Melt Up

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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

​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.
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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