Juggling Dynamite

Author and Portfolio Manager of Venable Park Investment Counsel Danielle Park explains the main economic indicators she’s seeing that lead her to believe things aren’t as rosy as many mainstream financial commentators would have you believe. For Danielle, it’s a case of basic math and the math in this case is very clear. Here is a direct video link.

Debt payments consume an impossible amount of household income, and the problem is global.

Across ten large Canadian cities, mortgage payments alone are eating up about 59% of household earnings, based on mortgages amortized over 25 years. This is with 70% of Canadian mortgages still paying fixed payments based on rates less than 3%. With current mortgage rates around 6 percent, interest costs will double and more as terms come due.

Twenty-five percent of the mortgage book at Canadian banks is negatively amortizing today (i.e., loan balances increasing monthly) with amortization periods over 25 years. Regulators have instructed banks to bring these loans back to conventional 25-year amortization, stat.

In Toronto and Vancouver, mortgage payments on the median home consume the vast majority of household income, according to economists at National Bank of Canada. See Home prices in Canada are so stretched that even owners want them to fall.

Meanwhile, even with a whopping bear market rally in the S&P 500 from October to August, it has been 616 days (1.7 years) since the index made a new cycle high; this length of price stagnation has only happened seven times in the past seven decades, and only within ongoing bear markets.

Aggregate hours worked have been stagnant for six months and US non-farm payrolls have been revised lower for seven consecutive months–an extended pattern only seen during past recessions.

“We really are starting to see multiplying signs of stress in the consumer sector.” Danielle DiMartino Booth, chief executive officer and chief strategist at QI Research, discusses the US economy, oil prices and her outlook for the labor market. She speaks on Bloomberg Television. Here is a direct video link.

For those who like detail, Francois Trahan of Trahan Research offers a cogent macro assessment in his latest video update (1-hour run time): “Wall Street’s Soft-landing Delusion and What Really Comes Next!”

You can watch it at this direct video link.