Thursday, April 18, 2019

Speaking of Social Unrest: "...the predictive power of cross-border capital inflows ahead of a crisis"

From FT Alphaville:

Connecting commodities to house price booms
In an era of house price booms, Canada, Australia, Norway and Sweden have led the pack. Probably non-coincidentally, they all also have triple-A ratings.
Of course, that era is now under pressure. Here’s Fitch, from earlier in the week, on the current weakness in prices:
In Australia, Canada, Norway and Sweden, high household debt amid slowing housing markets represent a growing risk to banks in those countries, which are among the world's most exposed to residential mortgage lending
What else do they have in common? Fitch again:
All countries, bar Sweden, are major commodity exporters. Canada is clearly most exposed to trade frictions with the US. Australia is most exposed to a slow down in — or shifting composition of — Chinese growth given the latter’s dependence on China as its primary export market.
There’s a neat symmetry between the Canada-US, and the Australia-China, relationship. Well over half of Australia’s current account receipts come from commodities, according to Fitch. In Norway, the figure is over 40 per cent, while in Canada it is around a third. (We'll be forgetting about Sweden for the rest of this post).

We don't want to overstate the commodities angle. The current account has an uncertain relationship to the ability of households to service mortgage debt. Each of the three countries is diversified far beyond commodities. When oil prices slumped in 2015 and 2016, house prices in Norway continued to rise. And of course, Western regions without heavy commodity dependence have also experienced booms.

But in light of the strength of the resource collateral, international lending to each market is also intriguing. Fitch cites a study from the Bank of International Settlements, which identified the predictive power of cross-border capital inflows ahead of a crisis. They then point out that, between 2015 and 2017, the financial systems of Norway, Canada and Australia received cross-border flows in excess of 20 per cent of nominal GDP....

There are a lot of moving parts here, the comments on the post are interesting as well.

One of the lessons from the bifurcation of California's economy is how many people are being priced out of the housing market and how powerless the homeless are/become. It's perfect for politicians.

The psychological effects of homelessness constrict the worldview of people without their own abode to the point politicians don't even face pressure from that constituency. I mean by and large the homeless don't vote, they surely don't make political donations and they don't organize.

They poop in the streets and kill themselves either quickly or slowly with alcohol and other drugs.
And that's what gets the attention of the pols.