 CLICK TO ENLARGE CHART FX War "Abenomics"
Occasionally I like to point to Japan as a potential model for North American real estate values because try as they will, the Bank of Japan and the governments of the day have not been able to reverse the course of their multiple decades of deflation. My last post on Japan looked at what the population does when faced with falling asset values and wage destruction; they reduce spending and increase savings. The latest attempt to re-inflate asset values by Shinzō Abe (Abenomics), the current Prime Minister of Japan is a massive plan to double the BoJ’s balance sheet and get inflation up to 2%. So far after 6+ months of Yen printing the March 2013 CPI in Japan was negative at -0.09% Y/Y. The flood of Yen instead of goosing the economy has driven the animal spirits to jack up the Nikkei stock market by over 60% in 6+ months. See comparison of Japanese & U.S. CPI as a potential Canadian path.  CLICK CHART TO ENLARGE Chanos on China The 2 panel graphic to the left is from an 18 panel presentation "China: The Edifice Complex" from Jim Chanos Kynikos Associates at the April 5, 2013 Wine Country Conference. Jim notes that China's capacity over investment (Cement 12%, Steel 10%, Autos 18%) through 2008-2012 is leading to asset depreciation liabilities via the law of diminishing returns and that the pervasive growth of credit is leaving banks poorly capitalized for potential losses. Overheard:
 CLICK CHART TO ENLARGE "Hong Kong Chinese are leaving Vancouver by the thousands" According to the The Vancouver Sun April 17, 2013
Huh? A west-east carry trade? Sell Vancouver, buy Hong Kong? Nope. As far as Vancouver is concerned it's a population driven event from the excess and worried wealth of Mainland China. The Vancouver Sun quotes an April 13th story in the South China Morning Post "mainland Chinese arrivals in Vancouver outstripped those from Hong Kong by 7,872 to 286 in 2012."  CLICK CHART TO ENLARGE Underperformer Trend
J.C. Parets Market Technician of All Star Charts makes the point that global money flow since the beginning of the year has been into Japan and the U.S. while Canada and other markets are being drained. Commodity markets began rolling over in the spring of 2011 and as you can see by the CMHC Housing Index inset, Canadian housing values peaked in the spring of 2012. Now in the spring of 2013 we can see the U.S. and Japanese markets topping. J.C. Parets asks: "Will there be a rotation back into resource heavy economies?". A return to the commodity bull and continuing low interest rates will probably keep the Canadian housing sector spirits alive. But if commodity prices keep falling, a cascade of events will keep the under performers under performing.  CLICK TO ENLARGE CHART Long Term Double Top
Tim Knight technical analyst at Slope of Hope observes that the iShares Dow Jones U.S. Real Estate Index Fund (IYR) has hit the same resistance that capped the 2007 mad peak in U.S. housing quickly resulting in the plunge into the March 2009 Pit of Gloom. Cash markets have the benefit of liquidity. Physical real estate investors should double check their yields.  CLICK TO ENLARGE CHART Supply-Demand Imbalance
"There’s perhaps never been a better time to sit on the sidelines and see how things shape up over the next year from the comfort of your rental condo." That's a quote from Ben Rabidoux in The Globe and Mail's April 17th post "Is Canada’s condo boom coming apart at the seams?" Here are some snippets with respect to the ballooning inventory level of condos:
Ben Rabidoux is a Canadian analyst and strategist with U.S.-based Hanson Advisors, and author of The Economic Analyst blog.  CLICK TO ENLARGE CHART Zero U.S. Hiring Expected
Goldman Sach's via Zero Hedge The National Federation of Independent Businesses (NFIB) shows 0% of their members planning to hire. As reported in the previous post about Canadian business expectations for hiring, the demand for Labour continues to slump. If you have a job and can supply a couple of years of employment documentation, you probably qualify for a big, huge, enormous mortgage. But if business operator's sentiment is plunging on both sides of the border, it means your income stream is at risk. In a deflation, zero debt is preferred over zero income.  CLICK CHART TO ENLARGE The Bank of Canada
just released its Q1 2013 Senior Loan Officer Survey and Business Outlook Survey. "The balance of opinion regarding the demand for credit from financial institutions was negative during the first quarter. The decline largely reflected lower demand from corporate borrowers." "Capacity pressures and hiring intentions are essentially unchanged, fewer firms report labour shortages." "Taken together, responses to the spring survey indicate that, following a recent slowing in economic activity, firms expect business conditions to remain challenging over the next 12 months." The business lending market is a reflection of the real economy because lenders complete their due diligence and risk management by qualifying credit risk in real time, but not so much in the residential lending department where competition is high and a 5% down risk filled residential mortgage is fully insured by you dear tax payer, via CMHC. If you are planning to take on a really big mortgage, make sure you can derive income from the real estate you buy sufficient to pay the cost of holding it and that you have transportable skills so that you can move to where the jobs are. Canadians are indeed on the move going to where the earnings are. See the Atlas Van Lines Migration Map and the latest Canadian Earnings Chart.  CLICK TO ENLARGE BUBBLE STAGES IV The Blow Off Phase
Source: Hofstra University Global Studies & Geography "Bubbles can be very damaging, especially for those who arrived late with the hope of getting something for nothing. Even if they are inflationary events, the outcome of a bubble's blow off is very deflationary as large quantities of capital vanish in the wave of bankruptcies and financial defaults they trigger." "The bottom line is that recessions are a normal condition to a market economy as they are regulating any excess, bankrupting the weakest players or those with the highest leverage. However, one of the mandates of central banking is to fight a process (business cycles) that occurs "naturally". The interference of central banks such as the Federal Reserve (and the Bank of Canada and CMHC who subsidize the cost of money at Tax Payer's expense) appear to be exaggerating the amplitude of bubbles and the manias that fuel them. It could be argued that business cycles are being replaced by phases of booms and busts, which are still displaying a cyclic behavior, but subject to much more volatility."  CLICK to ENLARGE Atlas Van Lines Migration A Stampede for Earnings
Newfoundland and New Brunswick lead in net inbound migration while net outbound household migration is flowing out of British Columbia, Saskatchewan, Manitoba, Ontario and Nova Scotia. Balanced net migration (50%) is happening in Alberta and Quebec; the former for employment and earnings, the latter no doubt for culture and low cost of housing. At the close of 2012, the biggest migration trend was into Alberta and a continuing move towards higher inbound household formation. Follow the money. This Chart is also located on the Census Page.  CLICK CHART TO ENLARGE "Canada’s only hope for growth" From: The Economist Mar 30th 2013 Canadian Consumers: "...after 11 consecutive years in which household spending has exceeded disposable income, they (Canadian Consumers) are deeply in hock. The ratio of household debt to disposable income continues to edge up."  CLICK CHART TO ENLARGE "...the Canadian consumer remains the main hope for the economy. It is an odd situation where both government and business have decided to be excessively prudent in their spending, but are hoping that consumers will not follow suit just yet." Read the full article at The Economist |
History, Charts & Curated Readings"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 Archives
June 2019
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"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'
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