Tuesday, April 28, 2009

Entitlement and Delusions

The welfare queens and kings of Wall Street have already decided to start partying like it were 2007, never mind the trillions of dollars that have been forced upon taxpayers to keep these toxic dumps afloat. But, the underlying chutzpah at these places is enormous, along with the natural sense of entitlement that accompanies it. So what if we screwed up, so what if our products were garbage, so what if our products add negative value; we are entitled to the compensation, because we need to have the 'best and the brightest.' If this is the cesspool you get by hiring the best and the brightest, I wonder what would mere mediocres have done?

The OPEC ministers sing the same tune saying that a fairly high price of $50 is not good enough and is 'undermining economy.'
The wizards of the government economy in Alberta are not too different either as they are borrowing in the hope that the recession will go away if they wait for long enough. It's the same sense of entitlement- higher commodity prices- irrespective of the the macro economic situation. Well, here's a question. If $50 oil and $3.5 natural gas ain't going to cut it in Alberta, what happens if the prices again halve from here on? Can someone say the definite collapse in the mid east asset markets and Klein style cuts in not too distant future. Natural gas btw, is now down to around $3.2 and likely to fall further. We have been tracking natural gas since January and its slow but steady decline from $5 or more to the present levels. What this is doing to the drilling levels in the province and corporate profits will be discussed in another post.

At a more local level, thousands of 'landlords' are wishing that the recession goes away. They can't/won't/don't reduce the prices that reflect the current market conditions and hope that the prices will bounce back to a level higher than the current values. Again, it's a strong hope and delusion, built on the underlying entitlement of 'higher prices' for 'my real estate holding'.
The economy has changed since 2007. Many companies are talking about a permanent and new 'baseline' for sales, production and consequent growth.
The economy of last few years was a mirage. It ain't coming back, neither are the prices of assets that were used to foment this mirage.
A lot of people, currently on EI and the governments willing to take on more debt will recognize that despite the loads of apparent green shoots that appeared in last few weeks, nothing fundamentally has changed. The economy still stinks, no matter how much perfume is applied to it to make the stench go away. It simply can't be fixed by a culture of entitlement, and believing in the ideas of unfounded hope.
Debt deflation is here and it can't be wished away.

Monday, April 20, 2009

Season of Hope, again

The warm weather of last few weeks along with the ferocious rallies in equities markets worldwide has germinated what had almost disappeared by the middle of March. Optimism is back, and not lest due to the President who got elected on the message of hope. Optimism and hope are very powerful emotions, especially when there isn't much else available. And they were on vivid display and action during the last month and a half. The calls of 'the bottom' have been getting more vociferous, even if more cantankerous for us. 
So what if the world buccaneered in an orgy of debt for 25 years, the  magic potion of more debt by the Fed and the treasury cured all the problems in less than 18 months. The credit bubble will unwind in just as short a time and everything will begin their ascent to the end of the universe again. Oil will rise again, and so will other commodity prices. Alberta will blossom again, and this time Fort Mcmurray trailers will sell for $1 million. 
And how can we forget the major upswing in home sales across Canada? After all, sales in March have been higher than in Feb and those in April will probably be higher than in March. Notwithstanding the fact that this is as much of certainty as the average temperature going up in these months as compared to previous ones. But since this is the season of hope, no one is supposed to question such basics. 
But hope, like greed is a very powerful emotion. It clouds judgement. It diminishes the capabilities of mind to contemplate simple 'what if' scenarios. Not the ones that reinforce your perspective using selective data from the last few years.  Scenarios such as- what would happen to Alberta if oil goes back again to sub $30 level for a long time. Or if natural gas goes below  $3. Yeah, but we were told that oil  will never go below $80. 
I was looking at the new MLS site the  other day. For some reason, I did not hate it as much as I hated it the first time I used it. I almost liked it a little bit. If we forget the average and median prices for a moment, I think we are back to the levels last seen in April  2006 for many of the property types I used to track. A starter shoe box in Edmonton North is down to around $275k, and unlike in April 2006, there won't be multiple bids raising the price but some aggressive buyers who will ask for 5 to 10 % discount. It's the same story in Calgary. In Calgary, the homes that were selling for(at least  listed for $430k) are now going for around $340k, plus the  possible discount
These are not pretty numbers and have got to hurt those who have bought in  the last three years.  For most of these people, they haven't paid more than 5% of their mortgage and  are clearly in the red after accounting for the closing costs etc.
But these are all inconvenient facts. Facts that have the potential to dash hope and cause despair. And anger, frustration and grief. And that is to be avoided at all costs, no matter what the reality. So, the alternate reality world in which only good news happens, and is reported must be created and cherished. 
Credit bubble unwind, global deflation, falling employment, falling commodity prices, falling aggregate demand, falling real estate prices, exorbitant prices for shoe boxes, tapped out consumers, massive over capacity, end of 40 year mortgages, heavy over consumption and subsequent lower corporate profits are mere distractions. The world has changed with hope. We can wish the recession away if have strong will power. If we want to it strongly enough. Like the Russian comrades who could wish the fall of the Soviet Union just by believing in the alternate reality.  
But we know how that ended.  

Thursday, April 9, 2009

Employment numbers tell the real story

...and it's being told in a not so straight forward manner. I find it interesting that the custodians of all the stats of our country have to resort to dubious math such as following:

20 full time jobs lost + 5 part time jobs gained = net loss of 15 jobs.

May be it has always been their way of reporting, but it does not paint the real picture. Part time jobs can't pay for mortgage in PEI, let alone in Calgary.

But of course, this is an attempt to make the headline number all the better and lure the masses into complacency.

Given the above equation, it's very interesting that the first line of the stats can report is this:

"Employment declined by 61,000 in March, all in full-time work."

whereas it should really be: Full time employment declined by 79,000 while part time employment increased by 28000.

Now where in the Statscan report do they mention the 79,000 figure because it represents the real picture. This is not unlike the local real estate boards registering the seasonal uptick in sales volume as new evidence of a booming or balanced market.

Closer home to Alberta, we registered another 20,000 loss in real, full time jobs, about 5000 more than that reported by Stats Can in their commentary. Once again, they add the part time jobs gain to the full time loss and arrive at a reduced figure. Our unemployment is up to 5.8%.

Going forward, expect at least 10 to 12 per cent unemployment nation wide. The repercussions for the real estate industry won't be pretty, as we have said many times in the past.

Have a good long weekened everyone!
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