The SPX is now threatening to break out through its last major resistance level. That would clear the way for a move toward new 4 week and 6 month cycle projections. This report reveals what they are, and what the longer term implications might be.
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The pace of macro liquidity growth has slowed thanks to the Fed leaving the building, but it continues to have a slightly positive slope. Meanwhile other central banks, particularly the BoJ, have picked up the slack.
Prices for modern and contemporary art are soaring — $82 million for a Warhol print, $101 million for a Giacometti sculpture, $142 million for a Francis Bacon triptych. James Stewart assures us, however, that this isn’t a bubble — it’s just money flowing into a new asset class in search of innovative works that are likely to rise in…
Number of U.S. House Districts: 436
Number of House Districts in which U.S.-China trade has created net new jobs since China’s 2001 WTO entry: 1
Janet Yellen and her Federal Reserve board of augurers might as well have spilled a bucket of goat entrails down the steps of the mysterious Eccles Building as they parsed, sliced, and diced the ramifications in altering their prior declaration …
The bad news is that HUI has exhibited a nominal 6 month cycle and the sand is draining from the hour glass.
And so it begins… Collapsing crude prices are starting to make their way through the North American energy sector, as the most unprofitable oil & gas rigs are mothballed. Those flashing red numbers are not just on your screen any more.
|Source: Baker Hughes|
The closures have been particularly acute in Canada, where some 40 oil & gas rigs have been taken out of operation recently. In fact it’s not clear if economists fully appreciate what’s about to transpire with the Canadian economy. This decline in rig count is just the beginning.
Consider for example the situation with the Canadian oil sands – one of the more expensive sources of crude production. Even if prices recover somewhat, oil sands production will be winding down – nobody wants to operate money-losing businesses for a prolonged period. And those who believe crude will be back above $80/bl any time soon is deluding themselves.
Up until now, production from oil sands has fueled growth in other sectors, including for example transportation and housing in Alberta. This is about come to a screeching halt.
|Alberta housing situation (source: Alberta Treasury Board and Finance)|
The national situation is not significantly better. Housing markets across the country have continued to rally, even as homes south of the border had undergone an unprecedented price adjustment. While many point out that the reason for avoiding a US-style housing crash has been a stronger mortgage market, that’s only part of it. The global commodity boom in which Canada successfully participated is the main reason.
|Source: Multiple Listing Service|
Now as the commodity super-cycle has ended and energy prices collapsed, Canadian households are caught with near-record levels of leverage.
|Source: National Post|
Some have been pointing out that Canadian mortgage debt service ratio has continued to improve. However that measure is misleading, as it excludes principal payments. In reality the situation is much worse (see chart, h/t @ac_eco).
There is also the argument that Canada’s economy is “diversified”. Perhaps. But just to put the situation in perspective, take a look at the breakdown of the nation’s trade balances.
|Source: @Earthed , Maclean’s|
While economists will attempt to analyze the impact of energy prices on various sectors separately, when it comes to Canada, a number of economic components are quite difficult to decouple from one another. What’s clear is that this exposure to energy is going to damage the labor markets, squeezing the nation’s overextended households. And the knock-on effect won’t be limited to a severe slowdown in residential construction growth. Consider for example the expenditures on renovations – something that’s been supporting parts of manufacturing and other sectors. This is not going to end well.
The markets are already sensing the contagion effect from energy on the housing market, as Canadian property REITs take a hit. If oil prices remain anywhere near the current levels for a prolonged period – something the Saudis are aiming for (see post) – Canada’s economy is in serious trouble.
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Two Fridays ago, I expressed the hope that the Washington Post‘s big new series on the decline of the American middle class would deal realistically with the impact of decades of trade policy decisions. The reason should be obvious – these decisions have undermined employment and wages in the U.S. manufacturing sector, which both dominates the nation’s trade flows and boasts an unrivaled record of enabling working class Americans to lead middle class lives.
Cycle screening numbers continued their surge on Friday, with the aggregate indicator reaching its highest level since October 2013.