And this for my American readers as they prepare for their national election on November 3rd.
Sarah Cooper and Helen Mirren spoof the famous Billy Bush Hollywood Access Tape where "the Donald" explains how to score with women.
The Year(s) of the Woman
In the 2018 midterm elections, the Democrats, led by Nancy Pelosi, won control of the House. The Democrats gained a net total of 41 seats from the total number of seats they had won in the 2016 elections. The 41-seat gain was the Democrats' largest gain of House seats since the post-Watergate 1974 elections, when they picked up 49 seats. The Democrats also won the popular vote by a margin of 8.6%, the largest margin on record for a party that previously held a minority in the House. Turnout was the highest for a midterm election in more than a century, with over half the electorate casting ballots. (Wikipedia)
In 2016, women widened the gap between women and men voters:
IF DONALD GOT FIRED
Thanks to Greg The Analyst's April 22, 2020 blog entry "Why I view this cycle as deflationary, not inflationary." for his unsourced reproduction chart of the "Income Share of Top 1% Relative to Bottom 90%" since 1920 (chart left).
I added to the chart mashup the closest comparison I could find to reflect Canada's wealth gap. The two countries track the same trend in income disparity rising from the early 1980's when state mandated interest rate inflation peaked, to now the end of 2Q 2020 when our new Bank of Canada Governor, Tiff Macklem said on June 22nd, "Our main concern is to avoid a persistent drop in inflation by helping Canadians get back to work."
"avoid a persistent drop in inflation" oh oh... apparently the members of the The Canadian Club of Montreal who are mainly from the business and professional communities addressed by the Governor are not to be exposed to the apparently scary noun... "deflation"
I will highlight below the main points of Greg's argument. We are indeed beginning to see the elements unfold for another great cycle of deflation, not official yet, but the evidence mounts.
Below is a mashup of "FRED" charts on Velocity of Money and the Probability of Deflation. The Bank of Canada does not publicly publish those metrics.
M2 Money Velocity was trending up until 3Q 1997 and both employment and greater consumption (inflation) increased. The first hit to consumption came with the DotCom crash in 1Q 2000 and the Consumer Price Index began to drop and then plunge into the March 2009 Great Recession. By 2011 the commodity super cycle peaked (see the Deflation Probability chart below and the TSX Indexes chart)
The Bank of Canada's 2% CPI target and their policy framework (ZIRP & NIRP) is to "avoid a persistent drop in inflation". The most recent CPI print (April 2020) was negative at -0.2% via pandemic repricing.
- Kondratieff investment "Seasons".
- U.S. income share of the top 1% relative to the bottom 90% since 1920.
- U.S. Dow Jones industrial price index with notations of Fed action and market reaction 1920 through 1932.
- April 2020 forecast of U.S. job losses by sector.
- U.S. share of wealth of the top 1% relative to the bottom 90% from 1960 to 2014.
- U.S. distribution of wealth from 1917 to 2017.
- U.S. velocity of M2 money stock since 1960.
- U.S. corporate profits and employee compensation as a percentage of GDP since 1947.
- U.S. milk production output since 2001.
Argument Bullet Points: Why Greg's view is that this cycle is deflationary, not inflationary.
- (Chart 1) Disinflation periods see asset prices and debt levels rise as CPI, interest rates, fixed income yields drop and commodity prices drop eventually leading to stock market drops (equity share pricing).
- (Chart 1) Deflation periods see asset and consumer prices drop along with consumer confidence as rising unemployment leads to consumption and production drops as well as debt repudiation, credit contraction, spiking interest rates and currency repricing.
- (Chart 1) Inflation reignition requires demand to be much greater than supply which requires deflationary deleveraging (turning debt into equity).
- (Chart 2) In this last cycle of Disinflation, production supply became much greater than demand consumption and as the stock market equities boomed the ongoing transfer of wealth accelerated towards the top 10% leaving the bottom 90% of earners stuck at late 1990's real wages producing a collapsing middle class and no further possibility of inflation. Hard deflation rebuilds the middle class.
- (Chart 3) In the Great Depression of the late 1920's and early 1930's, the Fed tried its then version of QE but it did not prevent the Dow from a 2+ year crash. Very low operating margins from overcapacity (high supply exceeding low demand), coupled with high levels of debt creates the scenario of weak hands capitulating.
- (Chart 4) Commodity prices, manufacturing, retail and wholesale trade, service industries and the travel, accommodation and food service sectors have all been hit by Covid 19 wiping out a decade and more of high employment.
- (Chart 5+6) A key feature of the early 1930's depression was, as it is today, the wealth gap and the broken structure of the middle class. (see my June 20, 2020 post "Household Net Worth")
- (Chart 7) The slow down in the velocity of money results from the deflationary transfer of wealth from the middle class to the top 10% which produces a change from a productive economy and investing in people to unproductive investment in financial engineering. (see my June 11, 2020 post on "CDOs Then CLOs Now")
- (Chart 8+9) The commodity super cycle ended in 2011 and by 2012 as a percentage of GDP, employee compensation crashed and corporate profits peaked. QE bailouts of corporations and the bond market by central banks over the last decade have not been inflationary for employment wages but has only exaggerated the wealth gap and increased the supply side. Inventories have spiked while demand has been dropping and now has plunged with the plague. Booms and over supply lead to busts. Rebuilding the middle class demand leads to productivity.
Reopening Canada: 3 stages of recovery
(✓) = now occurring in various global economic centers.
Depressions are characterized by their length, by abnormally large increases in unemployment (✓), falls in the availability of credit (✓) (often due to some form of banking or financial crisis (✓)), shrinking output (✓) as buyers dry up (✓) and suppliers cut back on production and investment (✓), more bankruptcies (✓) including sovereign debt defaults (✓), significantly reduced amounts of trade and commerce (✓) (especially international trade (✓)), as well as highly volatile relative currency value fluctuations (✓) (often due to currency devaluations (✓)). Price deflation (✓), financial crises (✓), stock market crash (✓), and bank failures (✓) are also common elements of a depression that do not normally occur during a recession. (Wikipedia)
"Chinese Yuan makes up a lower portion of global reserves than the British Pound and even the Swiss Franc, and is just ahead of Canada." Hat Tip to @anilvohra69 for the note and graphic in my Twitter feed.
US dollar credit to non-bank borrowers outside the United States grew by 4% year on year to reach $11.9 trillion at end-June 2019. This represents a slight acceleration relative to the 3% annual growth rate observed at end-2018. Bank of International Settlements October 2019
Foreign borrowers of USD denominated debt is accelerating. What gets borrowed in USD has to be repaid in USD and as the USD rises in value, so does the demand for USD.
I update my USD vs CAD Canadian Housing Price chart as well as my Canadian Household Debt chart every month. Our chronic negative Canadian Balance of Trade means that OUR debt obligations continue to provide more stimulus to offshore than onshore producers. A rising USD is not good for most Canadians.
INVESTOPEDIA KEY TAKEAWAYS, July 2019
> A dollar shortage occurs when a country spends more U.S. dollars on imports than it receives on exports.
> Since the USD is used to price many goods globally, and is used in many international trade transactions, a dollar shortage can limit a country's ability to grow or trade effectively.
> Most countries try to maintain a reserve of currencies, like U.S. dollars or other major currencies, which can be used to buy imported goods, manage the country's exchange rate, pay international debts, or make international transactions or investments.
Pierre Trudeau’s Washington Press Club speech
“Living next to you is in some ways like sleeping with an elephant. No matter how friendly and even-tempered is the beast, if I can call it that, one is affected by every twitch and grunt.” Pierre Elliot Trudeau, the March 1969 speech to the Washington Press Club.
“Commenting on the flash PMI data, Tim Moore, Economics Associate Director at IHS Markit said: “August’s survey data provides a clear signal that (U.S.) economic growth has continued to soften in the third quarter. The PMIs for manufacturing and services remain much weaker than at the beginning of 2019 and collectively point to annualized GDP growth of around 1.5%. “The most concerning aspect of the latest data is a slowdown in new business growth to its weakest in a decade, driven by a sharp loss of momentum across the service sector. Survey respondents commented on a headwind from subdued corporate spending as softer growth expectations at home and internationally encouraged tighter budget setting. “Manufacturing companies continued to feel the impact of slowing global economic conditions, with new export sales falling at the fastest pace since August 2009. “Business expectations for the year ahead became more gloomy in August and remain the lowest since comparable data were first available in 2012. The continued slide in corporate growth projections suggests that firms may exert greater caution in relation to spending, investment and staff hiring during the coming months.” Tim Moore
Meanwhile Canadian Net Trade has been negative
in the last 10 out of 11 quarterly prints (July 2019 data)
Image slide show below of the 3 charts above.
St. Louis Fed June 24, 2019 Recession Notes
By William Emmons, Lead Economist, Center for Household Financial Stability
Federal Reserve Bank of St. Louis June 24, 2019
As of late 2018, four housing indicators that had signaled each of the three most recent recessions were on a track consistent with a late 2019 or early 2020 recession. They are:
30-year fixed mortgage rates
Existing home sales
Real house prices
Contribution of residential investment to GDP growth
What Might These Four Housing Indicators Be Signaling?
The recession signal provided by several key housing indicators in late 2018 strengthened in early 2019 in the sense that their cyclical behavior is well within the range traced out in the run-up to the three most recent recessions. Combined with movements in other indicators with good forecasting track records (such as the inversion in the slope of the Treasury yield curve), these housing measures suggest an above-average risk of recession within the next few quarters. Of course, the onset of the next recession is unknown.
The New York Fed Agrees
Jesse Colombo, Jun 30, 2019 via Forbes
The New York Fed’s recession probability model is currently warning that there is a 30% probability of a recession in the next 12 months. The last time that recession odds were the same as they are now was in July 2007, which was just five months before the Great Recession officially started in December 2007. July 2007 was also when Bear Stearns’ two subprime hedge funds lost nearly all of their value, which ultimately contributed to the investment bank’s demise and the sharp escalation of the U.S. financial crisis.
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While we wait for the June real estate stats to come out, let's look at the relationship between WTI Oil prices and real estate in Canada.
The top chart shows the WTI oil prices dropping into month end lows and as the inset seasonal chart shows, the drop is happening when the price variability is at one of the four low points in the year which suggests this year may not be much different.
Now look at the Canadian scene via the TSX cash markets in the chart below. As the chart plots since 2015 demonstrate, when the energy sector price drops so does the real estate sector.
These cash markets react quickly to changes "on the ground" and are not restricted by the handicap of finding a buyer.
The relationship between oil prices and real estate are clearly seen in the Calgary housing chart with its total sales plot and the TSX Energy plot overlays, both of which have been descending since 2013 while the energy plot itself has been dropping since the July 2008 peak. It also shows up on my chart of TSX indexes for Energy, Real Estate, Financial Services and Gold... and gold is maybe leading the way for another leg down.
Gold heading down makes sense since the U.S. Dollar (my chart of Canadian real estate in USD) has been rising since 3Q 2017 and a high USD/CAD ratio can quickly unwind marketplace sentiment when it comes to a speculative commodity which real estate has been transformed into with the global suppression of leverage costs.
Oil Breaks Down: Should Stock Market Bulls Be Worried?
From CHRIS KIMBLE, technical market analyst:
A couple of weeks ago, I wrote an article about crude oil’s recent correlation to the S&P 500 (stock market) and that its initial move lower may be sending a bearish signal to stocks. Since then, crude oil has fallen sharply through its up-trend line, sending a bearish message to Oil bulls.
Is the S&P 500 the next to fall?
Below is an updated chart of Crude Oil showing the multi-month downtrend (1), and the ultimate break down through its near term up-trend line (2).
More importantly, from a pattern perspective, Crude Oil is putting in a large weekly reversal bar (bearish). This warrants watching as Crude Oil and the stock market remain highly correlated since their peak in October. Stay tuned!
Thanks to Chris Kimble for the chart above; get a FREE TRIAL to his work.
Why The Stock Market Is Heading For Disaster
In this presentation, Clarity Financial's economic analyst Jesse Colombo explains why the U.S. stock market is experiencing a dangerous bubble that is going to burst violently and cause serious damage to the underlying economy. Published on Oct 11, 2018
- S&P 500 since 1997
- Percent equity gains since 2009
- Interest rates since 1997
- Real Fed Funds rate since 1990
- U.S. corp debt since 1980
- U.S. corp debt as a percent of GDP since 1980
- Buybacks and dividends paid vs S&P 500 value since 2000
- S&P 500 vs NYSE margin debt as percent of GDP since 1997
- Retail investor allocation to stocks vs cash since 1997
- CBOE volatility index (VIX) since 1997
- St Louis financial stress index since 1997
- BAML U.S. high yield spread since 1997
- Cyclically adjusted P/E ratio since 1980
- U.S. stock market capitalization to GDP ratio since 1971
- Tobins Q ratio since 1902
- U.S. net corp profits as a percent of GNP since 1947
- FAANG stocks vs S&P 500 since 2009
- Fed Funds rate and recessions since 1997
- Financial banking crises and recessions since 1977
- 10-2 year treasuries spread since 1976
Trump Is Completely Misguided On Interest Rates
If the Fed or other central bank voluntarily abandons further credit expansion (most commonly by raising interest rates), the credit and asset bubble will experience a deflationary bust. Deflationary episodes entail credit busts, falling consumer prices, bear markets in stocks and housing prices, and falling wages. If the central bank decides to never put an end to the credit expansion (for example, if the Fed never raised rates), however, the result would be a runaway credit and asset bubble that leads to a severe decrease in the value of the currency and high rates of inflation. The latter scenario is what would occur if President Trump got his way – hardly a desirable outcome for the economy. To summarize, the Fed is crazy – they’re crazy for creating such a large bubble in the first place via loose monetary policy, but not for raising interest rates and normalizing their monetary policy. Jesse Colombo, Oct 17, 2018
Market Bear Hussman Says Stocks Could Lose $20 Trillion
To state the obvious, bull markets do not last forever, and inevitably are followed by bear markets. Likewise, economic expansions also must end at some point, followed by recessions, and recessions typically are accompanied by bear markets. John Hussman, Oct 15, 2018
There's trouble ahead in the global housing market
Source: Business Insider July 2018
Toronto: Prices clearly peaked in early 2017. Prices are now down 3% vs last year. (Toronto SF Detached are down 17% from the peak. See the Sept 30, 2018 Plunge-O-Meter)
Syndey: Compared to last year, prices are now down 5% and supply has ballooned 22%.
Stockholm & Vancouver: Over a recent 6-month period, prices in the luxury property market fell 9% and 7.6%, respectively.
New York City: In Q1 2018, prices were down 8% YoY and sales were down 25%. NYC's luxury properties fared even worse.
San Francisco: After hitting a record price high in January, the city has seen a rare spring decline in prices, while rents across the SF Bay Area are starting to "cool off"
Bond King Gundlach predicts yields
much higher before this move ends
"If you look at the charts and you look at the way the market's behaving and you think about the trends that are underneath the bond market, it wouldn't be surprising at all to see the 30-year [yield] go to 4 percent before this move of the breakout above 3.25 percent is over," he said on "Halftime Report" Thursday. CNBC, Oct 11, 2018
In December 2017, the 10yr less 2yr Canada Government bond spread narrowed to just 32 beeps away from inversion.
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.
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.
Here's Who Could Lose the Most in a U.S.-China Trade War
Bloomberg, January 23, 2017
I have to get this off my chest before I return my attention back to the turmoil brewing that is real estate in Canada because the Trump Presidency will be headed by a psychologically defined Psychopath and his vice president who will be one step away from the oval office also "believes it his 'calling' to legislate his religious views into public policy."
Bye bye secular humanist civil government; hello to religious and political ideologues.
Here is the Hare Psychopathy Checklist. "Each of the twenty items is given a score of 0, 1, or 2 based on how well it applies to the subject being tested. A prototypical psychopath would receive a maximum score of 40, while someone with absolutely no psychopathic traits or tendencies would receive a score of zero. A score of 30 or above qualifies a person for a diagnosis of psychopathy. People with no criminal backgrounds normally score around 5. Many non-psychopathic criminal offenders score around 22."
01. glib and superficial charm
02. grandiose (exaggeratedly high) estimation of self
03. need for stimulation
04. pathological lying
05. cunning and manipulativeness
06. lack of remorse or guilt
07. shallow affect (superficial emotional responsiveness)
08. callousness and lack of empathy
09. parasitic lifestyle
10. poor behavioral controls
11. sexual promiscuity
12. early behavior problems
13. lack of realistic long-term goals
16. failure to accept responsibility for own actions
17. many short-term marital relationships
18. juvenile delinquency
19. revocation of conditional release
20. criminal versatility
Does anything sound familiar?
And here is Umberto Eco's definition of Facism from Wikipedia:
In his 1995 essay "Eternal Fascism", Umberto Eco lists fourteen general properties of fascist ideology. [UR-Fascism] He argues that it is not possible to organise these into a coherent system, but that "it is enough that one of them be present to allow fascism to coagulate around it". He uses the term "Ur-fascism" as a generic description of different historical forms of fascism. Eleven of the fourteen properties are as follows:
"The Cult of Tradition", characterized by cultural syncretism, even at the risk of internal contradiction. When all truth has already been revealed by Tradition, no new learning can occur, only further interpretation and refinement.
"The Rejection of modernism", which views the rationalistic development of Western culture since the Enlightenment as a descent into depravity. Eco distinguishes this from a rejection of superficial technological advancement, as many fascist regimes cite their industrial potency as proof of the vitality of their system.
"The Cult of Action for Action's Sake", which dictates that action is of value in itself, and should be taken without intellectual reflection. This, says Eco, is connected with anti-intellectualism and irrationalism, and often manifests in attacks on modern culture and science.
"Disagreement Is Treason" – Fascism devalues intellectual discourse and critical reasoning as barriers to action, as well as out of fear that such analysis will expose the contradictions embodied in a syncretistic faith.
"Fear of Difference", which fascism seeks to exploit and exacerbate, often in the form of racism or an appeal against foreigners and immigrants.
"Appeal to a Frustrated Middle Class", fearing economic pressure from the demands and aspirations of lower social groups.
"Obsession with a Plot" and the hyping-up of an enemy threat. This often combines an appeal to xenophobia with a fear of disloyalty and sabotage from marginalized groups living within the society (such as the German elite's 'fear' of the 1930s Jewish populace's businesses and well-doings; see also anti-Semitism). Eco also cites Pat Robertson's book The New World Order as a prominent example of a plot obsession.
Fascist societies rhetorically cast their enemies as "at the same time too strong and too weak." On the one hand, fascists play up the power of certain disfavored elites to encourage in their followers a sense of grievance and humiliation. On the other hand, fascist leaders point to the decadence of those elites as proof of their ultimate feebleness in the face of an overwhelming popular will.
"Pacifism is Trafficking with the Enemy" because "Life is Permanent Warfare" – there must always be an enemy to fight. Both fascist Germany under Hitler and Italy under Mussolini worked first to organize and clean up their respective countries and then build the war machines that they later intended to and did use, despite Germany being under restrictions of the Versailles treaty to NOT build a military force. This principle leads to a fundamental contradiction within fascism: the incompatibility of ultimate triumph with perpetual war.
"Contempt for the Weak", which is uncomfortably married to a chauvinistic popular elitism, in which every member of society is superior to outsiders by virtue of belonging to the in-group. Eco sees in these attitudes the root of a deep tension in the fundamentally hierarchical structure of fascist polities, as they encourage leaders to despise their underlings, up to the ultimate Leader who holds the whole country in contempt for having allowed him to overtake it by force.
"Everybody is Educated to Become a Hero", which leads to the embrace of a cult of death. As Eco observes, "the Ur-Fascist hero is impatient to die. In his impatience, he more frequently sends other people to death."
"Machismo", which sublimates the difficult work of permanent war and heroism into the sexual sphere. Fascists thus hold "both disdain for women and intolerance and condemnation of nonstandard sexual habits, from chastity to homosexuality."
"Selective Populism" – The People, conceived monolithically, have a Common Will, distinct from and superior to the viewpoint of any individual. As no mass of people can ever be truly unanimous, the Leader holds himself out as the interpreter of the popular will (though truly he dictates it). Fascists use this concept to delegitimize democratic institutions they accuse of "no longer represent[ing] the Voice of the People."
"Newspeak" – Fascism employs and promotes an impoverished vocabulary in order to limit critical reasoning.
Does anything sound familiar?
Stephen K. Bannon
"Bannon and Breitbart Media were Trump before Trump"
QUOTES from the interview of Stephen K. Bannon
by Ken Stern, Vanity Fair, August 17, 2016:
Bannon and Breitbart Media were Trump before Trump, creating the political philosophy and the political army in waiting that has been the engine for the candidate’s astonishing rise in American politics.
A former employee of Breitbart described him (Bannon) to me as “Donald Trump but more intelligent.” He didn’t mean it as a compliment, and was instead referring to the opportunism, the personal vindictiveness, and the lack of a moral center that have become defining characteristics of Trump.
Breitbart, under his (Bannon's) leadership, after all, has become “Trump Pravda,” as one former staffer described it to me (Ken Stern, Vanity Fair).
Trump is a “blunt instrument for us,” he (Bannon) told me (Stern) earlier this summer. “I don’t know whether he really gets it or not.”
QUOTES from Trump's New Chief Strategist, Stephen K. Bannon
via Gizmodo, NOV 13, 2016:
“I’ve got a cure for mental health issue. Spank your children more.”
“I, Donald Trump and the rest of the alpha males will continue to dominate the internet without feminist whining.”
“Women should just log off. Given that men built the internet, along with the rest of modern civilization, I think it’s only fair that they get to keep it.”
“As insane as my suggestion sounds, it’s genuinely the best recipe for harmony between the sexes until women can stop lying about “abuse” and “harassment” or at least learn to take it as well as dish it out.”
“Breitbart beat other news organisations such as CNN, The Hill, and The Guardian with a total combined 9,098,013 Twitter and Facebook interactions, of which 89% came from Facebook and 11% from Twitter.” “This October, Breitbart News broke company traffic records, generating over 240 million pageviews and 37 million unique visitors.”
The Left is Responsible
"Stop Apologizing Liberals"
Bill Maher, January 27, 2017
As does Dave Chappelle and others, I wish Donald Trump the chance to do well. The U.S. is going to need all its patriots both left and right.
The Dave Chappelle SNL monologue video link here or here for Canadian viewers.
History, Charts & Curated Readings
Balance Of Trade
Rent Or Buy