The Economic Analyst

Daily round-up: Wednesday, September 8, 2010

SEPTEMBER 08, 2010

Hello all Here's a quick recap of the day's must-read articles:

Can central banks ruin my thesis by stoking inflationary pressures?

SEPTEMBER 10, 2010

Mini post: Will a hyperinflationary event in the US trigger hyperinflation here in Canada?

OCTOBER 01, 2010

Hello all

How did we get here?

OCTOBER 16, 2010

On credit, deflation, housing, and recovery…

OCTOBER 24, 2010

I had a nice discussion with a good friend of mine the other day. She knows my interest in economics and finance, and the discussion wound up making its way back to my main love, the future of the real estate market. It was a bit of an epic discussion. She is a long-time family friend and has 30 years more life experience than I do. As for me, I've read a few things and come to some rather unconventional conclusions. So it was perhaps the classic battle of the wisdom of age vs. the vigour of youth.

Why the big banks have to lie through their teeth

OCTOBER 27, 2010

I noted in a post a couple days ago that CIBC recently concluded that real estate is about 12% overvalued in Canada. Now this is a country mile from what the big banks were saying last year at this time, and it's a country mile from what they'll be saying next year at this time.

Mainstream!

OCTOBER 20, 2010

A Home Without Equity Is Just a Rental With Debt

NOVEMBER 02, 2010

Despite the unsubstantiated ravings of the real estate bulls who have stepped up their vocalizations of late, the facts surrounding the future of real estate remain indisputable. Debt levels remain too high, savings too low, home ownership at record high levels, global economy still surviving on government stimulus, fundamentals all well above long term means (with the exception of affordability which is at the upper range of its historic range, but only because of....) record low interest rates. None of this is sustainable.

Suggested reading

NOVEMBER 03, 2010

Yesterday I mentioned that my view on the sustainability of our debt-based economy in general, and real estate in particular has largely been shaped by a handful of books. I've received quite a few emails asking me for the titles of the books. Rather than emailing everyone, I'll instead list a handful of the important books that influenced my macro economic views, in no particular order. I've also included some commentary on the books and on how they've shaped my convictions in certain areas. Irrational Exuberance (2000)- Robert Shiller

Scotia Bank’s rose coloured glasses

NOVEMBER 04, 2010

Scotia Bank released a report today with a downright rosy appraisal of our current economic situation here in Canada. Two points I want you to see: 1) They are examining the exact same data I present to you every day, yet come to completely different conclusions

CREA capitulates…sort of

NOVEMBER 05, 2010

Crea has revised their annual resale forecast to reflect a slowing resale market, which somehow caught them off guard. Clearly their 'econo-chumps' weren't looking at the same data we've been looking at here. This slowdown was entirely predictable.

Shocking report by CAAMP....part 1

NOVEMBER 08, 2010

So this morning I stumbled across a little tidbit from a report published by the Canadian Association of Accredited Mortgage Professionals (CAAMP). I haven't been able to get it out of my head. The report itself contains a wealth of interesting data, but there was one sentence that just tripped me up:

Public sector pension bubble; Is your retirement chained to your home?

NOVEMBER 12, 2010

Pension tension The CD Howe institute released an interesting report today in which they suggested that there is a bubble in federal public sector pensions. The report calculated that the government's federal pension unfunded liabilities are some $208 billion, which is $65 billion more than the government had calculated. The implication is that Canada's deficits and total debt have been understated for many years. From the report:

"Why we won't see a housing collapse"....more media nonsense

NOVEMBER 19, 2010

Tired, old adage: It's getting a bit old, yet we continue to find articles chanting the same old mantra to soothe edgy new home buyers: "The risk of a US style housing bust is remote" I've addressed both the inherent dangers in perpetuating a message that amounts to, "we're not exactly like the US, therefore we're fine", as well as the factual fallacies that generally accompany these arguments.

Eurozone coming apart at the seams; Spain and Portugal deny need for bailout.....spreads indicate otherwise

NOVEMBER 27, 2010

Another day, another rise in PIIGS spreads. A spread is just the difference in bond yield between one country's bonds and a 'benchmark' country's bonds. In Europe, the benchmark is the German Bund, considered the most solid bond in the European union. A spread of 4% indicates that one country is paying 4% more to finance their debts through their bond market than Germany is.

Changing social trends in the news...

DECEMBER 01, 2010

'The times they are a changin' One of the topics that greatly interests me is the change in societal attitudes and norms, and how these affect the broader economy.

Canada's credit bubble

DECEMBER 07, 2010

Stats Canada has released some updated data tables for consumer and mortgage credit. Let's have some fun and look at the growth in credit vs. the growth in income and inflation over the same period. Total inflation growth according to the Bank of Canada

Bank of Canada sounds alarm bell

DECEMBER 09, 2010

Bank of Canada sounds the alarm bell The Bank of Canada released their latest Financial System Review today. While they speak at length of the risks of European contagion, a weak global economy, low interest rates, and global imbalances, it is the section on household finances that caught my eye:

"The greater the complacency, the more brutal the reckoning"

DECEMBER 13, 2010

Household debt hits new record Remember back in 2009 when articles like these were so prevalent? "Perhaps Canadians are inherently more conservative than Americans and that has kept the market steadier..."

Guest Post: How low interest rates screw up the economy

DECEMBER 14, 2010

Hat tip to Caleb over at TANSTAAFL CANADA! for this excellent post explaining how low interest rates screw up the economy, a common theme on this site. Caleb has given his permission for this re-post.

Are the big banks really concerned about the consumer or are there ulterior motives?

DECEMBER 14, 2010

Hat tip to John for this insightful comment in regards to Ottawa's discussions about changing mortgage requirements. I have added a few graphs to support John's position, which I fully agree with. It doesn’t make much sense to close the barn door after the horse is gone. The government, minority or majority, cannot kick the legs out from under the lower end of the housing market. Housing markets collapse from below.

The Great Mortgage Amortization Debate

DECEMBER 14, 2010

The Amortization Debate You'll recall that bank CEOs of all people are now putting pressure on Flaherty and Harper to curb debt levels by, among other things, raising down payment requirements and/or shortening maximum mortgage amortization lengths.

A random smattering of Christmas data points

DECEMBER 24, 2010

With the holidays now upon us, this will be the last post likely until December 27th. Let's take a quick tour through some of the interesting data points from the past couple days: So much for the conservative Conservatives Just a few weeks after big Jim and warned of tough budgets to come, it now looks like he's having second thoughts. Flaherty rethinks Canada's budget

UK house prices falling; Carney's debt conundrum; Is the smart money fleeing China?

DECEMBER 27, 2010

UK House Prices Falling You have to pity those poor homeowners who don't live in fairytale countries like Canada and Australia where fundamentals like price/income, price/rent, and affordability mean nothing. In countries where fundamentals do matter, like the US and evidently the UK, it's a different story. UK House prices fall for sixth straight month

Chamber of Commerce's Economic Outlook

DECEMBER 28, 2010

The Canadian Chamber of Commerce has released their economic outlook for 2011. You may recall that I released my own economic outlook a few weeks ago. Interestingly, both outlooks express concerns over the exact same issues, with the Chamber's forecast calling for fairly robust growth in spite of these headwinds. On the current state of the economy:

Who's the 'hare-brained' one? More hot air from perma-bull Jay Bryan

JANUARY 02, 2011

Canadian employment picture brightens...but questions remain

JANUARY 07, 2011

Employment picture brightens Stats Canada released the latest job figures today: Employment edged up for the second consecutive month in December, with an increase of 22,000. The unemployment rate held steady at 7.6%. Compared with December 2009, employment increased by 2.2% (+369,000), following a decline of 1.1% the previous year.

Watching for signs of a deflating Canadian debt/real estate bubble

JANUARY 08, 2011

One of the favourite pastimes of those who acknowledge the existence of a credit bubble in Canada (self included) is predicting what will cause its demise and what might give us an early indicator of debt fatigue. What will cause the credit bubble to pop?

Trends in the news

JANUARY 09, 2011

I thought I might take this post to highlight a series of articles that detail various trends that I see as being big stories over the next few years. The bolded titles are also links to the original article. Canadian pension plan funding dips in 2010 Back in my 2011 predictions I made the following statement:

'The consumer of 2020' and other great reads

JANUARY 11, 2011

The consumer of 2020 A very interesting report was released today by Deloitte: Consumer 2020- Reading the Signs

Survey of Forecasters data; From stimulus to restraint; China's empty malls

JANUARY 12, 2011

Survey of Forecasters The Conference Board of Canada has released their 2011 survey of economic forecasters (subscription required) in which they surveyed economists about the growth prospects for the Canadian economy in 2011. The average analyst estimate for final 2011 GDP growth is 2.5%. This represents a 26% adjustment from analyst expectations earlier in 2010 when they forecast 2011 growth in the 3.4% range.

CAAMP puts the cart before the horse

JANUARY 21, 2011

New CAAMP report The Canadian Association of Accredited Mortgage Professionals was already in damage control mode prior to Flaherty’s mortgage rule change announcement. Earlier in the week, CAAMP chief economist Will Dunning released a report titled, ‘Good Lord please don’t change the mortgage rules!’…..more or less.

More thoughts on CAAMP report; RRSP use among younger generation at record lows;

JANUARY 23, 2011

Economic dynamics revisited

Household credit analysis: What the boom looks like before the bust

JANUARY 27, 2011

CIBC released their latest household credit analysiss report yesterday. It is full of interesting data points. Though nothing in the report is particularly shocking for anyone who has been reading this blog and is aware of the ongoing credit bubble in Canada, it acts as one more flashing neon warning sign. Though too early to tell for certain, it also may give us the first look at the slowing credit that precedes monetary deflation. What is peak credit and are we close to it?

Credit risk across the nation: Who's most at risk from an interest rate shock?

FEBRUARY 11, 2011

TD has come out with a very fascinating report in which they've assessed the financial vulnerability of households across the country. It's full of interesting data, though some of them certainly questionable. Perhaps most interestingly, they have made easily available a range of financial data going back over a decade. The trends certainly speak for themselves, and we'll look at those in more detail in a moment.

Guest Post: Social Issues Surface as Europe Considers Fiscal Austerity to Solve Debt Crisis

FEBRUARY 13, 2011

Report highlights from 'The Current State of Canadian Family Finances'

FEBRUARY 18, 2011

The Vanier Institute of the Family released their annual Current State of Canadian Family Finances report earlier this week. It is well worth highlighting their important findings: Unemployment rate misleading: Considering the 'hidden unemployed'

Canada: A nation of marshmallow eaters?

FEBRUARY 24, 2011

Anyone who frequents this blog knows that I love exploring consumer psychology, group think, and how they change over time. We know that in order for an asset class to deviate markedly from its long-term measures of fundamental value and become an asset bubble, it requires an element of mass psychology. This typically manifests itself in a "this time it's different" mentality. But the influence of human psychology on the long-term financial well-being of a person or group of people is not limited simply to herd mentality and 'pie in the sky' thinking.

Public sector and their unions put on notice; Humourous commentary about 'bubblebloggers'

FEBRUARY 26, 2011

Public sector and their unions put on notice

Debt Crunch: A look at Canada's record level of household debt

FEBRUARY 27, 2011

Action Canada Task Force releases final report The Action Canada Task Force on Canadian Household Debt released their final report on Friday. The report echoes many of the concerns I have expressed on this site, namely that high debt levels have the potential to cause significant and under-appreciated economic hardships when an inflection point is reached.

''I should be very worried about Canada'' -Paul Krugman

MARCH 05, 2011

Well the monthly round-up is consuming a bit more time than expected. I'm hoping to release the final numbers tomorrow instead. However, I would like to quickly highlight a very brief blog entry by Nobel Prize winning economist Paul Krugman. Though our economic and political ideologies vary markedly, the man can nonetheless see the writing on the wall when it comes to our current housing market and debt situation:

Revisiting predictions: Commodities still hanging tough, public sector unions under fire, European debt crisis intensifies, interest rate predictions

MARCH 08, 2011

Revisiting predictions

God forbid they'd actually have to save...

MARCH 14, 2011

How to buy your kids a house This is the title of an article in the Financial Post from this weekend. Chalk this one up to a sign of the times.

CMHC feeling the heat

MARCH 23, 2011

CMHC feeling the heat

Scotia on the ‘Tapped out’ consumer; TD on Ontario’s debt problems

MARCH 24, 2011

The 'tapped out' consumer Scotia economics has reiterated a call that I've been sticking to all year: The Bank of Canada will be highly hesitant to raise rates later this year.....if at all. But for the housing bulls who frequent this blog, let's recognize that while the speed at which interest rates will rise will likely be slow, their ultimate direction is unquestionable.

Bank of Canada holds the line; Royal LePage releases ‘research report’; “Canadian 30 year olds are screwed!”

APRIL 12, 2011

Bank of Canada holds the line Those with variable rate mortgages can breathe a sigh of relief as the Bank of Canada held the line on interest rates today, as expected, keeping the overnight rate at a paltry 1%.

Stats Canada discusses household debt

APRIL 24, 2011

Quick debt primer: Stats Canada released an interesting report last week dealing with consumer debt levels in Canada.  Before getting to that, it's worth taking a minute and discussing consumer debt levels in Canada by way of a quick primer for any new readers.  Most readers of this site know that aggregate consumer debt levels in Canada remain at historic highs.  As a measure of GDP, consumer debt levels are on par with those of our American neighbours prior to the implosion of their debt bubble.

Keeping an eye on consumer credit expansion in Canada

APRIL 26, 2011

Consumer credit expansion slows in February I've been curious lately about the effect of the new mortgage rule changes on the expansion in consumer credit in Canada.  The new rules to limit home equity extraction to 85% of the value of the home I believe may have a significant impact in slowing the rapid expansion in HELOCs. Unfortunately we'll have to wait a few months to find out exactly what impact these new rule changes have had, as the data is several months behind. 

What a crazy few days: A plethora of data points for your consumption

JUNE 01, 2011

I've been quite busy working away on the book and the uber primer.  I feel bad that I haven't had the time to discuss some of the amazing data points that have materialized in the last couple days.  This post will be a round-up of the most news-worthy stories of the past few days (there have been many).    Greece gets downgraded....50-50 odds of debt restructuring

Regulators to probe impact of foreign money on real estate; Reader question- What to do with real estate windfall...

JUNE 05, 2011

More from the must-read CGAAC report

JUNE 15, 2011

CGAAC report revisited: I’d like to revisit that fantastic CGAAC report I began discussing yesterday as there are some more key quotes and stats worth highlighting.  If you haven’t read the entire report yet, it is well worth your time.  Here are a few more quotes that jumped out at me:

Risk.....a forgotten four letter word

JUNE 20, 2011

There is a well known saying, purported to be derived from an old Chinese proverb: "May you live in interesting times".  It's more of a curse than a proverb, really.  Regardless of its origins, it is most certainly true of the world today.  These are interesting times. 

The debt perception dichotomy....or why the road to financial hell is paved with good intentions.

JUNE 22, 2011

Debt perception dichotomy: It never ceases to amaze me just how staggeringly comfortable many people are with their massive debt burdens.  You may recall that the Bank of Canada recently ran a stress test scenario and determined that a 0.5% increase in interest rates would put 1.1 million Canadian households under significant financial pressure.  No kidding!  Let's do some simple arithmetic: Low interest rates....

Owe Canada! A look at our total outstanding debt as a nation

JUNE 28, 2011

Let's take a quick look at our debt situation here in Canada.  This is all CANSIM data available through Stats Canada: And perhaps more interestingly, let's look at the different components of debt as a percentage of GDP:

Deficits, Debt, and Demographics: Preparing for the 3-D hurricane....A must-read report!

JUNE 30, 2011

Happy Canada Day to my Canadian readers! Readers may be interested in an interesting and timely essay by Jason Hsu, Chief Investment Officer at Research Affiliates.  I consider it the ‘must-read’ report of the week: The 3-D Hurricane and the New Normal   On future economic growth:

Revisiting the most important graph in understanding the Canadian real estate market

JULY 10, 2011

It’s time to revisit a couple graphs I’ve posted here several times before.  I have had a few reader questions and numerous comments related to these graphs.  I think it’s extremely important to understand them inside and out and to understand the implications.  Here are the graphs:  

The New Road to Serfdom

AUGUST 01, 2011

From 'The New Road to Serfdom' by Michael Hudson, 2006. ''With the real estate boom, the great mass...can take on colossal debt today and realize colossal capital gains—and the concomitant rentier life of leisure—tomorrow....What could be more inviting—or, for that matter, more egalitarian?''

Lessons from Texas: HELOC growth and recessions...

AUGUST 21, 2011

Lessons from the Lone Star State:

BMO on HELOC growth- “Homeowners borrowing smartly”; Wall Street Journal on Toronto’s condo bubble

AUGUST 26, 2011

Are homeowners "borrowing smartly"?  BMO says yes.

European debt crisis deepens; Refinancing activity drops 40% in Canada...We now know why consumer credit growth is slowing

AUGUST 29, 2011

European debt crisis deepens On January 1, I wrote the following as part of my 2011 predictions:

CIBC on household debt; CMHC under more scrutiny; From the "So ridiculous it's laughable" files...

AUGUST 30, 2011

CIBC on household debt: CIBC World Markets has released an interesting report highlighting what we've been warning about for several months now, namely that the pace of non-mortgage consumer debt is slowing drastically and this will have repercussions on consumer spending, an integral part of the Canadian economy. We’ve noted several times now that non-mortgage credit growth is running at annual rates not seen since the early 90s:

Leading indicators point to slowdown for Canada, US; Canadian debt burdens continue to grow

SEPTEMBER 13, 2011

Leading indicators point to slowdown in Canada and its largest trading partners: OECD has released their latest Composite Leading Indicator (CLI) readings for July 2011.  For those not familiar with the term, a leading indicator is something that tends to be correlated with movements in broader economic activity, but tends to move before the broader economy.  They 'lead' or foreshadow the movements in the broader economy.  As such, they are always interesting to watch.

Market panic, gray swans, and a eulogy for the debt-driven Canadian consumer

SEPTEMBER 22, 2011

Market panic as Fed disappoints:  Has the famed 'Bernanke put' finally been removed?  The US Fed made the widely expected announcement of 'Operation Twist' yesterday.  Earlier, analysts like David Rosenberg warned that unless Bernanke 'shocked' the market with something wildly unexpected, the reaction would likely be very negative.  Good call.

OSFI warns on consumer debt; Confidence readings remain weak

SEPTEMBER 27, 2011

OSFI warns on consumer debt: The head of the Office of the Superintendent of Financial Institutions (OFSI), the country's top financial watchdog, recently gave a speech to the Economic Club of Canada in Toronto.  In that speech, superintendent Julie Dickson issued some strong warnings to financial institutions not to let underwriting standards erode amid declining profitability.  Some key snippets:

Eurozone debt woes intensify....banks in the crosshairs; World markets roiled; Canadian CEOs bearish on economy

OCTOBER 04, 2011

Eurozone debt woes continue: No credible plan to deal with the spreading Eurozone debt contagion as of yet, and the markets are clearly getting impatient.  Or is it that they are waking up to the obvious?  There will be no lasting solution in the Eurozone until the most indebted nations restructure their debt (default) or a euro-bond is floated.  The politics of the situation make the second option seem all but impossible, leaving a restructuring as the most viable, though painful, long-term option.

A look at household balance sheets: Is Canada really that much better?

AUGUST 23, 2012

Below are some thoughts on a chart that seems to keep showing up in every bank report on housing in Canada.  I also wrote an Econowatch article for Macleans on this topic, which is free of some of the jargon contained in the article below as it was intended to be accessible to a wider audience beyond the econo-nerds who frequent this site.  Note that this is NOT an exhaustive analysis of similarities/differences between the housing and mortgage markets in C

Mid-month Toronto resale numbers reveal deep sales slump; The Economist on global household debt levels

NOVEMBER 20, 2012

Mid-month Toronto resale numbers reveal deep sales slump Yesterday, TREB released their November mid-month sales figures.  A couple interesting points: