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

Peak Consumption in Canada
appears to be at hand.

Feeble savings may also signal that
consumption-led growth has nearly reached it’s end, as
Canadians are spending by drawing down savings.
From Bloomberg via TheStar.com December 1, 2018
Hat Tip to TradingEconomics.com for the Charts

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The low rate leaves Canadians more vulnerable to an economic shock, according to Brian DePratto at Toronto-Dominion Bank. “It’s concerning that households aren’t building up buffers and prepping for retirement like they used to,” the Toronto-based senior economist said by email. “The extent to which Canadians turn around their priorities when it comes to their financial situation could also mean less money for consumer spending.”

“It doesn’t bode well for consumption spending moving forward,” National Bank Financial’s Krishen Rangasamy

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.

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."

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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

The Canadian Dollar continues to plunge. That means our import costs go up and our net trade has been negative 8 out of the last 11 prints; ie: we Canadians buy more than we sell which is ok if we have the income to service the debt, but as the Chinese economy slows and they buy less of our resources, our incomes as well as other countries incomes are going to diminish.

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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.

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As Rick Ackerman reminded his clients on December 30, 2018:

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.

Since the start of ZIRP and NIRP it has been difficult to "be a deflationist" as we watched the global bubble of everything inflate; resource assets, equities, debt and of course real estate which Canadians with the help of foreign laundry services have pushed real estate prices into the top tiers of global pricing. In November 2018, I posted "Dirty Real Estate" which highlighted the "Vancouver Model" that has spread throughout Canada.

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

e don't even know what the "value" of the crime is, but we know what the effect has been in terms of FOMO debt taken on by Canadians. Real estate prices have peaked in Canada and as they drop, the FOMO crowd has a tough choice to make: turn debt into equity quickly by selling the asset or stay in for the long haul and meet the amortization obligation. If it's the former, look for price drops to happen quickly as vendors compete for a diminishing supply of buyers; if it's the latter look for a slow Japanese style deflation and a return to savings as noted in my 2012 post "What Do You Do During a Housing Bust".

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.

And below, see Chris Kimble's
December 31, 2018 note to clients:

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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.

CLICK HERE if you want a free trial of Chris Kimble's peerless financial market technical research.

Solar Cycle

2/4/2014

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Solar & Market Behaviour

"Predicting the behavior of a sunspot cycle is fairly reliable once the cycle is well underway." MSFC-NASA

“My opinion is that we are heading into a Maunder Minimum,” said Mark Giampapa, a solar physicist at the National Solar Observatory (NSO) in Tucson, Arizona. “I’m seeing a continuation in the decline of the sunspots’ mean magnetic field strengths and a weakening of the polar magnetic fields and subsurface flows.”

Meanwhile a sudden flight to lower yields via up ticking CPI and global equity valuation fear. Notice the TSX Real Estate index has been in a trading range since the summer of 2012 and has failed to break through the spring 2013 top. It's similar to the Canadian real 10 year yield and if that plunges with more CAD dollar sell off, we will probably see more unwillingness to subsidize equity positions, and real estate appraisers (and margin clerks) will become busy again. DIY here.

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What do you do during a housing bust?

12/20/2012

WHAT TO DO DURING A HOUSING BUST

Japan as we know has been in a 20+ year (and still counting) housing price deflation.

As housing prices fall over long time spans, households have to make decisions about how they are going to turn the debt they acquired on the way up into equity.

There are two basic choices; get in front of the falling price curve and sell at a either a loss or gain depending on timing, or if the household has the income, pay down the debt over time as a forced savings plan. The former allows for greater savings and re-investment and the latter is a suicidal prison term chained to one price decaying asset.

In either case, households turn to saving and away from consumption.

The charts above and below are from an article by Jack Crooks of Black Swan Trading where he argues:

1) The demand for dollar liquidity in a world where the European banking system is desperately deleveraging and many in the private world are doing the same likely means the world reserve currency remains supported, even though it is likely Ben Bernanke would like to push the buck lower.

2) The commodities super cycle is behind us. This doesn't mean all commodities go lower; agricultural commodities could spike again and are subject to lots of volatility. But even the Australian Central Bank believes there has been a peak in the mining cycle in Australia.

3) The credit crunch (2008-09) really was a sea change. Massive personal balance sheet over-leverage, coupled with the decline in the biggest personal asset, real estate, seems to have triggered a sea change in both real consumption and attitude toward future consumption. This means more savings. More savings tends to mean more money in fixed income (keeping yields low).

4) The knock-on effect of a change in reduced global consumption and increased savings is the catalyst for rebalancing the current account deficit nations with the current account surplus nations. It is especially bad news for those with export-dominated growth models who will take the brunt of the adjustment domestically; and we know who you are: China, Germany, Japan...

AND CANADA... it's already happening; Canadian exports peaked July 2008 at 44.1bil and have dropped 13.6% to 38.1bil in October 2012 (Source). See also Ray Dalios Mega Trend and John F. Carlucci's Trend Regression. The complete Jack Crooks, Black Swan Trading article is here.