Macro Tourist And The Canadian Candyman

Read more from The Macro Tourist


Want to know my favourite type of celebrities?  The ones who can laugh at themselves.  Most take themselves way too seriously, but every now and then a fellow like Wilford Brimley scrolls across my twitter feed.  For those who don’t know Wilford, he did that infomercial about diabetes and has been the butt of jokes ever since.  Not one to shy away from the comedic opportunity, Wilford recently tweeted out the following picture:


Now at this point you are probably asking “what does this have to do with the markets?”

Good question.  The inspiration comes from a recent question that BNN Bloomberg reporter Andrew Bell posed to Bank of Canada Governor Stephen Poloz:

“In your speech today you said that the high household debt load is the most important risk facing the financial system, but aren’t you the man whose to blame for that?  You’re the CandyMan.  You kept interest rates so low all those years.  You’re the main author of that bubble, aren’t you?”

I felt like it was a somewhat aggressive assertion on Andy’s part.  Hats off to you Andy for holding his feet to the fire.  Poloz can’t lecture us about household debt when his interest rate policies helped fuel the Canadian consumer debt orgy.

But calling him the Candy Man?  Bold play.  Gutsiest move I ever saw man.

Now Andy, I am not sure how old you are, but I am assuming you were referencing Jerry and the boys’ version of CandyMan and not the more likely millennial version by Christina Aguilera because I don’t think Poloz wants to be known as that sort of CandyMan.

How did Poloz take your question?  Well, after collecting his thoughts, he defended his actions in typical Central Banker fashion:


For those who don’t want to watch the response, I have transcribed Poloz’s comments:

Well, ummmm, a lot of things may have contributed to it Andy.  Certainly I would say that keeping interest rates low, as many countries have had to do, for over ten years now, if we go back to 2008,9, 10, we had a lot of fiscal action at the same time as monetary stimulus.  And then globally, we saw enough of a recovery at that time in 2010 that governments decided – ok, we have things back on track so we can start consolidating the fiscal side and monetary policy makers figured we’d be coming out of it too.  

But then the whole economy faltered again, and we had that period we call the serial disappointment and it’s in that phase that monetary policy got stuck in a very stimulative place offsetting the headwinds that are really hard to quantify by conventional analysis.  They are obviously there even though the Canadian economy is at full employment (more or less) and inflation is on target.  We’re there, but with really low interest rates still (from a historical standpoint).  So those low interest rates are still stimulating against some contrary force.  

So, uhh, I mean the fact that inflation is on target today suggests the Bank of Canada has done its job.  Now if there are side effects, one of them that you are mentioning, well those are secondary effects.  They are not our prime mission.  Our prime mission is to stabilize the economy and keep inflation on target.  And we succeeded with that.  

Now this might be what Stephen says to himself so he can sleep at night, but here is the chart of Canadian consumer debt versus our American cousins.


I am calling bullsh*t on the idea that we didn’t blow a monstrous household debt bubble.  Maybe it won’t collapse in on itself – I can buy that.  But Andy was spot on when he called Poloz the Candyman.

I am not here to judge whether the policy was correct or not.  If I had been the Bank of Canada Governor during this period, I too probably would have handed out the candy.

Yet it’s important to realize the Canadian consumer is stretched thin.  The typical American household is in such better shape.  That’s why I love US homebuilders and am shorting the Canadian banks.

Stephen Poloz is scheduled to step down as Governor soon, and although his replacement will most likely continue with the candy, I worry the Canadian consumer is stuffed so full of the sugary stimulant, they are about to pull away from the table and head for a nap.  Trade accordingly.


Speak your mind

This site uses Akismet to reduce spam. Learn how your comment data is processed.

3 thoughts on “Macro Tourist And The Canadian Candyman

  1. There must be something more to that data than simply interest rates set by the Bank of Canada. For most of last 10 years the US federal funds rate has been the same or lower than the Bank of Canada’s target rate.

    1. Housing prices are surely at play here…check out this site and the comparisons there between Canada & the U.S. and impact on respective citizenry debt.

      Canadian home borrowers also face strict (mandated by the Fed govt.), relatively high base down-payment ratios to even qualify for conventional loans that have the lender more protected from default, which does serve to lessen the pain (for the lender) when the housing market does decline. It is generally seen that the same housing collapse which hit the U.S. a decade ago will not play out to the same (torqued) degree in Canada, and will have different dynamics. No batched and syndicated ninja loans, etc. to compound the effect.

      That said, a lot of exisitng Canadian homeowners are using their built-up home equity for HELOC purposes (again all controlled in a semi-sane manner by the same smaller cadre of big Tier A, stable banks) who are working relatively closely with the Fed govt. to keep things balanced. Concerning ? Yes, but totally precarious and ready for doom ? Don’t be so fast to jump to that conclusion…

    2. That debt is almost all mortgage debt and being based on income that ratio doesn’t take into account the huge rise in asset wealth most Canadians have experienced due to the mortgage debt they took on. Being mostly retired my income looks puny compared to my mortgage home equity line of credit, but that HELOC is only about a sixth of the value of my home. The TD Bank won’t let me borrow more than that, based on my income and neither will any other Canadian bank, so they are pretty strict unlike US banks in 2007. And most of that HELOC borrowing is under 3% rate, while with that money I bought Canadian bank stocks with dividend yields of 4 to 5%. So my debt is making me money, those dividends keep rising and the interest costs of the debt can be written off from income further reducing my income and increasing my debt to income ratio to a scary level. So there is a much more complicated reality behind the headlines.

      We kept buying houses because we simply never had the carnage and home loss the US experienced in 2008 to 2011. That is partly due to the fact that you can’t really walk away from a mortgage as easily as most Americans can, so our home prices in 2009 never went down more than about 5 to 8%. Having been spared that 30% to 40% plunge many in the US experienced, the fear of mortgage debt is simply much less here so we carry large mortgages and have high debt to income ratios, but much better debt to asset ratios. The problems will begin if we have an economic collapse and a house price collapse as well. Hasn’t happened yet despite being predicted every year by bank shorts for several decades. People from all over want to live in Canada’s large cities, we have friendly immigrant policies and a decent economy with one of the best debt to gdp ratios in the G7.

NEWSROOM crewneck & prints