Juggling Dynamite

There was a time when a University degree assured you a of good job, good pay and a comfortable life. Not any more. Today, the unemployment rate for young people in this country is close to 15% – double that of the general population. But the real crisis is the increasing number of university and college grads who are underemployed – scraping by on low-paid, part-time jobs that don’t require a degree. Although there are no official statistics in Canada, it’s estimated that after graduating, one in three 25 to 29 year olds with a college or university degree ends up in a low-skilled job. And to make things worse, 60% graduate with an average debt of $27,000. Mired in debt, and working in dead end jobs, their launch into adulthood is being curtailed. Some call them “the lost generation”. But, it’s not only young people who may be lost. If the next generation fails to gain a toehold into the economy, who’ll buy boomer’s houses? Who’ll pay for social programs? Youth unemployment and underemployment is a ticking time bomb with serious consequences for everyone.

See this excellent video report from the CBC.

This chart captures yesterday’s price moves in the S&P 500 leading up to the Fed minutes at 2pm and thereafter.Note the low volume ramp and the high volume dump swings as algos jump to “trade the news”. No doubt some received advance notice of the Fed release…supposed to be illegal, but leaked advance info to select groups has become quite common. Anyway, advance notice or not, over-valued markets that have low conviction ramps and high conviction selling waves are capital incinerators waiting to happen.

Source: Cory Venable, CMT, Venable Park Investment Counsel Inc.

Over the past 3 years, we have warned about mean reversion risk due to extreme over-valuations built into resource, mining and materials companies. After 50-70% declines, price risk is now lower in those sectors. But it remains dangerously high in many of the commodity prices themselves as well as interest-sensitive sectors like REITS, financials, utilities, long and lower quality bonds, all of which have recently been correcting on the realization that unlimited QE is simply not possible. The trouble is that many people and funds today are heavily concentrated in precisely these most vulnerable areas, as zero interest rate policies have herded capital into leaking dinghies on the naive belief they were sea-steady yachts.

Fund Manager Anuraag Shah says that another commodity crash is coming- and mis-allocation of capital due to QE is to blame. Here is a direct video link.