Oil Breaks Down: Should Stock Market Bulls Be Worried?
From CHRIS KIMBLE, technical market analyst:
Here's my back of the napkin yield calculator for CAD$12.
It pays for hosting and domain blog costs; thanks.
...more than half of fund managers have never experienced a prolonged bear market... @Hipster_Trader
Millennials who did not 'catch' FOMO might be very relieved at this point in the business cycle.
Canada Has a Broken Housing System and It Has Fucked Over Millennials - Vice, Oct 2018
Justin Havre put together a survey comparison of Canadian and U.S. Millennial's opinions of when they think home ownership is possible. The takeaways are:
And as I have been tracking on my Household Debt chart, there appears to be a structural change in Canada that has led to:
And we still don't know about the net effects of Trump's Tariff-O-Nomics. So if you are going to leverage a home purchase with the maximum amount of debt allowed under the new stress test qualifiers, make sure you have your income contract term lengths matching up to your debt obligations.
The "Sectoral Savings as a Percentage of Global GDP" chart suggests that households since the mid 1980's have been using up their savings to maintain lifestyle and since the start of ZIRP and NIRP in March of 2009, households with renewed zeal, have been moving cash out of their dwindling low interest savings accounts paired with record low borrowing costs to chase yields at risk.
Corporations since the mid-80's have amassed savings into record levels and after the smoke cleared in 2010, they resumed investment as well.
But in Canada as my Household Debt chart with overlays of GDP, Net Trade and Federal Direct Investment plots show, Canada has not been a net positive target for offshore investment money for the last 20 years. As we know the Alberta tar sands' appeal is troubled:
Carlos Murillo (Conference Board of Canada economist), predicts Canadian (oil sector) industry costs will jump by an average of 13 per cent per year between 2017 and 2021... the peak investment level was $62 billion in 2014... " The Canadian Press March 13, 2017
And the recency bias among households is working itself into heat exhaustion according to Bloomberg (May 8, 2017):
Expectations for Canada’s housing market are heating up, with more than half of respondents in a weekly telephone survey predicting home prices will rise, the first time the measure has topped 50 percent in records dating back to 2008... “Consumer sentiment on real estate has gone from hot to hotter,” said Nanos Research Group Chairman Nik Nanos... The latest burst of housing momentum has led policy makers to question whether it’s being led by supply and demand or by speculation.
If one is willing to leverage up and buy a negative yielding asset while the attendant stakeholders from government to loan creators are lining up to take a piece of the action, sellers will simply show up and sell it to you. That's a sure thing, just like the Canadian real estate market is speculative 101.
ITEM: "Toronto Homeowners List Detached Homes For Sale At A Record Pace - Toronto homeowners are listing detached homes for sale at a rapid pace, with new listings soaring over 61% last month." BetterDwelling.com May 10, 2017
ITEM: China Commodity Crash Accelerates As Traders "Forced To Destock" ZeroHedge May 9, 2017
Imagine having to sell real estate in a falling Canadian market.
St. Germain - Sure Thing
The chart above shows the number of students pimping themselves out to pay for education, room and board in some selected Universities.
The red notations show the latest Demographia unaffordability rank of each University location. It's not surprising to see Toronto, the biggest metro in Canada as a destination for pussy grabbers. If we had the data, I would imagine Vancouver, the most unaffordable city in Canada and the 3rd most unaffordable out of 404 global cities, would also incent young men and women into prostitution. In 2011, the Vancouver city council estimated there were +/- 10,000 sex workers in the city. (Vancouver Sun, Sept 30, 2016). Note that Victoria BC is listed on the chart above; you know, that nice little tourist town and retirement village that promotes itself as "a little bit of Britain". The study chart claims 361 Victorians use SeekingArrangement.com which amounts to 0.5% of Victoria's 2006 census. Tea, crumpet, hair pie anyone?
"Students from 20 British universities are joining dating Web sites matching young women with older men, in an attempt to raise money to pay off student loans and other debts." IBTimes.co.uk 2012.
Housing unaffordability and income disparity is a result of a patchwork policy by government that has failed to get capital investment into productive employment. Instead we have metro land valuations promoted as if in a casino in a country that has an excess of land and resources. We encourage our citizens to flip real estate to satisfy state revenue needs with the collection of gross consumption taxes on every trade.
Meanwhile new generations of young inheritors of our social contract enter the culture as a rank commodity to be exploited by daddy.
Canada could use an overhaul of its collective aspirations.
Vancouver Named Sugar Daddy Capital of Canada 2013
Here’s a look at the top 10 Sugar Daddy destinations:
*Vancouver Sugar Daddies spent $4,307 monthly on their younger counterparts on average, more than anywhere else in the country.
Vancouver Sugar Daddies are 40 years old and make $292,506 annually, on average. CTV NEWS 2014
"Some of the world’s largest energy companies are saddled with their highest debt levels..." Wall Street Journal Aug 24, 2016
Grim expense report: Alberta's debt soars to $10.9 billion
Price is what you pay, value is what you get.
I'm waiting for the Ottawa Real Estate Board to publish their March housing data (their data supplier is having a problem) before I update the balance of my charts that include Ottawa data, probably in the 3rd week of April. There's no rush; lunacy still prevails. The top half of today's chart came from my Twitter Feed via @theemilyjackson
"One of the things that was supporting Alberta home prices was the fact that our incomes were 40 to 50 per cent higher than the rest of Canada, and that's changing very rapidly," said Hilliard MacBeth "One of the things that was supporting Alberta home prices was the fact that our incomes were 40 to 50 per cent higher than the rest of Canada, and that's changing very rapidly," (CBC NEWS April 18, 2016)
The ratios of average housing prices to average incomes are 13.2 in Vancouver and 7.7 in Toronto. These can only be the result of demand from external purchasers much wealthier than domestic residents. They far exceed the historical average ratio of three, and are well above the ratio of five, at which housing is considered “seriously unaffordable.” Financial Post, April 13, 2016
Just as surely as prices can and do temporarily defy the gravitational tug of value, in the end the hard laws of physics trump the soft science of crowd psychology. The farther prices rise above or fall below their fundamental value, the greater the store of potential energy to be released in the resulting disequilibrium. Once the reversal process begins, momentum develops and markets generally overreact.
Encouragement can be found in Warren Buffett’s admonition in the Berkshire 2006 annual report, which I (Frank Martin) paraphrase only slightly: Being aware that a single, big mistake can wipe out a lifetime of successes, a wealth manager must be hardwired to recognize and avoid grave risks, including those never experienced before. Buffett went on to add that, “…fierce independence of thought and action, equanimity of temperament, abiding rationality and a keen understanding of human nature are essential.” Frank Martin, CFA September 2014
First In ~ First Out
According to StatsCan, in 2001 after the dot.com blowout and the markets then turned to commodities, there were +/- 329,129 employees working in the Oil, Gas & Mining industries per year in Canada and in full year 2014 that number had increased by 60.8% to 529,248.
This includes "support activities" but not the peripheral jobs in the general economy that depend on the spending by those oil, gas and mining employees.
According to the New York Times December 8, 2015 "If It Owns a Well or a Mine, It’s Probably in Trouble".
“The world of commodities has been turned upside down,” said Daniel Yergin, the energy historian and vice chairman of IHS, a consultant firm. “Instead of tight supply and strong demand, we have tepid demand and oversupply and overcapacity for commodity production. It’s the end of an era that is not going to come back soon.”
Some energy experts are even beginning to express concerns that sovereign wealth funds of Saudi Arabia and other wealthy Persian Gulf and oil-producing countries will redeem their money from investment firms in the coming year to shore up their balance sheets. If they do, the moves could initiate more instability in global equity and debt markets.
Credit lines drying up for oil companies?
Distress (bonds trading over 1,000bps) has been spreading across the HY space. From its starting point in energy a year ago, it has now reached other commodity-sensitive areas such as transportation, materials, capital goods, and commercial services. But it did not stop here and is also visible in places like retail, gaming, media, consumer staples, and technology – all areas that were widely expected to be insulated from low oil prices, if not even benefitting form them.
In other words, what was until a year ago a purely "energy" phenomenon is now an "everything" phenomenon, despite promises by every prominent economist that plunging energy prices are great news for the economy.
"The drop in oil prices looks as if it may be quite persistent. This will have a permanent effect on the spending decisions of the average Canadian, translating into a drop in real domestic demand. Total aggregate demand could only remain on its previous trend to the extent that net exports increase permanently. While they will recover from their disappointing recent performance, a permanent increase is unfeasible. Total demand is on a lower trend than before the oil price shock." Read the whole article by Steve Ambler.
Alberta's Boom Time Hangover
VICE NEWS June 1, 2015
This Bird Has Flown
Alberta's so called "progressive" conservative governments; 7 consecutive iterations since 1971, have squandered their provincial energy resources leaving their treasury with a CAD 12 billion dollar debt and a 500 million dollar deficit. (The Tyee)
Data for the chart above came from Greg Poelzer's Macdonald-Laurier Institute's February 2015 Publication Paper "What Crisis? - Global lessons from Norway for managing energy-based economies."
According to estimates by the International Monetary Fund and Fitch Ratings, Norway needs an oil price of $40 to BALANCE THEIR BUDGET. (Institutional Investor, Feb 24, 2015)
|Strong societal consensus from the outset embodied in its “ten oil commandments.”||No consensus and much conflict between the federal and Alberta governments about how to manage petroleum resources.|
|National public ownership and control of all aspects of oil production and distribution.||“Open door” to multinational oil companies. Let the private sector take the lead, with government providing subsidies and tax breaks to encourage resource exploitation. Foreign ownership very high. Federal and provincial ownership and control initiatives only in the Lougheed and Trudeau era–1974 to 1984.|
|Maintained key policy tools to manage its resources.||Surrendered key policy tools under the Canada U.S. free trade agreement and NAFTA.|
|Active industrial policies to encourage linkages to upstream and downstream petroleum related activities.||Active industrial policy measures, both federally and provincially, until the mid-1980s; since then they have been passive (subsidies, tax breaks, R&D assistance, etc.)|
|State-owned oil company, Statoil, dominant player in the development of the oil industry.||Provincial and federal initiatives to develop state ownership did not last. Eventually private interests and their political allies defeated these initiatives. Petro Canada was fully privatised.|
|National oil self-sufficiency was quickly achieved.||Eastern provinces forced to import oil even as exports to the U.S. expanded rapidly. Today they import more than 80% of their oil consumption.|
|Has maintained full employment even during the global recession.||Canada’s unemployment rate has remained high since 2008. Alberta’s unemployment rate has been much lower on average, bumping up only during the recession.|
|Has maintained low and stable inflation.||Canada has maintained low and stable inflation. Alberta’s inflation has been significantly higher than the Canadian average.|
|Has maintained a stable exchange rate due largely to its centralized wage settlement policies and to its petroleum fund.||Has experienced a huge increase in its exchange rate, with major adverse impacts on non-petroleum regions. Neither level of government has a petroleum savings fund to offset the inflow of oil revenue and bitumen investment. The federal government has chosen not to take measures to offset the upward pressures on the exchange rate.|
|The huge oil revenue inflow has been offset by the outflow to the petroleum fund. Has a huge trade and current account surplus.||Canada’s traditional merchandise trade surplus turned into a deficit after 2008. Its non-resource deficit is huge. It also has a very large current account deficit. Alberta maintains a large trade surplus due to its oil and gas exports to the United States.|
|Economic and employment benefits have been widely distributed. Any regional disparities have been offset by a very effective income transfer system.||GDP and employment benefits are concentrated in Alberta. Petroleum related employment gains are outweighed by employment losses in non-petroleum related industries concentrated in the rest of Canada. Relatively small benefit going to the rest of Canada due to weak linkage effects and weak federal government income transfer mechanisms.|
|The state captures the vast majority of net revenues, or economic rent, from petroleum.||Rent captured by the Alberta government is among the lowest of all petro states. The federal government captures a very small portion of oil rent through the general corporate tax rate.|
|Maintained its level of non-petroleum taxes despite rising oil revenues. Its overall tax-to-GDP ratio is among the highest in the OECD.||Alberta lowered its non-petroleum taxes as petroleum revenue rose and now has by far the lowest taxes in Canada. Both governments lowered corporate income taxes including on petroleum companies by half over the last decade.|
|Its diversified revenue base is not dependent on fluctuating petroleum revenues but rather on the more stable international financial returns to government coffers from its petroleum fund.||Alberta’s fiscal capacity is highly dependent on petroleum revenues, which go up and down as prices fluctuate, and often finds itself in deficit. Its savings funds to stabilize revenues are small and ineffective.|
|Strong unions are in a balanced power relationship with business. High union density, centralized collective bargaining and wage settlements, consensus building approaches.||Declining unionization especially in the private sector. Only the public sector has high unionization rates. Collective bargaining systems are fragmented and adversarial. Alberta has the lowest unionization rate in Canada. Both governments have beenworking aggressively to undermine unions.|
|Petroleum wealth, due to equitable labour relations, progressive taxes, and a generous social welfare system, is equitably distributed amongst the population and regions of the country. Has among the lowest income inequality in the world.||Since the mid-1990s there has been a rapid growth of income inequality driven by the 1% in Canada—now amongst the highest in the OECD. This has been accompanied by the reduction in social program spending. There has been growing interprovincial disparity in income and fiscal capacity with Alberta pulling away from the rest. Government redistribution mechanisms have been greatly weakened, exacerbating these trends. Inequality in Alberta has grown during the boom, and it is home to a rapidly growing share of Canada’s super-rich.|
|Norway’s carbon emissions per capita are half of what they are in Canada.||If Alberta were a country it would have the highest per capita emissions in the world along with Qatar.|
|A leader on climate change issues.||A climate laggard.|
|Met its Kyoto commitments. Its Copenhagen carbon reduction commitments are the most ambitious in the industrial world. Plans to be carbon neutral by 2050 or sooner.||Compared to commitments of 6% below 1990 levels, was 24% above 1990 carbon levels in 2008. Withdrew from Kyoto and its Copenhagen commitments are much weaker and almost certainly will not be met. Rapid development of the oil sands takes precedence over climate concerns. Alberta’s plan aims to reduce emissions by just 14% below 2005 levels by 2050.|
|Recently doubled its carbon tax to $66 per ton, and participates in the European carbon trading emissions regime.||Federal government refuses to implement a carbon tax or a cap and trade system for carbon emissions. Alberta’s $15 partial carbon tax is extremely low and ineffective.|
|Tough environmental regulations govern the exploitation and transportation of oil and gas.||Alberta’s environmental regulations don’t meaningfully restrain the environmental impacts of rapid oil sands development. The environment department lack sufficient resources to effectively enforce regulations. The federal environment department has been gutted as has the federal environment regulation and review system.|
The Beatles - Norwegian Wood (This Bird Has Flown)
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
Balance Of Trade
Rent Or Buy