North Americans are consuming more than they produce.
I was interviewed on BNN yesterday, and the last thing I said was that if Canadian real estate investors are betting on nominal inflation in housing prices in Calgary - it is a pretty good bet - because Alberta has very high (22% above national average) employment earnings that have been rising at 5% per year since the March 2009 Pit of Gloom compared to Ontario earnings rising only 2% per year during the same period. After I got home from the studio I began to think about oil, the energy sector and the boom & bust cycles of Alberta oil. What could disrupt the boom?
Always provocative is Stephen Colbert and his guest last night was Elon Musk (Youtube not available in Canada, but here is Elon unveiling the New Version of the All-Wheel-Drive Tesla Model S with dual drive and auto pilot: Video From Bloomberg TV Oct 10, 2014).
The disrupters are innovation (Musk etal), a rising supply of energy (U.S. fracking & China's solar panel ramp up) and the strengthening U.S. Dollar. If you are making a leveraged bet on continuing price rises in Calgary housing, it would be prudent to match your amortization to your wage earning contract. A sudden shift down in tar sand grade demand would force the weak hands to sell their real estate. The collapse in the BDI is due to the real price of oil dropping, an over supply in vessels, a strengthening of the U.S. Dollar, a global trade slowdown and disruption via innovation as an old generation gets replaced with the new.
1980 Oil peaked at US$35 per barrel ($100 per barrel today) Source
1986 Oil dropped from US$27 to below $10 ($58 to $22 today)
1986 Average U.S. Inflation was 1.9% Source
2014 Average U.S. Inflation is 1.7% Source
1.00 2014 US Dollar = 0.54 1986 US Dollars (using GDP Defaltor)
1.00 2014 US Dollar = 0.47 1986 US Dollars (using CPI Defaltor)
US$ Index peaked at 164.72 in February of 1985 Source
I will be on BNN today (July 23) at 4.15pm-ish Pacific Time with Kim Parlee who hosts Money Talk. We will be looking at the bifurcated Canadian real estate market that has zoomed in the hot metros but has left small town Canada under employed and over indebted.
I'm bringing 5 stripped down charts; we'll see how many we get to. I will put the interview link up here after I get it.
The Spear's & WealthInsight list of cities with the highest percentage of millionaires. Toronto is ranked 15th with 3.3% of its population having assets apart from prime residence, of more than US$ 1,000,000. Spears July 2014
A ranking like this is important, said WealthInsight Analyst Oliver Williams, "...because wealthy individuals, more than any other group, will change their home and even their domicile based on factors of ready access to wealth managers and private banks as well as political stability and heritage. Owning a piece of history in a city such as London is an aspiration for many, particularly wealthy individuals from overseas..."
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
"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'