Good afternoon,
Take that ! Pictured to the left, a recent Chinese graduate lies in public protest - participating in a
movement referred to as Tang Ping (lying flat) You must really admire the creativity of people
living under a ham-fisted regime with iron-fisted inclinations. To join the Tang Ping movement (so
to speak - see what I did there?) in the Middle Kingdom, one simply posts a photo of oneself
laying down in mock capitulation. It's a meme especially pointed at the high expectations for 20-
somethings, who now face an unemployment rate of 20-something percent.
Chinese Stimulus Response: In an effort to spruce up lackluster post-covid economics, China recently relaxed its rules on real estate speculation. But as the Wall Street Journal reported this week: “With state firms now firmly in control of the market, rising demographic headwinds, and a high probability of some permanent damage to buyers’ confidence, no one should expect a return to the good old days anytime soon.”
BC has a real estate speculation tax too. Of course they do, and Victoria just got through expanding its reach. On May 26, Finance Minister, Katrine Conroy said: “People in our province expect housing to be used as homes, not investments for speculators.”
Oh, those nasty real estate speculators…
But wait…
I live in a so-called “spec home,” built just before a real estate slump two or three decades (and two or three Canada US lumber tariff wars) ago. The home builder’s speculative risk-taking was to our good fortune - we got a great deal on the house we raised our children in because he was willing to brave the uncertainty and put up a new house with no secured buyer lying in wait. Good thing for us, when he was mulling over whether or not to build one more house before he retired, he didn’t face a special tax disincentivizing his work.
In this weeks Global Insights:
A two headed bird investors puzzle over the dove-hawk presentation from the US Fed, which at once took a break from rate hikes while mulling over still two-ish more hikes this cycle. We try to divine Fed’s thinking and what it means for the investment environment.
U.S stocks post fresh gains, but several indicators argue for caution:
The S&P 500 reached a 14-month hight, triggering bull market, but we think it's increasingly difficult to justify elevated expectations going forward - and to be clear, this is a lop-sided, tech-heavy burst of value.
Full Story here: Global Insight Weekly
A long read for keeners – Link here: RBC GAM Economics:
RBC Podcast link for slackers - Listen here: (17 minutes) A light but professional look at markets this week.
And Finally -- a Few Friday Charts:
Zombie Killing: Lower-quality debt defaults on the rise (see chart below): Defaults in the US high yield loan market are climbing sharply. Between January 1 and May 31, default values totaled $21bn, which was greater than all of 2021 and 2022 combined. The low-rated (Zombie) companies with large debt piles bear the brunt of the US central bank’s tighter monetary policy.
US Rents are Down – An important component of inflation. (see chart below from Redfin): “The median U.S. asking rent fell 0.6% year over year to $1,995 in May—the largest annual decline since March 2020. That compares with a near-record 16.5% increase one year earlier. May’s drop also represented the first annual decline since March 2020 on a revised basis. The median asking rent rose 1.4% from a month earlier in May.” The sharp deceleration in real-time rent series suggests the substantial shelter component of U.S. core inflation measures should trend lower over the coming quarters.
Are we there yet? Not quite: (see chart below from RBC Economics): “Food prices won’t rise as rapidly as they did over the last year. But ongoing challenges like extreme weather events and labour shortages suggest a decline from currently elevated levels is unlikely. On the surface, it appears each Canadian is spending a record amount on food consumption. But after subtracting out inflation, the ‘real’ value of per capita consumption has been trending lower since early 2021—meaning Canadians have been paying more for less food. Deteriorating purchasing power should continue to dampen demand before ultimately putting a drag on inflation more broadly, but also on the pace of food price increases.”
Enjoy your weekend!
Mark