HISTORY & READINGS at Brian Ripley's Canadian Housing Price Charts & Plunge-O-Meter

Debt vs Employment

5/28/2018

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My recent update of Foreign Direct Investment on my Canadian Household Debt, GDP, and Balance of Trade chart demonstrates that Canadian Capital would rather flee than fight.

The chart above adds more to the story. Since the dot com bust in 2000, net trade has plunged and to preserve lifestyle, household debt to income has soared to recent highs. Then with the credit collapse in 2008, import prices began to soar while the employment rate dropped against rising productivity and a savings rate that has plunged since the 1981 interest rate spike (Trading Economics Chart). Why bother saving when the government monetary policy is to leverage one's way to prosperity and let time and asset price inflation take care of balance sheets. It's a global trend and the fear of missing out has been a powerful input.

But peak debt may be upon us in this business cycle as banks begin to report a drop in mortgage demand.

The Canadian Imperial Bank of Commerce anticipates it will issue half as many new mortgages in the latter part of the year as it did in the same period of 2017 amid cooling in the real estate market. Times Colonist May 23, 2018

The ranks of the credit worthy are thinning. Debt retirement is either a slow process of repayment, or a quick liquidation of assets. Your balance sheet is the clue to your future. Governments demand stress tests; individuals should as well.

David Rosenberg: Ottawa created the debt monster that Canada now faces.
"47% of residential mortgages
are set to roll over for renewal next year."

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, joins BNN Bloomberg to provide his take on the Canadian economy as Bank of Canada Governor Stephen Poloz sounds the alarm on household debt in this country. Originally aired on May 2, 2018 on BNN Bloomberg

Melt Up

3/31/2018

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As we wait for the first week of April to unfold and the March real estate data to come in, questions about the stock market's melt-up comes via @anilvohra69

Anil, a retired UBS rates options trader, quotes investment strategist Jeremy Grantham:

Bubbles have a blowoff phase lasting 21 months. Using a 5% threshold, the run from Feb 16 to Dec 17 was 22 months.

Hence the question "Have we seen the melt-up?" It certainly appears that way for Toronto Real Estate (as of February 2018 data) and the March data may add even more weight to the thesis.

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During Toronto's 21 month "melt-up", listing levels crashed as the fear of missing out kept sellers out of the market.

Post melt-up, Toronto sales are testing the lows as buyers fear getting in.

Markets are related. Real Estate valuations are not immune.

Weak hands will offer up their assets first and in Canada we have a lot of household debt that eventually will face term renewals and the official stress test which is the greater of either the Bank of Canada’s five-year benchmark rate, now 5.14%, or the rate offered by a lender plus another 2%.

If you are thinking of 'buying the dip' make sure your income is amortized over the length of your mortgage. In a melt down, the erosion of net worth will shift a lender's risk management exercise to more closely examine the strength and security of your net income.

As we know employment income growth is facing profound challenges.

Global Risks 2018
According to the IMF, over the past three decades 53% of countries have seen an increase in income inequality, with this trend particularly pronounced in advanced economies. Furthermore, today’s economic strains are likely to sow the seeds for longer-term problems. High levels of personal debt, coupled with inadequate savings and pension provisions, are one reason to expect that frustrations may deepen in the years ahead. We highlight four concerns: (1) persistent inequality and unfairness, (2) domestic and international political tensions, (3) environmental dangers and (4) cyber vulnerabilities. We conclude by reflecting on the increased dangers of systemic breakdown. World Economic Forum

Strongest 'Bubble Burst'' Alarm Just Went Off
Jeremy Grantham 2018

Job Tenure

12/19/2017

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"While there is a lot of talk about how employment is becoming more temporary, this graph from joint work with Alex Thomson and Arthur Sweetman shows that the average time that the currently employed has been with the same employer has been almost constant at just over 100 months since 1976." Hat Tip to Macleans.ca

And for those of you who are under 40 years of age, you might end up changing employers 6 more times before you reach 70 years old.

That’s why, when you finance a real estate purchase, you should double check both your debt AND income amortization to see if they support each other.

If you have to move to a new city to get that better job, make sure your real estate asset can produce a net revenue stream.

Computer technology is already eating jobs and has been since 1990. To survive, get non-routine skill training. Thanks to Futurism.com for the chart below.

The Precarious Generation

Debt Leader

11/23/2017

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Canada is leading the way among OECD members in household debt measures. Also of note is that labour costs in Canada were negative at -0.4% Y/Y

Debt has been fueling lifestyle especially in cities like Vancouver and Toronto where extreme speculation, serial flipping and inert local and federal officials stand by with failed policies and ineffective regulations. There is no cop on the beat; it's do unto others what you want.

In less than 2 decades we have gone from a country where the ability to easily change employment or one's residence has evaporated. Now we are pinned to our job and our postal code because leaving either results in lineups to fill our departure.

I suggest that both the opening of access to information via the internet and the collapse of bond yields sponsored and promoted by governments mirroring each other have left us with a country of over-consuming and under-producing populace.

My regularly updated Household Debt Chart includes the FDI-FDO plot which illustrates the point; we are a country of consumers highly prized by offshore producers, a situation that is now entrenched in our behaviour, modified by our regulations. Currently, for every $1.00 of Foreign Direct Investment into Canada, there is $1.27 of Canadian savings being invested offshore where the yield is greater.

The Paradise Papers underscores the problem; greater access to stealth information along with domiciled yield suppression has led to increasing capital flight by Canadians and Canadian corporations unwilling to invest in Canada. This and the vacuum created from interest rate suppression has turned a lot of us into serial house and condo flippers and the ease and return on investment has attracted a flood of offshore money wanting in on the fun.

Those of us who could not or did not participate in the mania have been left with the sorry reality that for the last 10 years, housing costs in the runaway markets have increased by 10-12% per year or more depending on location and product. Wages have not increased to the same degree but balance sheet debt to equity ratios have.

CBC News November 23, 2017 - Canadian households lead the world in terms of debt.
Toronto Sun July 2, 2017 - Canada's middle class shrinks.
Market Watch November 3, 2017 - Blame the Internet for your stingy paychecks.
Stats Can November 11, 2017 - Housing prices, social ties and transfer payments may inhibit mobility.
Stats Can March 24, 2017 - Canadian waste management revenues increased 11% in two years to 2014.
CHPC.biz Ongoing Chart - Foreign Direct Investment OUT higher than IN over the last 20 years means Canadian companies are investing outside of Canada to get a better return on Capital and Labour.
CBC News November 6, 2017 - More than 3,000 Canadian names in the Paradise Papers.
Globe and Mail October 15, 2017 - The CRA is unable to identify the assignors who sell (flip) their contracts.

Millennials on Money: 'I am working two jobs right now’
CBC News - January 5, 2017

Job Amortization

9/28/2017

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Buying real estate at the top of a market requires cash flow during a correction event unless repricing of the asset is of no concern.

Real estate depreciation is a worrisome event especially if the property is indebted to an arm's length party.

As this page has noted many times before, technology is redefining cash flow so that even if there is no real estate price correction and we all agree to continue to value this commodity at present values, there is still the growing threat to cash flow if you depend on employment for it.

Bloomberg News (Sept 24, 2017) reports that:

Vikram Pandit, who ran Citigroup Inc. during the financial crisis, says technological advances could make 30 percent of banking jobs disappear in five years.

McKinsey & Co. partner Jared Moon predicts that technologies sweeping through investment banks will relieve rank-and-file employees of about a third of their current workload.

Management consultant Opimas LLC says about four of every five Wall Street firms have already implemented, or plan to use, some form of AI, according to Greenwich Associates.

Take a look at Bloomberg's interactive info graphic on the Future of Employment: How susceptible are jobs to computerization? and see the probability of your job being replaced with a machine algorithm.

If your job requires repetitive actions during the course of your workday, your job may no longer have an amortization value in the eyes of your employer nor will your mortgage robot rep want to sign that term renewal on your loan without an increase in equity.

Automation Entering White-Collar Work
"I witnessed 40% of my department laid off"
Quote from a bank mortgage department employee
Source: CBC's The National, March 2017

Leverage

4/21/2017

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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

But as Gilman points out in his piece, there are other examples of strategies between the two poles, ie: Landtrusts not only for conservation but for community purposes as well. Unfortunately:

"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

But now we have some Federal money being directed at that lack of policy:

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

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Uncertain Uncertainties

10/13/2016

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"Whatever the cause..."
The WTO in their concluding paragraph from their September 27, 2016 Trade Statistics and Outlook is not sure why global trade growth is declining.

A number of reasons have been advanced to explain the decline in the ratio of trade growth to GDP growth in recent years, including the changes in the import content of demand, absence of trade liberalization, creeping protectionism, a contraction of global value chains (GVCs), and possibly the increasing role of the digital economy and e-commerce, but all have likely played a role. Whatever the cause, the recent run of weak trade, and economic, growth suggests the need for a better understanding of changing global economic relationships. The WTO, and other international organizations, are working hard to understand this current evolution and its implications for continued growth.

The bottom line is that the buyer sets the price and if the vendor agrees, the sale completes. The pitiful Softwood Lumber embargo is a case in point CBC News October 13, 2016. The U.S. does not want Canadian lumber at Canadian prices.

Notice on the WTO chart above that despite the last 90 months of ZIRP & NIRP, global trade growth relative to GDP has recently plunged and both variables have been well below their respective highs all during that 90 month or 7.5 year period. State promotion of credit expansion has worked perfectly at expanding credit and now the borrowers have the job of turning debt in equity via the long process of amortization or the quicker route of liquidation. If borrowers are preoccupied with debt repayment as the competition for income (sales) increases then sellers better plan on more price and currency competition as well.

The WTO projects that export growth in 2016 from North America will drop from their April 2016 guess of 3.1% to their current forecast of 0.7%.

I have been tracking Household Debt, GDP, Foreign Direct Investment and Balance of Trade and it's clear that for the last nearly two decades, net investment capital is outbound from Canada and in the last 7.5 years of ZIRP & NIRP, Canadian net trade has been mostly negative.

Investment capital travels to where the returns are high relative to risk. The cost of Labour is a key expense and sleepless AI labour is a direct competitor. ITEM CBC News June 15, 2016 "42% of Canadian jobs at high risk of being affected by automation, new study suggests"

On a provincial basis, Ontario has the lowest proportion — 41.1 per cent — of jobs at high risk of automation, while P.E.I. has the highest with over 45 per cent of jobs at high risk of automation over the next 10 to 20 years.

My affordability page has always used the Bank of Canada "bank rate" as an input for debt service ratio calculation. My back of the napkin calculation for a current stress tested 5 year term, 25 year amortization fixed mortgage relative to average provincial earnings is that in Vancouver 5.5 wage earners are required to qualify for an 80% loan to value mortgage when buying an average priced single family detached house. In Toronto 3.3 buyers are required. In Calgary 1.6 earners and in Montreal 1.1 earners are required.

The current levels of peak housing prices in Vancouver and Toronto requires much more labour input from a labour pool that must compete for income not just locally but globally as well and that competition is going to won by those with better education and mobility resources than their peers.

For those of you thinking of getting off the grid, here you go, the home farming robot:

Bob Dylan wins Nobel Prize for Literature
BBC News October 13, 2016

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The world’s first commercial drone delivery service has launched in Rwanda. The service is operated by Zipline, a US robotics and drone company who will make between 50-150 deliveries per day to 21 clinics in the western half of the country. QZ.com Oct 14, 2016

Credit Cycles

12/10/2015

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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.

In the chart above, the top panel shows U.S. non-financial corporate debt to GDP at levels where credit defaults start hitting the front page. The lower panel shows the cumulative flow of investment funds in the U.S. and illustrates that institutional money is way ahead of private client money in getting out of the way of market risk to the downside.

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.

The full article is worth reading for Canadians who are also heavily leveraged and require employment earnings to satisfy debt repayment on assets that have insufficient equity to refinance.

Credit lines drying up for oil companies?

Notice the comments about the competition between Sunni (Saudi Arabia) and Shia (Iran) oil.

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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.

Nit Picking

9/28/2015

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The Small Business Myth

Electioneers like to push the meme that in Canada "80% of jobs are created by small business". The table attached from StatsCan does not bear this out so precisely. According to StatsCan's use of the North American Industry Classification System (NAICS), it's actually 70%.

The additional table shows the most recent breakdown of the currently employed and 65% of us work in the private sector.

So, if my understanding is correct then the 70% of our workforce that have jobs created by "small business" reflects 70% of the 65% of us who are employed in the private sector ie: 45% of us in the private sector owe thanks to the small business employer. Write me if I have made an error in the math.

The next problem is defining a small business.
Currently the NAICS defines size as:

Small = 1 to 99 employees
Medium = 100 to 499 employees
Large = 500 or more employees

The NAICS was created jointly in 1997 by Canada, Mexico and the U.S. and the most recent redefinition of "size" was in 2012 where size is qualified by the number of employees, gross sales and business sector.

A small business therefore can be one that employs at least 1 person and as many as 99 depending on the other qualifiers. That's a big difference. We all know that showing up for work in an office of 1, 2 or 3 people is a much different business experience than one that hires 49 or 99 workers. Not only that but a 3 person Canadian "small business" in the software sector could very easily compete with medium sized software businesses (100 to 499 employees) simply by using code and script writers offshore in low labour cost jurisdictions to do the grunt work and not have to pay Canadian labour costs. Or if you prefer, there is a big difference between a business that can replace labour with machines (hardware and software) and a business not as easily automated.

As software consumes the world and artificial intelligence reduces the need for expensive labour, the trend will continue to shed employees moving more of us into small business.

So when someone says 80% of jobs in Canada are produced by the "small" business sector, it does not mean that 8 out of those 10 employees have a personal relationship with the owner.

One more thing; the table at the top of the page is 2012 data published by StatsCan. Hey Canada this is the eve of 4Q 2015. Can we please get fresher data collected and published in this country?

#OPENDATA - THIS CITIZEN'S DREAM: It would help if Government Agencies had open to the public online databases updated in real time as transactions get tabulated so that the private sector could produce unbiased market analysis. If we want a society able to make better decisions we need better access to data. Write your Member of Parliament.

Snippet from "The Robotics Revolution:
The Next Great Leap in Manufacturing"

Robotics use is reaching the takeoff point in many sectors. The share of tasks that are performed by robots will rise from a global average of around 10 percent across all manufacturing industries today to around 25 percent by 2025. Big improvements in the cost and performance of robotics systems will be the catalysts. In several industries, the cost and capabilities of advanced robots have already launched rapid adoption.

Adoption will vary by industry and economy. Among high-cost nations, Canada, Japan, South Korea, the UK, and the U.S. currently are in the vanguard of those deploying robots; Austria, Belgium, France, Italy, and Spain are among the laggards. Some economies, such as Thailand and China, are adopting robots more aggressively than one might expect given their labor costs. Four industrial groupings—computers and electronic products; electrical equipment, appliances, and components; transportation equipment; and machinery—will account for around 75 percent of robotics installations during the next decade.

Manufacturing productivity will surge. Wider adoption of robots, in part driven by a newfound accessibility by smaller manufacturers, will boost output per worker up to 30 percent over the medium term. These gains will be in addition to improvement from other productivity-enhancing measures, such as the implementation of lean practices.

Andrew McAfee: What will future jobs look like?

Working Class Hero

9/7/2015

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Technical Recession?

It depends on where you are in this country and in your life.

In Canada there are only 4 provinces where average earnings are greater than the average and the 4th, Ontario, barely makes the cut (chart of June 2015 data - 2 months lag).

BC didn't make the cut and BC and Ontario are home to the bubbliest cost of accommodation in the country. So I think we can say that earnings have not been the driver of housing costs.

The Bloomberg piece below does suggest that current economic policy in the last decade has been, if anything, ideological.

Canada's Economic Slide in Five Charts
Bloomberg, September 2, 2015
By Christopher Flavelle

Tuesday's announcement that Canada's economy shrank for the first two quarters of 2015, putting the country into a technical recession, puts a little more strain on the ruling Conservative Party's claim of sound economic management, the core of its campaign for next month's federal election. What's more interesting is how long the party has been able to hang on to that mantle.

The charts below show Canada's ranking on the most basic economic indicators relative to other developed countries, first for 2006, when Prime Minister Stephen Harper's Conservatives took office, and then for the latest period for which data is available. For each indicator, the country has slipped.

Individually, any of these economic indicators could perhaps be explained away as the result of adverse circumstances, or just plain bad luck. Taken together, they force the question of how exactly the Conservative government has strengthened Canada's economy after almost a decade in power.

The answer is probably in the final chart, which shows that Canada now spends less of its gross domestic product on social programs than any member of the Organization for Economic Cooperation and Development save for three (Iceland, Estonia and South Korea). Shrinking government has been the overriding goal, and chief accomplishment, of the Conservatives' tenure. Whether you agree or not with the wisdom of that shift, the other charts suggest it hasn't done much for Canada's economic performance.

This doesn't necessarily mean the Conservatives will lose; voters may not trust the other parties to do a better job. But the government's claim to have run the economy well doesn't stand up to a comparison against other OECD countries, and that was true before this week.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Original Post Here

If China is the Commodity Engine
Canadian resource exporters will have to add more value.

Jim Chanos, founder of the hedge fund Kynikos Associates LP, was interviewed by Full Disclosure's Roben Farzad on August 27, 2015. Chanos discusses his bearish views on China.

"Working Class Hero" John Lennon

<<Previous

Debt vs Employment

David Rosenberg: Ottawa created the debt monster that Canada now faces.
"47% of residential mortgages
are set to roll over for renewal next year."

Melt Up

Strongest 'Bubble Burst'' Alarm Just Went Off
Jeremy Grantham 2018

Job Tenure

The Precarious Generation

Debt Leader

Millennials on Money: 'I am working two jobs right now’
CBC News - January 5, 2017

Job Amortization

Automation Entering White-Collar Work
"I witnessed 40% of my department laid off"
Quote from a bank mortgage department employee
Source: CBC's The National, March 2017

Leverage

Uncertain Uncertainties

Bob Dylan wins Nobel Prize for Literature
BBC News October 13, 2016

Credit Cycles

Credit lines drying up for oil companies?

Nit Picking

Andrew McAfee: What will future jobs look like?

Working Class Hero

If China is the Commodity Engine
Canadian resource exporters will have to add more value.

"Working Class Hero" John Lennon

History, Charts &
Curated Readings

Archives

Categories

David Rosenberg: Ottawa created the debt monster that Canada now faces. "47% of residential mortgages ​are set to roll over for renewal next year."

​Strongest 'Bubble Burst'' Alarm Just Went Off Jeremy Grantham 2018

The Precarious Generation

Millennials on Money: 'I am working two jobs right now’ ​CBC News - January 5, 2017

Automation Entering White-Collar Work "I witnessed 40% of my department laid off" Quote from a bank mortgage department employee Source: CBC's The National, March 2017

Bob Dylan wins Nobel Prize for Literature ​BBC News October 13, 2016

Credit lines drying up for oil companies?

Andrew McAfee: What will future jobs look like?

If China is the Commodity Engine Canadian resource exporters will have to add more value.

"Working Class Hero" John Lennon

History, Charts &Curated Readings

Archives

Categories

David Rosenberg: Ottawa created the debt monster that Canada now faces.
"47% of residential mortgages
are set to roll over for renewal next year."

Strongest 'Bubble Burst'' Alarm Just Went Off
Jeremy Grantham 2018

Millennials on Money: 'I am working two jobs right now’
CBC News - January 5, 2017

Automation Entering White-Collar Work
"I witnessed 40% of my department laid off"
Quote from a bank mortgage department employee
Source: CBC's The National, March 2017

Bob Dylan wins Nobel Prize for Literature
BBC News October 13, 2016

If China is the Commodity Engine
Canadian resource exporters will have to add more value.

History, Charts &
Curated Readings