"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'
For years I have been highlighting the demand in Canada for tech workers. The October 2019 employment data is typical of the obvious trend: Professional, Scientific and Technical Services employment is up +7.4% Y/Y while Service Producing is up 3% Y/Y and Goods Producing is up 0.1% Y/Y.
Yes, the information revolution is producing new data consumption markets at the corporate level, but what about our social contract and our environmental needs? We need to direct capital and labour towards complex issues like environmental remediation, infrastructure, education, health, wellness, and electoral and taxation reform. Tax reform should be taken on by the tech sector, because the political institutional approach towards taxation is built upon generations of carrot and stick incentives which end up benefiting one voting constituency over another. If we are to take on the the greatest challenges to our well being, the Automated Payment Tax developed by Edgar L. Feige, Professor of Economics Emeritus at the University of Wisconsin-Madison would indeed kick start stubborn 20th century institutional thinking into a progressive 21st century that the new tech sector generation dreams of. How? The APT (Automated Payment Tax) is a micro tax taken at every financial transaction where each side of the transaction gets debited a small amount of capital that is credited to the government in a revenue neutral algorithm. Professor Feige's team modeled the U.S. economy from late 1990's data and realized that it would take less than 2% of every financial transaction to produce a revenue neutral state where all the government's fiscal objectives were met. The APT would eliminate the need to file tax or information returns. That in itself should provide enough incentive to read the 41 page PDF study by Feige. The foundations of the APT tax proposal—a small, uniform tax on all economic transactions—involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automatic collection of tax revenues at the payment source. The APT approach would extend the tax base from income, consumption and wealth to all transactions. Think about the desirability and feasibility of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction (APT) tax. If we want to take on the challenges of the 21st century, ie: the urgent generational "moonshots" facing us, then tech sector - take on the challenge of tax reform.
Simon J. Thorpe agrees in his 12 page PDF: "The global financial crime wave is no accident Financial crime is a feature of our global financial system not a bug." said pioneering economist Susan Strange. November 28, 2018 by Naomi Fowler Financial Secrecy Index - 2018 Results
INVESTOPEDIA KEY TAKEAWAYS, July 2019 Pierre Trudeau’s Washington Press Club speech
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The chart below comes from Environmental Defence, a leading Canadian advocacy organization "that works with government, industry and individuals to defend clean water, a safe climate and healthy communities."
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Their October 10, 2019 piece "The oil lobby is lying. Canadian oil isn’t clean oil." documents that "46 countries produced oil with a lower per barrel carbon footprint than Canada. Only three countries were worse: Algeria, Venezuela, and Cameroon. We’re 47th out of 50 countries."
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As the report concludes in part:
"Governments must stop spending financial and political capital to further the interests of one industry whose aspirations will literally devastate the planet, at the expense of all of us." NEWS ITEMS:
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Methane: The Arctic's hidden climate threat.
Natalia Shakhova's latest paper. Jun 23, 2019
Even with existing levels of warming and melting of the Arctic region, submarine methane releases linked to clathrate breakdown have been discovered,[32] and demonstrated to be leaking into the atmosphere.[5][34][35][36] A 2011 Russian survey off the East Siberian coast found plumes wider than one kilometer releasing methane directly into the atmosphere.[32] According to monitoring carried out in 2003/2004 by Shakhova et al., the surface layer of shelf water in the East Siberian Sea and Laptev Sea was supersaturated up to 2500% relative to then present average atmospheric methane content of 1.85 ppm. Anomalously high concentrations (up to 154 nM or 4400% supersaturation) of dissolved methane in the bottom layer of shelf water suggest that the bottom layer is somehow affected by near-bottom sources. Considering the possible formation mechanisms of such plumes, their studies indicated thermoabrasion and the effects of shallow gas or gas hydrates release.[4] Wikipedia Arctic Methane Emissions Page
New Arctic lakes could soon be a major source of atmospheric methane. August 20, 2018
For centuries, a massive store of carbon has been locked underground in the Arctic's permanently frozen soil known as permafrost. As Earth's climate continues to warm, that carbon has begun to leach into the atmosphere, the result of microbes waking up and digesting once-frozen organic materials. A new NASA-funded study focuses on a mechanism that could accelerate the release of this atmospheric carbon, the result of thermokarst lakes. These lakes form when thawing permafrost causes the ground to slump, creating a depression that collects rain and snowmelt and perpetuates a cycle of further permafrost thaw. NASA August 2018
Now that Trump is plummeting into a straight jacket of impeachment we can look for fallout that may affect Canadian Real Estate over the next year. Trade war, cyber war, military war and the ideological war of words and memes will no doubt affect the animal spirits of investors.
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The bigger influence on Canadian real estate values will be the next decade of our reactions to the exponential growth in climate problems ("very high confidence") global migration pressures and the inevitable expansion towards technological solutions and a new generation of research and development; a new generation of critical thinking. “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.” that is, "Science advances one funeral at a time" Max Planck 1949 |
From Wikileaks comes the 1217 page PDF 2017 U.S. Global Change Research Program 'Climate Science Special Report' (CSSR). Below is a screen shot of the key findings page:
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Here follows, a text version of the screenshot of the key findings page of the 2017 U.S. Global Change Research Program 'Climate Science Special Report' (CSSR):
1. Our Globally Changing Climate
KEY FINDINGS
- The global climate continues to change rapidly compared to the pace of the natural changes in climate that have occurred throughout Earth’s history. Trends in globally-averaged temperature, sea-level rise, upper-ocean heat content, land based ice melt, and other climate variables provide consistent evidence of a warming planet. These observed trends are robust, and have been confirmed by independent research groups around the world. (Very high confidence)
- The frequency and intensity of heavy precipitation and extreme heat events are increasing in most regions of the world. These trends are consistent with expected physical responses to a warming climate and with climate model studies, although models tend to underestimate the observed trends. The frequency and intensity of such extreme events will very likely continue to rise in the future. Trends for some other types of extreme events, such as floods, droughts, and severe storms, have more regional characteristics. (Very high confidence)
- Many lines of evidence demonstrate that human activities, especially emissions of greenhouse gases, are primarily responsible for the observed climate changes in the industrial era. There are no alternative explanations, and no natural cycles are found in the observational record that can explain the observed changes in climate. (Very high confidence)
- Global climate is projected to continue to change over this century and beyond. The magnitude of climate change beyond the next few decades primarily on the amount of greenhouse (heat trapping) gases emitted globally and the sensitivity of Earth’s climate to those emissions. (Very high confidence)
- Natural variability, including El Niño events and other recurring patterns of ocean-atmosphere interactions, have important, but limited influences on global and regional climate over timescales ranging from months to decades. (Very high confidence)
- Longer-term climate records indicate that average temperatures in recent decades over much of the world have been higher than at any other time in the past 1700 years or more. ( High confidence)
1.1 Introduction
Since the Third U.S. National Climate assessment (NCA3) was published in May 2014, new observations along with multiple lines of evidence have strengthened the conclusion that Earth’s climate is changing at a pace and in a pattern not explainable by natural influences.
Swedish climate activist Greta Thunberg chastised world leaders Monday, Sep. 23, for failing younger generations by not taking sufficient steps to stop climate change. "You have stolen my childhood and my dreams with your empty words," Thunberg said at the United Nations Climate Action Summit in New York. "You're failing us, but young people are starting to understand your betrayal. The eyes of all future generations are upon you. And if you choose to fail us, I say we will never forgive you," she added. Thunberg traveled to the U.S. by sailboat last month so she could appear at the summit. She and other youth activists led international climate strikes on Friday in an attempt to garner awareness ahead of the UN's meeting of political and business leaders.
PBS NewsHour Sep 23, 2019
 CLICK CHART TO ENLARGE  CLICK CHART TO ENLARGE | The charts from visualcapitalist.com show the global breadth and momentum increase in Chinese shipping. In 2006, only 3 of the top 10 ports were located in China. In 2019 that ratio grew to 7/10. Canada does not have any ports in the top 20 and according to 2015-16 StatsCan Data "the Chinese fleet, national & foreign flag combined, is ranked 3rd in terms of dead weight tonnage. Canada is ranked 29th." A conversation with a neighbour inspired this post. Among other projections, the Neighbour thought that Canada is due for a big increase in manufacturing volume. I countered that thought with the reality of my chart on Household Debt which includes a plot of Federal Direct Investment which clearly shows that FDI has been negative for the last 20 years and the spread between investment into and out of Canada has grown much wider in the last 3 years to 2018 year-end. That's a solid trend. We Canadians in less than a generation have become dependable and dependent (on China) consumers. |
In my opinion, even if we can muster the societal will, it will take at least another new generation of Canadians to reverse the trend because after more than a decade of global ZIRP & NIRP and Canada's slide into becoming one of the most unaffordable countries to live in (Demographia), Canadians are up to their necks in household debt.
From: mortgagebrokernews.ca Sept 16, 2019
The Credit Counselling Society also reported that on average, Canadians are carrying a debt load of $30,000 each – far above the $12,000 level just 20 years ago.
“Canadians continue to rely on their credit cards or lines of credit to supplement costs of living,” CCS president Scott Hannah said.
“If the economy continues to slow amidst trade tensions and other factors, Canadians need to prepare now for a potential recession in the future.”
Hannah also cited the latest survey of employed Canadians by the Canadian Payroll Association, which found that 1 in 3 consumers currently hold credit card debt, and 38% will need more than a year to pay off said debt.
Additionally, 1 out of 3 Canadians indicated that their debt loads have increased since last year, and that they are spending more than their net income. As much as 43% are forced to live paycheque to paycheque, while fully 83% confessed anxiety over growing daily living costs.
“We are not surprised by these latest statistics, as we continue to hear from Canadians, who are having difficulty managing their rising debt levels and how to effectively manage the increasing costs of living without relying on credit,” Hannah stated.
 CLICK CHART TO ENLARGE  CLICK CHART TO ENLARGE | “Commenting on the flash PMI data, Tim Moore, Economics Associate Director at IHS Markit said: “August’s survey data provides a clear signal that (U.S.) economic growth has continued to soften in the third quarter. The PMIs for manufacturing and services remain much weaker than at the beginning of 2019 and collectively point to annualized GDP growth of around 1.5%. “The most concerning aspect of the latest data is a slowdown in new business growth to its weakest in a decade, driven by a sharp loss of momentum across the service sector. Survey respondents commented on a headwind from subdued corporate spending as softer growth expectations at home and internationally encouraged tighter budget setting. “Manufacturing companies continued to feel the impact of slowing global economic conditions, with new export sales falling at the fastest pace since August 2009. “Business expectations for the year ahead became more gloomy in August and remain the lowest since comparable data were first available in 2012. The continued slide in corporate growth projections suggests that firms may exert greater caution in relation to spending, investment and staff hiring during the coming months.” Tim Moore |
Meanwhile Canadian Net Trade has been negative
in the last 10 out of 11 quarterly prints (July 2019 data)
 CLICK CHART TO ENLARGE | While we wait for the July Canadian housing data to trickle out, let's return to Japan and their housing price experience after nearly 20 years of ZIRP and NIRP. I have posted charts about Japan since 2012 to illustrate the folly of global central banks and their monetary policies of instituting ZIRP & NIRP to stimulate inflation > consumption > production, the by-product of which, has been the manic search for yields as the underlying asset class values became stretched to perfection under pressure from the FOMO crowd. Instead of using fiscal policy which requires long term planning and socially cohesive agreements directed towards production and well being, the quarterly knob twiddling monetary policy has in part, along with the rise of a digitized global financial network, unleashed "megabyte" money laundering which the UNODC estimates at 2-5% of global GDP per year. It has also crushed the incentive to save for a future funding of investment into productive assets. The Household Saving Rate in Canada has decreased to 1.1% in the first quarter of 2019. |
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Commodity Super Cycle - 10 Years into the Bear
After 20 years of monetary suppressed-yield policy in Japan and 10 years in Canada we still see long term inflation in a grinding downtrend, and peak commodities have come and gone.
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| Here is a chart I published in a 2012 post "What Do You Do During a Housing Bust". The answer is "save". If the CRB chart above has correctly identified a cyclical swing between bull and bear commodity production, then we should expect another "lost decade" of balance sheet repair especially in the over-speculated and now depreciating housing asset markets of Canada. |  CLICK CHART TO ENLARGE |
A Housing Bubble "doesn't just warp the real estate market, the knock-on effects can throw a region's entire economy into disarray."
Bloomberg via Visual Capitalist
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House Price to Rent Ratio ... Canada Ranks 2nd
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House Price to Income Ratio ... Canada Ranks 2nd
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Real House Prices ... Canada Ranks 3rd
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Household Debt to GDP ... Canada Ranks 5th
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CMHC launched a new report earlier this week that will focus on mortgage market trends in Canada on a quarterly basis. This first report entitled "Mortgage Market Slowing & Share of Uninsured Mortgages Increasing" indeed highlights 2 major trends in place:
#1 above suggests that housing unaffordability continues to grow as fewer potential buyers can qualify for a high ratio debt to equity insured mortgage. #2 suggests that reducing mortgage rates by 75% over the last thirty-plus years has led to debt revulsion as identified in my Household Debt chart which shows a peak and flattening since the hot market price peaks of 2017 |
Earlier this year in an effort to underline the end of the secular credit surge, I posted MAXED OUT in April and LATE STAGE DELEVERAGING in June. The insistence of the Bank of Canada to join in the decade long global experiment of ZIRP and NIRP has not ignited CPI much beyond their target mandate of 2% per year (spread chart). But it has forced tax payers to move away from the diligence of savings, investment and productiveness to the chasing of yields, to the consumption of depreciating assets and to the blowing up of the biggest bubble in major asset classes in both the equity and debt sectors, the fall out of which is also identified on my Household Debt Chart that includes a plot of Federal Direct Investment data which shows the dramatic and widening divergence between investment into and out of Canada taking place in the last 3 years but has also been trending towards this conclusion each year for the last 20 years.
These trends have taken 10, 20, 30 and 40 years for the credit cycle to fully manifest and now the effects of unproductive capital have emerged with a nascent transition to the early stage of a new credit cycle where companies and households will try to deleverage by reducing the amount of debt they hold while risk appetite is low and the cost of risk taking is high.
These trends have taken 10, 20, 30 and 40 years for the credit cycle to fully manifest and now the effects of unproductive capital have emerged with a nascent transition to the early stage of a new credit cycle where companies and households will try to deleverage by reducing the amount of debt they hold while risk appetite is low and the cost of risk taking is high.
...History has shown that it takes a “long, long” time to restore household balance sheets, a situation that will be all that more difficult with trade and business spending hampered...
David Tulk, International Portfolio Manager for Fidelity Investment Canada, March 2019
...The nation may already be in recession after growing at an annualized pace of just 0.4 per cent in the fourth quarter (2018) and a pretty “soggy” start to the year (2019)...
David Wolf, Asset Allocations for Fidelity Investment and Former adviser to the Bank of Canada
...Canada’s households are clearly more stretched in terms of debt and spending than their American counterparts... There’s just no latent capacity to spend or to buffer a shock in Canada... They just have less room for error, less room to cushion any kind of hit with spending, before they would actually fall into outright dissavings...
Eric Lascelles, chief economist at RBC Global Asset Management Inc
Source of Quotes above from Financial Post.com June 2019
One of the problems facing our "economy" is the rampant flow of hard to track global criminal capital moving into jurisdictions attractive to money laundering... in this case Canada. The World Bank and the International Monetary Fund produces corruption ratings and by their measure British Columbia ranked fourth for money laundering among six regions in Canada. Manitoba and Saskatchewan combined were said to have more money laundering activity than B.C.
"B.C. Attorney General David Eby announced Justice Austin Cullen has agreed to lead what will be known as the Commission of Inquiry into Money Laundering in British Columbia, which is expected to produce a report in May 2021." Powell River Peak, May 2019
Meanwhile the "Vancouver Model" continues to move east across Canada (see my NOV 2018 post DIRTY REAL ESTATE); "The C.D. Howe Institute study estimates of money laundering in Canada range from $5 billion to $100 billion. SEP 2018"
That money after it's cleaned flows into business elements and hard assets throughout the "economy". It's going to take a new generation of activists to replace the mob model we find ourselves in.
One thing that generation could do is to replace our taxation system with an iteration of the APT tax which is an automated micro tax on any financial transaction. The authors of the APT tax model demonstrate the "desirability and feasibility of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction (APT) tax... In its simplest form, the APT tax consists of a flat tax levied on all transactions. The tax is automatically assessed and collected when transactions are settled through the electronic technology of the banking/ payments system... Real time tax collection at source of payment applies to all types of transactions, thereby reducing administration and compliance costs as well as opportunities for tax evasion."
Additionally, the APT can be adjusted easily so that it is revenue neutral, ie: we could as a society set our fiscal priorities to accomplish our social contract goals with a tax burden of less than 2% of ALL financial transactions throughout a computerized banking and financial system. We would not have to debate where the money comes from... there is more than enough of that... but we would only be left with a debate of how to invest the money. See my complete APT post of NOV 2012
Let the new digital generation take this challenge on.
Meanwhile David Rosenberg May 2019
The investor class is heading towards liquidity
in the form of U.S. Treasuries and the USD
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"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense
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