David Skarica: Canadian Housing Market Spiraling The Drain and Mining ETF’s Have Risks
David thinks the Canadian housing market is a complete bubble. In Toronto you can see steady 20% plus growth year over year. The problems are primarily with smaller sub prime financial groups, like Home Capital which tailor to individuals who can’t get loans from the larger banks. They were issuing a lot of shady mortgages, as a result they now have a run on their bank, having lost most of their capital, are likely to go under. There are other small banks that are likely vulnerable. This sub prime market blowing up, along with a reduced amount of foreign investment in housing, and with the oil market rolling over, could be a downward spiral for Canada.
The GDXJ is upping their bottom tier from 600 million to 3 billion, as a result they will be selling off a lot of their junior holdings. So smaller companies will be opportunities during this re-balancing. David thinks that ETF’s are causing people to be lazy and not do their own research. People have been doing passive investing, thinking it’s the way to go however when ETF’s get too big, and many want to pile out, it puts selling pressure on everything.
There could be a false set of complacency in the markets, as people are thinking that geopolitical risk is off. This could set us up for a nice correction in the second half of the year. He says the market has become increasingly thin, this tends to happen during the end of these rallies.