Juggling Dynamite

Now at the end of a debt supercycle, job losses in highly cyclical sectors like retail, finance, transport and real estate are spreading to connected industry and services worldwide. The transition here is likely to be more secular and durable than most imagine.

Heavily indebted and under-saved consumers spend less and will focus on ways to lower operating costs for the next several years. Innovations like electric vehicles (EVs) are the future of transportation because they are cheaper to run, requiring fewer parts and less maintenance than old school internal combustion engines (ICE).

Not just cheaper to run, according to BloombergNEF data, rapidly declining battery costs, suggest electric vehicles will also be cheaper to buy than their ICE counterparts within three years (2022). Two years ago, this was estimated to happen by 2026. As technology accelerates, so do timelines for the transition.

At the same time, though, automation and fewer workers to assemble and service EVs is a headwind for employment. Some 3 million Europeans, 8 million American and a half million Canadian workers, presently work in the ICE industry and related businesses. See more on this in The true price of electric cars. Jobs in areas like EVs and renewable energy production are certainly growing, but they also tend to be more automated and less worker-intensive than the old technologies they replace.

In the first five months of 2019, carmakers cut 38,000 jobs globally. Auto sales in the all-important Chinese market have been slumping for months and this is showing up in lower sales for many related companies in different sectors:

Problems in China’s car market aren’t just a problem for local manufacturers. German chemical giant BASF cited the decline in Chinese auto production as a key reason for a profit warning late Monday.

Massive disruption is needed, but it’s also likely to intensify economic strain in the months ahead as asset markets reprice and economies re-calibrate for the next expansion period.

Danielle was a guest with Kerry Lutz on The Financial Survival Network talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here.

Corruption is threatening to upend many countries around the globe. But perhaps we’ve reached Peak Corruption. There’s a new sheriff in British Columbia Canada who’s threatening to upset the apple cart.
Listen to “Danielle Park – Have We Reached Peak Corruption? #4410” on Spreaker.

Over the past 20 years, government policies have increasingly enabled reckless behaviors, policies and profits for certain sectors and actors at the expense of overall strength and stability.  This has helped to drive lending along with speculation in realty and security markets.  While those collecting transaction fees have prospered, most on the buying end have slipped deeper into debt and financial precariousness.

Since bringing in new taxes aimed at curbing speculation and land banking, realty prices have fallen in municipalities that had the highest levels of foreign buying over the last decade.  The proportion of foreign property buying in the Vancouver region went from roughly 1 in every 8 transactions in 2016 to 1 in 60 by May 2019.  See Vancouver real estate market experiences dramatic drop in foreign buying following tax.

Prices and revenues that went up in the asset inflation period come back down in the mean reversion phase and in Vancouver the slowdown in housing sales has already brought a significant reduction in taxes for government coffers.

Many people are hurt and angered as bubbles deflate and cries for who to blame intensify.  The truth, however, is that few look for culprits as the excesses build.  Indeed, as explained by the panel below, regulators and law enforcement have been systemically under-funded over the past decade in order to keep oversight at bay.

An ex-RCMP financial crime expert, investor that has shorted companies he suspected would fail due to fraud activities, and a Vancouver lawyer that is a member of various organizations related to financial crime, money laundering elaborate further in this clip.   Here is a direct video link.