Weekend Open Thread

• Short term rates in the US are negative again. There's certainly the fear of inflation that is about to be unleashed imminently, but for now, TBTB know that there's nothing to be afraid of by getting fully into short term UST.
• Here's an interesting perspective on the reflation trade- what if the commodity boom fueled since early spring is not based on solid sustainable demand? The answers won't be pretty for many, but particularly ugly for Canada and Australia.
• If CMHC keeps on expanding its balance sheet, will the bubble ever burst in Canadian real estate? Remember, the music went on in the US until mortgage reset based defaults started to hit the collateral quality in a direct way. Assuming the interest rates stay low for at least the short to medium term, what will cause the bubble to be popped in face of all the free money that is being thrown?
• Debt is the real enemy. It takes quite a lot of debt to produce any income stream. Be it professional education (medicine, dentistry, law school), small businesses (think of franchises and mom/pop shops) or a vanilla real estate(strip malls, apartment buildings, commercial condos). A friend of mine who was laid off from an oil and gas company late last year has been unsuccessful at finding any work in his engineering profession. He's looking at buying a small fast food type of business. For a small food business(think Subway Sandwich restaurant) that produces barely $100k of free cash per year, the prices are close to $500k. Why? Because there is plenty of debt available. Think of Canadian government's pledge to help small businesses via number of its programs and the BDC. These loans all inflate the prices of underlying assets, just as CMHC based loans make real estate more expensive. Same with student loans. Cost of education keeps on climbing because the government wants to make education affordable. In the process, they are making education more expensive by throwing more debt at everyone. 'Affordable' in the government parlance means- we'll lend you money so that you can afford something done by being debt slaves for the rest of your lives. Not unlike the targets of CMHC. In the US, this has reached a breaking point now with the recent riots in the Universities of California system. The government's solution is simple- keep on increasing prices for homes, education, small businesses and keep on providing more debt. All the government entities do the same task. Instead of making things 'affordable', they make all these things accessible to joe public. At enormous price. And in a nation full of financial illiterates and 'per month payment' champions, accessibility means affordability.

Have a good weekend everyone.

Weekend Open Thread

• Officially double digit unemployment in the USA. Too bad, the unofficial or the other official metrics of unemployment are much higher.
• Canada is not doing so badly at a mere 8.6%. But what's this, someone is actually questioning the discrepancy between what StatsCan reports based on household surveys and the official payroll reports. There's a huge gap between the two. The unemployment numbers based on household survey are very volatile for Canada showing huge gains and losses in a short period. Potentially, the higher the layoffs in a month, the more the vigor with which the ex-employees will claim that they are self employed. I'd say that the payroll report is more objective, unless we want to believe that employers are firing employees and then hiring them again pretty soon as consultants.
• But I guess none of this should really make any difference to the overall economy. After all, an economy built on speculation in stocks and commodities and selling homes to each other does not require such puritan thoughts as solid employment, savings, fiscal and monetary restraint. I guess everyone will now have more time to attend open houses, visit show homes and become day traders . {Sarcasm}
• Have a good weekend everyone.