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“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” – The Fourth Turning – Strauss & Howe

The quote above captures the current Fourth Turning perfectly, even though it was written more than a decade before the 2008 financial tsunami struck. With global debt now exceeding $250 trillion, up 60% since the Crisis began, and $13 trillion of sovereign debt with negative yields, it is clear to all rational thinking individuals the next financial crisis will make 2008 look like a walk in the park. We are approaching the eleventh anniversary of this crisis period, with possibly a decade to go before a resolution.

As I was thinking about what confluence of economic factors might ignite the next bloody phase of this Fourth Turning, I realized economic factors have been the underlying cause of all four Crisis periods in American history.

Debt levels in eurozone, G7, US and Germany

The specific details of each crisis change, but economic catalysts have initiated all previous Fourth Turnings and led ultimately to bloody conflict. There is nothing in the current dynamic of this Fourth Turning which argues against a similar outcome. The immense debt, stock and real estate bubbles, created by feckless central bankers, corrupt politicians, and spineless government apparatchiks, have set the stage for the greatest financial calamity in world history.

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

The Pricking of the Canadian Real Estate Bubble?

February 28, 2018

THE PRICKING OF THE CANADIAN REAL ESTATE BUBBLE?

First of all, sorry for the lack of posts lately. Long story, but rest assured, I am back on track and the old ‘tourist regular postings have resumed.

Next up, today I will write about Canadian real estate. I know, many of you find that about as exciting as watching Winter Olympic curling, but give me a chance – after all, we Canadians have a way to make even curling entertaining.

The Canadian real estate bubble

As most everyone knows, over the past decade, Canada has experienced a massive real estate boom.

And for the past half dozen years, we have had to endure all the proclamations from hedge fund managers about the coming great Canadian housing market crash. Although there has also been some Canadian skeptics, the majority of these doomsdayers have been American managers who, after experiencing their own real estate crisis, can only imagine the next “big short” occurring in Canada.

These managers often simply took the US playbook and applied it to Canada, never considering that the US situation might be different. Nor did they factor in the possibility that Central Bank reaction functions might have changed since the Great Financial Crisis.

Don’t mistake me for some sort of unapologetic delusional Canadian housing bull. I think prices are nuts. But what I think is even more insane is the amount of balance sheet expansion from global Central Banks. We must always remember – the Canadian real estate bears are fighting against the authority that has the power to dictate the quantity of the asset in which we price all these other assets in.

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

Real Estate Bubbles: These 8 Global Cities Are At Risk

February 26, 2018

Real Estate Bubbles: These 8 Global Cities Are At Risk

If you had $1 billion to spend on safe real estate assets, where would you look to buy?

For many funds, financial institutions, and wealthy individuals, the perception is that the world’s financial centers are the places to be. After all, world-class cities like New York, London, and Hong Kong will never go out of style, and their extremely robust and high-density city centers limit the supply of quality assets to buy.

But, as Visual Capitalist’s Jeff Desjardins asks, what happens when too many people pile into a “safe” asset?

According to UBS, certain cities have seen prices rise at rates that are potentially not sustainable – and eight of these financial centers are at risk of having real estate bubbles that could eventually deflate.

Global Real Estate Bubble Index

Every year, UBS publishes the Global Real Estate Bubble Index, and the most recent edition shows several key markets in bubble territory.

The bank highlights Toronto as the biggest potential bubble risk, noting that real prices have doubled over 13 years, while real rents and real income have only increased 5% and 10% respectively.

However, the largest city in Canada was certainly not the only global financial center with real estate appreciating at rapid rates in the last year.

In Munich, Toronto, Amsterdam, Sydney and Hong Kong, prices rose more than 10% in the last year alone.

Annual increases at a 10% clip would lead to the doubling of prices every seven years, something the bank says is unsustainable.

In the last year, there were three key markets where prices did not rise: London, Milan, and Singapore.

London is particularly notable, since it holds more millionaires than any other city in the world and is rated as the #1 financial center globally.

The Party’s Over For Australia’s $5.6 Trillion Housing Frenzy

November 25, 2017

The Party’s Over For Australia’s $5.6 Trillion Housing Frenzy

Early this month, we discussed whether the world’s longest running bull market – 55 years – in Australian house prices had come to an end. This was UBS’s view following the October 2017 monthly report on Australian house prices from CoreLogic suggested that measures to tighten credit standards and dissuade overseas buyers (especially Chinese in Sydney and Melbourne) have finally begun to bite. As CoreLogic’s summary table shows, Sydney prices fell in October, for the second month running, and poised to lead national prices lower.

We followed up that discussion with “Why Australia’s Economy Is A House Of Cards” in which Matt Barrie and Craig Tindale described how Australia’s three decades long economic expansion had mostly been the result of “dumb luck”.

As a whole, the Australian economy has grown through a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble.

Now Bloomberg has followed UBS in calling the end of the bull market, while showing some of the frankly scary metrics for Australian housing versus the country’s GDP.

The party is finally winding down for Australia’s housing market. How severe the hangover is will determine the economy’s fate for years to come. After five years of surging prices, the market value of the nation’s homes has ballooned to A$7.3 trillion ($5.6 trillion) — or more than four times gross domestic product. Not even the U.S. and U.K. markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them.

Australia’s obsession with property is firmly entrenched in the nation’s economy and psyche, fueled by record-low interest rates, generous tax breaks, banks hooked on mortgage lending, and prime-time TV shows where home renovators are lauded like sporting heroes. For many, homes morphed into cash machines to finance loans for boats, cars and investment properties. The upshot: households are now twice as indebted as China’s.

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

‘The worst scenario’: What if Canada’s real estate bubble bursts?

May 16, 2017

‘The worst scenario’: What if Canada’s real estate bubble bursts?

A repeat of Toronto’s 1989 crash could have devastating effects on the entire economy

Builders work on a new home in North Vancouver in 2016. The average home price in Canada climbed by 10 per cent to $559,317 in April, the Canadian Real Estate Association says. (Canadian Press)

It’s the question lingering behind every headline. It’s whispered among homeowners, would-be buyers and sellers, economists and policy-makers. What actually happens if Canadian real estate prices crash?

On the one hand, a crash might be good for some Canadians already priced out of the market. And even a dramatic 40 per cent drop in prices would set homeowners in markets like Toronto or Vancouver back, what, two or three years?

But there are broader concerns for the market and the economy itself that could prove devastating.

Home prices are notoriously off the charts. Everyone from the governor of the Bank of Canada to the chatty guy in your local cafe has said, repeatedly, that this increase in prices is not sustainable. But what that means, precisely, is vague.

The latest numbers from the Canadian Real Estate Association show the average home price in Canada climbed by 10 per cent to $559,317 in April. Notably, the number of sales in Toronto’s red-hot market fell by almost seven per cent but prices continued to rise.

No one is saying the end is nigh. Most are still banking on that ambiguous “soft landing” policy-makers have talked about for years. But, for the sake of argument and for a better understanding of the risks, let’s talk about what a real crash would look like.

A ‘Sold’ sign is stands at an empty lot in a new subdivision in Calgary in 2015. Canadian home prices are off the charts, and a lot of people say they are not sustainable. But what that means is vague. (Reuters)

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

Canada Flagged for Recession by BIS

March 15, 2017

Canada Flagged for Recession by BIS

This can’t be good…

As if Canadians needed more proof that the country’s real estate is in a bubble, and that this misallocation has spread to other sectors of the economy, the Bank of International Settlements released its latest quarterly confirming what any critical observer can see: binging on debt is rarely a good idea.

Canada’s debt-to-GDP gap is widening and even the central bank of central banks is concerned.

The BIS uses its credit-to-GDP analysis as an indicator and predictor of troubling economic waters. They claim successes in predicting financial crises in the United States, England and a few other economies. Generally speaking, according to the BIS, when a country’s credit-to-GDP gap is higher than 10% for more than a few years, a banking crisis emerges which is followed by a recession.

Canada entered that territory in 2015, warmly welcomed by the Chinese who’s debt-to-GDP gap has put them in the danger zone for at least the last five years.

In another parallel universe, perhaps Canadian authorities took the correct measures to counteract this high credit-to-GDP gap or to even prevent it from getting this out of control. But in our reality, we kept trudging across the tundra, mile after mile, pushing our credit-to-GDP gap up to 17.4%.

China’s “basic dictatorship” means they can turn their economy around on a dime, or so goes the thinking. Perhaps they will better absorb the economic slap in the face compared to Canada’s relatively freer market and less dictatorial government.

Still, both countries have a massive real estate bubble. In China, entire cities are centrally planned and built by government-connected contractors only to house absolutely nobody.

Wealthy Chinese families, witnessing the crony-capitalist chaos and subsequent malinvestments, have taken their hard-earned cash and moved it overseas. Enter stage-right the true north strong and free enough. Foreign speculation has helped drive up real estate prices in places like Vancouver and Toronto.

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

Vancouver Real Estate Goes Full-Retard; Average Home Price Now $1.8 Million

February 3, 2016

Vancouver Real Estate Goes Full-Retard; Average Home Price Now $1.8 Million

Last week we identified a “bargain” in Canadian real estate.

As you might recall, the Canadian economy is in a bit of a tailspin, and that goes double for the country’s dying oil patch. Indeed, we’ve documented Alberta’s painful experience with slumping crude exhaustively, noting that the steep decline in oil prices has triggered job losses (which hit their highest level in 34 years in 2015), depression, suicides, soaring food bank usage, and a marked uptick in property crime.

Through it all, parts of the real estate market in Canada remain red hot. In stark contrast to the millions of square feet of office space sitting vacant in beleaguered Calgary, Toronto and Vancouver are on fire.

Housing sales in the Toronto area rose 8.2% last month from a year earlier. The average selling price: $631,092.

In Vancouver, the numbers are simply astonishing. Residential property sales in Greater Vancouver rose 31.7% in January. That’s 46% above the 10-year sales average for the first month of the year and the second highest January ever, the Greater Vancouver Real Estate Board notes. The benchmark price for a detached home in Vancouver: $1,293,700. The benchmark price for an apartment: $456,600.

But it gets still crazier. The “benchmark” price represents what the Real Estate Board says a “typical” home would go for on the market. If we simply take the arithmetic mean (i.e. the average), the numbers are even more astounding. As CTV news reports, the average selling price of detached homes was much higher last month – at an astronomical $1.82 million.

“Home buyer demand is at near record heights and home seller supply is as low as we’ve seen in many years,” REBGV President Darcy McLeod said.

So a seller’s market. Got it.

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

The Reality Behind the Numbers in China’s Boom-Bust Economy

October 10, 2015

The Reality Behind the Numbers in China’s Boom-Bust Economy

Last year, the world was stunned by an IMF report which found the Chinese economy larger and more productive than that of the United States, both in terms of raw GDP and purchasing power parity (PPP). The Chinese people created more goods and had more purchasing power with which to obtain them — a classic sign of prosperity. At the same time, the Shanghai Stock Exchange Composite more than doubled in value since October of 2014. This explosion in growth was accompanied by a post-recession construction boom that rivals anything the world has ever seen. In fact, in the three years from 2011 – 2013, the Chinese economy consumed more cement than the United States had in the entire twentieth century. Across the political spectrum, the narrative for the last fifteen years has been that of a rising Chinese hyperpower to rival American economic and cultural influence around the globe. China’s state-led “red capitalism” was a model to be admired and even emulated.

Yet, here we sit in 2015 watching the Chinese stock market fall apart despite the Chinese central bank’s desperate efforts to create liquidity through government-backed loans and bonds. Since mid-June, Chinese equities have fallen by more than 30 percent despite massive state purchases of small and mid-sized company shares by China’s Security Finance Corporation.

But this series of events should have surprised nobody. China’s colossal stock market boom was not the result of any increase in the real value or productivity of the underlying assets. Rather, the boom was fueled primarily by a cascade of debt pouring out of the Chinese central bank.

China’s Real Estate Bubble

Like the soaring Chinese stock exchange, the unprecedented construction boom was financed largely by artificially cheap credit offered by the Chinese central bank. New apartment buildings, roads, suburbs, irrigation and sewage systems, parks, and commercial centers were built not by private creditors and entrepreneurs marshaling limited resources in order to satisfy consumer demands. They were built by a cozy network of central bank officials, politicians, and well-connected private corporations.

– See more at: http://www.cobdencentre.org/2015/10/the-reality-behind-the-numbers-in-chinas-boom-bust-economy/#sthash.fAtXnwDy.dpuf

Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk

February 1, 2015

Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk

Ratings agency Fitch had already warned about Canada’s magnificent housing bubble that is even more magnificent than the housing bubble in the US that blew up so spectacularly. “High household debt relative to disposable income” – at the time hovering near a record 164% – “has made the market more susceptible to market stresses like unemployment or interest rate increases,” it wrote back in July.

On September 30, the Bank of Canada warned about the housing bubble and what an implosion would do to the banks: It’s so enormous and encumbered with so much debt that a “sharp correction in house prices” would pose a risk to the “stability of the financial system” [Is Canada Next? Housing Bubble Threatens “Financial Stability”].

Then in early January, oil-and-gas data provider CanOils found that “less than 20%” of the leading 50 Canadian oil and gas companies would be able to sustain their operations long-term with oil at US$50 per barrel (WTI last traded at $47.85). “A significant number of companies with high-debt ratios were particularly vulnerable right now,” it said. “The inevitable write-downs of assets that will accompany the falling oil price could harm companies’ ability to borrow,” and “low share prices” may prevent them from raising more money by issuing equity.

In other words, these companies, if the price of oil stays low for a while, are going to lose a lot of money, and the capital markets are going to turn off the spigot just when these companies need that new money the most. Fewer than 20% of them would make it through the bust.

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

Norway Regulator Fears Housing Bubble “Isn’t Sustainable”

January 29, 2015

Norway Regulator Fears Housing Bubble “Isn’t Sustainable”

Amid the collapse in crude oil prices, the Norwegian central bank cut rates in December (after 1000 days on hold) and is likely to cut again as economic growth stalls. However, the country’s financial regulator iswarning falling interest rates risk pushing the Norwegian housing market beyond its breaking point into a “self-augmenting spiral.” With prices up 8.1% YoY, and up 85% nationwide in the last decade, even Robert Shiller warned of Norway’s housing bubble in 2012 – and since then household debt (and home prices) have surged. As Bloomberg reports, Morten Baltzersen, head of Norway’s Financial Supervisory Authority stressed “continued rapid growth in debt and house prices isn’t sustainable.” Unintended consequences?

As Bloomberg reports, a combination of plunging oil prices and falling interest rates risks pushing Norway’s housing market beyond its breaking point, the financial regulator said.

Norway’s housing market, which Nobel laureate Robert Shiller all the way back in 2012 said was in a bubble, has been inflated amid an oil boom that has driven wealth creation and kept unemployment below 4 percent.

Norwegians have more debt than ever before, owing their creditors about twice their disposable incomes, a level that Olsen and FSA’s Baltzersen have said is unsustainable.

And it’s about to get worse…

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

The Scale Of The Chinese Real Estate Crash Is Terrifying

January 26, 2015

The Scale Of The Chinese Real Estate Crash Is Terrifying

We hear a great deal about the credit binge in advanced economies that helped lay the foundation for the 2008 financial crisis and is also widely blamed for holding back the pace of the recovery. Well, while the West has been unwinding some of this excess borrowing in recent years, emerging markets have been seeing their own credit boom.

And it’s a huge risk — particularly in China, where growth has normally pushed along the economies of several other countries.

Growth is slowing in China and its debt overhang is growing as a result. That’s a problem because countries ought to be able to grow their way out of debt. But that era may be coming to an end. And now China has a developing real estate crash of its own.

Here are the figures as provided by J.P. Morgan. (Note Hong Kong in particular):

Emerging market debt JP Morgan

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

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