​Why The Stock Market Is Heading For Disaster
In this presentation, Clarity Financial's economic analyst Jesse Colombo explains why the U.S. stock market is experiencing a dangerous bubble that is going to burst violently and cause serious damage to the underlying economy. Published on Oct 11, 2018

Trump Is Completely Misguided On Interest Rates

If the Fed or other central bank voluntarily abandons further credit expansion (most commonly by raising interest rates), the credit and asset bubble will experience a deflationary bust. Deflationary episodes entail credit busts, falling consumer prices, bear markets in stocks and housing prices, and falling wages. If the central bank decides to never put an end to the credit expansion (for example, if the Fed never raised rates), however, the result would be a runaway credit and asset bubble that leads to a severe decrease in the value of the currency and high rates of inflation. The latter scenario is what would occur if President Trump got his way – hardly a desirable outcome for the economy. To summarize, the Fed is crazy – they’re crazy for creating such a large bubble in the first place via loose monetary policy, but not for raising interest rates and normalizing their monetary policy.  Jesse Colombo, Oct 17, 2018 ​

​Market Bear Hussman Says Stocks Could Lose $20 Trillion

To state the obvious, bull markets do not last forever, and inevitably are followed by bear markets. Likewise, economic expansions also must end at some point, followed by recessions, and recessions typically are accompanied by bear markets. John Hussman, Oct 15, 2018 

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​My fantasy Plunge-O-Meter for September 2018 is showing a potential 51% average drop for Canadian housing prices for the 6 biggest markets in Canada if buyers go on strike.

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​There's trouble ahead in the global housing market
Source: Business Insider July 2018 

Toronto: Prices clearly peaked in early 2017. Prices are now down 3% vs last year. (Toronto SF Detached are down 17% from the peak. See the Sept 30, 2018 Plunge-O-Meter)

Syndey: Compared to last year, prices are now down 5% and supply has ballooned 22%.

Stockholm & Vancouver: Over a recent 6-month period, prices in the luxury property market fell 9% and 7.6%, respectively.

New York City: In Q1 2018, prices were down 8% YoY and sales were down 25%. NYC's luxury properties fared even worse.

San Francisco: After hitting a record price high in January, the city has seen a rare spring decline in prices, while rents across the SF Bay Area are starting to "cool off"

Bond King Gundlach predicts yields
much higher before this move ends

"If you look at the charts and you look at the way the market's behaving and you think about the trends that are underneath the bond market, it wouldn't be surprising at all to see the 30-year [yield] go to 4 percent before this move of the breakout above 3.25 percent is over," he said on "Halftime Report" Thursday. CNBC, Oct 11, 2018

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Our Future is filled with Dumb Canadians Angus Reid July 2018 31% cannot afford for their kids to participate in after-school sports or music programs 41% haven’t been able to save any money for their children’s post-secondary education 45% say they could not afford to pay for a tutor if their child was failing at school ​​The public has been goosed into historically high leveraged balanced sheets that looked ok at the peak of Canadian housing prices in 2017 but now a year later, with interest rates and CPI rising (3% CPI at July 2018), and animal spirits fractured by Trump's war on our imports into the U.S., lenders are now purging out the marginal from the credit worthy. Our zeal for consumption is in the cooler. ​

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Half of Canadian jobs will be impacted by automation in next 10 years

​"...a growing demand for “human skills” will be more crucial across job sectors. In particular, critical thinking, coordination, social perceptiveness, active listening and complex problem solving — described in the report as “human skills” — were identified as being key characteristics Canadians should develop to prepare for changes to the workforce." Global News March 2018
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What is the link between education and earnings?​
Conference Board of Canada March 2013

"Canadians with a university degree earned $165 for every $100 earned by Canadian high school graduates. Those with a college degree earned $110 for every $100 earned by high school graduates, and those who did not graduate from high school earned only $80 for every $100 earned by high school graduates... The relatively lower financial returns on university education in Norway and Canada may be due to the dominance of their energy sectors, which offer relatively high-paying jobs that do not require university educations."

"Between 1998 and 2010...students skills deteriorated somewhat. The proportion of students with high-level reading, math, and science skills dropped, while the proportion of students with low-level reading and math skills increased."

"Canada needs to improve workplace skills training and lifelong education. Canada’s adult literacy skills are mediocre, with a large proportion of adults lacking the literacy skills necessary to function in the workplace. Canada gets a “C” and ranks 10th out of 15 peer countries on the indicator measuring adult participation in job-related non-formal education."

"Canada also underperforms in the highest levels of skills attainment. Canada produces relatively few graduates with PhDs and graduates in math, science, computer science and engineering. More graduates with advance qualifications in these fields would enhance innovation and productivity growth—and ultimately ensure a high and sustainable quality of life for all Canadians."

"Canada’s middle-of-the-pack ranking on university completion may reflect the fact that the financial return from investing in university education in Canada is also middle-of-the-pack at best. Many other countries (and the individuals in those countries) get much better returns on their tertiary investments."

"While not reflected in the report card due to lack of data and measurability challenges, there is a “learning recognition gap” in Canada. What this means is that people may hold knowledge and skills that are not formally recognized (through academic credits or trade/organization/professional certification) by employers or credential-granting institutions." 

"An obvious example is immigrants whose foreign credentials are not recognized in Canada. The Alliance of Sector Councils stated that “every Canadian is affected by inefficient recognition. Canadians across the country are short of doctors and other health care workers, while thousands of highly educated newcomer health care workers are not allowed to provide the services that so many Canadians want. People with prior learning gained through work and training are similarly hindered by a lack of learning recognition, as are those who transfer between post-secondary institutions or, in the case of licensed occupations, between provinces."
​

Is Canada’s workforce sufficiently skilled?
Conference Board of Canada June 2014

No. Given that Canada is a leader on post-secondary educational attainment, one might reasonably expect that the country would also be a leader on adult skills. Yet Canada and most provinces do relatively poorly on adult literacy, numeracy, and problem-solving skills, earning mainly “C” and “D” grades.

What accounts for Canada’s poor performance on adult skills? One reason is that literacy and numeracy skills are not “fixed” forever—individuals can lose skills after they leave school, through lack of use.11 The longer someone has been out of the formal education system, the more impact other factors will have on their proficiency, such as their work and social environment. On average, the younger cohort, aged 16–24, have higher literacy scores than adults aged 45–65, and these results hold no matter what level of education the person has.12 In the absence of continuing education or workplace training, it appears likely that, on average, the skills of Canada’s workers diminish over time.

The country’s grades on adult skills, however, are weak and have deteriorated over the past decade. Canada’s other weaknesses are its low numbers of students graduating with PhDs and with degrees in science, math, computer science, and engineering.

China Might Beat The US in Artificial Intelligence
Eric Schmidt November 2017
"LET THEM IN"

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"New lending activity and refinancing have contracted significantly since the beginning of 2018, a culmination of regulatory pressure, enhanced scrutiny following the banking royal commission, and the self-fulfilling consequence of slowing house prices driving an investor pullback... A rising cost of credit represents a blunter instrument for slowing lending, since it impacts both owner-occupiers and investors in parallel,"JP Morgan's Henry St John ABC.AU NEWS Sept 2018

​Canadian real estate sales are feeling the pinch of higher interest rates, and consumer credit isn’t far behind. Bank of Canada (BoC) numbers show household debt printed a new record high. Despite the record high, the rate of growth continues to slow for consumer debt levels. The decelerating growth is yet another indicator that the credit cycle has peaked. ​Better Dwelling, July 2018

Market Rate Outlook: One more hike this year plus two more hikes next year. The market is not fully pricing in the next BoC rate increase until December... Canadians are now more sensitive to higher rates than ever before. That means consumption is slowing faster with every 1/4% BoC rate increase.  RateSpy.com Sept 2018

Canada's economy is set to slow down even with a NAFTA deal, economists say:

"Our research finds that even with a NAFTA deal in place, the long-desired rotation in growth towards exports and business investment will be sluggish and won't offset the coming slowdown in household spending and housing activity," Royce Mendes, senior economist at CIBC Capital Markets

Sal Guatieri, senior economist at BMO Capital Markets, is also expecting growth next year to slow to 1.8 per cent, as reduced consumer spending and housing activity will weigh on growth.

RBC senior economist Nathan Janzen said the bank doesn't publish forecasts for 2020, but agrees that growth is shifting lower.

"We do expect a more modest pace of consumer spending going forward, and while housing activity should remain a contributor to growth, this sector as well should see more modest growth relative to the past," said Brian DePratto, senior economist at TD Bank.

​Quote Sources: CBC News Sept, 2018

"The one-million square foot Toronto centre will be Amazon’s sixth facility in Ontario and ninth in Canada." Financial Post, July 2018

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​"Stabilization should not be interpreted as the start of another strong rally," they warned (TD Bank economists Derek Burleton and Rishi Sondhi). That's because mortgage rates are on the rise, and home affordability levels have reached their worst levels in a quarter century... in fact historical data shows that over the past half century, inflation-adjusted house prices in Toronto fell for about a third of the time. huffingtonpost.ca, Sept 2018

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My recent update of Foreign Direct Investment on my Canadian Household Debt, GDP,  and Balance of Trade chart demonstrates that Canadian Capital would rather flee than fight.

​The Canadian Imperial Bank of Commerce anticipates it will issue half as many new mortgages in the latter part of the year as it did in the same period of 2017 amid cooling in the real estate market. Times Colonist May 23, 2018

David Rosenberg: Ottawa created the debt monster that Canada now faces.
"47% of residential mortgages
​are set to roll over for renewal next year."

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, joins BNN Bloomberg to provide his take on the Canadian economy as Bank of Canada Governor Stephen Poloz sounds the alarm on household debt in this country. Originally aired on May 2, 2018 on BNN Bloomberg

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"With portfolios still weighted towards equity, but overweight in cash and shorter-duration fixed income, we can afford to sit still into next week and allow the market to choose its path."

Intermediate-Term Picture Remains Bearish

​On a intermediate-term basis, both of our weekly “sell signals” remain, and as shown below, the market once again failed at its overhead trend line last week as well as the downtrend resistance from the previous peaks. These failures keep downward pressure on the market as prices continue to follow the “path of least resistance.”

The weekly chart also shows the rare “buy” and “sell” signals issued on a longer-term basis. Currently, as the market struggles with its current correction process, it is also very close to triggering a more important “sell signal” which could indicate a further correctionary process over the next several months.

Over the last 25-years, these sell signals have only been triggered 5-other times.

1. At the peak of the market prior to the “Asian Contagion”
2. Just prior to the peak of the market in 2000
3. At the peak of the market in 2007
4. At the peak of the market 2011 as QE-2 ended and the U.S.was facing the “debt ceiling debate.” 
5. Near the peak of the market from the collision of the end QE-3, the “taper tantrum” and “Brexit.”

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It is clear that some sort of correlation exists between stock values and real estate values.  Stocks started their recent bull run in 2009.  As you can see from the chart above, real estate values didn’t start moving up steadily until 2012.  So there is a lag here.  But what is interesting is the correction in stock values in 2008 matched up with real estate values.  In fact, real estate values started trending lower before the market crash. DoctorHousingBubble.com

In ​January 2018 the S&P 500, DOW and TSX peaked.

Toronto real estate peaked in 1Q 2017 although condo prices hit a new price high last month. Vancouver prices peaked 3Q 2017 and like Toronto, strata prices are still peaking as of last month. ​ Calgary prices peaked 2Q 2017 with condo prices hitting their high back in 3Q 2016

​U.S. vs Canada Private Debt to GDP

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Steve Keen "Can we avoid another financial crisis?"

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As we wait for the first week of April to unfold and the March real estate data to come in, questions about the stock market's melt-up comes via  @anilvohra69

Bubbles have a blowoff phase lasting 21 months. Using a 5% threshold, the run from Feb 16 to Dec 17 was 22 months.

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​During Toronto's 21 month "melt-up", listing levels crashed as the fear of missing out kept sellers out of the market. Post melt-up, Toronto sales are testing the lows as buyers fear getting in.  ​​Markets are related. Real Estate valuations are not immune.

Global Risks 2018
According to the IMF, over the past three decades 53% of countries have seen an increase in income inequality, with this trend particularly pronounced in advanced economies. Furthermore, today’s economic strains are likely to sow the seeds for longer-term problems. High levels of personal debt, coupled with inadequate savings and pension provisions, are one reason to expect that frustrations may deepen in the years ahead. We highlight four concerns: (1) persistent inequality and unfairness, (2) domestic and international political tensions, (3) environmental dangers and (4) cyber vulnerabilities. We conclude by reflecting on the increased dangers of systemic breakdown. World Economic Forum

​Strongest 'Bubble Burst'' Alarm Just Went Off
Jeremy Grantham 2018

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Chatter on Twitter was heavy yesterday about potential rate increases for 2018. I mash-upped the CoreLogic chart to the left with yesterday's spike in the 2 and 10 year yields (via ZeroHedge 2yr chart and 10yr chart).

The CoreLogic Home Price Index Forecast suggests U.S. home prices will rise less than 5 percent this year, but if some 2018 mortgage rate forecasts pan out the mortgage payments homebuyers face could increase closer to 15 percent.
Andrew LePage, CoreLogic, February 15, 2018

"recent data has strengthened his confidence on inflation." and
​"yield curve has been a problem in past when Fed got behind and had to raise rates quickly; that's not the case now"

Bank Of Canada To Take Cautious Path With Two More Hikes In 2018: Reuters Poll
​
The central bank has raised interest rates three times since last July, amid a robust job market and solid economic growth, but policymakers have said repeatedly they will be cautious in considering further hikes. Leah Schnurr, Reuters February 27, 2018

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​In December 2017, the 10yr less 2yr Canada Government bond spread narrowed to just 32 beeps away from inversion.

Market history is littered with downturns that followed new Republican presidents: Hoover (1929), Eisenhower (1953), Nixon (1969), Reagan (1981), and Bush (2001). The Trump bubble will likely prove to be the mother of all Republican presidential ebullience bubbles. Trade wars are not positive at all for the markets. They are what exacerbated the Great Depression and they should be one of the key triggers of the bursting of the China bubble.

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Here's Who Could Lose the Most in a U.S.-China Trade War
Bloomberg, January 23, 2017

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"Canada's big housing markets in 'Goldilocks moment." CBC News, October 12, 2017 Mr Soper, president and CEO of Royal LePage also declared that Canadian housing is 'just right' if we are to use his metaphor: Canadian housing is enjoying a Goldilocks moment — not too hot, and not too cold.

Look for headlines soon to come out of Toronto documenting their experience of renovictions. Everyone has to pay more for housing now because of 9 years of ZIRP & NIRP 

FROM Alberto Gallo, Bloomberg, August 2017

Economists are split on why inflation has lagged gains on growth and unemployment. The Fed has reassured low inflation is temporary, but many believe structural factors will keep inflation lower for longer than traditional models suggest. We are in that camp.

​The scars left on the economy by the prolonged recession -- such as workers permanently dropping out of the workforce, new technologies that maximize sharing of existing resources, falling demographics, and a general weakening of labor bargaining -- are all responsible for keeping inflation subdued.

If inflation is likely to remain low due to structural factors, then QE may be less useful than previously thought. In fact, continuing QE can expose markets and the economy to two risks.

The first is that over time, persistent low interest rates may become self-defeating. Absent a fiscal policy stimulus, low interest rates may lose their impact or even become deflationary: aging populations save more to make up for lower returns, firms invest in new technologies employing fewer workers, and workers who were trained in sectors that were booming during the crisis remain permanently out of the workforce. 

The second risk is that QE will generate dangerous side effects, including asset bubbles, rising wealth inequality, and a misallocation of resources in the economy. Negative or zero rate polices have pushed investors into search-for-yield strategies, distorting the risk premium in credit and volatility. QE has favored the haves over the have-nots, contributing to wealth inequality and to an asset-rich, wage-poor recovery.

​Finally, NIRP/ZIRP can encourage resource misallocation by keeping alive zombie companies.

Capitalism Doesn't Work at 0%

"It would pay to travel to Mars because the returns here on Earth are very very low."
​Bill Gross, June 2016