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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. ​​

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​Commodity Super Cycle - 10 Years into the Bear

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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.

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The Canada Mortgage and Housing Corp. (CMHC) defines a household as being in “core housing need” if it “falls below at least one of the adequacy, affordability or suitability standards and would have to spend 30% or more of its total before-tax income to pay the median rent of alternative local housing that is acceptable (meets all three housing standards).” thecanadianencyclopedia.ca

"estimated that approximately 35,000 Canadians experience homelessness on any given night, and at least 235,000 Canadians are homeless in any given year."​ AND  According to the Canadian Observatory on Homelessness, mass homelessness in Canada emerged around this time (1987 Conservatives) as a result of government cutbacks to social housing and related programs starting in 1984 (Conservatives). In 1993 (Liberals), federal spending on the construction of new social housing came to an end. In 1996 (Liberals) the federal government transferred responsibility for most existing federal low-income social housing to the provinces.

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​Conclusion from Statistics Canada’s Insights on Canadian Society.

Using data from the 2016 SFS, this study looked at the association between the debt-to-asset and debt-to-income ratios and financial distress, while controlling for various socioeconomic characteristics. Three financial distress indicators were considered—missing non-mortgage payments, missing mortgage payments and taking out a payday loan.

The varied results call for a nuanced interpretation. The first point to note is that the debt-to-asset ratio tells a more consistent story than the debt-to-income ratio. Across all three distress indicators, people in the highest debt-to-asset groups have a higher probability of reporting distress. However, after controlling for other factors, the debt-to-income ratio is not associated with the measures of financial distress since the results are not statistically significant.

The debt-to-asset ratio might be a more predictive indicator because debtors can often sell assets to make debt payments, even if they do not have the income to make payments. Alternatively, those who own homes often have access to home equity lines of credit. These results are important because they suggest that the debt-to-asset ratio is a better indicator of financial precariousness than the debt-to-income ratio.

Additionally, some demographic groups face relatively higher probabilities of reporting financial distress, including lone-parent families, and “other” family types. Conversely, families whose major income earner had a university degree, were less likely to be in financial distress. Similarly, homeowners with or without a mortgage were less likely to miss payments or take out payday loans.

Financial distress has many dimensions and can take multiple forms. Future measurement should provide additional details, such as the frequency at which specific financial services are used when under financial duress. More research will be needed to better comprehend the extent to which Canadians are facing financial difficulties.

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​As Cities Grow, So Do the Numbers of Homeless Joseph Chamie, July 13, 2017 Homelessness is a mark of failure for communities in providing basic security. Based on national reports, about 2 percent of the world’s population may be homeless. Another 20 percent lacks adequate housing, reports demographer Joseph Chamie. Such statistics come with a caveat. Obtaining accurate numbers is difficult, mostly due to wild variations in definitions around the globe. Also, measuring homelessness is costly: Cities may under-count due to embarrassment while individuals avoid officials due to shame and fear of arrest and harassment. Reasons for homelessness include “shortages of affordable housing, privatization of civic services, investment speculation in housing, unplanned and rapid urbanization, as well as poverty, unemployment and family breakdown,” Chamie explains. “Also contributing is a lack of services and facilities for those suffering from mental illness, alcoholism or substance abuse and displacement caused by conflicts, natural disasters and government housing policies.” Even people with jobs can struggle to keep homes. As experts debate whether the issue can be resolved or not, some governments offer support programs while others do what they can to chase the homeless off to other locales. – YaleGlobal

Prominent Canadian economist David Rosenberg is warning that record household debt levels in the country will hinder economic growth...
​(ie: your income, your cash flow, your ability to service your debt)

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​Bill Gross of Janus Capital commented on... his recent investors’ letter (emphasis added is ours Macro-Ops.com): ​“What readers should know is that the global economy has been powered by credit – its expansion in the U.S. alone since the early 1970’s has been 58 fold – that is, we now have $58 trillion of official credit outstanding whereas in 1970 we only had $1 trillion.”

​There is a phase in the debt cycle when revulsion sets in.

​At the end of the business cycle there are three forces at work:
1) Rising interest rates sap demand and raise the cost of capital.
2) At the same time, according to capital theory, future returns decline due to over capacity.
3) While demand is decreasing and there’s a glut of supply, the herding nature of market participants create euphoric sentiment that drives expectations (and market prices) well past likely outcomes.
This process is what forms a market top. Alex Barrow Co-Founder of Macro Ops

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The household debt service ratio, measured as total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, edged up to 14.9% in the first quarter (2019), as total obligated debt payments grew at a faster pace than disposable income. Mortgage interest payments (+4.0%) have outpaced mortgage principal payments (-0.4%) as a result of higher interest costs, continuing a trend since the second quarter of 2018. Household credit market debt as a proportion of household disposable income remained at 177.6% in the first quarter, as debt and income grew at similar rates. ​In other words, there was $1.78 in credit market debt for every dollar of household disposable income. ​StatsCan June 13, 2019, ​

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Ray Dalio's Economic Machine

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​Credit booms are followed by credit busts and as the chart shows, Canadian Residential Mortgage Credit (%Y/Y lending) has been shrinking dramatically since the July 2008 Crude Oil Peak and the Crash into the March 2009 Pit of Gloom (6 Metros Chart).

"There hasn’t been a serious economic downturn in Canada since the 1990s; the last time that mortgage credit grew as slowly as now. Unfortunately bank lending is pro-cyclical, so lenders will tighten credit conditions just as real estate borrowing stops growing, which will make the downturn worse. This boom/bust cycle is inevitable as long as lenders focus on lending for real estate investment and speculation rather than more productive investments. To change that focus, a new set of rules and regulations that govern lending is needed.” Quote included in Jason Kirby and MACLEAN's Most Important Charts to Watch in 2019

​Canadian Banks on "Credit Doomsday Watch" CIBC

The CIBC analysts said that Canadian banks appear to be headed for their weakest credit cycle since the oil price collapse, which caused related loan losses to jump in 2016. While their prediction is “not a coming apocalypse,” the report said the banks’ loan losses last quarter had a “one-off feel to them” that could become more frequent. “For reference, the actual doomsday clock sits at two minutes to midnight,” the analysts said.

​ Well it could easily be one o'clock in the morning as weak hands cut their losses. Hat Tip to @Hutchyman​

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Remember when Vancouver real estate prices were defended by making comparisons to New York City housing prices? It looks like we can make those comparisons again. For price drops see MyRealtyCheck.ca ​The chart to the left is from Wolf Richter February 11, 2018, and he notes that: ​

The higher the price, the harder it gets:
Homes listed at less than $1 million: 45% failed to sell.
Homes listed at $1 million or more: 61% failed to sell.
Homes listed at $5 million or more (656 units): 79% failed to sell.

Resale transactions on Vancouver homes over $1 million fell by 26 per cent in 2018, with the slowdown more heavily weighted toward the second half of the year, said the brokerage. This was the third consecutive year of a decline in “top-tier” home sales over $1 million.

In the single-family home sector alone, the annual sales declines were even deeper, down 35 per cent among $1 million-plus homes and 51 per cent among $4 million-plus homes.

High-end condos in the City of Vancouver fared somewhat better but still “gave in to market stressors” in the latter half of the year, said Sotheby’s. Sales on condos over $1 million fell by 14 per cent year over year.

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As we wait for the December real estate data, let's look at some year end charts.  First up is Henrik Zeberg @HenrikZeberg who is suggesting that the price of oil is headed down to less than USD$23. ​Notice where oil was trading in 2001-2002 and 2016.

"...concerns about the pace of global economic growth in coming months have led to related concerns about the pace of oil demand growth."

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The economic slowdown in China is on, being driven by "risky lending and a rapid rise in debt levels". That sounds familiar to me and I have plotted it out on my Canadian Household Debt, GDP, Balance of Trade and FDI chart.

After decades of sharp expansion, the Chinese economy is slowing down. Growth in 2018 is set to be the weakest since 1990. And 2019 looks even worse. The world's second largest economy is feeling the effects of a darkening trade outlook and government attempts to rein in risky lending after a rapid rise in debt levels. "The drivers of China's slowdown have yet to have their full impact on the economy, and the combination of both is unprecedented," analysts at Moody's wrote in a research note this month. "This creates a high degree of uncertainty and risk. CNN Business December 30. 2018
​

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The USD which is the "senior currency" continues to go up in value when measured against other currencies. That is having a profound effect on global foreign debt holders that have to raise US dollars to repay their loans with their "depreciating" local currencies. CLICK CHART TO ENLARGE

A further, significant strengthening in the dollar will tell us when the Deflationary endgame for the global economy is gathering force. It will crush debtors, bankrupt creditors and lop at least four or five zeroes worth of funny money from the banking system’s quadrillion-dollar shell-game. I have written extensively on why hyperinflation is extremely unlikely to settle debts that have become vastly too large to repay. If you cannot understand why, let me pose this question: Do you actually believe the banksters will let you pay off your mortgage with a few hundred-thousand-dollar bills that you’ve peeled from your wallet? If you answered in the negative, you are implicitly a deflationist. 

The C.D. Howe Institute study estimates of money laundering in Canada range from $5 billion to $100 billion. C.D. Howe Report, September 2018

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Strength in Gold of late has it (the Gold/USD ratio) breaking above the top of this trading range at (2). What the ratio does at this resistance test will send an important message to the metals sector for the next few months.​

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​While we wait for the November Real estate data to come in, the World Trade Organization has released their November 26, 2018 World Trade Outlook Indicator. Their Trade Indicator has dropped to the lowest level since October 2016. NOTE that the Canadian National MLS Real Estate sales peaked three months later in January of 2017.

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World Trade Component Indices Key Findings Full Text

This report covers new trade and trade-related measures implemented by G20 economies between 16 May and 15 October 2018. It shows a number of important trends in global trade policy-making. While G20 economies continued to implement trade-facilitating measures, the figures show a significant increase in the number and coverage of trade-restrictive measures. This provides a first factual insight into the trade‑restrictive measures imposed in the context of current trade tensions.

G20 economies applied 40 new trade-restrictive measures during the review period, including tariff increases, import bans and export duties. This equates to an average of eight restrictive measures per month.
During the review period, the estimated trade coverage of the import-restrictive measures (US$ 481 billion) was more than six times larger than that recorded in the previous period and is the largest since it was first calculated in 2012.

G20 economies also implemented 33 measures aimed at facilitating trade during the review period, including eliminating or reducing import tariffs and export duties. At close to seven trade‑facilitating measures per month, this is in line with the 2012-17 trend.

The trade coverage of import-facilitating measures (US$ 216 billion) has also risen significantly during this period but is just half that of trade-restrictive measures.

On trade remedy measures, the review period saw a decrease in initiations of investigations by G20 economies and a stagnation of terminations compared to the previous period. Initiations of anti-dumping investigations remain the most frequent trade remedy action, accounting for almost three-quarters of all initiations. The trade coverage of trade remedy initiations (US$ 25 billion) has fallen significantly compared to the previous period. The trade coverage of trade remedy terminations remained equivalent to the previous review period at US$ 6 billion.

The proliferation of trade‑restrictive actions and the uncertainty created by such actions could place economic recovery in jeopardy. Further escalation would carry potentially large risks for global trade, with knock-on effects for economic growth, jobs and consumer prices around the world.
​
G20 economies must use all means at their disposal to de-escalate the situation. The WTO will do all it can to support its members to this end and leadership from the G20 will be essential. PDF Chart Source

​3 of My Charts Echo the WTO Warning

MLS SALES CLICK CHART TO ENLARGE Canadian National MLS sales peaked in January 2017. Two of the six WTO metrics were already in recession.

YIELD CURVE CLICK CHART TO ENLARGE The 10yr less 2yr yield metric was at its last major wide in January 2017 and now is only 16 bps from inversion.

NET TRADE CLICK CHART TO ENLARGE Since January 2017, there have been 21 unbroken consecutive negative Net Trade prints.

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As I have been pointing out on my chart of TSX INDEXES for Energy, Real Estate, Financial Services, Gold and the Bank of Canada Commodities in $CAD, that...

...the Thompson Reuters CRB chart embedded in the chart shows that global commodities measured in USD has been dropping since 2008, although recently since September (2018), there has been a near term rally in commodities... BUT

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China’s Slower Credit Growth
Underscores Worries Over Economy
​Bloomberg, Aug 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"