Juggling Dynamite

The Norman Lear Center’s Marty Kaplan says taking news out of the journalism box and placing it in the entertainment box is hurting democracy. Here is a direct link. “Truth watch is almost invisible now”.

Australia has domestic challenges like Canada with an obscenely valued housing market, over-indebted consumers and a strong dollar pushing down on weakening exports. For these reasons slowing global growth presents serious downside risks for the Australian economy. Fortunately, they had more normal policy rates up until now (the overnight rate had been 4.25%) so unlike Canada and the US, the Aussie RBA has some stimulus tools left in the kit to try and moderate liquidity.

Michael McCarthy, Chief Market Strategist, CMC Markets and Matthew Circosta, Economist, Moody’s Analytics discuss the RBA’s surprise move to cut interest rates by 50 basis points.

The past several years, as western jobs have migrated overseas and vanished due to technological advancements, more people have continued in school– some for further training and some for lack of direction or ideas about what else to do with their time. Higher-learning institutions enjoyed a huge boom in business as college degrees became as expected as home ownership and apple pie.

While more education sounds like a good idea, there are some definite downsides to recent trends. First, as the credit bubble billowed the same reckless lending packaged through banks backed by government entities, spread through the student loan market. Money was cheap and plentiful. It was easy to get and easy to spend. This meant that students were aided and abetted in self-destruction on credit right out of the gate. It also meant that many parents and grandparents borrowed more than made sense to help fund their kids. They borrowed lots against escalating home prices.

Frequently it meant students could lack fiscal discipline and spend more than they should. Sometimes it meant even those who had no real career path or end goal took vague or questionable courses of study–because they could. Many did not live as frugally as they otherwise would have, without credit. Where they might have lived at home or dorms and used public transit, with easy student loans they were able to rent apartments, drive cars and buy iPhones. This was great for lenders, car companies, for-profit-education providers, even Apple. But coming full-circle, the general economy is now paying the price for these trends as they managed to bring future consumption forward and leave younger and older generations drowning in debt payments.

And of course, while the banks are given the gift of virtually zero borrowing rates from central bankers, student customers are paying back their loans at much higher market rates. Nice spread for the banks. Killer for the kids though. Also killer for the housing market and boomers looking for younger people to buy their over-sized homes from them. The debt overhang will naturally subdue spending and prevent younger buyers from entering the housing market over the next few years. Turns out the education dream is a bit of nightmare when it is fueled by very little critical thought or wisdom and lots of “advisors” on the take.

This Bloomberg clip discusses some of the latest numbers.Here is a direct link.

“Canada’s banking system is often lauded for being one of the world’s safest. But an analysis by CCPA senior economist David Macdonald found that Canada’s major lenders were in a far worse position during the downturn than has ever been previously believed.

Macdonald pored over data provided by the Canada Mortgage and Housing Corporation, the Office of the Superintendent of Financial Institutions and the big banks themselves for his report published Monday.

It says support for Canadian banks from various agencies reached $114 billion at its peak. That works out to $3,400 for every man, woman and child in Canada, and also to seven per cent of Canada’s gross domestic product in 2009.

The figure is also 10 times the size of the amount Canadian taxpayers spent on the auto industry in 2009.

“At some point during the crisis, three of Canada’s banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company,” Macdonald said. “Without government supports to fall back on, Canadian banks would have been in serious trouble.”

MacDonlad explains his findings in this clip. Here is a direct link.

Robert Shiller, Yale University professor of economics and co-founder of the Case-Shiller index, told CNBC, “Home prices are very different from stock prices, they show a lot of momentum and once things start down they can go down for five years or ten years so I think it is a dismal time for the Spanish housing market.” Here is today’s money quote from Bob: “You know people are not as smart as they seem.” “Here is the direct link.

As we listen to this discussion, we should keep in mind that Canada’s housing market has continued to climb the past few years as most of the world has suffered through the down side of their housing bust.

Canada’s economy came through the 2001-02 global recession better than most because the commodities boom was just getting started with a jump-start from Greenspan’s rate suppression following the tech wreck. This came at a time when the commodities sector had been out of favor and under-invested for 2 decades. Canada benefited from the new commodities demand boom. The inflating global realty bubble continued to fuel the Canadian economy as a major commodity exporter. And this brought a fresh frenzy of over-investment and speculation in the commodities sector. Then came the crash of 2008.

This time Canada came through better than others because the Canadian consumer was enticed by loose credit and government (CMHC) policies prompting them to literally eat themselves on increasing credit and even more over-investment and speculation into richly valued realty markets. More loose money from global central bankers spurred a resumption in commodities demand and speculation. Commodity-centric Alberta and Saskatchewan were the lone bright spots of Canada’s export recovery the past 3 years. And now the world is entering its next cyclical downturn.

Today we learn Canada’s GDP contracted by 0.2 percent in February, reversing the growth seen in the previous two months. The Canadian economy had grown by 0.1 percent in January and 0.5 percent in December after shrinking by 0.1 percent in November. Economists surveyed by Bloomberg News had expected Canada’s Gross Domestic Product (GDP) to expand by 2.1%. The month-on-month print also fell short of expectations, with the consensus forecast of economists calling for growth of 0.2 percent.

According to a report released by Statistics Canada, the slowdown in economic growth was led by decreases in mining and oil and gas extraction, manufacturing and utilities, which outpaced advances in construction and wholesale trade. See:  Loonie tumbles as Canadian economy shrinks in February

Today Canadian consumers are the weakest they have been in decades with little savings, tons of debt and nearly all of their retirement chips on hopes for continued gains in housing prices. With the domestic cupboards now bare, one has to be concerned that Canada has a greater chance of following other countries into recession this downturn.

For stock investors it should also be noted that even though Canada did not officially recess in 2001 and came out faster than other economies in 2009, the Canadian stock market still lost more than 50% of its value in both of these downturns. Mining and commodity shares lost far more.   We have to ask ourselves:  what should Canada be prepared for this time?

Good summary of recent trends (thanks Thomas). Here is the direct link.

Danielle will be a guest today on Money Talks with Michael Campbell at 12:00 ET on the Corus Radio Network.  An audio archive is available here after the show starting at 9am PT and advancing the grey play bar to 10:22  .

Danielle recorded this April market outlook and commentary for the Kelowna Money Expo last week.  Here is the direct video link.

Good piece (thanks Attila) on the negative results ‘enjoyed’ by investors over the past 12 years since this secular bear began.  To wit:

“I heard a Wall Street executive this morning expressing puzzlement as to why investors have been pulling money out of stock mutual funds for several years and continue to do so “missing out on this tremendous rally when they should have been getting back in.”

Well, pal, that’s just the problem. How can they be getting back in if you never told them when to get out? They’ve stayed in until they can’t stand the pain anymore.

This has been a tremendous rally, and tremendous bull market since the low in 2009 only for market-timers.

But the vast majority of investors have their money in their IRA’s and 401K’s and independently in managed mutual funds, and pay only casual and glancing attention to the market.

They have trusted long-time Wall Street’s advice that the market can’t be timed, and they need to simply buy what they are sold and hold through whatever comes along “because the market always comes back.”

For them, it has not been a tremendous time. Even if their ‘diversified’ portfolios matched the benchmark S&P 500 index, especially after fees, they have been losing money for 12 years, not even adjusting for the additional loss from 12 years of inflation…”

Read the whole piece here.

Danielle was a guest today with Phil Mackesy on Talk Digital Network talking about this week’s developments in global markets and the economy. Here is a link to the audio clip.

Here is the direct link to Part 2. This is a very dramatic story, but I don’t buy the idea that the government had no choice but to save the banksters.  We, the people, need to cut them free of the public purse.  The whole economy will breathe a sigh of relief once we get out from under their greed and tyranny.

Watch Money, Power and Wall Street: Part Two on PBS. See more from FRONTLINE.

This is the first of a four part series worth watching. Here is the direct link.

Watch Money, Power and Wall Street: Part One on PBS. See more from FRONTLINE.

Jim Rogers says the country’s hefty debt load will make the coming recession worse than the 2008 downturn. The Fed is only making the situation worse. Here is a direct link.

The Dutch government falls, France is in flux, Spain, Italy, Portugal, Greece, Japan and the UK fall back into recession. Fallout from austerity measures are prompting new concerns about the weight on eurozone economies.

Good discussion with Desmond Lachman, resident fellow, American Enterprise Institute, Simon Johnson, professor of entrepreneurship at MIT’s Sloan School of Management, a senior fellow of the Peterson Institute for International Economics and author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You” and David Smick global macroeconomic advisor, founder and editor of The International Economy magazine and author of “The World Is Curved: Hidden Dangers to the Global Economy”.   Here is the audio link.

I did my bi-weekly spot with Kerry Lutz out of Greenwich this afternoon. You can listen to the audio here.