Monday, January 14, 2013

UPDATE-1: Growth: It ain't going to pay for itself

"Growth ain't going to pay for itself", says the new mantra of Canada. We've already covered Alberta's "realization" about this fact, and now it's Saskatchewan's turn.
The City of Regina is asking residents to pay the highest mill rate increase ? 4.45 per cent ? in the past 10 years.

"Growth doesn't pay for itself. I think that's a misunderstanding for many at the municipal level," said Brent Sjoberg, deputy city manager and CFO, at Friday's unveiling of the proposed 2013 operating, capital and water, sewer and utility budgets at City Hall.
"Growth doesn't pay for itself", so I guess that leaves only one option then doesn't it? We (the population) must pay for growth. However, one has to wonder exactly how: if it is the people who must pay for the growth how exactly is it the people who will benefit from this supposed "growth"? How is prosperity supposed to increase when costs increase twice as fast?

This is of course the grand lie of our current condition, that somehow there is prosperity sitting at the end of our ever increasingly costly rainbow and of course with ever increasing costs come with ever-increasing debt. The cheap availability of debt naturally leads many "economists" to believe that the Canadian situation can continue indefinitely, with the proper interest rate tweak here and some "tightening" there we can avoid any serious economic crash.
The one thing missing from the market, for all those people looking for a crash, is a catalyst or an event that will force people to reduce their asking prices. Before this housing market burns up in flames, it needs some type of spark.

And, if you talk to some people, that key event — two that come to mind are a spike in interest rates or job losses — is not happening any time soon.
Unfortunately the key event that "some people" are looking for is actually a symptom of the real event.

Jobs, Interest Rates, and Housing - Oh My

Whether you're talking about jobs, interest rates, or housing prices in Canada there is only one possible trigger, and that's the U.S.

U.S. growth will buoy Canada, say economists

Of course, this is assuming the U.S. grows at all being that they haven't dealt with their fiscal crisis yet and went head first over the so-called "fiscal cliff".

"We've begun to see a role reversal between the Canadian and the U.S. economies. Part of it is there is a lot of headroom for the U.S. to catch up," said Doug Porter, deputy chief economist at BMO Capital Markets.

Canada's economy has certainly been losing steam in the last few months. The latest GDP data shows that Canada's economy managed just 0.1 per cent growth in October, while growth was flat in September and declined by 0.1 per cent in August.

The economists agreed that while Canada may lag the U.S. in economic growth, it would certainly benefit from a resurgent U.S., especially when it comes to exports.

The United States continues to be the largest destination for Canadian exports, accounting for almost 80 per cent of goods shipped outside of the border.

"For Canada, it's not a bad export environment," said Wright. "So we are seeing export prospects improving and we continue to think they will pick up."

Another topic discussed at the forum Friday was the Canadian housing sector. Craig Wright, chief economist at the Royal Bank of Canada, said Canada's housing market was "cooling" rather than "collapsing."

"I don't think we'll see a repeat of the U.S. housing crisis here," he said.
Ahh yes, the exports; the real reason that despite all of the talk coming out of the Bank of Canada interest rates are yet to rise. They are being kept low primarily due to the CAD "strength" (which actually translates to the USD weakness), and as an off-shoot to the "strong" Canadian dollar which depreciates our exports the low interest rates are also needed to keep our "consumer spending" revenue base up. When you really think about it, all of the "triggers" the economists are looking for will all be triggered by one event: economic crisis in the U.S.

A Cool Collapse

Oh here we go again, "Canada won't see a U.S. style housing collapse" blah blah blah. Yea, we know, keep repeating your mantra, banks - but of course, we've already covered this subject on Canadian Trends:

Canadian Trends: Super Tights
The Canadian Crash

No, we're not going to have a U.S. styled housing crash. Why would we? We're not the U.S. and our revenue streams are fundamentally quite different from the U.S. Canada's crash will, of course, be in the style of 'Canada'.

Understanding Canada's economic predicament makes it easy to understand exactly what a "Canadian style" crash is going to look like. It all begins with how our housing costs got so high in the first place. Our housing prices are still running off the fumes of the pre-2008 "boom". Because a large amount of our revenue came from the U.S. and they were "booming" (or as we now know "frauding"), this caused our own economic outlook to become artificially inflated. With large amounts of revenue coming in from the U.S. the amount of available capital in Canada was significantly higher than normal.

Now however, all of the revenue we were getting from the U.S. is disappearing fast, and it's not because of the so-called "shale-gas" revolution or whatever (
the oilsands aren't profitable anyway). This is happening because the U.S. is a massive indebted empire which is in decline and before you say: "but their job reports are up", I will point you in the direction of the Bernanke and $40B USD (soon to be $85B USD) per month, forever, in easing. Jobs are not really going to help the situation as those jobs simply represent the means for the slaves to pay their debt. This loss in revenue from the U.S. has slowly been countered by Canadians by increasing their debt loads which are primarily being leveraged on housing.

The resulting consumer spending of the debt has up until now contributed largely to our GDP, which itself provides confidence in economic growth providing for "upwards" economic forecasts which increase confidence which then allow the banks to make riskier bets, providing yet more credit to further fuel consumer spending, and so on and so on. How much of our economy is real? Well, that's what we're going to find out when this whole thing unravels.

Our housing collapse is going to continue to happen in slow motion, and I actually figure that GDP will completely collapse before housing does. Our GDP and consumer spending is the actual bubble, housing is a component in this bubble - but the core problem rests in that we have artificially kept pumping up our GDP with debt after the artificial pumping from the U.S. stopped. Having realized this, our "leaders" have completely reversed course on the whole "ethical oil" thing; now it's "compromise-oil". We need to compromise with these countries in which we disagree with their inhumane and tyrannical practices - for the economy, of course. Do you think it is a coincidence that the usual suspects in Canadian propaganda all stopped referring to the ethical oil meme at the same time? I don't, we've got a new brand name now: "open for business or exploitation".
It seems strange that with so little resolved in the U.S. economic crisis that our Canadian "economists" are so sure that U.S. growth will take off when repeated incompetence in dealing with their fiscal situation is displayed. But then again, our economists have all sorts of faith in China and India for the same reasons: the export market.

Hey wait a minute here, but weren't economists in the second half of last year calling for "emerging markets" to buoy Canada? AND WAIT!!!! Weren't economists before the call for emerging market buoys calling for a huge boost of growth directly from the U.S.? Keystone? Remember? What happened here? Is it the so-called "role reversal"? I don't think so.

What role reversal?

There hasn't been a role reversal, what there has been is an increasingly unbalanced volatile relationship between the U.S. and Canadian economies. Think back to the first half of 2012, what significant event was happening there? Oh yes, rising oil and gas prices.

At the beginning of 2012 the oil price was depreciated. As U.S. "growth" (aka quantitative easing) expanded the price of oil and gas rose very fast until gas prices were on every front page of every paper. Then what happened? U.S. growth collapsed, EU growth collapsed, and shortly after oil hit $80 Canadian growth collapsed as well. There isn't a "role reversal", what you're actually seeing play out is an ever growing imbalance between the requirements of our two economies.

The U.S. to "grow" needs a low oil price, and Canada to "grow" needs a high oil price. The high oil price kills U.S. growth, and the killing of U.S. growth kills the rise in oil price. Even now "speculators" are pushing up the oil price on the speculation the U.S. growth will increase in the later half of the year. It won't however due to the need for a low oil price. Get it? So there's no role reversal, what's happening is the scale is slowly weighing back and forth shortly favouring one economy or the other, but not both. Since these two economies are locked in a symbiosis for success they are both doomed to failure.

Canadian Trends: Trend breakdown for 2013

What about China?

What about them?
China pollution results in factory closures, flight cancellations
Even Goldman Says China Is Cooking The Books

If you're waiting for our Chinaman in shining armor to save our export based economy you might be waiting for awhile. China are themselves coming up against monumental limits to growth and naturally civil unrest continues to grow there as well in response.

The Canadian feedback loop of death debt

For those looking for a "U.S. style crash" you will be very disappointed as one isn't coming. Canada's economic issues are not so much internal as they are external. All of our economic forecasts rely on the same data and that data isn't controllable by Canadians. Our forecasts are based on how well others are doing and the fact that so-called "economists" can't figure out if our growth is going to come from emerging markets or the U.S. should tell you that the economists you're looking to for insight probably have less of an idea what's going on than you do.

We're stuck in a feedback loop of debt based revenue due to an export market which can't gain traction long enough to go anywhere. None of our forecasts can make literal sense in this environment as our GDP forecasts and everything else are all based on revenue which is coming from debt, debt which itself is loaned based on GDP and economic prosperity. A real chicken/egg situation.

Update-1

On the heels of this post comes this "announcement" from the federal government today: "Harper touts $400m plan to boost venture capital"
The Venture Capital Action Plan will make available $250 million to establish new funds led by the private sector.

As well, up to $100 million will be made available to recapitalize existing large private-sector funds.

There will also be a $50-million investment in three to five existing high performing Canadian venture capital funds.

Harper made the announcement in Montreal today.

The prime minister says the key to Canada's global competitiveness depends on Canada's venture capital industry having the resources to be sustainable.
"recapitalize existing large private-sector funds"? So.. a bailout then. Yes, clearly the "key" to our being globally competitive is to give "private sector funds" bailouts. But wait, I thought they had the needed "resources"? I thought they were "capitalized"? I thought we were "stable and strong"?

Fascism (the merging of corporate and state) is alive and well here in good ol' Canada.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

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