communications equipment and supplies industry.



Sales in the machinery, equipment and supplies subsector decreased by 4.1%. Every industry in the subsector reported lower sales. The computer and communications equipment and supplies industry (-8.6%) accounted for two-thirds of the decrease.



The second-largest decline was in the personal and household goods subsector. Sales fell 0.7%, mainly as a result of decreases in the toiletries, cosmetics and sundries industry and the home entertainment equipment and household appliance industry.



​The largest increase in dollar terms was in the building material and supplies subsector. Sales were up 1.4% in December, their third consecutive advance.



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Manufacturing sales

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Manufacturing sales declined 3.1% in December to $48.0 billion, the largest decline since May 2009 . Just over half of the decrease reflected lower sales in the transportation equipment industry. Sales were also down in the chemical, petroleum and coal product as well as the fabricated metal product industries.



Sales decreased in 16 of 21 industries, representing 82% of the manufacturing sector. Durable goods sales were down 4.2% while non-durable goods sales declined 2.0%.



Constant dollar sales decreased 3.8%, indicating that the decline in manufactured goods sold was a result of lower volumes.





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Residential and non-residential sectors

Canadian Retail Sales

On the graph above, we see clearly the change in trend since the end of 2011 : since then, Canadian exports has been on a decline, nothing to help the economy...

Commodity Prices



Because Canada is a huge exporter of basic products and commodities, prices of those are really a huge factor of richness. We took the CRB Index to overview the evolution of the prices of commodities. What we observe is the same trend ( with a lag ) as the​​ Canadian exports. ( Compare graph above/below )

Canadian Oil



​​Recent developments in the Canadian energy sector have been ​less favourable than anticipated. Lower energy prices, together with temporary disruptions in transportation and production facilities, have dampened economic activity in recent quarters through a deterioration in Canada’s terms of trade as well as lower investment, exports and production. These developments are estimated to have reduced annualized real GdP growth by 0.4 percentage points in the second half of 2012 .



​​And production of Canadian oil are on the rise : according to the Canadian Association of Petroleum Producers , Western Canada oil supply is forecasted to grow 19% this year from 2011 levels and an additional 7% in 2014 -- to 3.7 million barrels per day.

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But transportation bottlenecks have create a local maket for that oil. ​In simpler terms, the existing network of pipelines isn't just enough to transport the rising volumes of crude oil to refineries across North America.

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The consequence of that ? Western Canadian Select, the local benchmark, is trading at a discount of $37 per barrel compared to the WTI. Which means, WCS is discounted to Brent by around a massive $55/barrel. Obviously, exploration and production companies operating in the sands are losing out on a substantial chunk of possible revenues. All simply because of a lack of takeaway capacity.



According to a Bloomberg report, investment bank PPHB Securities estimates that "Canadian companies are forgoing about C$2.5 billion a month because of the lower prices ." Now that's a huge amount of revenue to lose every month. ( See graph below )



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So declining commodities prices and especially the price for Canadian Oil are not putting the real value of Canadian production and then put pressure for a declining export trend...

Canadian Manufacturing sales

Canadian Wholesale sales

Lower sales were reported in 7 of 11 subsectors, representing 58% of total retail trade.



Most store types typically associated with holiday shopping registered weaker sales in December.



General merchandise store receipts declined 3.7% in December. Store closures contributed to lower sales at department stores (-9.6%). Sales at 'other general merchandise stores' rose 1.1%.



Following a double-digit gain in November, sales at electronics and appliance stores fell 12.1% in December. Sales in this subsector can be affected by the timing of new product releases.



Sporting goods, hobby, book and music store sales declined 1.8%, more than offsetting the increase in November.



Furniture and home furnishings store sales decreased 1.3%. Declines at both furniture stores (-1.0%) and home furnishings stores (-1.6%) did not offset the gains in November.



Sales at clothing and clothing accessories stores rose 0.4%, a third increase in four months.



On an annual basis, retailers sold $467.8 billion worth of goods and services in 2012, up 2.5% from 2011. Sales growth in 2012 slowed compared with gains of 4.1% in 2011 and 5.6% in 2010. Retail sales in volume terms rose 1.6% in 2012.



About half of the growth in retail sales in 2012 came from a 5.6% advance at motor vehicle and parts dealers. According to the New Motor Vehicle Sales Survey, most of the growth came from sales of passenger cars.



Receipts at general merchandise stores increased 3.8% on the strength of the 'other general merchandise stores' category.



Gasoline station sales rose 2.4% in 2012, mainly as a result of higher prices.



Electronics and appliance stores posted a 5.7% decline in 2012, more than offsetting the sales increase registered in 2011.







But when we consider the trend by observing the year-over-year cahnge in % ( See graph below ), the result are scary at negative 0.7%.

And if we take into account the inflation rate at +0.5% yoy, we obtain real retail sales at negative 1.2% : just scary!​

Construction

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Buiding Permits

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The total value of building permits issued by Canadian municipalities declined 11.2% to $5.7 billion in December, following a 14.5% decline in November. This decrease resulted from lower construction intentions in both the residential and non-residential sectors.



Construction intentions in the residential sector fell 13.1% to $3.3 billion, following a 7.0% decrease the previous month.



In the non-residential sector, the value of permits declined 8.5% to $2.5 billion in December, the third decrease in four months.



Residential sector: Lower construction intentions for single-family and multi-family dwellings



Municipalities issued $1.1 billion worth of building permits for multi-family dwellings in December, down 24.6% from November. This was the sixth consecutive monthly decrease and the lowest level since February 2011.



Construction intentions for single-family units fell 5.3% to $2.1 billion in December, the third straight monthly decrease.



At the national level, municipalities approved the construction of 13,897 new dwellings in December, down 15.2% from November. This decrease was led by a 22.1% decline in multi-family units to 7,630. At the same time, the number of single-family dwellings decreased 4.9% to 6,267 units.





Construction activity are making 7% of gdp in the Canadian economy, unsutainable!​​

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Canadian household debt

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​Canadian household debt, too, is at all-time highs. Today, the balance sheets of households are stretched. After 11 consecutive years with household outlays exceeding disposable income, household debt burdens have increased substantially. Household debt as a percentage of disposable income has risen by almost 60 percentage points to 165 per cent today, and Canadians are now more indebted than the Americans or the British. ( see graph below ).