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

Inversion Report

1/27/2018

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In December 2017, the 10yr less 2yr Canada Government bond spread narrowed to just 32 beeps away from inversion.

In April 2006 it was 33bps away and narrowing until it was fully inverted in May, June and July of 2007, and then central banks panicked and goosed the spread to widening again and by November 2007 it was 31bps again.

A year and half later the wide reached 230 beeps in May 2009, 2 months after the pit of gloom crash bottom.

We should start watching for further narrowing now especially with equity markets at their historical tops.

The Macro Model" chart below is from Crescat Capital with a few of my notations about Canadian debt levels which are at historical highs. NILS JENSON from Crescat Capital on January 27, 2018 made the observation that:

Market history is littered with downturns that followed new Republican presidents: Hoover (1929), Eisenhower (1953), Nixon (1969), Reagan (1981), and Bush (2001). The Trump bubble will likely prove to be the mother of all Republican presidential ebullience bubbles. Trade wars are not positive at all for the markets. They are what exacerbated the Great Depression and they should be one of the key triggers of the bursting of the China bubble.

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Here's Who Could Lose the Most in a U.S.-China Trade War
Bloomberg, January 23, 2017

Sure Thing

5/8/2017

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Investment decisions are made because one believes there will be a reward. Globally, both corporations and households are drawing down their savings and making investments. But In Canada reward seekers are heavily conditioned.

The "Sectoral Savings as a Percentage of Global GDP" chart suggests that households since the mid 1980's have been using up their savings to maintain lifestyle and since the start of ZIRP and NIRP in March of 2009, households with renewed zeal, have been moving cash out of their dwindling low interest savings accounts paired with record low borrowing costs to chase yields at risk.

Corporations since the mid-80's have amassed savings into record levels and after the smoke cleared in 2010, they resumed investment as well.

But in Canada as my Household Debt chart with overlays of GDP, Net Trade and Federal Direct Investment plots show, Canada has not been a net positive target for offshore investment money for the last 20 years. As we know the Alberta tar sands' appeal is troubled:

Carlos Murillo (Conference Board of Canada economist), predicts Canadian (oil sector) industry costs will jump by an average of 13 per cent per year between 2017 and 2021... the peak investment level was $62 billion in 2014... " The Canadian Press March 13, 2017

And the recency bias among households is working itself into heat exhaustion according to Bloomberg (May 8, 2017):

Expectations for Canada’s housing market are heating up, with more than half of respondents in a weekly telephone survey predicting home prices will rise, the first time the measure has topped 50 percent in records dating back to 2008... “Consumer sentiment on real estate has gone from hot to hotter,” said Nanos Research Group Chairman Nik Nanos... The latest burst of housing momentum has led policy makers to question whether it’s being led by supply and demand or by speculation.

If one is willing to leverage up and buy a negative yielding asset while the attendant stakeholders from government to loan creators are lining up to take a piece of the action, sellers will simply show up and sell it to you. That's a sure thing, just like the Canadian real estate market is speculative 101.

ITEM: "Toronto Homeowners List Detached Homes For Sale At A Record Pace - Toronto homeowners are listing detached homes for sale at a rapid pace, with new listings soaring over 61% last month." BetterDwelling.com May 10, 2017

ITEM: China Commodity Crash Accelerates As Traders "Forced To Destock" ZeroHedge May 9, 2017

As Citi warned over the weekend, "We suspect that a good number of physical traders that are financially leveraged up to five times have been forced to destock due to rising short-term borrowing costs and the recent sharp price corrections... "Citigroup isn’t alone in saying that some traders may be compelled to sell holdings into a falling market as China tightens. Shanghai Cifco Futures Co. said this week signs are emerging that traders are dumping their holdings.

Imagine having to sell real estate in a falling Canadian market.

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."

Inversion Report

Here's Who Could Lose the Most in a U.S.-China Trade War
Bloomberg, January 23, 2017

Sure Thing

St. Germain - Sure Thing

History, Charts &
Curated Readings

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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."

Inversion Report

Here's Who Could Lose the Most in a U.S.-China Trade War Bloomberg, January 23, 2017

Sure Thing

St. Germain - Sure Thing

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."

Here's Who Could Lose the Most in a U.S.-China Trade War
Bloomberg, January 23, 2017

History, Charts &
Curated Readings