Reading time: 2,627 words, 9 pages, 7 to 11 minutes & lotsa ugly charts.
Synopsis – covered in this post
Governments and Voter Stupidity
Synopsis – covered in https://geroldblog.com/2016/02/18/canada-hits-the-wall-in-2016-part-1-baltic-china-commodities-debt/
Baltic Dry Index
Debt, Debt and More Debt
Synopsis – covered in future posts
Oil Price Plunge
Real Estate Bubble
Neither the term ‘gradualism’ or ‘incrementalism’ adequately describes our deteriorating economies declining so gradually that it’s difficult to notice. Perhaps we need a new word. I’m reminded of this long-term pain whenever I see this blog’s home page list of ‘Categories’ covering the last nine years:
I, as well as many other bloggers, have been reporting for a long time on this continuing economic decline and the long-term pain it causes. The chart below demonstrates disposable income declining for decades.
On a slightly different note, I went shopping recently and, for the first time in my life, I bought nothing. I spent no money. I’m still trying to get my head around this, but I know it is significant. It signifies the future of our economy. I mentioned the dearth of shoppers to the cashier. Trying to put a brave face on it she said, “Well, it’s still early.” I didn’t say it, but 11:30 A.M. is not exactly early.
And, it’s not like a lack cash. As the British say, “I’m quite comfortable.” The trouble is; I don’t need any more stuff. Better spell ‘trouble’ with capital letters TROUBLE, because most of my cohort of Boomers in North America are reaching age 65 at the rate of 10,000 a day in the U.S. and 1,000 a day in Canada.
Some are retiring earlier. Some are retiring later and thus denying jobs to young people. And, for this we’ll all suffer with the attendant loss (opportunity cost) of future job skills. The strength of an economy is not trade or commerce or manufacturing or resources or gold or fiat currency. The strength of an economy is the productive capacity of its citizens and we are losing a significant portion of ours and that, like the Chinese one-child policy (Part 1), will be felt for a long time. Our western economies are drained by this lack of productivity due to loss of training and job skills.
It’s TROUBLE because many of the younger generations will have neither the job opportunities nor the earnings potential that blessed the Boomers. It’ll be more than a decade before the number of Millennials eventually overtakes the Boomers
It’s TROUBLE because 10,000 more Boomers every day will go shopping like I did, buy nothing and spend no money because they pretty much have everything they need.
And, it’s TROUBLE because this boomer demographic cohort’s won’t peak until 2030.
It’s further TROUBLE because the large population of aging boomers will drain the medical system of money badly needed in our declining economies.
And, it’s not going to get better. This structural ‘unwinding’ of western economies is happening whether we like it or not. Let’s face it; if Canada’s economy is doing as well as the ass media tells us, then interest rates should be a lot closer to a traditional 5% rather than a puny 0.5%. As I’ve said for years. “What do you expect during the decline of western civilization?” I said it as a joke. It’s no longer a joke.
What to do? Buy durable goods, pay down, and then pay off debt (in anticipation of higher interest rates), protect your wealth and get ready for hard times. And, that won’t be easy unless you’re very rich because as usual the rich get richer and the rest get poorer as you can see in the graphs below.
Zero Hedge writes that “Canada’s Ivey Purchasing Managers Index collapsed from an exuberant and simply unbelievable 63.6 in November to a contractionary 49.9 in December – one of the biggest MoM drops on record and biggest misses on record.” The PMI, as an indicator of the economic health of the manufacturing sector, shows Canada’s manufacturing is contracting.
Regarding RBC’s own PMI, Huffington Post reports “January … marked the sixth negative month in a row, the longest stretch since the RBC index began in late 2010.” Bank of Canada’s Business Outlook Survey reports that hiring and investment intentions by Canadian companies have dropped to the lowest level since the Great Recession.
You know things are bad when Toronto-area Goodwill stores seek bankruptcy protection with $6M owed; plans restructuring a non-profit group that operated for more than 80 years closes its 16 stores in Ontario and seeks bankruptcy protection.
This is presently most noticeable in small businesses which are the backbone of most employment. The Business Barometer report of the Canadian Federation of Independent Business (CFIB) shows that confidence of small businesses in Alberta dropped to historically low levels that are more pessimistic than the previously worst level during the Financial Crisis in February 2009 (37.4) as shown in the chart below.
Nor is this confined to Alberta. Both manufacturing and employment in the rest of Canada are affected by the downturn in the oil patch. Business confidence in the rest of Canada is at 2001 recessionary levels and it is also heading toward ’09 Great Recession levels as shown in the chart below.
Canadians, much like the rest of the world, have a love/hate relationship with petroleum production. On the one hand are environmental issues. On the other hand, much as we might like we have not been able to ween ourselves off oil.
However, Canadians ignore the fact that much of Alberta’s energy output is some of the world’s most marginal oil which quickly becomes unprofitable when prices drop. It is land-locked despite out-going Prime Minister Harper’s utter failure to build more pipelines during his ten-year tenure. As well, investment in Canadian petroleum is hostage to decisions made in the U.S., Saudi Arabia, Russia and elsewhere.
Canadians are closing or downsizing more retail stores. There’s a long list of victims including Sears Canada that began closings in 2013 and whose revenue plunged by half, Target after less than three years in Canada, half of Future Shop stores were closed and the rest converted to struggling Best Buy stores, Blacks closed the camera shop chain, Sony closed all of its stores and 107 Smart Set clothing stores were shuttered.
Ah, but, what about the recent surge in Canadian car and truck sales? I remember watching the traffic in Miami Lakes, Florida in late 2008. Despite obvious signs of economic slowdown and a growing forest of residential property ‘For Sale’ and commercial ‘For Lease’ signs, there was a seemingly endless parade of expensive Cadillacs, Vettes, Hummers, Merc’s, Lambo’s, etc. I mentioned this to one of my colleagues. He said, “Oh, they’re all owned by the banks.” Indeed! And, we know what happened next. So many vehicles were repossessed during the Amerikan downturn that dealers’ yards were over-flowing.
Canadians are falling into the same trap. Canada’s Global News reports that “High priced vehicle sales surged 22 per cent in January.” Global News goes on to say, “Yet January’s jump may stoke concerns about Canadian households biting off more debt than they can handle should a weak economy deteriorate further, risking a rise in unemployment and drop in household incomes.
“Last week, credit ratings agency Moody’s cut its rating on Scotiabank on concerns about the bank’s exposure to auto loans, which Scotia – one of Canada’s biggest financial institutions – move aggressively into in recent years.”
In fairness, it’s not all bad news as there are always a few bright spots. Macleans reports that “fully 8,100 people landed manufacturing jobs in 2015, thanks in part to Fiat Chrysler opening a newly retrofitted assembly plant [in Windsor].” As well, [the remaining] “Lumber mills across the country, meanwhile, are running near full capacity, as exports of forestry products jumped 9.4 per cent.”
Macleans also reports that 23,000 new jobs were added in Canada in December. However, “those gains were overwhelmingly in part-time or self-employed positions, and they went almost entirely to those aged 55 and older, bypassing the key 25 to 54 demographic.”
Capital expenditure, or CapEx are funds used to undertake new projects or investments.
The graph above shows private capex dipped during the Great Recession, recovered and is now slipping again. Why? Because we have no real recovery. I also covered this in greater detail in Debt + Demographics = Doom.
Conclusion: with a collapsing economy, a real estate bubble and record high household debt; the Canadian economy is in big trouble and this time China cannot bail out Canada. According to Macleans, “In just a few short years, Canada went from being one of the developed world’s most resilient economies to among the most vulnerable. And, unfortunately for heavily indebted Canadians, there are plenty of storms gathering in faraway places that threaten to push us under.”
Governments and Voter Stupidity
Winston Churchill was alleged to have said that “The best argument against democracy is a five-minute conversation with the average voter.” Alas, Canadians are no exception. They elect conservative governments lacking real plans except resource extraction and exportation, and then the conservatives are thrown out and replaced with brainless leftist governments whose only plans are increased taxes and spending.
Outgoing Prime Minister Harper’s Conservatives saw the writing on the wall and deliberately lost the election rather than be blamed for this inevitable economic downturn. Consequently, Canadians elected a vacuous, naïve and muslim-pandering, elementary school teacher with nice hair who is so economically illiterate (like father, like son) he believes budgets balance themselves.
When Justin Trudeau said it’s not his job to be a “cheerleader” for pipeline projects, he effectively told the oil and gas industry to go screw itself. Joe Oliver writing about our ‘Eco-Justice Warrior’, “At Davos, Prime Minister Trudeau’s comments gave the resource sector short shrift. Apparently the government is considering including climate impact in the scope of National Energy Board regulatory hearings of individual projects. That would render a difficult process nearly impossible. Also, right after the election, the prime minister called for a moratorium on oil tanker traffic on the north coast of British Columbia, leaving the Northern Gateway project dead in the water…”
The picture above is Canada’s new Prime Minister Justin Trudeau I don’t know about you, but I find that Davos slogan disquieting; the “… State of the World” sounds like a veiled reference to the ‘New World Order’ (NWO). Good thing I’m allergic to conspiracies.
Many articles on business and government management stress the importance of the first 100 days. The Harvard Business Review writes, “Unfortunately, however, new Presidents–and all new leaders–have to live in the world they inherit. And it’s a world in which, for better, or worse, what new leaders do in their early days has a disproportionate impact on all that follows.” In which case, Canada is royally screwed. Where are Trudeau’s economic plans? Does anyone know? Are there any?
More important, where’s the leadership? Canada’s new Federal government and all the provinces except Saskatchewan are Liberal or leftish. Private petroleum companies are willing to spend their own money on pipelines, but they’re stymied by Federal and provincial governments hostile to the oil industry. Is anyone in charge to rectify this? Does this bode well for Canada’s future? The lack of political vision and silence from our new Federal government is frightening.
The Financial Post asks “But where is the urgency to resolve market access that Trudeau showed for climate change policy, or for accepting Syrian refugees, or to deliver on promises to aboriginal people?
“Where is the leadership by Canada’s senior statesman in the face of the out-of-control anti-pipeline politics played by premiers like Christy Clark, who keeps demanding her share of rent before allowing bitumen pipelines through British Columbia; or Montreal-area mayors like Denis Coderre, who … rejected the Energy East project…”
Since Canada’s new Boy Blunder was elected more than a 100 days ago, the Canadian dollar plummeted, the Toronto Stock Exchange dropped over 2,000 points, as well as foreign investment disappearing, unemployment steadily climbing, ships no longer allowed on the west coast to transport oil, the ‘no-pipelines’ is the new policy, the new Prime Minister spent 3/4 of his time traveling or vacationing, the Liberals broke almost all their election promises, the ass media fawning rather than questioning, shipbuilding contracts in disarray, there are no positive economic indicators and the Trans-Pacific Partnership (TPP) accepted without question from Stephen Harper’s tenure.
And, that TPP is nasty! The Daily Bell writes that “It’s nothing more than the further formalization of the worst part of the 20th century: The warfare/welfare state.” These trade agreements are desperate attempts by the corporatocracy to cut overhead in order to chase the consumers’ falling purchasing power and all for the low, low price of the abdication of our national sovereignty and the right to self-regulation. As if we needed more so-called experts that don’t know shit and their command economies screwing us up!
In addition to electing Liberals to the Federal government, Canada’s largest province, Ontario also elected Liberals again. Can you think of any reason the Fed Liberals will be any different than Ontario’s expansion of the public service and fostering an anti-business climate that discourages investment and, at the worst possible time; during a downturn?
Then, not to be outdone by sheer stupidity, Alberta recently elected their first ever NDP (socialist) government who promptly shot themselves in both feet by hiking the corporate tax rate, ordering a review of energy royalties, and unveiling a massive climate change plan that will shutter coal mines, power plants and impose a carbon tax all of which signals a continued destabilization of the investment sector. Reuters reported “Since the 2015 provincial election in Alberta, the new government has implemented a number of oil and gas sector policies that may deter investment and hinder the economy.”
This downturn in Alberta will be far worse than previous ones. This time the provincial government is actively sabotaging the largest industry in the province. You know it’s bad when the Alberta Energy Ministers advises Alberta workers move to B.C. until things get better.
Economically suicidal Canadians keep electing leftish governments, so is it any wonder that investors are bailing out of the Canadian dollar as well?
Kevin O’Leary is a Canadian businessman, investor, journalist, writer and financial commentator with a few choice words in the Toronto Sun “Tax and spend is a really dumb idea in a country of no growth … Nobody will invest here while governments talk of multibillion-dollar deficit budgets and continue to slap business-killing regulations on growth potential … The world has figured out in the past nine months that (Alberta NDP Premier) Rachel Notley has no idea what she is doing. Her government is killing that province … It’s scary. It is becoming a Third World banana republic …You want to know why the Canadian dollar is collapsing? It’s because nobody will invest.”
Stay tuned in a couple days for Canada Hits the Wall in 2016 – Part 3: Inflation, Oil Price Plunge & Real Estate Bubble
Remember the mantra:
We cannot borrow our way out of debt.
We cannot spend our way to prosperity.
We cannot pretend our way out of trouble.
February 20, 2016
Click here to read Part 1
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