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
The worsening of (housing) affordability in Q4 (2016) was the sixth quarterly deterioration in a row, the longest run in almost 20 years. National Bank of Canada FEB 8, 2017 Report
My long term chart study of housing starts vs population growth currently projects a 7% Y/Y decrease for full year 2017.
This suggests that indeed more starts could be consumed especially in this low interest rate environment.
Unfortunately the market place is skewed not to what is needed, eg: affordable family units close to appropriate services, but to what attracts non resident owners, flippers and FOMO driven investors who keep throwing greater amounts of leveraged capital at negative yielding and depreciating piles of steel, concrete and wood while governments at every level stand by in fear that they might lose this historic bonanza of property tax and transfer revenue.
My too-far-left radical idea of ending private fee simple land ownership is never going to happen in my lifetime as written. It is my expression of the frustration one feels at the polarity of choice:
Most people are at best only aware of two choices, two patterns, for land ownership – private ownership (which we associate with the industrial West) and state ownership (as in the Communist East).
The Idea of Owning Land by Robert Gilman 1984
"We don't have a national housing policy in this country and we should," "We're probably one of the few OECD [Organization for Economic Co-operation and Development] countries that don't have one."
TheTyee.ca June 2013
Budget 2017 includes new national housing strategy. Canadian Finance Minister Bill Morneau handed down a budget Wednesday, March 22 that includes a new $11.2 billion national housing strategy
Business Vancouver March 22, 2017
Meanwhile the market grinds on. I suggest that individuals should consider investment in themselves rather than negative yielding real estate because there is no guarantee that the debt positions currently being created will be transformed into equity. What is more enduring is the ability to leverage one's skill set into cash flow as the OECD studies show:
The evidence on how well countries are prepared for the digital economy is rather disturbing. The OECD’s Survey of Adult Skills (PIAAC) suggests that more than 50% of the adult population on average in 28 OECD countries can only carry out the simplest set of computer tasks, such as writing an email and browsing the web, or have no ICT (Information and communication technologies) skills at all. Only around a third of workers have more advanced cognitive skills that enable them to evaluate problems and find solutions (OECD, 2013). As a result, many workers use ICTs regularly without adequate ICT skills: on average, over 40% of those using software at work every day do not have the skills required to use digital technologies effectively (OECD, 2016a). Skills for a Digital World OECD December 2016
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
Real Estate Evaluation
Commute times say as much about the locations in which different employees choose to live as it does about the nature of the transport networks. In New York, where staff favour living more centrally, the average commute is just 19 minutes. By contrast, the more dispersed nature of Rio, Mumbai (3 times longer to commute than NY) and Shanghai means that people spend longer commuting, despite faster travel times on a per kilometre basis. Here, administration level staff live far from the centre, priced out of the best neighbourhoods and reflecting income inequality. (Source savills.com)
Overslept, so tired,
if late, get fired.
Why the pain?
Just go home,
do it again.
The Commuter’s Lament/A Close Shave by Norman Colp as public art in the tunnel connecting the NY Port Authority to the Times Square subway station.
Doctor Who "Gridlock" Scene 6
Left, Right or Down
Canada’s poorest 10% of the population saw their net worth drop some 150% since 2005. They have an average net worth of -$5,100, meaning on average the lowest earners have $5,100 more debt than assets, down from -$2,000 in 2005.
In the U.S. those in the lowest 20% quintile had a negative median net worth of -$6,029 in 2011, compared with -$905 in 2000. Those in the 2nd lowest quintile saw their assets drop by nearly half to a median of $7,263 in 2011 from $14,319 in 2000. (CNBC.com)
Deep and Persistent Wealth Inequality in Canada
Broadbent Institute September 2014
The Fading Redistributive Impact: Inequality and Poverty After four decades of relative stability, income inequality in Canada surged upward in the latter half of the 1990s. Between the mid-1990s and the mid-2000s, inequality increased more in Canada than in other OECD countries, and the redistributive impact of the tax-transfer system in Canada declined (OECD 2008, fig. 4.7). As we saw at the outset, by the mid-2000s, the redistributive impact of Canadian taxes and transfers was among the smallest among OECD countries (OECD 2011, 271).
The big surge in market income inequality began during the recession of the early 1980s and continued until the end of the 1990s. Rising market inequality reflects several distinct but powerful trends. Most attention has focused on the stunning rise in the proportion of income captured by the top 1 percent of income-earners, reflecting changing norms about compensation for the highly paid (Saez and Veal 2005; Fortin et al. 2012). The share of income captured by the top 1 percent is now approaching the levels reached in the “Gilded Age” of the 1920s and the Great Depression of the 1930s, generating an intense debate about the division between the rich and the rest, which was highlighted by the Occupy Movement in 2011.
However, other trends have also mattered. One is the loss of solid middle-income jobs as a result of a combination of technological change, outsourcing, and declining unionization. According to one analysis, “the young and the poorly educated have borne the brunt of these forces, but significant numbers of those previously in the middle and lower middle of the occupational skill and wage distribution have also been adversely affected” (Fortin at al. 2012, 133).
Finally, social changes have been important. Women and men increasingly choose spouses with similar educational levels, a process known as marital homogamy, or educational assortative mating. This trend tends to increase family income inequality as high-income earners increasingly marry each other and lower-income earners do likewise. Figure 1.1 captures the impact of these wider trends, demonstrating the strong rise in the real income of families at the 80th and 90th percentile, compared to the stagnation in the incomes of families in the middle and lower levels of the income distribution.
Read the whole Broadbent Institute study with charts here.
Bill Maher - Wealth Inequality in America
Canadians who import a lot of their news from U.S. wires and depend a lot on trade with the U.S. have a similar negative view about their children's future; nearly two thirds of respondents in a 2012 Pew Research poll in both countries believe the next generation will be financially worse off than themselves. Germans believe the same.
Three quarters of the British and Japanese and 90% of French respondents are bearish. On the flip side the bulls live in China, Brazil and Russia.
Hat Tip to Barry Ritholtz
"We're in California, isn't there a better way of doing that?" Elon Musk
The bottom 50% of most national populations is participating in less than 10% of its wealth, and the top 10% of populations is wheeling and dealing with over 50% of its national wealth. If you are in the bottom 50%, you are working at the wrong trade if your desire is to enjoy just some of the benefits of those above you; for instance more free time.
It's doubtful that in this period of history there is any point in waiting or voting for your governors to move you up the ladder because the 10% make up the rules of the game. The only remedy I can see is to retrain so that you have a skill that the top 10% needs and that the bottom 50% doesn't have.
Here are some high quality and free educational providers, Khan Academy and EdX to get you started and an interview with Elon Musk "A lot of education is vaudevillian" from April 17, 2013 at the Khan Academy office in Mountain View (48min).
When it comes to flipping houses in the U.S. it is the very wealthy who excel at the gross margin.
Total flipping activity (bought and sold in 6 months) is down by about 13% Y/Y but in the 2 to 5 million dollar price range, the flip count is up 350% Y/Y.
The mid and low end price flippers are being forced into holding, folding or chasing prices down the slope.
What's that old saying... "The rich get richer and the poor get children"? Well fortunately the poor are getting smarter and the birth rate is falling due to "demographic transition" according to Warren Sanderson, a professor of economics at Stony Brook University.
"Don't talk so much, old sport... Play!" The Great Gatsby F. Scott Fitzgerald
We have lot's of "Eiffel Tower" price patterns to refer to that have a fully formed right side to the tower; Japan is a classic with a multiple decade reversion.
I have lined up the peaks of the Japanese, U.S. and Canadian stock markets with housing index overlays.
The Canadian pair looks to be at a crossroad and according to a Statistics Canada medium growth projection, net immigration along with net birth-death may also have a right side reversion.
STATS CAN Employment Data: In Canada, more women than men work at part time jobs (+/- twice as many) and both older men and women (45 years and older) are more employed part time than younger men and women (age 25-44).
In the category of full time employment, there appears to be a declining number of younger men (since about 1990) employed relative to full time older men who appear to have made and kept the biggest percentage gains in job acquisition.
With full time employed women the story is similar except that BOTH younger and older women have made large percentage gains in getting employment and for 20 years during the period between 1983-2003, younger women were getting more jobs than older men.
If the trend continues of greater productivity through technological advance and the wage disparity between men and women is not erased, we could see more full time jobs auctioned off to women who live longer than men.
The chart above (updated annually) is also located on the Earnings Page.
History, Charts & Curated Readings
Balance Of Trade
Rent Or Buy