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Methane: The Arctic's hidden climate threat.
Natalia Shakhova's latest paper. Jun 23, 2019

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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

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1. Our Globally Changing Climate
KEY FINDINGS

1. 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)
   
   
2. 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)
   
   
3. 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)
   
   
4. 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)
   
   
5. 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)
   
   
6. 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

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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.

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.

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“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 Economics Associate Director at IHS Markit

​Meanwhile Canadian Net Trade has been negative
in the last 10 out of 11 quarterly prints (July 2019 data)

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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

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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.

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​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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CLICK CHART TO ENLARGE CLICK CHART TO ENLARGE ​Full CMHC 33 page 3Q 2019 PDF Report Here.​

​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: Since the 2016-2017 peak of the FOMO frenzy that pushed housing prices in the hot Canadian markets to the most un-affordable global levels (Demographia), uninsured mortgage growth has grown more than three times that of insured mortgage growth. Since the late 1980's after fixed mortgage rates peaked at over 20% per year in 1981, the rate of GROWTH in mortgage creation in Canada has plunged to less than 5% Y/Y now even though nominal mortgage rates have been boot stomped via NIRP and ZIRP. #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​

...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

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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Image slide show below of the 3 charts above.

​St. Louis Fed June 24, 2019 Recession Notes

​
By William Emmons, Lead Economist, Center for Household Financial Stability
Federal Reserve Bank of St. Louis June 24, 2019

As of late 2018, four housing indicators that had signaled each of the three most recent recessions were on a track consistent with a late 2019 or early 2020 recession. They are:

30-year fixed mortgage rates
Existing home sales
Real house prices
Contribution of residential investment to GDP growth

What Might These Four Housing Indicators Be Signaling?
The recession signal provided by several key housing indicators in late 2018 strengthened in early 2019 in the sense that their cyclical behavior is well within the range traced out in the run-up to the three most recent recessions. Combined with movements in other indicators with good forecasting track records (such as the inversion in the slope of the Treasury yield curve), these housing measures suggest an above-average risk of recession within the next few quarters. Of course, the onset of the next recession is unknown.

​The New York Fed Agrees

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The New York Fed’s recession probability model is currently warning that there is a 30% probability of a recession in the next 12 months. The last time that recession odds were the same as they are now was in July 2007, which was just five months before the Great Recession officially started in December 2007. July 2007 was also when Bear Stearns’ two subprime hedge funds lost nearly all of their value, which ultimately contributed to the investment bank’s demise and the sharp escalation of the U.S. financial crisis.  Read Whole Article

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The Canada Mortgage and Housing Corp. (CMHC) defines a household as being in “core housing need” if it “falls below at least one of the adequacy, affordability or suitability standards and would have to spend 30% or more of its total before-tax income to pay the median rent of alternative local housing that is acceptable (meets all three housing standards).” thecanadianencyclopedia.ca

"estimated that approximately 35,000 Canadians experience homelessness on any given night, and at least 235,000 Canadians are homeless in any given year."​ AND  According to the Canadian Observatory on Homelessness, mass homelessness in Canada emerged around this time (1987 Conservatives) as a result of government cutbacks to social housing and related programs starting in 1984 (Conservatives). In 1993 (Liberals), federal spending on the construction of new social housing came to an end. In 1996 (Liberals) the federal government transferred responsibility for most existing federal low-income social housing to the provinces.

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​Conclusion from Statistics Canada’s Insights on Canadian Society.

Using data from the 2016 SFS, this study looked at the association between the debt-to-asset and debt-to-income ratios and financial distress, while controlling for various socioeconomic characteristics. Three financial distress indicators were considered—missing non-mortgage payments, missing mortgage payments and taking out a payday loan.

The varied results call for a nuanced interpretation. The first point to note is that the debt-to-asset ratio tells a more consistent story than the debt-to-income ratio. Across all three distress indicators, people in the highest debt-to-asset groups have a higher probability of reporting distress. However, after controlling for other factors, the debt-to-income ratio is not associated with the measures of financial distress since the results are not statistically significant.

The debt-to-asset ratio might be a more predictive indicator because debtors can often sell assets to make debt payments, even if they do not have the income to make payments. Alternatively, those who own homes often have access to home equity lines of credit. These results are important because they suggest that the debt-to-asset ratio is a better indicator of financial precariousness than the debt-to-income ratio.

Additionally, some demographic groups face relatively higher probabilities of reporting financial distress, including lone-parent families, and “other” family types. Conversely, families whose major income earner had a university degree, were less likely to be in financial distress. Similarly, homeowners with or without a mortgage were less likely to miss payments or take out payday loans.

Financial distress has many dimensions and can take multiple forms. Future measurement should provide additional details, such as the frequency at which specific financial services are used when under financial duress. More research will be needed to better comprehend the extent to which Canadians are facing financial difficulties.

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​As Cities Grow, So Do the Numbers of Homeless Joseph Chamie, July 13, 2017 Homelessness is a mark of failure for communities in providing basic security. Based on national reports, about 2 percent of the world’s population may be homeless. Another 20 percent lacks adequate housing, reports demographer Joseph Chamie. Such statistics come with a caveat. Obtaining accurate numbers is difficult, mostly due to wild variations in definitions around the globe. Also, measuring homelessness is costly: Cities may under-count due to embarrassment while individuals avoid officials due to shame and fear of arrest and harassment. Reasons for homelessness include “shortages of affordable housing, privatization of civic services, investment speculation in housing, unplanned and rapid urbanization, as well as poverty, unemployment and family breakdown,” Chamie explains. “Also contributing is a lack of services and facilities for those suffering from mental illness, alcoholism or substance abuse and displacement caused by conflicts, natural disasters and government housing policies.” Even people with jobs can struggle to keep homes. As experts debate whether the issue can be resolved or not, some governments offer support programs while others do what they can to chase the homeless off to other locales. – YaleGlobal

Prominent Canadian economist David Rosenberg is warning that record household debt levels in the country will hinder economic growth...
​(ie: your income, your cash flow, your ability to service your debt)

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​Bill Gross of Janus Capital commented on... his recent investors’ letter (emphasis added is ours Macro-Ops.com): ​“What readers should know is that the global economy has been powered by credit – its expansion in the U.S. alone since the early 1970’s has been 58 fold – that is, we now have $58 trillion of official credit outstanding whereas in 1970 we only had $1 trillion.”

​There is a phase in the debt cycle when revulsion sets in.

​At the end of the business cycle there are three forces at work:
1) Rising interest rates sap demand and raise the cost of capital.
2) At the same time, according to capital theory, future returns decline due to over capacity.
3) While demand is decreasing and there’s a glut of supply, the herding nature of market participants create euphoric sentiment that drives expectations (and market prices) well past likely outcomes.
This process is what forms a market top. Alex Barrow Co-Founder of Macro Ops

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The household debt service ratio, measured as total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, edged up to 14.9% in the first quarter (2019), as total obligated debt payments grew at a faster pace than disposable income. Mortgage interest payments (+4.0%) have outpaced mortgage principal payments (-0.4%) as a result of higher interest costs, continuing a trend since the second quarter of 2018. Household credit market debt as a proportion of household disposable income remained at 177.6% in the first quarter, as debt and income grew at similar rates. ​In other words, there was $1.78 in credit market debt for every dollar of household disposable income. ​StatsCan June 13, 2019, ​

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Ray Dalio's Economic Machine