I mashed up the chart above from Statista.com to show the average monthly salary in Denmark in 2019 by educational level and converted into CAD on today's FX rate via xe.com (1 DKK = 0.21 CAD). In July 2019 it was +/-1 DKK = 0.2 CAD. Close enough.
The chart below from StatCan shows the average monthly earnings or employment income, all ages and highest certificate, diploma or degree in 2016 in Canada.
But Commute Times are Greater
Affordability is the ability for any urban household to be able to rent a dwelling for less than a 25% of its monthly income, or to buy one for less than about three time its yearly income.
The mobility and affordability objectives are tightly related. A residential location that only allows access to only a small segment of the job market in less than an hour commuting time has not much value to households, even if it is theoretically affordable.
"As a city develops, nothing is more important than maintaining mobility and housing affordability." Alain Bertaud
"The data here suggests that the “historically implied” safe asset provider long-term real rate stands at 1.56% for the year 2018, which would imply that against the backdrop of inflation targets at 2%, nominal advanced economy rates may no longer rise sustainably above 3.5%. Whatever the precise dominant driver – simply extrapolating such long-term historical trends suggests that negative real rates will not just soon constitute a “new normal” – they will continue to fall constantly. By the late 2020s, global short term real rates will have reached permanently negative territory. By the second half of this century, global long-term real rates will have followed."
The Bank of Canada Real Long Rate approached negative 1% in 2018 and with the Covid 19 lock down it pressed below negative 1% in 2020.
CPI is currently 0.5% (NOV 2020 print) and has been rising since the March 2020 lock down; this inflationary pressure will keep real rates muted and the Bank of Canada expects "CPI inflation to arrive at 0.2% for 2020 and remain below 2% until 2023." (DEC 9, 2020 BoC update)
This post includes Canadian GDP charts, Stephen Poloz's farewell remarks and Paul Schmelzing's introduction to his 110 page thesis that "By the late 2020s, global short term real rates will have reached permanently negative territory and by the second half of this century, global long-term real rates will have followed."
CR: So pandemics are not new. But the policy response to pandemics that we’re seeing is definitely new. If you look at the year 1918, when deaths in the US during the Spanish influenza pandemic peaked at 675,000, real GDP that year grew 9%. So the dominant economic model at the time was war production. You really can’t use that experience as any template for this. That’s one difference.
Canada GDP % Growth Annualized
The Canadian economy advanced an annualized 0.3 percent on quarter in the three months to December 2019, below a downwardly revised 1.1 percent expansion in the previous period and matching market forecasts. It was the weakest growth rate since the second quarter of 2016, when the economy shrank 2 percent. (BEFORE THE FIRST COVID 19 CASE HIT)
In his final official speech May 25, 2020, the Governor of the Bank of Canada Stephen Poloz said:
Market rates rose in Canada to follow suit with U.S. Fed Chairman Volker's policy of raising rates to shut down price and wage inflation of the mid 1970's, the fuse of which was sparked by the 1973 OPEC embargo oil price increase shock. In 1981 Canada, a 5 year fixed rate mortgage was being offered at 18+%.
"Eight centuries of global real interest rates, R-G [real wealth returns (R) and broader real growth (G)], and the ‘suprasecular’ decline, 1311–2018" Source Material
The Suprasecular Rate Decline
"By the late 2020s, global short term real rates will have reached permanently negative territory. By the second half of this century, global long-term real rates will have followed."
said Paul Schmelzing, JAN 2020, Bank of England Staff Working Paper No. 845
The Conclusion, in full:
Schmelzing on Bonds, Why Investors Face Years of Losses
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.
Commodity Super Cycle - 10 Years into the Bear
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.
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:
#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
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
On march 11th 2019, David Larock an independent full-time mortgage broker laid out his "Case for Lower Canadian Mortgage Rates", below edited, but read the whole feature report at MoveSmartly.com
The Bank of Canada acknowledged that our current economic slowdown is now “more pronounced and widespread” than it had previously forecast.
Global economic momentum is slowing.
Our economic slowdown has been sharper than expected.
Housing and consumption have slowed, and business investment and exports haven’t picked up the slack as the BoC had hoped.
Inflation expectations have been lowered.
Uncertainty is increasing.
Our output gap is widening because debt is choking off growth, and that is a powerful, long-term headwind, which will continue to exert itself long after global trade networks have been re-established.
On this last item, my Household Debt chart is in agreement.
Tuomas Malinen @mtmalinen for the charts above.
Today, March 13th 2019, the live
Canadian Productivity Chart exhibits a slowdown.
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
- S&P 500 since 1997
- Percent equity gains since 2009
- Interest rates since 1997
- Real Fed Funds rate since 1990
- U.S. corp debt since 1980
- U.S. corp debt as a percent of GDP since 1980
- Buybacks and dividends paid vs S&P 500 value since 2000
- S&P 500 vs NYSE margin debt as percent of GDP since 1997
- Retail investor allocation to stocks vs cash since 1997
- CBOE volatility index (VIX) since 1997
- St Louis financial stress index since 1997
- BAML U.S. high yield spread since 1997
- Cyclically adjusted P/E ratio since 1980
- U.S. stock market capitalization to GDP ratio since 1971
- Tobins Q ratio since 1902
- U.S. net corp profits as a percent of GNP since 1947
- FAANG stocks vs S&P 500 since 2009
- Fed Funds rate and recessions since 1997
- Financial banking crises and recessions since 1977
- 10-2 year treasuries spread since 1976
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
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
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.
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
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"
History, Charts & Curated Readings
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