Back in January of this year (seems so long ago. . .), headlines in the Canadian financial press were bemoaning the fact that (1) the Canadian economy was growing at its slowest pace in 60 years, and (2) real estate and financial services now account for 20 percent of the economy.

We have some bad news for Canadians: it’s about to get worse.

When Home Capital Group blew up last week, it was initially shrugged off. Indeed, people have been concerned about HCG for a long time. For a period last month, you actually couldn’t even borrow it from your prime broker, it was so heavily borrowed. If you did get a borrow (back in February), it cost you 30-40% annually. That is not a typo. So, someone’s short paid off, and hopefully those people were sitting on that borrow for months prior (if not years).

What’s interesting to us now is the impact that HCG is having on the EWC, the Canadian ETF. It’s not Greece or Italy at the nadir, but it’s still interesting. The Rest of the World is ripping higher as Canada sells off. And it’s all because of HCG. In case anyone was wondering if we’ve gotten over our fears of the impact of housing on an economy, the data would suggest no.

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