Toronto Condos pile up on a 21 year high.
"10,368 condos were completed in January 2015 in Toronto
a record 21 year high and 8x the average over the last 10 years."
said Sal Guatieri, BMO Economist
Rent Reduction Time
Condo Glut? Yes. The lower chart shows a snapshot of houses and apartments for rent in the 6 biggest Canadian metros. What vacancy rate does your real estate investment model use?
4 of the last 6 months of Canadian
trade balances have been negative
Big media has been spinning the low CAD as a net positive for Canada. But it's not working out and probably explains in part the sudden decision by the Bank of Canada in cutting its key lending rate another 25 beeps on January 21, 2015, depressing the CAD/USD even further, but:
"There is considerable uncertainty about the speed with which this sequence (increased foreign demand, stronger exports, improved business confidence, investment and employment growth) will evolve and how it will be affected by the drop in oil prices. Canada’s weaker terms of trade will have an adverse impact on incomes and wealth, reducing domestic demand growth." (Bank of Canada)
Export countries want their currency to be valued less than their customer's currency so that they can 1) undersell the competition and 2) try to increase inflation (which increases tax collections). Neither is working. While exports rose 1.5% in December 2014, imports rose 2.3 percent with gains in 8 out of 11 import sectors. The main contributors to the increase in imports were energy products, motor vehicles and parts, as well as metal and non-metallic mineral products. Although Canada is a net energy exporter, its economy measured by GDP is that of producing 30% goods and 70% services (Stas Can Nov 2014).
Global oil demand growth remained at a relatively suppressed 585 kb/d y-o-y in 4Q14. There are several reasons why lower crude oil prices so far seem to have failed to stimulate demand. Those include heightened deflationary risks in both Europe and Japan; adverse revenue impacts on net-oil-exporters; a global trend towards reductions in energy price subsidies and/or increases in oil consumption taxes; and the heavy falls experienced by many currencies, versus the US dollar, negating the impact of lower crude prices in domestic currency terms. Reflecting the downwardly revised macroeconomic backdrop, mid-January saw the World Bank revise down its 2015 global economic growth forecasts to 3.0%, versus 3.4% in June 2014, still an acceleration on 2014 (+2.6%) but notably less-so than previously assumed. (International Energy Agency)
New Record Lows on the Baltic Dry Index Chart
"When inflation expectations are solidly anchored, as is now the case in Canada, there is no reason to fear deflation." said senior Bank of Canada deputy governor Agathe Côté, and yet many analysts are expecting the Bank of Canada to lower its central bank rate again at its next scheduled rate announcement on March 4, 2015. (Canadian Press via CBC News Feb 19, 2015)
Schlesinger defined these to be “self-generating and autonomous”. They begin in the mentality of the masses, rather than creations of influential individuals of a time period. Leaders or politicians are representations of the “mood”, chosen to express the voice of the majority. Shifts in the national mentality are initiated when discontent with present conditions over time drives Americans to pursue a new trend that promises to satisfy the interest of the masses. This discontent, described by Schlesinger as “inextinguishable”, drives the cycles of change in national politics.
Professor Thompson's analysis of long Kondratieff cycles have nearly a thousand years of supporting evidence. If we accept the fact that most winters in Kondratieff cycles last 20 years this would indicate that we are about halfway through the Kondratieff winter that commenced in the year 2000. Thus in all probability we will be moving from a "recession" to a "depression" phase in the cycle about the year 2013 and it should last until approximately 2017-2020.
George Carlin - Why You Are In Debt
The top panel shows Canadian Government Spending vs Labour Force Participation and the lower panel shows Canadian Jobs Added on an Annual Basis all since 2008.
The two biggest line items of Federal Government Expenditures as of 3Q 2014 are:
Government spending on itself and the household sector combined with ultra low borrowing rates have not yielded growth in Canadian Labour Force Participation.
The Federal Government may announce a "balanced budget" going into the next election call but unless Canadian employees can reverse their debt to income ratio trend by either lowering debt or raising income, householders along with the Federal Managers will not be participating in productive economic spending in any big way.
Deutsche Bank reveals 7 reasons why ‘Canada is in serious trouble,’ starting with a 63% overvalued housing market. Financial Post, Business Insider, Andy Kiersz, January 8, 2015
If Treasury Yields are a measure of price and wage inflation, it's just not happening.
Jerry Maguire - Show me the Money
Stealth Money ?
Vancouver BC continues to rank as the least affordable city out of the 35 largest Canadian cities with a multiple of 10.6 times median household income required to buy a median priced house.
Compared to Vancouver, Toronto's big housing un-affordability spike looks rational if one considers population size (2.5x), and volume of residential sales and absorption rate (both over 2x) and Federal Government funding transfers that are 3.3x more to Ontario than to BC.
The dynamics of size and government compacts with the voter have helped to accelerate, Toronto's housing un-affordability over the last 4 years while Vancouver's un-affordability appears to have triggered a limit to negative cash flow prostration.
MORE DEMOGRAPHIA CHARTS & DATA
PRICED OUT OR PRICED IN?
Are you worried about being PRICED OUT of real estate because interest rates are going to zoom?
Or are you anxious about being PRICED IN because the commodity bust is widening?
A solution to these stressful thoughts is to move more to cash.
If rates do zoom you will be able to move cash into higher rates of return or if the asset value bust continues, you will be able to buy more value.
The charts above show the ongoing DEFLATION in consumption prices and wage earnings. The top panel is the MIT Billion Prices Project which tracks online in real time the high-frequency price data, as well as the US inflation index (CPI). The lower panel is the U.S. FRED chart of Y/Y total private average hourly earnings of all employees with the data plotted year over year to gauge the momentum. Both series are clearly down since the 2009 Pit of Gloom.
Without wage inflation, price inflation evaporates with every actor's change in sentiment from bull to bear.
Gallup Poll January 12, 2015
45% (U.S.) say it's a good time to find a quality job (the highest since 2007 prior to the bust and the Pit of Gloom)
The Low point on this measure was 8% in 2009 (after the pit of Gloom) and in 2011 (after the top in Commodities)
Ukulele Orchestra - Should I Stay Or Should I Go
Beavers, Bears, Dragons, Eagles