Juggling Dynamite

A recent survey finds that 37% of 2018 insolvencies in Ontario involved millennials (born 1981 to 1996), up from 35% in 2017.  Trustees in bankruptcy note that predatory Payday Loans and student debt are the biggest financial scourge impeding millennials today.  As borrowers pass the 7-year limitation for student debt forgiveness, insolvency filings naturally rise.  In the end, this means that taxpayers foot the bill for unaffordable post-secondary education costs which have been enabled and inflated by easy lending over the last decade.  This system is doing no one favours, least of all our economic resilience.

This is not about young people being lazy or unmotivated.  Eighty-eight percent of millennials filing for insolvency in 2018 were working but earning 3.9% less than the average Canadian debtor and over 10% less than Gen X (born 1965 to 1980) debtors. Less than 3% of millennial debtors owned a home at the time of filing.

These trends are all connected:  Easy lending and asset inflation policies drove a housing mania which has locked out younger workers from home-buying prospects in most markets, and this is especially true of those who are carrying student debt.  Without owning a home, they are then also unable to refinance unsecured loans in a lower rate mortgage.  See Young Canadians are fastest-growing insolvency group:

“Even those Millennials who have entered the housing market likely bought at higher prices, which has also limited their ability to refinance,” adds Hoyes. “When they file insolvency, the average equity in their home in 2018 was only 7%. Really, they have no room to maneuver.”

Also, see Millennials so buried in debt they can’t buy into the American Dream of buying a home:

About $1.46 trillion in student loan debt has many millennials, as well as others, hiding their wallets and putting big ticket commitments on the back burner.

Plain and simple, many young consumers just aren’t ready to consume. And many sure don’t want to shop until they drop like their parents.

“This is really a pervasive trend and it will not be reversed any time soon,” said Richard Curtin, director of the University of Michigan Survey of Consumers.

Older folks are wise to appreciate that no nation advances well by sacrificing its young.  While many developing countries have started out exploiting children for cheap labour, eventually they come to understand that investing in the health and education of our young is critical to longer-term prosperity and progress, and essential if we are to afford the care and cost of aging populations.

After two decades of policies focused on monetary ease and price inflation, today’s asset owners hold the bulk of the paper net worth.  At the same time, the corollary of high prices is low yields, and so most owners are asset flush and income-poor heading into retirement.  To raise cash, they need buyers for their assets, to have buyers we need financially-able younger people.  This will require lower debt-levels and lower asset prices.  We have to give to get; it’s that simple.

In 2015 it was revealed that Volkswagen (along with many other manufacturers) had been cheating emissions standards in its diesel vehicles.  To date, the fraud has cost the company over 27 billion euros in penalties and fines, as well as the arrest of a couple of top executives.  The cost to our air quality, health and the environment are still compounding of course, with damage suits likely to continue for a very long time.

To reform their public image and reboot sales, VW announced in December that it would discontinue production of all internal combustion engines by 2026 and focus solely on electric vehicles (EVs).  This month, they took another leadership step in disclosing  that they will leave a major auto lobby group if it does not stop promoting policies to slow the adoption of EV’s.  Evidently, VW is no longer willing to support duplicitous agendas on emissions and is publicly calling out other companies to do the same.

The story gives the public a glimpse of the hypocrisy inherent as big autos tout fuel efficiency and conscientious designs while lying about emissions and lobbying against the transition to less polluting technology.  See VW threatens to exit important auto lobbying group over EV policies:

Automakers have promoted policies to slow down the adoption of electric vehicles through lobbying groups for years.

Most recently, automakers associations have pushed against efforts to increase average fuel economy, which would have forced EVs to be built in higher volume.

Interestingly, several automakers were claiming to be ‘all-in on electric cars’ while indirectly supporting those lobbying efforts…

When GM was announcing their plan to go “all-in on electric vehicles”, a lobbying group they supported was pressuring the EPA and the Trump administration to walk back Obama-era fuel consumption requirements that would have forced them to make more EVs.

The best antidote to corruption and unethical practices is transparency and public ire. Every time one of these scandals hits the light of day, the more likely progress happens.

Semiconductors are a critical component of everything that is computerized in modern human life.  ECRI’s Achuthan explains that the 20% ‘collapse’ in semi demand to a 10-year low in growth, belies the 21% rebound in the semiconductor stock index year-to-date.

ECRI’s Lakshman Achuthan builds his bearish case on a chart of falling semiconductor shipment demand. Here is a direct video link.

Semiconductor rally shows signs of collapsing, market forecaster Lakshman Achuthan warns from CNBC.

The collpse in semi-demand over the last year is also a warning sign for US GDP.  This chart since 2000 shows the three month moving average of semiconductor sales (dark blue) leading US GDP growth (light blue) by about six months.