🏡 WallStreetBets is shorting the Canadian housing market?!
On Monday, a post by u/Excellent_Cause9533 gained a lot of traction on r/wallstreetbets, gaining 768 upvotes and nearly 1,000 comments. The general thesis? Canada’s housing market is in big trouble.
Excellent_Cause (whose qualifications are unknown) makes three key points:
At least one of the major Canadian banks (RBC, CIBC, TD, BMO) will fail.
The CMHC (the govt housing corp that insures mortgages) will run out of cash within 6 months.
All it will take is a mild recession for the Canadian economy to collapse.
As a result, Excellent_Cause says he’s shorting RBC and encourages others in the forum to do the same.
🤔 What do the experts think?
It’s not just the Redditors that are worried about the housing markets, and it’s not just Canada that’s potentially in trouble. Think tank Oxford Economics says that up to 16% of major economies have an 18-20% chance of suffering a housing crisis within the next three to five years, compared to a historic average of just 2%.
Oxford Economics lists Canada among the five most vulnerable with a 7% probability of a banking crisis within the next year.
Whether or not price drops in housing result in a ‘crisis’ depend largely on the bank’s balance sheets. On Oxford’s banking sector balance sheet scorecard, Canada comes in at the second highest risk, with indicators such as ‘household credit as a percentage of GDP’ registering the highest possible risk score.
Oxford Economics Banking Sector Balance Sheet Scorecard
On the opposing side, many banks including RBC and Desjardins have argued that the ‘bottom is in sight’ with RBC saying in March that the market would bottom soon and that prices would level out. However, this was before the BoC decided to raise interest rates yet again in early June.
In any case, these market dynamics add a new degree of risk to both the housing market and the Canadian banking sector that investors should be aware of!
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📉 Intel crashes 9% this week
Intel stock dropped over 9% this week after an investor update outlining turnaround plans to become a chip manufacturing company and compete with Taiwan Semiconductors (TSMC).
The changes would result in Intel’s foundry business (aka semiconductor manufacturing for other companies) having its own profit-and-loss statement. The new reporting structure is estimated to cut $10 billion in costs over the next three years. If Intel catches up with TSMC, it would be able to compete for contracts to build high-performance chips for companies like Apple, Nvidia, and Qualcomm which don’t run their own manufacturing.
While this seems like good news, analysts are worried about Intel’s falling gross margins, which have dropped to 38.4% compared to 51.3% a year ago.
Pat Gelsinger, CEO, of Intel Corporation
🤔 Why isn’t Intel seeing the same growth as Nvidia?
If you’ve opened the news once over the past few months, you already know Nvidia stock has been on a huge run, up close to 150% over the past year. In that time period, Intel has fallen close to 15%.
With the AI chip boom pushing Nvidia above a trillion-dollar market cap, why has this not benefited Intel or other chip makers like AMD to the same extent?
The reason is because the companies focus on different areas. Intel and AMD dominate the CPU space, or central processor, which has historically been the most important part of the computer. But with the surge in AI, demand is spiking for GPUs, or graphic processors, which Nvidia dominates.
In fact, Nvidia CEO Jensen Huang says that in the AI future, “instead of millions of CPUs, you’ll have a lot fewer CPUs, but they will be connected to millions of GPUs,” meaning the AI boom could hurt and not help CPU-focused chip manufacturers.
Of course, as GPUs become more important competition will heat up, with Intel and AMD likely to re-allocate resources to their GPU units in an effort to compete.
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