Above railroad traffic that is flat lining.

Along with slippage in truck tonnage being shipped.

A softening in the transportation sector but too soon to make a recession call. 

The Great Wait Continues....

DYI

Canada's Debt Binge Fostering a Real Estate Mania at Greater Proportions than the U.S. This Will Not End Well!

DEBT: CANADA’S BORROWING BINGE

A house-poor couple confronts a looming cash crunch

Vicky and Sandhya Bhardwaj are expecting their first child in August. Once their son arrives, the couple will be living dangerously close to their financial edge. 

Mr. Bhardwaj’s entire paycheque – he earns $73,000 a year – goes toward the mortgage payments on the four-bedroom, five-and-a-half bathroom Mississauga (Toronto suburb) house they bought in 2011 for $747,000. Mrs. Bhardwaj’s salary of $55,000 covers everything else, from utilities, groceries, and gas and insurance on their cars, to the interest on their two lines of credit and credit card.

 

“I’ve made a spreadsheet of our expenses … and right now, we are $1,000 a month short for what we will need to live on, once my wife is on mat leave,” says Mr. Bhardwaj, 39.

Biggest monthly expenses: Mortgage plus utilities and insurance $4,491; transportation $555; groceries and other household costs $760. 

Financial planner Renée Verret’s comment: “Fixed monthly expenses equal 79 per cent of their net pay, which is very high.”

 
DYI Comment:  Have these people lost their minds??  At this high level of fixed costs I have a suggestion.  SELL THE HOUSE!  You are both way over your heads and anyone with a thimble full of common sense knows that bankruptcy is a very real possibility if the Canadian economy experiences a downturn similar to the U.S.

The Biggest kicker is that this couple are not kids the husband is 39 and the wife is 33.  The biggest surprise is the next paragraph below.

The couple, both of whom work in the financial services industry, tried to make up for the looming cash crunch by applying for another line of credit, but their already large debt load disqualified them. “We knew we could not get any more money from the house, other than through our existing line of credit,” he says. Other options – another credit card or borrowing from family – are their last resort.

 DYI Continues: I find this unbelievable that this couple who are both in the financial services industry to allow themselves into this mountain of debt.  Anyone doing business with them would think twice before taking their financial recommendation especially after reading this article.

I hope for the best for this couple who are soon to be parents; unless he has a big increase in his income they will struggle for years or be destroyed financially during the next Canadian economic downturn.

This is happening all too often in Canada with couples or individuals going heavily into debt is estimated around 25% for 25 to 45 year old's.  That is 25% at the insane level as the rest of populous is heavily indebted as well.  Amazingly despite 80% of the Canadian population living within 200 miles of the U.S. border and knowing full well of our debt/housing crash they believe it is different in Canada.  A blind man can see that this house of cards built on unsustainable amounts of debt will crash only the timing is difficult to pin down.

My advice for Canadian home owners the time to sell is now.  Find a greater fool to purchase the house and then rent.  This is especially correct if you have a large gain.  There are signs and symptoms of a market top as more and more young people are simply "priced out" of the market. Below is just one of many articles exposing the younger generations plight.

Vancouver Real Estate Prices Driving Millennials Away: Vancity Report

As it is, a household currently needs to make $123,000 to cover the average mortgage. 

Numbers released Thursday in Vancity credit union's study are alarming. By 2025, a household income of $197,965 will be needed to pay for an average mortgage in the region, it said. That means everyone from lawyers to firefighters to family doctors won't be able to afford a single-family home in Metro Vancouver. 

Faced with such daunting forecasts, a Vancouver woman started a social media campaign, #DontHave1Million, to highlight the options for young professionals who want to stay in the city but are priced out of the market. 

“I felt I could no longer stand idly by, as the city we love sees an exodus of our youngest and brightest,” Eveline Xia told The Huffington Post B.C. last month. 

The gap in affordability can already be seen in Metro Vancouver, where housing costs went up by 63 per cent between 2001 and 2014, while wages rose by 36.2 per cent, said Thursday's report.

DYI

21 States Will Take Away Your Driver's License If You Can't Pay Your College Loans, But Activists Are Fighting Back

The criminalization of low-income Americans’ everyday life has experienced a fair amount of coverage lately in the wake of the Department of Justice's report on Ferguson. That report detailed how steep fees and fines for nonviolent offenses inevitably strapped residents of Ferguson with ridiculous debts. Those debts are then criminalized in a process the report called "illegal and harmful.” If poor people fall behind on their payments, they could even face jail time. Although student debt is not generally interpreted in quite the same way, portions of it have certainly been criminalized. Perhaps nothing showcases this fact more than states’ ability to suspend people’s licenses if they default on their loans. Nearly 30% of US workers now need a license in order to perform their jobs, which means that defaulting on a student loan could effectively mean losing a job.

DYI Comment:  Student loans have only "jacked up" the cost of education so much so it is now racing ahead faster than health care.

The fastest way to drop the cost is to allow bankruptcy on educational loans and for the Federal government to exit loan business'.  The effect on College costs would be immediate as their cash cow would no longer be available.  Prices would drop and drop fast.  If they don't then their student population would drop off just as fast reducing their tuition revenues which in turn will force a decline in tuition.

Instead of addressing the true problem we will now criminalize civil matters by suspending driver licenses for delinquent loans.

Who does this effect the most.  The poor and working class then declining as you move through the lower, middle, upper middle class.  Last of course is wealthy and rich who are not touched at all by these insane social policies.


DYI

What?!? Private prisons suing states for millions if they don’t stay full

The prison-industrial complex is so out of control that private prisons have the sheer audacity to order states to keep beds full or face their wrath with stiff financial penalties, according to reports. Private prisons in some states have language in their contracts that state if they fall below a certain percentage of capacity that the states must pay the private prisons millions of dollars, lest they face a lawsuit for millions more. 

What makes these deals so odious and unscrupulous? Take a look: 

1) The offer included a demand that those prisons remain 90 percent full for the duration of the operating agreement. You know what that means: if there are not enough prisoners then there will be an unspoken push for police to arrest more people and to have the courts send more to prison for petty, frivolous and nonviolent crimes. There will also be a “nudge” for judges to hand down longer or maximum sentences to satisfy this “quota.” 

 

2) Private prison companies have also backed measures such as “three-strike” laws to maintain high prison occupancy. 

3) When the crime rate drops so low that the occupancy requirements can’t be met, taxpayers are left footing the bill for unused facilities. 

The report found that 41 of 62 contracts reviewed contained occupancy requirements, with the highest occupancy rates found in Arizona, Oklahoma and Virginia. 

In Colorado, Democratic Gov. John Hinklooper agreed to close down five state-run prisons and instead send inmates to CCA’s three corrections facilities. That cost taxpayers at least $2 million to maintain the unused facilities. 

It is getting more difficult to rationalize the societal cost of keeping prisons full just to satisfy private investors who treat prisoners as a commodity.

DYI Comment:  This is an on going problem since the beginning of the prison privatization movement.  I'm all for private enterprise and private markets but not when it comes to prisons.  The almighty dollar is too much of an incentive to keep the prison population full.

Louisiana is the world's prison capital

Louisiana is the world's prison capital. The state imprisons more of its people, per head, than any of its U.S. counterparts. First among Americans means first in the world. Louisiana's incarceration rate is nearly five times Iran's, 13 times China's and 20 times Germany's. 

The hidden engine behind the state's well-oiled prison machine is cold, hard cash. A majority of Louisiana inmates are housed in for-profit facilities, which must be supplied with a constant influx of human beings or a $182 million industry will go bankrupt. 

Several homegrown private prison companies command a slice of the market. But in a uniquely Louisiana twist, most prison entrepreneurs are rural sheriffs, who hold tremendous sway in remote parishes like Madison, Avoyelles, East Carroll and Concordia. A good portion of Louisiana law enforcement is financed with dollars legally skimmed off the top of prison operations. 

If the inmate count dips, sheriffs bleed money. Their constituents lose jobs. The prison lobby ensures this does not happen by thwarting nearly every reform that could result in fewer people behind bars.

 Every dollar spent on prisons is a dollar not spent on schools, hospitals and highways. Other states are strategically reducing their prison populations -- using tactics known in policy circles as "smart on crime." Compared with the national average, Louisiana has a much lower percentage of people incarcerated for violent offenses and a much higher percentage behind bars for drug offenses -- perhaps a signal that some nonviolent criminals could be dealt with differently.

DYI 

Too Soon for a Recession Call....It Appears that Retail Customers are Running Out of Gas!

So far all that is happening is for different economic indicators to make one arch your eyebrows and place your hand on your chin and say "Hummmm."  Clearly the economy is dancing on the head of a pin between anemic growth and recession.  All we can do is continue to watch.

DYI

Generational Dynamics

It's been only three weeks since I reported that the S&P 500 Price/Earnings ratio (stock valuation index) was at an astronomically high 20.98, indicating a huge stock market bubble. It was at 18 a year ago, and in the last three weeks it's shot up to 21.47, the Wall Street Journal on Friday, May 15.

 

At the same time, numerous economic indicators -- manufacturing activity, consumer confidence, retail sales, industrial production and GDP -- are all much softer tham mainstream economists were predicting. When those indicators are combined with poor economic performance in Europe, Japan and China, and a worldwide deflationary trend, there is plenty of evidence of a likely global economic slowdown. 

People frequently ask me whether Generational Dynamics can predict when the stock market bubble is going to burst, and a panic will occur. That cannot be predicted and, if it could, I would be rich. In fact, economists still don't even know for sure what triggered the panic and stock market crash of 1929, or why it didn't happen earlier or later. 

During the 2004-2007 time frame, it was obvious that there was a real estate bubble, and I begged a number of people not to buy homes, generally to no avail. Now I beg people to stay out of the stock market, with equal lack of success. It's heartbreaking to me to see this happen. 

The P/E index is well over 21 and is surging, indicating a rapidly growing stock market bubble. The historical average is 14, and as recently as 1982 it was around 6. It is an absolute guarantee that it will fall to around 5-6 again, pushing the Dow Jones Industrial Average to below 3000, far below the current index value of over 18,000. 

Anything might trigger a stock market panic. It might be something as simple as a speech, or it might be an exogenous event, such as a major international crisis. With almost the entire Mideast in flames, with Russia invading and annexing pieces of Ukraine, with China invading and annexing pieces of the South China Sea, something major could occur at any time. 

So, as I have in the past, I strongly urge readers to keep their assets in cash. In the deflationary environment of today, that's the best bet.

 The "New Era" is an Old Story 

John P. Hussman, Ph.D.

Put simply, there’s no evidence to suggest that historically reliable valuation measures have somehow become irrelevant. The most reliable measures we identify in market cycles across history are consistent with the expectation of near zero total returns in the S&P 500 Index over the coming decade, and the likelihood that the market will fall by half over the completion of the current cycle.

DYI Comments:  Professor Hussman you are being way too polite.  Here at DYI I'm anticipating a 45% to 60% decline over a one to two year time period.  My bet is that the markets will anticipate the ending of the 1st world Boomer's savings glut and begin their liquidation phase for retirement.  Of course, sell to whom?  With a much smaller and poorer generations Xer's and Millennial's prices will fall to attract buyers.

When it comes to stocks remember we are in a secular bear market that began in the year 2000 and has yet to complete it's journey to undervaluation.


My guess is that it will take two cyclical declines (and possibly three) from here to get to undervaluation.

The Great Wait Continues...

DYI