Post 251

A snapshot of what’s going on in the world’s economy.  Financial Ructions and book reviews can be a bit more technical so feel free to skip them.  See disclaimer at the end of this note.

Hi everyone,

  • A couple of things.
    • First, my book is pretty much finished and we have started reaching out to publishers and agents.  If any of you have any contacts and could pass them on it would be greatly appreciated.
    • Second, back in March I was fortunate to have done an interview with Anthony Scilipoti, founder of Veritas Investment Research.
      • You can watch the interview “here“.


  • McDonald’s delivers good news.
    • But it’s really bad news.
  • General Mills points to a positive trend, but sales are falling.
  • Uber is still growing like gangbusters.
    • But their freight division is falling due to the weak environment.
  • Americans are consuming less Greek yogurt.
  • A Canadian retailer continues to see sales decline.
    • Particularly for discretionary items.
  • To purchase the average priced home in Toronto you need to earn over $250,000 a year.
    • The monthly mortgage payment on that average house is over $7,000.
      • Guess who’s to blame for Canada’s housing crisis.
  • The Canadian economy created good job growth last month.
    • But the Canadian government increased the labour force three times faster.
    • And over the last year the number of government employees grew faster than those in the private sector.
    • In one year, the number of unemployed people increased by almost a quarter.
  • The financial system in Canada “remains resilient.”
    • But mortgage payments are ballooning higher as mortgages renew.
    • Office property prices are down over 50% since COVID.
  • In Financial Ructions:
    • The Canadian government has come up with an ingenious plan to help deal with our country’s declining productivity.
    • A former Fed member says that the Fed “fell short in recent years.”
      • PM: Spoiler alert.  They fell short a long time ago.
    • QE was not about stimulating the economy.


McDonald’s: Trending Down

1Q/2024 Results

  • Comparable sales growth:
    • 1Q/2023: 12.6%
    • 2Q/2023: 11.7%
    • 3Q/2023: 8.8%
    • 4Q/2023: 3.4%
    • 1Q/2024: 1.9%
  • Comparable sales growth US:
    • 1Q/2023: 12.6%
    • 2Q/2023: 10.3%
    • 3Q/2023: 8.1%
    • 4Q/2023: 4.3%
    • 1Q/2024: 2.5%
  • The company yet again benefited from “strategic menu price increases.”
    • According to Restaurant Business, the price of a McDonald’s cheeseburger:
      • 2021: $1.55
      • 2024: $2.40
        • Up 55%
  • Like many companies, when the number is not very good, they throw other stuff at you to try and make you think it’s a good result.
    • In this case they round up the 1.9% to 2% and inform us that it marks “13 consecutive quarters of positive comparable sales growth.”
      • The last decline was during COVID: 4Q/2020.
    • Excluding COVID, it is by far the lowest comparable sales growth they have experienced since at least 2018.
      • For instance, in 2019 comparable sales growth averaged 5-6%.
    • But I still love their burgers.

General Mills

Here’s another one.

3Q/2024 Results:

  • The company starts by telling us that sales were down 1% but then quickly reminds us that sales were up 7% over two years.
    • In my mind that just highlights how much sales are decelerating.
  • They then tell us of “improved volume” trends.
    • You should always be suspicious when they just don’t come right out and tell you volume is growing.
      • It usually means it isn’t.
    • Volume was down 2%, but not down as much as the prior quarter.
    • PM: It’s like bragging of an improved weight trend in that you’ve started putting on fewer pounds.
  • Sales down 1%
    • Price: +2%
    • Volume: -2%
      • North American Retail: -2%
      • Pet: -5%
      • International: -4%
  • Growth has slowed significantly, and I would suspect it’s due in large part to big price increases:
    • From my post in December 2022:
      • General Mills net sales growth in North America were up 11%:
        • Price: 19%
        • Volume: -8%


1Q/2024 Results

  • Gross bookings: +21%
    • Mobile: +26%
    • Delivery: +17%
  • Average trips per day: 28 million.
  • Monthly active users: 149 million.
    • +15%
  • Sales for their Freight division were down 8%.
    • They cited a “challenging freight market cycle.”

Greek Tragedy

According to Euromonitor via the FT:

  • Greek yogurt consumption in the US:
    • 2015: 1.84mn tonnes
    • 2023: 1.75mn tonnes.
      • Down 4.9%
  • US population:
    • 2015: 320.8 million
    • 2022: 333.3 million
      • Up 3.9%
  • Per capita consumption fell around 9%

Canadian Tire

  • 1Q/2024 results:
    • Comparable sales: -1.6%
      • Canadian Tire Retail: -0.6%
        • Essentials: +2.0%
        • Discretionary: Down.
      • Mark’s: -1.2%
      • BodySportChek: -6.5%
  • They cited a “challenging consumer demand environment.”

Canada’s Housing Unaffordability Crisis

  • According to a report from National Bank, the median house price, the median income and income needed to purchase the median home by city:
 Median HouseMedian IncomeIncome neededMortgage Payment
  • PM: This is not an accident.  It’s a result of policy. 
    • Zero interest rates for many years.
    • Outlandish levels of immigration
    • Outlandish increase in government fees and taxes on building new homes.
      • Up to around 1/3 of the cost in Toronto and Vancouver.

Canada: Immigration 

The Globe and Mail reports the percentage of permanent resident immigrants by country of origin:

  • 2001:
    • China: 16%
      • 40,315
    • India: 11%
    • Pakistan: 6%
  • 2011:
    • Philippines: 14%
      • 34,991
    • China: 12%
    • India: 10%
  • 2021:
    • India: 32%
      • 127,933
    • China: 8%
    • Philippines: 4%

Canada Jobs

New jobs:

  • Dec: 100
  •  Jan: 37,000
  • Feb: 41,000
  • Mar: -2,200
  • Apr: 90,000

Unemployment rate

  • Feb: 5.8%
  • Mar: 6.1%
  • Apr: 6.1%

Wage growth:

  • Mar: 5.1%
  • Apr: 4.7%

Growth of the labour force (15 and older): 1.1 million:

  • +3.0%

Growth in jobs: 377,000

  • +1.9%

Year over year growth in jobs:

  • Private sector: +190,000
  • Public sector: +208,000
    • PM: Remember that the public sector is there to play the important role of facilitating productivity in the private sector i.e. the public sector doesn’t produce anything.
    • The fact that the public sector is growing faster than the private sector should be a major concern.
      • And it’s another contributor to our declining productivity.
  • Year over year the number of unemployed people is up 256,000: +23.7%

Canada: Financial Stability

The Bank of Canada’s Financial Stability Report 2024:

  • The bank sees things as being stable
    • PM: What else are they going to say?
  • Although they do point out two main risks:
    • Higher debt service payments
    • High asset valuations.
  • In order to maintain the strength of the financial system they say that “banks and market participants should anticipate and plan for periods for stress and build adequate loss-absorption and liquidity buffers.”
  • Those without a mortgage (renters and paid-off mortgages) have been more affected by rising interest rates.
    • They are further behind on credit card payments than those with a mortgage.
      • Delinquency rates are back to the pre-COVID level which itself was a five-year high.
    • Over 45% of them carry an outstanding balance on their credit cards.
  • For mortgage holders, many are dealing with rising payments by reducing discretionary purchases.
    • Half of mortgage holders have not yet been impacted by rising interest rates but will be as their mortgages come up for renewal.
    • The average increase in mortgage payments by year:
      • 2022: 8.2%
      • 2023: 21.4%
      • 2024: 22%
        • Variable rate with fixed payments: 30.1%
        • Variable rate with variable payments: 42.7%
      • 2025: 24.9%
      • 2026: 31.9%
        • Note that those renewing in 2026 bought in 2021 which was the year of:
    • Peak housing prices.
    • Lowest mortgage rates.
      • PM: Those renewing in 2025 and 2026 better hope we have a recession soon.
  • Median mortgage debt service ratio by year:
    • 2014: 15.5%
    • 2019: 16.6%
    • 2021: 16.0%
    • 2023: 20.2%
  • Prices of real estate vs. pre-COVID:
    • Industrial: +36%
    • Retail: -2%
    • Office: -57%

Financial Ructions

Note: ‘Financial Ructions’ is optional-to-read for those who are interested in taking a bit of a deeper dive…

Hardly An Astute Response

In a previous post I commented on some good and bad points of a speech by the deputy governor of the Bank of Canada, Carolyn Rogers.

  • She discusses why Canada is falling behind other developed nations in terms of productivity growth i.e. the amount of stuff produced per hour worked.
    • Productivity growth fell six quarters in a row.
    • Productivity has not grown in seven years.
    • Productivity in Canada as a percentage of that in the US:
      • 1984: 88%
      • 2022: 71%
  • Causing this of course is a lack of investment in Canada.

The following is from the Fraser institute which I posted in February.

  • Real business investment in Canada (excluding residential construction PM: which is not productive):
    • Since 2014 has declined an average of 1.8% per year.
    • PM: This is a shocking number.  And thus, our declining productivity growth.
  • According to Hill and Emes 2023:
    • Business investment per worker:
      • Canada
        • 2014: $18,363
        • 2021: $14,687
    • Down: 20%!!
      • US
        • 2014: $23,333
        • 2021: $26,751
          • Up: +15%

So, given Canada’s terrible productivity track-record that’s driven by a lack of investment, what does our government do to try and address the issue?

  • Make investment into this country even less attractive by increasing the capital gains tax.

Follow The Money

From a letter to the WSJ, former member of the Board of Governors of the Federal Reserve, Robert Heller:

  • He says that the Fed “fell short in recent years” because it didn’t focus on the money supply.
    • PM: They did, but they focused on exploding it higher.
  • There is concern that if Trump wins the election that he would do away with the Fed’s independence.
    • PM: The Fed is already not independent.
  • And that if the Fed “wants to avoid further criticism” it should do a better job of controlling the “growth of the monetary and credit aggregates.”
    • PM: Good luck with that.

Paid Not To Lend

From an opinion piece by Joseph C. Sternberg in the WSJ.

  • He says that when the Fed embarked on QE in 2008 that it was an attempt to “stimulate the economy and inflation.”
    • PM: No, it was an attempt to reflate asset prices.
      • The last thing the Fed wanted from the trillions of bank reserves that it created through QE was for the banks to use those reserves to pyramid new loans.
        • This would have been highly stimulative to both the economy and inflation, but then the Fed would have been required to move interest rates off of the floor and there goes their precious stock market.
        • So, they changed the rules so that the Fed could start paying banks interest on excess reserves (IOER), which was only supposed to come into effect a few years later.
        • The Fed was effectively paying banks not to lend.

Disclaimer: Note that Paulitical Economy™ should not be considered as investment advice, and I have not verified all of the sources of information.  It is meant for general interest purposes only.  Please consult an advisor if you plan on putting any of your hard-earned capital to work during these turbulent times.

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