"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'
Take a look at GM Cruise's employment opportunity page. At this posting date, GM is looking for:
Engineering - Autonomous Vehicle Hardware & Software +/- 90 positions
Ok... one would have to move to San Francisco and deal with its housing exclusivity not unlike Vancouver's, but there are few solutions to the income vs housing cost problem.
Don't bother getting a driver's license. ‘Maxed out’: 48% of Canadians on brink of insolvency, survey says. Whaaaat?That's what the recent survey via BNNbloomberg.ca conducted by Ipsos for insolvency firm MNP Ltd. says. 48% - of Canadians are $200 or less away from financial insolvency every month. The poll is conducted quarterly for MNP and surveyed 2,070 Canadians online from March 13-24... phew. Fortunately for the rest of us, this is a small sample relative to our more than 35 million residents... but according to sciencebuddies.org a survey of 2000 random people will produce a margin of error of only 2.2%. Oh oh. If this poll is a reflection of Canadian's ability to continue borrowing to fund lifestyle as they have for the past decade of accelerated leverage, then next up will be a slowdown in consumption which is Canada's major GDP input. The April 2019 IMF table of Global Economy projections is below; Canada's economy is indeed facing a challenge.
...and the Yield CurveThe flattening of the yield curve is a signal from the bond market that it is worried about the economy and its ability to continue to grow. In addition, it is a signal that future inflation is nowhere to be seen. One outcome of an inverted yield curve is a weakening in bank lending as banks begin to earn less profits from making loans. In the most recent earnings announcements, the banks have already made this clear as they expect net interest margins to contract. This is because a bank’s role is to borrow funds at usually lower short-term rates and lend those funds at usually higher longer-term interest rates. The spread between these two rates represents the banks’ profits. 
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My Canadian yield curve chart above with its 10yr less 2yr plot, shows inversion is only 8 beeps away on March 2019 data. The U.S. Fed's chart is similarly poised.
High household debt levels reduce consumption abilities which puts downward pressure on employment which is already facing the digital transformation of supplying goods and services. Lender and borrower risk leads to debt revulsion by both sides of the equation. 
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"The retail industry will be transformed by technology, just like newspapers were."
"Machine Learning...the idea that systems can learn from data, identify patterns and make decisions with minimal human intervention." sas.com
The above sounds like it, but no, that's not a quote about Canada; but these are: Canadian real estate sales are feeling the pinch of higher interest rates, and consumer credit isn’t far behind. Bank of Canada (BoC) numbers show household debt printed a new record high. Despite the record high, the rate of growth continues to slow for consumer debt levels. The decelerating growth is yet another indicator that the credit cycle has peaked. Better Dwelling, July 2018 Market Rate Outlook: One more hike this year plus two more hikes next year. The market is not fully pricing in the next BoC rate increase until December... Canadians are now more sensitive to higher rates than ever before. That means consumption is slowing faster with every 1/4% BoC rate increase. RateSpy.com Sept 2018 Canada's economy is set to slow down even with a NAFTA deal, economists say: And as my long term chart study of Canadian Debt, GDP, Foreign Direct Investment and Balance of Trade shows, since the credit crash of 2009, Canadian's awesome consumption via debt has not led to higher wage employment production in Canada but to lower wage warehousing and transportation of goods and services that we import to maintain our lifestyles. "The one-million square foot Toronto centre will be Amazon’s sixth facility in Ontario and ninth in Canada." Financial Post, July 2018  CLICK INFO-GRAPHIC TO ENLARGE "Stabilization should not be interpreted as the start of another strong rally," they warned (TD Bank economists Derek Burleton and Rishi Sondhi). That's because mortgage rates are on the rise, and home affordability levels have reached their worst levels in a quarter century... in fact historical data shows that over the past half century, inflation-adjusted house prices in Toronto fell for about a third of the time. huffingtonpost.ca, Sept 2018  CLICK CHARTS TO ENLARGE
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.
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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
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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.
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
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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
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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
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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.
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.
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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
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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.
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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
 CLICK CHART TO ENLARGE | 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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"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
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