Wednesday, January 28, 2015

Leaving the labor force stats

Marginal Revolution asks who is moving out of the U.S. labor force?

I'm filing this under Good News Bad News because while it's bad that young people are out of work, it's good that many of these are not necessarily the most vulnerable.

Saturday, January 24, 2015

Rise of the 0.1%

The 1% are earning all the income but the wealth is accumulating at the 0.1% level.

From the work of "some of Thomas Piketty's favorite academic bandmates".

Tuesday, January 6, 2015

The collapse of the Canadian housing market

More Americans predicting the collapse of the Canadian housing market.

I've encountered many blog posts, newspaper articles, and sell-side reports of this vein and would like to comment on their main points.

Foreign buyers

  • not the bogeyman
  • usually putting down significant down payments
  • if renting the space, then the issue should be the appropriate rental financing/regulatory regime, not a foreign buyer issue per se
  • else if they are using the space for their kids/family who are living in Canada and may be Canadians themselves, then what's the problem here?
  • else if not renting the space, and not using for family, then they're likely quite wealthy and see real estate as a place to store a lot of CAD (what other asset class would you have them invest in? and if the predicted stampede of capital occurs, which currency is going to act as safe haven vs CAD... (keeping in mind that the wealthy investor probably already holds lots of USD, HKD, JPY, EUR, GBP)?)

Household debt-to-income: Canada vs U.S.
  • the shape of the chart is accurate but Canadian and U.S. stats are not directly comparable
  • Canadians pay higher taxes so, all else being equal, you'd expect the Canadian ratio to be higher
  • households are less sensitive to health related shocks due to universal insurance
  • a corporate obligor with a 1.6X debt/EBITDA ratio would probably be investment grade rated

Valuations
  • I'm very sympathetic to the view that we're in bubble territory
  • but the market is the market
  • there are explanations for the very extreme cases such as Toronto and Vancouver especially taking into account international comps

Frequency of defaults on mortgages
  • don't panic until employment is a problem

Loss given default on mortgages
  • overall LTVs are about 54% for CMHC as at 2014 Q3 (should be about similar for the big 5 banks)
  • high ratio mortgages, and any conventional mortgages securitized through the NHA MBS program are insured by CMHC or the two private insurers
  • and no, CMHC insurance is not a bail-out of banks, they have made billions of dollars for their shareholder (the Government of Canada) and if some black swan event wipes out a year or two of profits and a portion of the capital base (which is over 150% of regulatory minimums) then I think we call that a success



Sunday, January 4, 2015

Looking ahead to 2015

Time to position for the year ahead.  2014 was marketed by ever higher highs in the stock market, continuation of crisis-time monetary stimulus, and geopolitical tensions--particularly of the Russian variety.  Six and a half years after Lehman's collapse, pundits, bloggers, and academics are still arguing about whether or not we are in a correction (or the right kind of correction).

In 2014 I moved a material portion of my stock portfolio into cash and gold ETFs.  Even after missing out on gains, and suffering meaningful losses on the gold, I'm comfortable with my cash position and look to increase it opportunistically.

Even if it's not in 2015, I have a grave sense--of the Tolkienesque variety--that a severe correction is coming that will shock and awe market participants of all ages  By the mysterious processes of the market, the sins of cheap money and price manipulation, or the fundamental problems that they intend to mask, will be fully discounted; perhaps quite suddenly.

On potential indicators of fundamental problems that are 'poking out', I note that the collapse in oil prices towards the end of 2014 has a demand component in addition to the much discussed supply side (Saudis, shale, tar sands).