EDMONTON -- Brad Willock, a vice-president with RBC Asset Management, says economies and stock markets are being driven by two major events -- the floundering United States housing market and movement of people in China from farms to cities.
In his annual presentation for the Salloum Wealth Management Group, Willock said that the U.S. housing market is "the epicentre of the world's issues right now." He said protracted low interest rates after the tech bubble broke and plunged the U.S. into recession in 2001 caused Americans to buy all sorts of houses, and banks recklessly bundled mortgages and dealt them off to investors.
"We had people working for us down in the U.S. call up using a fake name and fake address trying to get as much as they could from a mortgage dealer, and the best was $247,000 in 13 minutes," said Willock.
"Banks there did not care whether they got it back, because they passed the mortgage on to an investor -- a hedge fund, pension fund or insurance company.
Willock said RBC estimates companies will have to write off about $650 billion in bad mortgages, two-thirds in the U.S. and one-third global. He added that a little more than half has been accounted for already, and "typically the stock market doesn't go lower after you've reached the halfway point."
But stalled U.S. home sales are slowing that economy.
"Turnover is the single greatest generator of economic growth in terms of consumer spending. When you sell a home, two-thirds of the value is set free into the economy; as a seller you buy something else which regenerates fees, and the person who purchases the home gets a basement redone or a fence put up."
He said house prices, historically three times median income around the world, had risen to 4.2 times. But with the flood of vacated houses in the U.S. expected to peak during the last half of this year, the time between then and 2010 presents a perfect storm to buy: "The Canadian dollar is expensive, U.S. people are distressed sellers and afraid to buy, while you shouldn't be."
RBC thinks the Canadian dollar will trade between 95 cents US and $1.05 for "a good long while," and that Canada is "actually now regarded as maybe the best place in the world to invest, period. Other than Brazil, nobody else is as close to being in as good a situation as us. I think it's a trend that probably has 30 years to it."
Opportunity is knocking. turchan@telusplanet.net
© The Vancouver Province 2008