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
As the report concludes in part:
"Governments must stop spending financial and political capital to further the interests of one industry whose aspirations will literally devastate the planet, at the expense of all of us."
Methane: The Arctic's hidden climate threat.
Natalia Shakhova's latest paper. Jun 23, 2019
Even with existing levels of warming and melting of the Arctic region, submarine methane releases linked to clathrate breakdown have been discovered, and demonstrated to be leaking into the atmosphere. A 2011 Russian survey off the East Siberian coast found plumes wider than one kilometer releasing methane directly into the atmosphere. According to monitoring carried out in 2003/2004 by Shakhova et al., the surface layer of shelf water in the East Siberian Sea and Laptev Sea was supersaturated up to 2500% relative to then present average atmospheric methane content of 1.85 ppm. Anomalously high concentrations (up to 154 nM or 4400% supersaturation) of dissolved methane in the bottom layer of shelf water suggest that the bottom layer is somehow affected by near-bottom sources. Considering the possible formation mechanisms of such plumes, their studies indicated thermoabrasion and the effects of shallow gas or gas hydrates release. Wikipedia Arctic Methane Emissions Page
New Arctic lakes could soon be a major source of atmospheric methane. August 20, 2018
For centuries, a massive store of carbon has been locked underground in the Arctic's permanently frozen soil known as permafrost. As Earth's climate continues to warm, that carbon has begun to leach into the atmosphere, the result of microbes waking up and digesting once-frozen organic materials. A new NASA-funded study focuses on a mechanism that could accelerate the release of this atmospheric carbon, the result of thermokarst lakes. These lakes form when thawing permafrost causes the ground to slump, creating a depression that collects rain and snowmelt and perpetuates a cycle of further permafrost thaw. NASA August 2018
The bigger influence on Canadian real estate values will be the next decade of our reactions to the exponential growth in climate problems ("very high confidence") global migration pressures and the inevitable expansion towards technological solutions and a new generation of research and development; a new generation of critical thinking.
“A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.” that is, "Science advances one funeral at a time" Max Planck 1949
Here follows, a text version of the screenshot of the key findings page of the 2017 U.S. Global Change Research Program 'Climate Science Special Report' (CSSR):
1. Our Globally Changing Climate
- The global climate continues to change rapidly compared to the pace of the natural changes in climate that have occurred throughout Earth’s history. Trends in globally-averaged temperature, sea-level rise, upper-ocean heat content, land based ice melt, and other climate variables provide consistent evidence of a warming planet. These observed trends are robust, and have been confirmed by independent research groups around the world. (Very high confidence)
- The frequency and intensity of heavy precipitation and extreme heat events are increasing in most regions of the world. These trends are consistent with expected physical responses to a warming climate and with climate model studies, although models tend to underestimate the observed trends. The frequency and intensity of such extreme events will very likely continue to rise in the future. Trends for some other types of extreme events, such as floods, droughts, and severe storms, have more regional characteristics. (Very high confidence)
- Many lines of evidence demonstrate that human activities, especially emissions of greenhouse gases, are primarily responsible for the observed climate changes in the industrial era. There are no alternative explanations, and no natural cycles are found in the observational record that can explain the observed changes in climate. (Very high confidence)
- Global climate is projected to continue to change over this century and beyond. The magnitude of climate change beyond the next few decades primarily on the amount of greenhouse (heat trapping) gases emitted globally and the sensitivity of Earth’s climate to those emissions. (Very high confidence)
- Natural variability, including El Niño events and other recurring patterns of ocean-atmosphere interactions, have important, but limited influences on global and regional climate over timescales ranging from months to decades. (Very high confidence)
- Longer-term climate records indicate that average temperatures in recent decades over much of the world have been higher than at any other time in the past 1700 years or more. ( High confidence)
Since the Third U.S. National Climate assessment (NCA3) was published in May 2014, new observations along with multiple lines of evidence have strengthened the conclusion that Earth’s climate is changing at a pace and in a pattern not explainable by natural influences.
Swedish climate activist Greta Thunberg chastised world leaders Monday, Sep. 23, for failing younger generations by not taking sufficient steps to stop climate change. "You have stolen my childhood and my dreams with your empty words," Thunberg said at the United Nations Climate Action Summit in New York. "You're failing us, but young people are starting to understand your betrayal. The eyes of all future generations are upon you. And if you choose to fail us, I say we will never forgive you," she added. Thunberg traveled to the U.S. by sailboat last month so she could appear at the summit. She and other youth activists led international climate strikes on Friday in an attempt to garner awareness ahead of the UN's meeting of political and business leaders.
PBS NewsHour Sep 23, 2019
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.
Commodity Super Cycle - 10 Years into the Bear
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.
Full CMHC 33 page 3Q 2019 PDF Report Here.
CMHC launched a new report earlier this week that will focus on mortgage market trends in Canada on a quarterly basis. This first report entitled "Mortgage Market Slowing & Share of Uninsured Mortgages Increasing" indeed highlights 2 major trends in place:
#1 above suggests that housing unaffordability continues to grow as fewer potential buyers can qualify for a high ratio debt to equity insured mortgage.
#2 suggests that reducing mortgage rates by 75% over the last thirty-plus years has led to debt revulsion as identified in my Household Debt chart which shows a peak and flattening since the hot market price peaks of 2017
These trends have taken 10, 20, 30 and 40 years for the credit cycle to fully manifest and now the effects of unproductive capital have emerged with a nascent transition to the early stage of a new credit cycle where companies and households will try to deleverage by reducing the amount of debt they hold while risk appetite is low and the cost of risk taking is high.
...History has shown that it takes a “long, long” time to restore household balance sheets, a situation that will be all that more difficult with trade and business spending hampered...
David Tulk, International Portfolio Manager for Fidelity Investment Canada, March 2019
...The nation may already be in recession after growing at an annualized pace of just 0.4 per cent in the fourth quarter (2018) and a pretty “soggy” start to the year (2019)...
David Wolf, Asset Allocations for Fidelity Investment and Former adviser to the Bank of Canada
...Canada’s households are clearly more stretched in terms of debt and spending than their American counterparts... There’s just no latent capacity to spend or to buffer a shock in Canada... They just have less room for error, less room to cushion any kind of hit with spending, before they would actually fall into outright dissavings...
Eric Lascelles, chief economist at RBC Global Asset Management Inc
Source of Quotes above from Financial Post.com June 2019
One of the problems facing our "economy" is the rampant flow of hard to track global criminal capital moving into jurisdictions attractive to money laundering... in this case Canada. The World Bank and the International Monetary Fund produces corruption ratings and by their measure British Columbia ranked fourth for money laundering among six regions in Canada. Manitoba and Saskatchewan combined were said to have more money laundering activity than B.C.
"B.C. Attorney General David Eby announced Justice Austin Cullen has agreed to lead what will be known as the Commission of Inquiry into Money Laundering in British Columbia, which is expected to produce a report in May 2021." Powell River Peak, May 2019
Meanwhile the "Vancouver Model" continues to move east across Canada (see my NOV 2018 post DIRTY REAL ESTATE); "The C.D. Howe Institute study estimates of money laundering in Canada range from $5 billion to $100 billion. SEP 2018"
That money after it's cleaned flows into business elements and hard assets throughout the "economy". It's going to take a new generation of activists to replace the mob model we find ourselves in.
One thing that generation could do is to replace our taxation system with an iteration of the APT tax which is an automated micro tax on any financial transaction. The authors of the APT tax model demonstrate the "desirability and feasibility of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction (APT) tax... In its simplest form, the APT tax consists of a flat tax levied on all transactions. The tax is automatically assessed and collected when transactions are settled through the electronic technology of the banking/ payments system... Real time tax collection at source of payment applies to all types of transactions, thereby reducing administration and compliance costs as well as opportunities for tax evasion."
Additionally, the APT can be adjusted easily so that it is revenue neutral, ie: we could as a society set our fiscal priorities to accomplish our social contract goals with a tax burden of less than 2% of ALL financial transactions throughout a computerized banking and financial system. We would not have to debate where the money comes from... there is more than enough of that... but we would only be left with a debate of how to invest the money. See my complete APT post of NOV 2012
Let the new digital generation take this challenge on.
Meanwhile David Rosenberg May 2019
The investor class is heading towards liquidity
in the form of U.S. Treasuries and the USD
Where's the Steering Wheel?
GM bought Cruise in 2016 for $1 billion to jump-start its self-driving efforts. The company has said it plans to deploy its fully driverless cars, without steering wheel or pedals, for commercial ride-hailing use as early as 2019.
Engineering - Autonomous Vehicle Hardware & Software +/- 90 positions
Engineering - Product & Infrastructure +/- 70 positions
Executive Support 3 positions
Finance & Strategy 5 positions
Global Customer Support 1 positions
Global Vehicle & Market Operations 6 positions
Legal & Government Affairs 2 positions
Marketing & Communications 6 positions
People +/- 35 positions
Product Management and Design 11 positions
Product Operations 2 positions
- Increase one's skill set to a higher wage demand level,
- move to where the income to expense ratio is more favourable
- or drop out.
Don't bother getting a driver's license.
While we wait for the March 2019 housing data the IEA notes that CO2 emissions have more than doubled since the early seventies and increased by around 40% since 2000 and they rose by 1.7% in 2018.
Chris Hayes All In with AOC
The Green New Deal March 29, 2019
Top 10 Climate Change Myths - April 2018
Peter Hadfield (Youtube handle "potholer54")
a British freelance journalist author, geologist
The impact of exposure to air pollution
on cognitive performance
Over 92 per cent of the world’s population are continually breathing in unsafe air, which has led air pollution to be designated a public health crisis.
This paper estimates the contemporaneous and cumulative impacts of air pollution on cognition by matching the scores of verbal and math tests given to people age 10 and above in a nationally representative survey with local air quality data according to the exact dates and locations of the interviews.
We find that accumulative exposure to air pollution impedes verbal test scores. As people age, the negative effect becomes more pronounced, especially for men. The gender gap is particularly large for the less educated.
Our findings about the damaging effect of air pollution on cognition, particularly on the aging brain, imply that the indirect effect on social welfare could be much larger than previously thought. A narrow focus on the negative effect on health may underestimate the total cost of air pollution.
Full Report from the Proceedings of the National Academy of Sciences, September 2018
Vancouver is going to see short haul battery powered electric aircraft as early as 2021-22.
As Bloomberg reports:
Worldwide, there are some 100 different electric-aircraft programs in development, according to an estimate by consulting firm Roland Berger GmbH.
"The first passenger flights for British Columbia-based Harbour Air Ltd. which flies about 500,000 passengers each year from BC and downtown Seattle, would be in late 2021 under a partnership with Seattle's MagniX Technologies, pending regulatory approvals..."
Longer term, Roei Ganzarski, MagniX’s CEO predicts that electric motors will lead to a “resurgence” in the regional airline industry for trips under 1,000 miles with new aircraft designed for 10-25 passengers. North American carriers have struggled to fly in some of the smallest markets as most commercial aircraft flying today have at least 50 seats, too many for thinner routes.
“By 2025, 1,000 miles is going to be easily done,” Ganzarski said, based on the evolution of current battery technologies. “I’m not saying 5,000 miles, but 1,000 miles, easily. I don’t think that’s far-fetched or a pie-in-the-sky thing.” Bloomberg, March 26, 2019 Full Report
WORLD.MINDS MOBILITY on the world’s first
electronic, autonomous personal aircraft.
"Real Estate Prices will rebalance and cities will become
reener with more pedestrian zones on the ground."
"The retail industry will be transformed by technology, just like newspapers were."
@benedictevans March 20, 2019
Thanks to Benedict Evans for retweeting Andreessen Horowitz's 76 page slide show "Mobile is Eating the World"
The charts to the left from the slideshow are related to autonomous transportation, but the bigger picture of this presentation is about machine learning and the eventual end of your employment if your job is a repetitive task.
"Machine Learning...the idea that systems can learn from data, identify patterns and make decisions with minimal human intervention." sas.com
As the U.S. Energy Information Admin EIA.gov noted in their December 12, 2018 report:
"...concerns about the pace of global economic growth in coming months have led to related concerns about the pace of oil demand growth."
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
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.
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
A return to savings will eventually allow the pendulum of capital investment to return to productive use. But asset deflation is in view now and we don't yet know it's future length of trend.
One asset class that retains value and even grows during a broad deflationary event is precious metals; and that canary in the coal mine is happening now. See my ongoing chart study of "real" gold and real estate.
December 31, 2018 note to clients:
History, Charts & Curated Readings
Balance Of Trade
Rent Or Buy