Daily Updates

IS THE CANADIAN HOUSING MARKET IN A BUBBLE?

The Canadian housing market sure looks like it’s in a bubble It sure looks that way.  At a time when personal income is down around 1% in the last year, we have seen nationwide average home prices soar 21% and last month hit a record high, as didsales.  In real terms, home price appreciation is back to where it was in 1989.  Of course, back then, interest rates were far higher but then again, the economy was in the late stages of a phenomenal multi-year economic expansion, not making a transition from deep recession to nascent recovery.  While the Canadian economy is recovering, overall growth is still barely above zero as manufacturers grappled with excess inventories, a strong currency and a soft domestic demand picture south of the border. Employment conditions have improved, but are hardly that healthy, as we saw in the November jobs report where wages and the workweek were both down despite a constructive headline number (half of which were in the education sector, an inherently difficult area for statisticians to adequately seasonally adjust).   In answer to the question as to whether prices are in a bubble, all we will say is that when we ran some models showing Canadian home prices normalized by personal income or by residential rent, what we found is that housing values are anywhere between 15-35% above levels we would label as being consistent with the fundamentals.  If being 15% to 35% overvalued isn’t a bubble, then it’s the next closest thing.  We are talking about 2-3 standard deviation events here in terms of the parabolic move in Canadian home prices from their lows.  So if it walks like a duck …

From Breakfast with Dave 12/10 – Full comment HERE.

Today’s Breakfast with Dave 12/11 – Full Comment HERE……Including “Setting the record straight on the question how can we be bearish on the U.S. economy and markets and at the same time bullish on commodities and Canada”.

David Rosenberg’s 2010 Outlook “The Recession Is Really A Depression?

Commentary and emphasis via ZeroHedge.com from David Rosenberg’s 12/10/09 Breakfast with Dave

With December almost done, and all the banks having already issued their rosy outlooks for 2010 (don’t ask us how the trading desks are axed, but you be sure a certain sense of “contrarianism” permeates Goldman’s traders), the objective third pary strategists begin chiming in. We present Rosie’s 2010 outlook from Today’s Breakfast with Dave piece, courtesy of Gluskin Sheff.

The credit collapse and the accompanying deflation and overcapacity are going to drive the economy and financial markets in 2010. We have said repeatedly that this recession is really a depression because the recessions of the post-WWII experience were merely small backward steps in an inventory cycle but in the context of expanding credit. Whereas now, we are in a prolonged period of credit contraction, especially as it relates to households and small businesses (as we highlighted in our small business sentiment write-up yesterday).

In addition, we have characterized the rally in the economy and global equity markets appropriately as a bear market rally from the March lows, influenced by the heavy hand of government intervention and stimulus. But in classic Bob Farrell form, 2010 may well be seen as the year in which we witness the inevitable drawn out decline that is typical of secular bear markets. There may be some risk in industrial commodities if global growth underperforms, but the soft commodities, such as agriculture, may outperform in the same way that consumer staple equities should outperform cyclicals in an environment where economic growth disappoints the consensus view. Gold is operating on its own particular set of global supply and demand curves and should be an outperformer as well, especially when the next down-leg in the U.S. dollar occurs. We are not alone in espousing this view — have a look at Why Consumes Are Likely to Keep on Saving on page C1 of today’s WSJ.

The defining characteristic of this asset deflation and credit contraction has been the implosion of the largest balance sheet in the world — the U.S. household sector. Even with the bear market rally in equities and the tenuous recovery in housing in 2009, the reality is that household net worth has contracted nearly 20% over the past year-and-a-half, or an epic $12 trillion of lost net worth, a degree of trauma we have never seen before.

As households begin to assess the shock and what it means for their retirement needs, the impact of this shocking loss of wealth on consumer spending patterns in the future is likely going to be very significant. Frugality is the new fashion and likely to stay that way for years as attitudes toward discretionary spending, homeownership and credit undergo a secular shift towards prudence and conservatism.

While hedge funds and short-coverings have been the major sources of buying power for the equity market this year, what has really impressed me is what the general public has been doing with their savings, which is to allocate more towards fixed-income strategies. Looking at the U.S. household balance sheet, what I see on the asset side is a 25% weighting towards equities, a 30% weighting towards real estate and there is obviously a lot in cash and deposits, life insurance reserves and consumer durables, but the weighting in fixed-income securities is less than 7%. So my contention is that this is the part of the asset mix that will expand the most in the next five to 10 years and I am constructive on income strategies.

What also makes this cycle entirely different from all the other ones experienced in the post-WWII era is that this is the first consumer recession we have witnessed where the median age of the baby boom population is 52 going on 53. The last time we had a consumer recession in the early 1990s, the boomer population was in their early 30s and they were still expanding their balance sheets. The last time we had a bubble burst in 2001 they were in their early 40s. Now they are in their early 50s, the first of the boomers are in their early 60s, and we are talking about a critical mass of 78 million people who have driven everything in the economy and capital markets over the last five decades. This cohort realize that they may never fully recoup their lost net worth, and yet they will probably live another 20 or 30 years.

So, what is happening, which is at the same time fascinating and disturbing, is that the only part of the population actually seeing any job growth in this recession are people over the age of 55. Everyone else can’t get a job or are losing jobs — there is a youth unemployment crisis in the United States of epic proportions and a record number of Americans have been out of work for longer than six months in part because the “aging but not aged” crowd is not retiring as early as they used to. My contention is that many retirees who took themselves out of the workforce because they believed that their net worth would provide for them sufficiently in their golden years are redoing their calculations and coming back to the workforce to make up for their lost wealth. They are seeking income in the labour market, not because they want to but because they have to in order to satisfy their retirement lifestyles.

So, instead of being tempted into capital appreciation equity strategies, for every dollar that the household sector has allocated to these funds since the March lows, over $10 dollars has flowed into income funds — bonds, hybrids, dividends and the like; the areas of the investment sphere that we have been recommending this year. We can understand that there are concerns over inflation, but the history of post-bubble credit collapses is that even with massive policy reflation, deflation pressures can dominate for years — this was certainly the case in the U.S.A. and Canada in the 1930s, and again in Japan from the 1990s until today. Income strategies in both cases worked well with minimal volatility.

Of course, all the talk right now is about reflation and all the efforts from the central banks to create inflation, but the facts on the ground show that the inflation rate for both consumers and producers has turned negative for the first time in six decades. Perhaps inflation is a consensus forecast but deflation is the present day reality and often lingers for years following a busted asset and credit bubble of the magnitude we have endured over the past two years. So, to protect the portfolio in this deflationary landscape, a pervasive focus on capital preservation and income orientation, whether that be in bonds, hybrids, or a focus on consistent dividend growth and dividend yield would seem to be in order.

Be that as it may, what has also become crystal clear is the attitude that the U.S. government has taken over the beleaguered U.S. dollar, which can only be described as benign neglect. After all, 2010 is a mid-term election year in the U.S. and the Administration will do everything it can to squeeze every last possible basis point out of GDP growth and to prevent the unemployment rate, the most emotionally-charged statistic of them all, from reaching new highs.

The decisions to give 57 million social security recipients another $250 and to not only extend the first-time homebuyer tax credit but to expand the subsidy to higher-income trade-up buyers smacks of populist economic policies that will stop at nothing to generate growth, even with the budget deficit-to-GDP ratio is already at a record of over 10%. While I still believe that a sustainable return to inflation is a long ways away, there is little doubt that we will see continuous efforts at policy reflation, which means that the U.S. money supply is going to continue to expand rapidly, which in turn is positive for commodities, which are after all priced in U.S. dollars.

On top of all that, it does appear from a volume demand perspective, that the secular growth dynamics in Asia, China and India in particular, have reasserted themselves and this part of the world is the marginal buyer of commodities. This is the key reason why the Canadian stock market, given its resource exposure, has continued to do very well in comparison to the United States, especially when the positive trend in the Canadian dollar enters the equation, and I expect this outperformance to continue.

Typical of a post-bubble credit collapse, I see the range of outcomes in the financial markets and the economy to be extremely wide. But one conclusion I think we can agree on in this light is the need to maintain defensive strategies and minimize volatility and downside risks as well as to focus on where the secular fundamentals are positive such as in fixed-income and in equity sectors that lever off the commodity sector, under the proviso that the “experts” are correct on this particular forecast — that China and India remain the global growth leaders.

With that in mind, we were encouraged to see this on page B1 of today’s NYT — Cutting Back? Not in China: Rising Incomes Make it Easier to Splurge. As Dennis Gartman pointed out yesterday, there was a time (1820) when the U.S.A. was 2% of global GDP and Asia was 33%. That is tough for a lot of folks to swallow but maybe we will see in our lifetime a period when the Chinese economy does surpass the size of the U.S.A. (with 1.3 billion people, four times the U.S. population that actually seems quite likely).

After all, for the first time ever, China is going to be buying more vehicles than Americans will this year (then again, 20% of the Chinese aren’t exactly three-car families either) — 12.8 million units in China compared to 10.3 million in the U.S. And it’s not even fair to compare appliances any more either with consumption in China now up to 185 million (we are talking about washers, dryers, refrigerators, etc) versus an expected 137 million in the American market.

In Q3, Chinese consumers bought more computers (7.2 million) than the U.S.A. too (6.6 million). So while China is indeed still export-dependant and relies heavily on government infrastructure projects, there may be something to be said, at the margin, that consumer demand is also becoming an important contributor to its economic growth. Now keep in mind that most of this stuff is made in China and not in the U.S.A., so this is more of a commodity-input story than it is a U.S. export story.

China’s strategy of deploying its surpluses in assets around the world is quite a bit different than what Japan did with its surpluses in the 1980s. China is not into golf courses or movie studios as much as in gaining ownership of global resources in the ground. At last count, the country has signed trade deals with Africa to the tune of $60 billion (heck, that’s only 8% of the size of TARP, which is now going to be diverted towards a government-led job creation program in the U.S.A.). Have a look at the nifty article on the topic on page 11 of the FT —Africa Builds as Beijing Scrambles to Invest.

10 Reasons why the US Dollar has bottomed

Posted by Jack Crooks - Black Swan Capital

on Friday, 11 December 2009 14:33

Quotable – In the world maybe be flat, but your Socialist brain is concave category…. From New York Times columnist Thomas Friedman (a partial excerpt from the entry), complaining Sept. 9 about the difficulty of passing health-care and cap-and-trade bills, yearning for “one-party autocracy” — which “certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one-party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st Century.”

[Editor Note:  It worked so well in Russia and China that they only ended killing about 100 million, conservatively, of their own people.  And this tripe passes for the thinking of the “enlightened elite”?  Truly sad indeed, and yet another example of why the ends justify the means for socialists of all stripes. Scary!]

FX Trading – Growth and inflation?  Key to our 10 reasons the dollar has bottomed Today’s US price data a bit hotter than expected this morning.  China boom numbers out last night.  And guess what, the dollar likes what it sees.  Is a growth surprise in the air?  It would change the dynamics for the dollar and is a key part of any story that suggeststhe dollar has bottomed.  Did I say bottomed?  Well, yes I did, thanks for asking….

Here are our 10-reasons why the buck has bottomed…try to read these with a straight face.  If you can’t, then maybe we are on to something.  

1. Credit Crunch Sea Change  – US Savings going up; debt sentiment changed

2. Risk Bid Trigger Again…initially – Greece and Dubai

3. Growth – Not as bad as expected; it’s all relative  – Non-farm payroll and Mr. US Consumer

4. Carry trade idea history – Fed hikes before BOJ and before ECB

5. US Assets are very cheap – Foreign Direct Investment Flow  (currency cycles play that role)

6. Sentiment – Newsletter writers are in apoplectic territory – Everyone hates it and one-way bet

7. Correlation – it has changed – No new low with gold blow off and stock high

8. Technical  – Broke its weekly down trend & extremely oversold

9. Euro craters as a currency  – Rush to dollar-the world reserve currency punctuated

10. Bill Gross isn’t always right; neither is Jim Rogers*

 

Have a great weekend.   

Jack Crooks
Black Swan Capital LLC

http://www.blackswantrading.com/

 

 

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Interview with a “Maniac” commodities trader this month…

Our special “trader” interview section of Currency Investor this month will come from our friend Kevin Kerr.  He is the proprietor of Kerr Commodities Watch.  Kevin is a frequent guest on every business show imaginable sharing his excellent views on all things commodities.  We are looking forward to hearing Kevin’s insights.  

Our monthly Currency Investor newsletter is geared toward newcomers and experienced investors who are looking for a conservative approach to the foreign exchange market, and learning more about how the global economy works.  

In plain language we deliver global macroeconomic analysis and actionable ideas geared toward exchange rate fluctuations.

Our analysis is comprehensible and our recommendations consist of ETFs, so don’t get turned off by buzz words like “exchange rates” or “foreign exchange” – this investing strategy is as easy to implement as buying and selling stocks.

Plus, at $39 per year it’s a deal you’d be hard-pressed to find anywhere else. Thoroughglobal analysis plus complete investment guidance … and all for only $39 per year? You can’t beat that with a stick. Click here to read more …

“As unthinkable as it may be to some … the risk of a complete unraveling of the European Union … is intensifying, dramatically, and rapidly. “

A brief comment from the extensive analysis contained in Weldon’s Money Monitor.

 

From Detective Harry Callahan, also known as “Dirty Harry”, the tough-as-nails San Francisco Detective in Joseph Stinson’s 1983 film “Sudden Impact” … as he prepares to blow away a criminal with his 357-Magnum … 

… “Go ahead, make my day.”  … 

… while begging the cornered crook to make a “play”, which would give Dirty Harry the opportunity to use his weapon. 

Indeed, that famous movie “line”, voted number 6 on the list of Top-100 Movie Lines, as determined by the American Film Institute (AFI) … went on to become synonymous with the “Make My Day Law”, an American legal doctrine held in the majority of the United States of America …

… which is also known as the “Castle Doctrine”.

This law gives “castle-owners (homeowners, obviously) the “right” to use
“deadly force” to discharge “trespassers”, or, to protect anyone that is legally on the premises.

Right now, European Union member “states” are increasingly having to invoke their own “Castle Doctrine” (much more aptly named for a European
doctrine, than an American one) … with an intensified threat which may lead to the use of “deadly force” by states experiencing ratings downgrades, interest rate spikes, credit default swap widening, and general “attack” being carried out on their “debt instruments”. 

Greece is ready to use deadly force.  Ireland and Spain have armed themselves. Latvia and Lithuania are already armed. And, core EU members France and Italy, are increasingly in the danger zone. 

In FACT … of the 27 European Union „member state… ONLY five, maintain a budget deficit within the limits set by the Maastricht Treaty which imposes a hard ceiling of 3%, as measured by the Budget-Deficit-to-GDP Ratio. 

ONLY FIVE of TWENTY-SEVEN … are in “compliance”.

As unthinkable as it may be to some … the risk of a complete unraveling of the European Union … is intensifying, dramatically, and rapidly. 

The timing of this dynamic, in perfect harmony with the achievement of Fibonacci defined retracements in most all global equity indexes, and the most recent intensified technical and inter-market divergences, in line with the apparent bottoming of the US Dollar …

 

“As unthinkable as it may be to some … the risk of a complete unraveling of the European Union … is intensifying, dramatically, and rapidly. “

A brief comment from the extensive analysis contained in Weldon’s Money Monitor.

 

From Detective Harry Callahan, also known as “Dirty Harry”, the tough-as-nails San Francisco Detective in Joseph Stinson’s 1983 film “Sudden Impact” … as he prepares to blow away a criminal with his 357-Magnum … 

… “Go ahead, make my day.”  … 

… while begging the cornered crook to make a “play”, which would give Dirty Harry the opportunity to use his weapon. 

Indeed, that famous movie “line”, voted number 6 on the list of Top-100 Movie Lines, as determined by the American Film Institute (AFI) … went on to become synonymous with the “Make My Day Law”, an American legal doctrine held in the majority of the United States of America …

… which is also known as the “Castle Doctrine”.

This law gives “castle-owners (homeowners, obviously) the “right” to use
“deadly force” to discharge “trespassers”, or, to protect anyone that is legally on the premises.

Right now, European Union member “states” are increasingly having to invoke their own “Castle Doctrine” (much more aptly named for a European
doctrine, than an American one) … with an intensified threat which may lead to the use of “deadly force” by states experiencing ratings downgrades, interest rate spikes, credit default swap widening, and general “attack” being carried out on their “debt instruments”. 

Greece is ready to use deadly force.  Ireland and Spain have armed themselves. Latvia and Lithuania are already armed. And, core EU members France and Italy, are increasingly in the danger zone. 

In FACT … of the 27 European Union „member state… ONLY five, maintain a budget deficit within the limits set by the Maastricht Treaty which imposes a hard ceiling of 3%, as measured by the Budget-Deficit-to-GDP Ratio. 

ONLY FIVE of TWENTY-SEVEN … are in “compliance”.

As unthinkable as it may be to some … the risk of a complete unraveling of the European Union … is intensifying, dramatically, and rapidly. 

The timing of this dynamic, in perfect harmony with the achievement of Fibonacci defined retracements in most all global equity indexes, and the most recent intensified technical and inter-market divergences, in line with the apparent bottoming of the US Dollar …

 

Weldon’s Money Monitor offers a FREE 30 Day Trial Subscription. For subscription information contact Eileen @Weldononline.com or Visit www.Weldononline.com for a FREE Trial.

A FREE 30 Day Trial Subscription is defined as a single Trial that is limited to a one-time Signup. Signing up for multiple trials under different names, Fraudulent contact information is illegal. Weldon’s Money Monitor takes this seriously..

“As unthinkable as it may be to some … the risk of a complete unraveling of the European Union … is intensifying, dramatically, and rapidly. “

A brief comment from the extensive analysis contained in Weldon’s Money Monitor. Michael Campbell calls Greg Weldon – “The One Analyst other Analysts can’t Wait to Read.”

 

From Detective Harry Callahan, also known as “Dirty Harry”, the tough-as-nails San Francisco Detective in Joseph Stinson’s 1983 film “Sudden Impact” … as he prepares to blow away a criminal with his 357-Magnum … 

… “Go ahead, make my day.”  … 

… while begging the cornered crook to make a “play”, which would give Dirty Harry the opportunity to use his weapon. 

Indeed, that famous movie “line”, voted number 6 on the list of Top-100 Movie Lines, as determined by the American Film Institute (AFI) … went on to become synonymous with the “Make My Day Law”, an American legal doctrine held in the majority of the United States of America …

… which is also known as the “Castle Doctrine”.

This law gives “castle-owners (homeowners, obviously) the “right” to use
“deadly force” to discharge “trespassers”, or, to protect anyone that is legally on the premises.

Right now, European Union member “states” are increasingly having to invoke their own “Castle Doctrine” (much more aptly named for a European
doctrine, than an American one) … with an intensified threat which may lead to the use of “deadly force” by states experiencing ratings downgrades, interest rate spikes, credit default swap widening, and general “attack” being carried out on their “debt instruments”. 

Greece is ready to use deadly force.  Ireland and Spain have armed themselves. Latvia and Lithuania are already armed. And, core EU members France and Italy, are increasingly in the danger zone. 

In FACT … of the 27 European Union „member state… ONLY five, maintain a budget deficit within the limits set by the Maastricht Treaty which imposes a hard ceiling of 3%, as measured by the Budget-Deficit-to-GDP Ratio. 

ONLY FIVE of TWENTY-SEVEN … are in “compliance”.

As unthinkable as it may be to some … the risk of a complete unraveling of the European Union … is intensifying, dramatically, and rapidly. 

The timing of this dynamic, in perfect harmony with the achievement of Fibonacci defined retracements in most all global equity indexes, and the most recent intensified technical and inter-market divergences, in line with the apparent bottoming of the US Dollar …

Ed Note: Greg Weldon noted in posting HERE on 11/30/09 “we still believe the Dollar is in the process of forging a significant low”.

 

Weldon’s Money Monitor offers a FREE 30 Day Trial Subscription. For subscription information contact Eileen @Weldononline.com or Visit www.Weldononline.com for a FREE Trial.

A FREE 30 Day Trial Subscription is defined as a single Trial that is limited to a one-time Signup. Signing up for multiple trials under different names, Fraudulent contact information is illegal. Weldon’s Money Monitor takes this seriously..

Nobody can see the future but I’ll take my best stab at it — here’s hoping I’m not just sticking my foot in my mouth. Well, it wouldn’t be the first time.

The following predictions should hopefully be very controversial — just like many of the predictions in my book Discover the Upside of Down.

All of my contrarian predictions are based on how I see things setting up the weekly charts in stocks, oil, gold, currencies, commodities, foreign markets, and bonds. I’ll also throw in some specific possible catalysts that could ignite theses very powerful setups as they appear now.


Prediction Number One: The US Dollar won’t crash before it makes a giant double bottom on the weekly charts in 2010.

The weekly chart today look a lot like it did in March of 2008. The dollar hit lows in March 2008 then went sideways until it broke out in August 2008 at 75.60 — when our indicator gave us a buy signal.

The dollar continued to rally all the way up to 91.47 in March 2009 before giving us a sell signal.

It seems the dollar is setting up now for a powerful short-covering rally accelerating into the first quarter of 2010 before it resumes its downtrend once again.

With both individual investors and professional traders raging bears, why wouldn’t the dollar rally?

Everyone and their mother is short the dollar, so we look for the unwinding of this Federal Reserve-created carry trade to take the dollar higher.

Intermediate and long-term, by the way, I’m very bearish on the prospects of the US Dollar. In fact, I can see the dollar getting cut in half after the short covering rally ends.

Prediction Number Two: Gold in 2010 will be looked upon like the 1999-2000 NASDAQ.

When Alan Greenspan flooded the economy with easy money in the late 1990s, the world went into a wild frenzy buying US technology stocks in 1999.

Gold and gold stocks will make a blow off explosive final run in 2010 from “helicopter Bens” flooding the globe with liquidity. The final move up in Gold and Gold stocks will look just like the NASDAQ run from October 1999 until the March 2000 blow off top.

Today’s weekly chart on Gold looks a lot like 1999 NASDAQ. Gold is also set up just like when Gold crossed 1000 in March of 2008, so Gold could have a similar nasty correction before that giant dot-com move up.

By October 2008 Gold got trounced to a low of 692 an ounce. We believe the next big correction in Gold will also prove to be a wonderful buying opportunity.

…..read more HERE

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