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Olduvai II: Exodus
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Olduvai II: Exodus
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Olduvai
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Olduvai III: Cataclysm
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Canada Home Prices Fall from Year Ago for First Time since 2009

Canada Home Prices Fall from Year Ago for First Time since 2009

The magnificent house price bubble wheezes.

With 2017 mortgage pre-approvals having now expired, the first wave of buyers facing OSFI’s ground breaking mortgage regulations are being put to the test. The regulations, also known as B-20, require all borrowers to pass a stress test at an interest rate 2% higher than the qualifying rate.

Early symptoms appear rather obvious. National home sales slid for the month of March, falling 23% year over year, and pushing the average sales price down 10%. Overall, it was a bearish quarter for Canadian housing, first quarter sales fell 16% year over year.

Much of the declines were felt in the single family housing market in Vancouver & Toronto, with many buyers unable to qualify at the recently inflated prices. The average sales price of a single family home in Greater Vancouver now sits at C$1.6 million and C$1 million in the Greater Toronto Area (GTA).

Chief economist of the Canadian Real Estate Association, Gregory Klump, noted the squeeze as “tighter mortgage lending rules, which make it harder for home buyers to qualify for uninsured mortgages, are also shrinking the pool of qualified buyers for higher-priced homes.”

To little surprise this reflected in the national home prices across Canada. The Q1 2018 average sales price declined by 6.27% from Q1 2017. It was the first year-over-year percentage decline since Q1 2009.

The impact of the mortgage stress could become more apparent moving forward, particularly if borrowing rates continue to rise. As of today, a homebuyer hoping to purchase the typical home in Greater Vancouver (as per the MLS benchmark price of C$1.084M) would require a minimum down-payment of C$216,800 and a verified income of C$175,000, assuming a 5-year mortgage at a generous 2.99% interest rate.

…click on the above link to read the rest of the article…

 

Cursed to live in interesting times

Cursed to live in interesting times

In this article I connect the fall in the growth rate, with its roots in the rising costs of energy extraction and generation, to declining resilience in the economic system. These are in turn related to a more conflict ridden geo-politics. There is an increased vulnerability to shocks which will be catastrophic unless and until there is a new conventional wisdom in society about what is wrong and what has to be done about it. Things would still be hard if we had a better understanding of what is wrong but society would be in a better position to do something about the predicaments that face us all. Unfortunately those with a vested interest in current arrangements are not likely to change their world view any time soon. With their control over an extraordinarily servile mass media there is a grave obstacle to society understanding its predicament and responding appropriately. The global system is entering an extremely dangerous phase for life on the planet.

Growth and stability go together – like balance and momentum on a bike

Let me start by using the metaphor of riding a bicycle. With forward momentum it is possible to balance on a bicycle – as soon as the bike and passenger stops it becomes almost impossible. There is an analogy here for the capitalist economy. If it is growing a capitalist economy will stay economically stable. If it is not growing then, after a time, it automatically becomes unstable. Account books can be balanced, bills paid and debts serviced when individuals, households, companies and government are in surplus because incomes are rising. However a surplus requires growth. In general terms in a contracting system the incomes are more likely to be inadequate to cover outgoings. Some of the costs cannot be paid when revenues do not cover those costs.

…click on the above link to read the rest of the article…

 

Saxo Bank Quarterly Outlook: End of a Cycle Like No Other

Saxo Bank’s provides an ominous economic outlook in its second quarter report.

What follows below are snips from a 35-page report by Saxo bank. I condensed the report for readability. Any emphasis in italics is mine. Until the final paragraph what follows are snips from various Saxo Bank analysts.

Enjoy.

End of a Cycle Like No Other – Steen Jakobsen – CIO

We are nearing the end of the largest monetary policy experiment of all time, and ascendant nationalism, staggering inequality, and a widespread loss of hope among the younger generation are among its varied fruit. The good news? Things only change when they absolutely must.

Q1’s brief volatility spasms notwithstanding, today’s capital markets are in a zombie-like state, with low volatility and extreme valuations in all assets with no net increase in growth and productivity, and a massive increase in inequality.

The benefits from the globalised system and particularly from the central bank’s asset-pumping response accrued near-entirely to the already wealthy, while the average economic participant lost out. This is the process that drove the advent of Brexit and Trump.

So now we have our first great new showdown since the Cold War, which saw the victory of capitalism over communism. Now comes the fight between nationalism and globalism. Nationalism is winning big, as country by country the outlook is turning inwards, with an increase in placing the blame on external forces from immigrants to the real and imagined misbehaviour of trade partners. Talk of trade policy and protectionism is now labelled “trade wars”.

…click on the above link to read the rest of the article…

Doug Duncan: Even US Government Economists Predict Trouble Ahead

Doug Duncan: Even US Government Economists Predict Trouble Ahead

Fannie Mae forecasts an economic slowdown by 2019

Doug Duncan is not your average beltway economist.

The chief economist for Fannie Mae is surprisingly outspoken about the troublesome outlook for the US economy. He’s worried about the rising cost of debt service as outstanding credit continues to mount at the same time interest rates are starting to ratchet higher, too.

He predicts the US will enter recession within a year, concurrent with a topping out of America’s real estate market. It wouldn’t surprise him to see the stock market falter, too, as central banks around the world begin a coordinated tightening of monetary policy and — similar to the thoughts recently expressed within our podcast with Axel Merk — Doug expects Jerome Powell to be much more reluctant to intervene in attempt to support asset prices. Having met personally with Powell, Doug thinks the Fed is now happy to see some of the air come out of the Everything Bubble (just not too much and not too fast) — a market change from past Fed administrations:

Our forecast definitely sees slowing economic activity, particularly in the second half of ’19. Part of it has to do with the length of the expansion. Just because an expansion is long doesn’t mean it’s going to end; but they all have eventually ended, and this one is getting pretty old. I think if it’s not the second longest, it’s getting to be the second longest that we’ve ever had shortly.

The tax bill was viewed differently by different parties, but the capital markets initially took that — plus the $300 billion agreement to get past the expiration of government funding plus the budget agreement — they took all those things as inflationary.

…click on the above link to read the rest of the article…

Our Strange Attraction to Self-Destructive Behaviors, Choices and Incentives

Our Strange Attraction to Self-Destructive Behaviors, Choices and Incentives

Self-destruction isn’t a bug, it’s a feature of our socio-economic system.

The gravitational pull of self-destructive behaviors, choices and incentives is scale-invariant, meaning that we can discern the strange attraction to self-destruction in the entire scale of human experience, from individuals to families to groups to entire societies.

The proliferation of self-destructive behaviors, choices and incentives in our socio-economic system is profoundly troubling. Exhibit 1 is the opioid epidemic (charts below). How did we reach this level of individual and social self-destruction?

There are culprits aplenty: a “healthcare” (sickcare) system that incentivizes maximizing profits by whatever means are available (for example, claiming addictive medications aren’t addictive); a system that encourages the consumption of costly prescriptive medications without regard to their interactions; a system that establishes a “standard of care” that relies on prescribing pills of one kind or another; a system that treats psychological-physical pain with painkillers rather than treat the source of the pain; a system that cannot recognize spiritual pain (from losing sources of meaning, purpose and positive social roles) much less address it; a workers compensation system that incentivizes vague pain-related injuries as a way of getting a vacation from work; a pharmaceutical industry hard-wired to seek and promote “the next billion-dollar drug” regardless of the long-term consequences of the wonder-drug, and a culture that worships convenience and the illusion that instant remedies to chronic conditions are available or should be available.

That is of course only a partial list.

Dependencies are one of the many self-destructive attractors in our society.Dependencies on addictive substances is one manifestation of self-destructive behavior, but dependency on an institution that leads to a loss of self-reliance is also a subtle form of self-destruction.

…click on the above link to read the rest of the article…

Blankfein: “Central Banks All Around The World Are Buying All The Risky Assets”

We can finally put to rest any financial, economic, ideological or simply philosophical debates why stocks have risen over 300% since the March 2009 post-crisis lows of 666, and we have Lloyd Blankfein’s underperformance mea culpa to thank for putting it so simply and succinctly, even a majority of fintwit might actually get it.

From today’s CNBC interview:

Frost: Let’s touch on your earnings yesterday, Lloyd, which was a beat on every line and overall EPS,  let’s talk about first of all about the bounceback in trading. There was a lot of focus on trading last year, back this quarter. Can that last the rest of the year or is it a one quarter bounceback, as it were?

Blankfein: If you asked it the opposite way, “this surely would last forever” I’d also discount that. Look, we don’t know. We’re more in the contingency planning business than the forecasting business but the conditions that prevail we’re not top decile or top quartile conditions in the world so, yes, they’re highly replicable I would say. Kind of feels almost standardish.

What didn’t feel standard were the conditions over the last couple of years. People will debate back and forth what’s normal what’s the new normal but conditions where interest rates are zero, yield curves are flat, there’s no risk premium. Where central banks all around the world are buying all the risky assets which then therefore put a damper on volatility and the opportunities to perform, that’s not a natural state.

We have not reversed all of that, but we’re walking that back and walking to so the first indications of a withdrawal from what is an unnatural state. The market becomes a bit more volatile, people get compensated for the risk that they’re taking.

…click on the above link to read the rest of the article…

Loonie Drops As Bank Of Canada Holds Rates (As Expected)

With Canadian economic data at its most disappointing in 20 months, domestic trade-wars over oil pipelines exploding, and a housing market on the verge of collapse, The Bank of Canada held rates unchanged (as expected), sending a weak signal that sparked Loonie selling

Bank of Canada Holds Benchmark Overnight Rate at 1.25%

2018 has not been a good one for Canada’s economy…

but BOC writes off 1Q growth weakness, saying it will rebound in 2Q.

Slower economic growth in the first quarter primarily reflects weakness in two areas. Housing markets responded to new mortgage guidelines and other policy measures by pulling forward transactions to late 2017. Exports also faltered, partly owing to transportation bottlenecks. Some of the weakness in housing and exports is expected to be unwound as 2018 progresses.

Also says the economy will be slightly above potential over the next 3 years, crediting federal and provincial budget measures.

But the FX market is not buying it…

The central bank played down a faster-than-expected pick-up in inflation as temporary, arguing the shocks of higher gas prices and minimum wages in some provinces will dissipate by 2019.

These releases codify Poloz’s narrative the expansion can be prolonged without fueling inflation.

Key highlights (vis Bloomberg):

  • BOC reiterates that “Governing Council will remain cautious with respect to future policy adjustments” and be “guided by incoming data”
  • BOC: “Higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed”
  • Inflation expected to average 2.3% over 2018, from 2.0% previously; Core measures have edged up to near 2 percent, “consistent with an economy operating with little slack”
  • Wage growth is firming, but Bank “will continue to assess labour market data for signs of remaining slack”
  • Bank of Canada makes upward revision to 2019 growth: GDP expected to grow 2.0% in 2018 and 2.1% in 2019, from 2.2% and 1.6% respectively;
  • Housing will not contribute to growth in 2018 and 2019, exports will not contribute to growth in 2018 (from +0.6pp previously)

…click on the above link to read the rest of the article…

China Prepares “Emergency Response Plan” Amid Escalating US Trade War

While in recent days the growing trade war between China and the US has moved off the front page of market concerns despite now daily skirmishes such as today’s anti-dumping probe launch by the US into US steel wheels which followed a Chinese 179% tariff on US sorghum imports which in turn was in response to the US banning exports to Chinese telecom giant ZTE, in recent days China has drawn up comprehensive list of urgent measures as the war of words over US-China trade relations has threatened to escalate into open economic conflict with each side threatening to levy heavy tariffs and taxes on each other’s imports.

Commenting on the recent trade hostilities, National Development and Reform Commission spokesman Zeng Peiyan said on Wednesday that Beijing has all the political instruments it needs to respond to this trade conflict with the United States and minimize its economic effect.

“We have an emergency response plan at various levels and political means to retaliate to the trade challenges, initiated by the United States,” Zeng added.

He stressed that the trade conflict would affect the country’s economy only partially and that China “has the confidence, potential and ability to ensure the stable functioning of the country’s economy.”

Meanwhile, according to Reuters, Beijing’s international trade representatives have held multiple meetings with their counterparts in leading European economies as China, too, seek support in its trade brawl with the US. Recall the US was supposed to do the same with Trump canvassing support for the growing world trade war in Latin America last week, however he was held back by the diversionary Syrian airstikes.

China however, was not detained and Beijing officials met ambassadors from France, Germany, the United Kingdom, Spain and Italy last Thursday and Friday to propose a firewall against Trump’s protectionism, Reuters reported.

…click on the above link to read the rest of the article…

The Central Bank Crisis on the Immediate Horizon

While the majority keep bashing the Federal Reserve, other central banks seem to escape any criticism. The European Central Bank under Mario Draghi has engaged in what history will call the Great Monetary Experiment of the 21st Century – the daring experiment of negative interest rates. A look behind the scenes reveals that this experiment has been not just a failure, it has undermined the entire global economic structure. We are looking at pension funds being driven into insolvency as the traditional asset allocation model of 60% equity 40% bonds has failed to secure the future with negative interest rates. Then, the ECB has exceeded 40% ownership of Eurozone government debt. The ECB realizes it can not only sell any of its holdings ever again, it cannot even refuse to reinvest what it has already bought when those bonds expire. The Fed has announced it will not reinvest anything. Draghi is trapped. He cannot stop buying government debt for if he does, interest rates will soar. He cannot escape this crisis and it is not going to end nicely.

When this policy collapses, forced by the free markets (no bid), CONFIDENCE will collapse rapidly. Once people no longer believe the central banks can control anything, the end has arrived. We will be looking at the time at the WEC. We will be answering the question – Can a central bank actually fail?

China’s “Nuclear Option” in the Trade War

china trade war usa nuclear

China’s “Nuclear Option” in the Trade War

The United States has been interested in economic relations with China since 1784, shortly after the American War for Independence.

At first, this interest was purely economic, because the British refused to deal with the U.S. (for obvious reasons). So the Americans bought Chinese goods, and the Chinese bought from the Americans.

And for most of U.S. history, things were good. But in 1949, with the rise of Mao and communist China, tensions rose.

Fast-forward to today’s relationship, as described by The Heritage Foundation:

Today, the United States and the People’s Republic of China are like the European great powers of a century ago. They trade with each other, but do not trust each other. They have the largest economies in the world, and they have a financial and trading relationship that shapes the global economy. But at the same time, they have different, and often opposing, views on many national security and foreign policy issues.

This lack of trust in their trading relationship mainly stems from China’s views on communism, their endorsement of certain people, and security issues.

Now it looks like that trading relationship is heating up dramatically…

China recently announced tariffs on 106 U.S. products like soy, cars, and some chemicals. As Sam Meredith explains on CNBC.com, this came 24 hours after the U.S. slapped tariffs on a list of Chinese imports in a $50 billion crackdown on unfair trade practices:

The effective start date for the new charges is not announced, though China’s Ministry of Commerce says the tariffs are designed to target up to $50 billion of U.S. products annually. The 25 percent levy on U.S. imports includes products such as soybeans, cars and whiskey.

This announcement caused a 450-point drop in the Dow Jones.

In retaliation, the Trump Administration then doubled down on its initial tariffs, imposing another $100 billion in tariffs on Chinese goods.

…click on the above link to read the rest of the article…

Is the “Petro-Yuan” a Credible Challenge to Dollar Supremacy?

Is the “Petro-Yuan” a Credible Challenge to Dollar Supremacy?

Wolf Richter with Jim Goddard on This Week in Money:

China latest effort to get its currency to be used globally is the “petro-yuan.” Is it a credible challenge to the supremacy of the US dollar? If China dumped US Treasuries, what would that accomplish? And more…

Central banks around the world seem leery about the Chinese yuan. Read…  What Could Dethrone the Dollar as Top Reserve Currency?

“They Know What’s Going To Happen” Governments And Big Banks Are Stockpiling Gold Ahead Of Massive Economic Collapse

“They Know What’s Going To Happen” Governments And Big Banks Are Stockpiling Gold Ahead Of Massive Economic Collapse

The writing is on the wall and major financial institutions across the world are warning about the economic disaster to come. Unabated money printing, tariff trade wars, rising interest rates and retail slowdowns point to one result, and it’s going to be brutal. Big banks and governments know what’s coming and they are preparing for this eventuality by stockpiling huge amounts of “real money” ahead of the crisis.

According to Keith Neumeyer, the CEO of the world’s top primary silver producer First Majestic Silver and chairman of First Mining Gold, the cartels he’s previously reported to the CFTC have continued to manipulate the prices of precious metals while loading up their own vaults with gold and silver. The answer to why they’re doing it is simple, as Neumeyer highlights in a recent interview with SGT Report:

The verdict is still out on whether we’re going into a dis-inflationary or inflationary environment… gold can do well in both environments… the fact of the matter is governments are printing extraordinary amounts of fiat currencies and that is not going to change…

The stage is set for higher gold prices due to the amount of money being printed… I am of the belief a major reset is coming where the governments of the world will need to get rid of their debt by fixing everything to the price of gold… and that’s why governments like China and Russia and other governments around the world are accumulating gold… it’s because they know what’s going to happen over the next several years…


(Watch at Youtube)

…click on the above link to read the rest of the article…

How I Own My Gold

How I Own My Gold

Those who own gold often argue how to best own it. I encourage anyone holding gold to assess the pros and cons of different choices of gold ownership to make an educated rather than emotional decision. Let me explain.

I commissioned the above cartoon back in 2011 in response to an assertion by CNBC’s Steve Liesman no one would accept a gold coin in a grocery store. My take was that, hell, if I offered a gold coin, I’m pretty sure I would find a taker if I wanted to exchange it for some groceries.

There appears to be an eternal back and forth between those that “love” and those that “hate” gold; that discussion, in my humble opinion, misses the point. It is striking how this shiny metal raises emotions by both friends and foes. Maybe it is because gold is so simple, so pure, the fact that there are fairly few industrial uses for it, that emotions take over in discussing gold’s merits.

The historic context matters. Gold has been used as money for millennia; yet some say it is a “barbaric relic” preferring to use fiat currencies for commerce. All major currencies are fiat currencies these days, that is, they can be created ‘out of thin air’, by the stroke of a keyboard at a central bank. The modern world of fiat currencies, is in place in its current form since 1971 when Nixon ‘temporarily’ abandoned the last link to gold. The very notion of currency has been used in new ways as promoters of virtual tokens subject to a decentralized creation and sharing methodology referred to as crypto-currencies have touted that they will disrupt the way we transaction and store value. The value of crypto-currencies, of course, has been highly volatile, and none of this should be construed as an investment recommendation.

…click on the above link to read the rest of the article…

Getting High on Bubbles

Getting High on Bubbles

Back in the drug-soaked, if not halcyon, days known at the sexual and drug revolution—the 1960’s—many people were on a quest for the “perfect trip”, and the “perfect hit of acid” (the drug lysergic acid diethylamide, LSD). We will no doubt generate some hate mail for saying this, but we don’t believe that anyone ever attained that goal. The perfect drug-induced high does not exist. Even if it seems fun while it lasts, the problem is that the consequences spill over into the real world.

Today, drunk on falling interest rates, people look for the perfect speculation. Good speculations generally begin with a story. For example dollar-collapse. And then an asset gets bid up to infinity and beyond (to quote Buzz Lightyear, who is not so close a friend as our buddy Aragorn). It happened in silver in 2010-2011. It happened more recently in bitcoin.

Most speculators don’t care about the economic causes and effects of bubbles. They just want to buy an asset as the bubble begins inflating, and sell just before it pops. But bitcoin and many gold proponents are different. They promise that their favorite asset will cure many social ills, fix many intractable problems, and increase liberty. Oh yeah and get-rich-quick.

We been pounding the table for going on a decade, sometimes even bellowing from the rooftops, that gold does not go up. Even the gold bugs claim that the dollar is collapsing. Our point—which has so far gone unanswered—is that you cannot use something which is collapsing to measure other things. Especially not the economic constant (gold). Either the dollar is collapsing, in which case if gold is going up then the dollar could not be used to measure this. Or else it’s not collapsing, in which case maybe it could measure gold—but then remind us why these folks are buying gold.

…click on the above link to read the rest of the article…

The unacceptable collateral damage of overconsumption

The unacceptable collateral damage of overconsumption

The Great Acceleration, un-burnable carbon, and global impacts

We are living in extraordinary times and transformation is already happening and accelerating all around us. Many technological, social, and environmental changes are racing up the steep end of the exponential curve. In almost every area of our lives old structures are breaking down as we are witnessing the unfolding impacts of unprecedented technological innovation and its rapid deployment in a globally expanding consumer culture.

Exponential growth on a finite planet

‘The Great Acceleration’ is happening within the context of an expanding human population, profound societal and economic transformation on all continents, and — most urgent of all — a dangerous destabilization of global and local climate patterns. There is a scientific consensus that we need to take immediate action if we are to avoid catastrophic climate effects on the future of humankind, the diversity of life and the entire planet.

Unsustainable exponential growth in many aspects of human and ecological systems (Source)

Already hundreds of thousands of people die every year due to climate change related extreme weather events and millions lose their homes, go hungry or are forced to migrate. Ecosystems everywhere, and the biosphere as a whole, are reaching dangerous tipping points. The prolonged impact of an industrial growth society addicted to fossil fuels and the rapid extraction of non-renewable resources is pushing against planetary boundaries.

Our current economic system is structurally committed to ever-increasing economic growth and intertwined with a financial system that generates money out of nowhere based on debt, and currencies that are not backed up by real material value (see module two). Attempts to resuscitate this structurally dysfunctional system are getting more and more expensive, as the cycles of economic crisis and costly (temporary) recovery are getting shorter and shorter.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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