Why a declining population could actually help economies

Trade wars. Currency movements. Trade balances. Normalizing interest rates. Combating climate change and poverty. Year after year, the G-20 discusses the same narrow range of issues, never agrees on very much and follows up on even less with any real action. But this year might just be different. The Japanese are taking the chair and, to their credit, they have decided to put something that genuinely matters at the top of the agenda, namely demographics.

Even more striking, they are challenging a cozy consensus of the past couple of decades. Most mainstream economists and policymakers take it for granted that a declining population is bad for the economy and we need to do all we can to reverse it. But the Japanese are starting to argue that it may not be true. Technology might mean that we need fewer people, while all the services required by the elderly might actually stimulate demand. If true, policies to combat an aging population might be a big mistake.

Whether the Japanese ever actually get to force any new ideas on to the G-20 agenda remains to be seen. Some crisis or other, from a stock market collapse, to a chaotic Brexit, to a recession in China, may well engulf the world and demand the attention of the presidents, chancellors and finance ministers who normally attend its summits. With luck, however, they will find some time to pay attention.

Haruhiko Kuroda, governor of the Bank of Japan, kickstarted the debate with a speech that had the not-completely snappy title Demographic Changes and Macroeconomic Challenges. The consensus, the governor conceded, was that a falling population made it very hard for an economy to grow.

On one level, it is easier to see why that is true. After all, total GDP is just output multiplied by the number of workers, so if you have fewer people you automatically get lower GDP even if every individual produces the same amount, or even a bit more. Aging populations are less innovative and dynamic, and all those old people cost a heck of a lot to look after. The net result? Growth grinds to halt and government deficits rise and rise. Indeed, plenty of economists have started to argue that the general slowing of growth and productivity over the past two decades, and especially since the crash of 2008, are an early sign of the impact of the gradual aging of the whole industrialized world. Whichever way you look at it, it’s all bad.

Kuroda’s significant point, however, was this. Maybe that is not quite the whole story. It’s possible, he argued, that an aging population could be completely fine. Rapid progress in technology, such as robotics and artificial intelligence, means that we might need far fewer workers than in the past, while improving productivity (indeed, slightly oddly, at the same time as we worry about not having enough workers, we also worry about what to do about mass unemployment created by robotics). In fact, a shortage of workers will put pressure on companies to improve productivity.

At the same time, demand for labour-intensive industries for the elderly, such as healthcare and leisure, can boost demand and kickstart entrepreneurship. There is some truth in that, as well. The cruise-ship industry probably wouldn’t be booming quite so much without so many retired people around. On top of that, it is not necessarily true anymore that only the millennials are dynamic and innovative. The biggest growth in startups is coming from entrepreneurs aged 50 and older.

On the financial side, as pensioners cash in their savings, that too can stimulate demand and drain the glut of capital that has built up while populations were younger. The conclusion? A falling population is not necessarily as bad for the economy as usually assumed. More provocatively still, aging nations might be able to outperform younger ones.

That is of course especially relevant to Japan, where the working age population peaked in 1995 and its total population in 2008. Unlike just about every other major country, Japan has not tried to stem its declining numbers through immigration, remaining relatively closed to outsiders.

Despite the recent influx of immigrants into Germany, its population is forecast to fall to under 70 million from 81 million over the next three decades (indeed, fascinatingly, Britain will almost certainly become the largest country in Europe). Italy is going the same way, with its population of 60 million set to fall to 50 million by the middle of this century. The U.K.’s population is roughly stable, but that is mainly because of immigration. As it leaves the EU, Brits will have to decide whether they want to accept a falling population, like Japan, or keep very open borders to maintain total numbers.

The conventional economic wisdom has been that countries need rising populations and that without them growth will stagnate and welfare systems will be unsustainable. Investors fret over demographic trends and steer clear of countries with falling populations, such as Japan, because they assume they cannot grow. And yet, in truth, this is uncharted territory. We haven’t actually seen an example of an industrialized, wealthy country with a falling population before, so we can’t say for certain what will look like. The results from Japan are not especially encouraging — growth has stagnated, although when you measure GDP per person the figures are far better — but it is still very early. Maybe it won’t be so bad after all?

‘Real spillovers’: UBS boss tells Davos a no-deal Brexit would do global harm

DAVOS — The volcanic effects of a no-deal Brexit would have unthinkable consequences for the global financial system and must be avoided at all costs, the leader of the world banking union has warned.

“An unmitigated, uncontrolled Brexit is the worst outcome we could imagine. Nobody wants this kind of tail-risk,” said Axel Weber, head of UBS and chairman of the Institute of International Finance (IFF).

“A no-deal would create real spillovers not just for the United Kingdom but for the European and for the global economy,” he said, speaking on the margins of the World Economic Forum in Davos.

Continued brinkmanship by both sides with just weeks to go before the withdrawal deadline on March 29 is starting to rattle nerves as far away as Washington and Tokyo. It is understood that IFF’s global board discussed the risks at a meeting in Zurich on Monday before the members went on to the Alpine resort.

London is home to 80 per cent of Europe’s capital markets and is the epicentre of the world’s US$660 trillion nexus of derivatives.

The City’s key role in the plumbing of global finance is poorly understood by leaders of most EU states and by officials in the European Commission, often lawyers with little feel for markets. This raises the risk of a serious misjudgment.

There could be major problems as swaths of contracts are suddenly reclassified even if there is a Brexit deal. An acrimonious rupture would threaten continuity of legal contracts and an instant financial shock. Weber, a former president of the German Bundesbank, said awareness was dawning that a no-deal would have dramatic implications. “I am of the firm belief that governments are coming to reason and will not let it happen. There has been a step up in discussions and I am confident there will be a deal at the 11th hour,” he said.

European banks are already in some distress as the eurozone struggles with a manufacturing recession, and the world’s central banks drain liquidity. The STOXX Europe index of bank equities has fallen by 35 per cent over the past year. It is close to levels seen in the depths of Europe’s debt crisis.

The business model of European banks is already in question as they are outflanked by technology upstarts. Chronically weak profits have left them trading at just 60 per cent of book value. The nagging concern is that many banks will not survive another major downturn.

European banks have borrowed heavily on the offshore dollar lending markets, often on three-month maturities that have to be rolled over constantly. They lack their own dollar deposit base. This is inherently treacherous because these markets can seize up in a crisis.

Weber takes a contrarian line on the shifting moods of financial markets. Last year in Davos he poked fun at the elites for optimism “bordering on euphoria.” At the time central banks were tightening, China was slowing. Markets were priced for perfection.

“All investors were positioned on one side. Headwinds were going to lead to a major repricing,” he said. It happened in October, and again in December. This year investors may have swung too far in the other direction, toward pessimism.

Weber said central banks had read the writing on the wall and would keep the expansion alive with a dovish tilt. World economic growth is settling down to trend levels. There are signs of a trade thaw between Donald Trump and China’s Xi Jinping. Trump will do a deal just as he did over NAFTA.

“I think the tail risks are actually less severe this year,” he said. Brexit remains the wild card.

Bank of Canada’s next rate move depends on data, says Stephen Poloz, but hike still on the table

Bank of Canada Governor Stephen Poloz said he is keeping a close eye on developments in the nation’s housing market, as well as global trade tensions and the impact of lower oil prices, as he gauges the timing of his next interest rate increase.

In an interview with Bloomberg TV at the World Economic Forum in Davos, Switzerland, Poloz cited those three issues as key determinants of future policy, even as he reiterated his belief that borrowing costs are still likely to go higher.

“It’s data dependent,” Poloz said. “It will depend on how the economy responds to the shocks we’ve described.”

The comments are in line with recent indications from the central bank that there’s less urgency in its push toward higher interest rates as the economy grapples with slumping oil prices. After five interest rate increases since mid-2017, markets are now anticipating the central bank will have no more than one more rate increase lined up before pausing indefinitely.

Unsettled Housing

One issue the Bank of Canada has been monitoring closely is the economy’s sensitivity to higher rates, particularly in housing, where the the increased borrowing costs have led to a a slumping activity in major markets like Toronto and Vancouver. As he gauges future policy, Poloz said Wednesday the housing market hasn’t “quite settled down” and he’d like to see it stabilize to know “where we stand.”

The comments on housing “suggests to me we may be on a pause for awhile,” given the recent weakness in home sales and prices,” Craig Fehr, strategist at Edward Jones & Co., told BNN Bloomberg Television after the Poloz interview.

At the same time, Poloz fended off criticism that recent tightening by some central banks was ill conceived and said higher interest rates will eventually be warranted in Canada given the economy is already at near capacity with inflation at target.

“We are at a stage in the cycle where it always looks like monetary policy is doing the wrong thing,” Poloz said. Given the economy is “near its steady state, interest rates also should be near their steady state.”

Poloz said the actual level of that steady state is still “an open question” but the central bank estimates it’s between 2.5 per cent and 3.5 per cent. The Bank of Canada’s policy rate is currently at 1.75 per cent.


The island Canada forgot: On Campobello, citizens are left exiles in their own land

Victoria Matthews can understand the attraction of Campobello Island, N.B., to an outsider. It can seem a magical place, with rocky coastlines, dramatic ocean vistas, big tides, bogs, lichen-shrouded forests, clams to dig for and wild blueberries to pick by the bucketful come summer.

There are lighthouses, seabirds, breaching whales and, for history buffs, a star attraction: Roosevelt Campobello International Park, 1,134-hectares centred around the family cottage of former president Franklin Delano Roosevelt and his wife, Eleanor.

There are also the locals, about 800 or so permanent residents, such as Matthews. They hold community fundraising suppers, watch out for their neighbours and welcome scads of mostly American cottagers and tourists who stream across the Roosevelt International Bridge from Lubec, Maine.

But despite Campobello’s postcard-worthy attributes, the 23-year-old Matthews has pretty much had it with the place. It’s not that the island doesn’t feel like home. It’s that Campobello makes her feel as though she is a Canadian living in exile — physically, politically, practically, medically and economically separated from the rest of the country — which, more or less, she is since the bridge is the island’s only physical link to mainland North America and it’s not to Canada.

“At this point, there is not a whole lot I can say that I love about Campobello,” Matthews said. “Like, for example, our grocery store, it is really limited in choice. The only meat is ground beef, chicken and steak, and the fresh food spoils real quick and there is no fish, well, once in a great while our convenience store will have some fish. But if I want to buy real food, I have to drive all the way to the superstore in Canada — and that means I have to drive through the States to get there.”

There used to be a 30-minute privately owned summer ferry service connecting Campobello to Deer Island, N.B., but the service stopped in 2017 after the boat sank and it has yet to resume operation. To get to mainland New Brunswick to buy, say, groceries, islanders must cross an international bridge, clear U.S. Customs, turn right, drive 85 kilometres through Maine and check-in with Canadian customs in St. Stephen, N.B.

After all that, they are ready to go shopping, but not, ideally, for oranges, mangoes, potatoes grown in Western Canada, rice in burlap bags, avocados, more than 12 plants or a new pet parakeet, all of which are banned by U.S. customs.

Once back at the border, the islander must declare all the fruits and vegetables they have purchased to U.S. agents, and do the drive in reverse to get home, including passing (again) through Canadian customs. All told, one shopping trip equals four border crossings.

The star attraction of Campobello Island is Roosevelt Campobello International Park, 1,134-hectares centred around the family cottage of former president Franklin Delano Roosevelt and his wife, Eleanor.

But Matthews has more pressing needs than groceries. Her three-year-old son, Walter, has some learning challenges. He was assigned a caseworker in St. Stephen in October and a plan was made for the specialist to commute to Campobello four days a week to work with him. That plan hasn’t been initiated yet, because the Canadian specialist is waiting to receive a passport.

“It is a little frustrating,” Matthews said.

Islanders with plumbing problems speak of the impossibility of finding a mainland New Brunswick plumber willing to travel through Maine for a job. The same goes for electricians, septic bed maintenance companies, freshwater well-digging operations, washer and dryer repair technicians, major construction firms, furnace repairmen and veterinarians.

To get treatment for an ailing cow, an island farmer, and there are a handful of them in a predominantly fishing community, requires a permit from the U.S. Animal and Plant Health Inspection Service (APHIS) to import the cow into Maine for the drive north to Canada — which nobody bothers doing. What they will do, according to Campobello Mayor Stephen Smart, is arrange for a lobster boat to take the beast on a cross-water trip to the New Brunswick mainland.

Island residents will also spend the majority of their income in the U.S. to avoid the multiple border crossings, the mayor said, regardless of the less-than-robust Canadian dollar.

“If our community is going to survive and not become a ghost town or simply a summer residence for the Americans, whom we actually do like, we need an easy way for Canadians to come and visit us, as far as tourism goes, and a clear way for us to get to Canada without going through the U.S. border,” Smart said. “Some people here, they don’t leave the island, unless they can leave it by boat. We’re down to 800 people. Our high school graduating class is down to four kids. I see transportation as a critical barrier to growth.”

Campobello’s day-to-day isolation from the rest of Canada irks Senator David Adams Richards, an award-winning New Brunswick author who sits in the Senate as an independent.

Richards is an outspoken critic of Bill C-21, a new amendment to the Canada Customs Act intended to crack down on smuggling and facilitate the sharing of traveller information between U.S. and Canadian border officials. The act received Royal Assent before Christmas, and the senator suspects it will amplify the daily headaches islanders already experience in relation to the border.

“The residents of Campobello must travel through a foreign country while transporting goods and services from one part of N.B. to another,” Richards said in an email to the Financial Post. “The regulations imposed and the new regulations enacted will make it almost impossible to conduct daily affairs.

“Even the basic transportation of household goods can be scrutinized by border security working for the U.S. government; in theory and in practice, the people of the island have been stranded by a good degree of thoughtlessness.”

Minister of Public Safety and Emergency Preparedness Ralph Goodale’s office in a statement to the Financial Post said the “traveller’s experience will be entirely unchanged” by the new bill.

The anti-smuggling component of the bill, moreover, is intended to target items such as “stolen vehicles and materials that violate Canada’s anti-nuclear proliferation obligations,” the statement added. “To deal with these problems — which are not serious concerns with respect to Campobello Island shipments — C-21 gives Canada Border Services Agency officers the discretion to require reporting and to conduct examinations, as and where necessary.”

There used to be a 30-minute privately owned summer ferry service connecting Campobello to Deer Island, N.B., but the service stopped in 2017 after the boat sank and it has yet to resume operation.

The one thing Senator Richards, Mayor Smart, Victoria Matthews, Campobello’s Progressive Conservative MLA Greg Thompson and Liberal MP Karen Ludwig can unanimously agree upon is that, ultimately, the island needs a year-round ferry service binding it to mainland Canada.

Thompson, a long time Conservative MP under Stephen Harper, has been bemoaning the “thickening of the border” since 9/11. But he said getting a ferry into action would take two to five years minimum, and that’s assuming all the players involved had already discussed how much it would cost and who was going to pay for it, a hypothetical dialogue that hasn’t happened yet.

“I am a big fan of magic wands, but you don’t often get control of the wand,” Thompson said.

Some lay the blame for the island’s isolation on East Coast Ferries Ltd., which operated the Deer Island-to-Campobello seasonal ferry loop until last season, when its ferry sank. The company has since built a new ferry, dubbed the Hopper III, but it is in bureaucratic limbo, awaiting a visit from Transport Canada officials to certify it safe for the coming summer.

Widespread chatter ensued in the absence of the ferry service last summer, ensnaring islanders, the New Brunswick media and different levels of government. But for all the noise, nobody apparently bothered to call Leanne Silvaggio, manager of East Coast Ferries Ltd., to ask what was up with the boat.

“Pretty well everybody likes to talk to everybody else except for us,” she said. “It wasn’t that we didn’t want to be running the ferry last summer. We had to rebuild the whole ferry, and it just didn’t get done in time.”

Silvaggio has heard, though not directly from Thompson, that the province is interested in extending the Campobello ferry’s operating season, starting earlier in the spring and running it later in the fall. (Thompson later confirmed that extending the ferry’s operating season was a logical interim measure and something the province will be pursuing.)

“If that is the plan, we’re interested,” Silvaggio said.

Extending the season would be a definite plus, but it is not a permanent fix, something Brent MacPherson, founder and chair of the Campobello Year Round Ferry Committee, a citizens group dedicated to its namesake task, wants to resolve.

MacPherson is 62, semi-retired and married to a native islander, Victor Mitchell. The couple moved to Campobello a little more than a year ago, but recently pulled up stakes after Victor, a hairstylist, got sick of commuting across Maine to get to his four-day-a-week job at Pure Hair & Esthetics Studio in St. Andrews, N.B.

A view from the Franklin Delano Bridge that connects Campobello Island with Lubec Maine.

The 160-minute round trip was long, to be sure, but the border crossings are what rankled Mitchell, 66, most. As a hairstylist, he travels with a bag containing clippers, scissors, a blow dryer, combs, brushes and other related tools that U.S. border agents repeatedly questioned him about.

Even more aggravating was when the pair traveled together as a couple. MacPherson believes, admittedly without any proof, that he and Victor were flagged at least “six to 10 times” by the U.S. simply because they were married men.

Nonetheless, MacPherson loves Campobello, wishes he still lived there, and was instrumental in pushing for a federally funded feasibility study on a year-round ferry service.

Phase one of the study was a survey completed in October. It revealed 81 per cent of island business owners feel that “crossing the border today is more difficult than five years ago, mostly owing to lengthier American border controls.”

It also found that a majority of islanders purchase between “21 and 100 per cent of their goods in the U.S.” Three-quarters of the respondents said they would happily divert their dollars to Canadian businesses — a total pegged at about $3.1 million annually — were they linked by a year-round ferry.

“There are strong regional economic benefits associated with a year-round ferry,” the survey concluded.

It is a conclusion Scott Henderson can’t dispute. Henderson is 56, and a Campobello native. He runs a small construction company that relies on twice-weekly deliveries from a supplier in St. Stephen. Henderson makes the order, and the supplier deals with the border-related paperwork.

Construction being construction, there is always something more he needs — a nut, bolt, light bulb, other bits and bobs — so he drives across the Franklin Delano Roosevelt bridge several times a week to Lubec Hardware on Water Street. He also gets gas and does his banking in Lubec, because Campobello doesn’t have a gas station or a bank.

Henderson reckons he spends a $1,000 a month at the hardware store — the owner doesn’t take Canadian currency at par — money, being Canadian, he would prefer to spend in Canada.

“I am 56 and I’ve lived here all of my days. I think everybody has thought about moving off the island at some point. Some of our elderly spend two or three days a week going back and forth to doctor’s appointments in Saint John,” he said.

“Sometimes, living here, it just feels like you are in the middle of nowhere. But when you take all the bad things out, all the inconveniences, and just look out at a summer’s day, you see that living here is pretty tough to beat.”

• Email: joconnor@nationalpost.com | Twitter: oconnorwrites

Steemit, crypto’s answer to Reddit, gets a new boss to rebuild after widespread layoffs

Steemit, an early blockchain startup that’s developing an alternative to Reddit, has a new chief less than two months after laying off most of its staff as part of cost-cutting measures.

Celebrated as an early success story in the crypto world, the company shed 70 percent of its employees back in November on account of the ‘crypto winter’ which has seen the price of Bitcoin, Ethereum and other cryptocurrencies plummet by 90 percent or so. Steemit is far from the only blockchain startup forced to restructure, and now its rebuilding plans rest in the hands of newly-appointed managing director Elizabeth Powell.

Formerly the company’s head of communications and advocacy, Powell has replaced former CEO Ned Scott — who is now executive chairman — at the helm of the business, which has 12 full-time staff.

“We recently published our updated Mission, Vision and Values, as well as its roadmap focusing on increasing ad revenues, protecting Steem assets’ value and cost reductions. My job is to execute the roadmap,” Powell said in a post introducing her to the community.

Founded in July 2016, Steemit was an early blockchain project that showed promise and, with over a million registered users, it has been one of the most successful in terms of adoption. The premise is a Reddit-like space that is supposedly decentralized — so not subject to removals — and where users are compensated in tokens for creating or curating popular content.

However, like many blockchain startups, it has so far failed to compete with existing services on the internet and offer a truly differentiated experience that appeals to users outside of the crypto community. 

Its ‘Steem’ token, meanwhile, has suffered as the market has crashed. Valued at $7.31 during its peak in January 2018, it is currently priced at $0.41, according to CoinMarketCap.com. Unlike others, the company didn’t hold an ICO, instead it opted to mine tokens, but still those falling prices mean loyalists and the company have lost the paper value of their investments.

One major positive to adopting tokens is that, when used to raise capital, they can alleviate financial concerns and allow companies and services to focus entirely on the user experience without prioritizing monetize. But, following its financial wobbles, Steemit is testing advertising “as part of our strategy for improving the economic sustainability and decentralization of Steem.” That’s certainly controversial but, as Powell wrote, it is now very much part of the roadmap.

Powell is a relative newcomer to Steemit, having only joined the company last year. In response to her appointment, some users raised concern at her relative inexperience on the site — she has published just one original post and shared a further two  — but others suggested that the appointment of an ‘outsider’ brings a new perspective that can help wider Steemit’s audience.

Either way, Powell certainly has a challenge on her hands if Steemit is to fulfill its early promise.

Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

Pessimistic economic forecasts can’t be going over well at Ministry of Finance

Finance Minister Bill Morneau and those who work for him won’t like what they have been reading on the Blooomberg News ticker lately.

Last week, the Canadian wing of the news-and-data machine started by U.S. billionaire Michael Bloomberg introduced us to a new participant in the “short Canada” trade, a hedge fund called Crescat Capital that is betting against this country’s banks. And on Jan. 22, it published the provocative thoughts of Jim Mylonas, a strategist at BCA Research Inc., the Montreal-based research outfit that once employed Stephen Poloz, the Bank of Canada governor. “I think we’re just on the precipice of embarking on a serious recession,” Mylonas told Bloomberg. “It’s not a matter of if, but when.”

Hedge funds and prestigious forecasters are wrong all the time. But when you come across someone who is willing to bet millions of dollars that your economy is about to go bust, or when you see that one of the country’s most respected forecasting firms sees a recession coming, it’s gut-check time. Hopefully that’s happening behind the scenes in Ottawa, because there is little evidence the men and women in charge are willing to acknowledge the economy could be headed for a rough patch.

Consider this from Morneau at the cabinet retreat in Sherbrooke, Quebec last week, when asked about all the confusion over Brexit: “We don’t see this as something that’s directly problematic for the Canadian economy, but obviously it’s something that’s difficult for the global economy.”

I’m going to give Morneau the benefit of the doubt and assume that he simply forgot he was talking to sentient beings at that moment; in his mind, he must still have been retweeting the latest happy-talk lines from the Prime Minister’s Office.

Canada is a relatively small, relatively open economy that is dependent on exports and stable financial markets; difficult times for the global economy are always problematic for Canada’s economy. The United Kingdom isn’t the United States, and Brexit isn’t the U.S.-China trade war, but a turbulent divorce between London and Brussels will hurt Europe, and that would be felt most everywhere. It’s silly to pretend otherwise, and voters should feel insulted that the federal government appears to think that we can’t handle the truth.

Anyway, back to the outbreak of recession talk. A downturn is by no means the mainstream view. The International Monetary Fund on Jan. 21 shaved its outlook for Canadian economic growth in 2019 to 1.9 per cent from the previous estimate of two per cent. The Bank of Canada sees an expansion of 1.7 per cent. Both outlooks are decent, if slower than the past couple of years. “For the Canadian economy, it’s going to be fine,” Pierre Cléroux, chief economist at Business Development Bank of Canada, told me in an interview on Jan. 21. Alberta will struggle this year because of the crisis in the oil patch, “but for the rest of the country, the economy continues to perform well,” said Cléroux.

For the most part, recession forecasts have come from unreliable sources such as Doug Ford. The Ontario premier said on Jan. 21 that the risk that the carbon tax could cause an economic downturn is “very, very real.” That’s nonsense, as the few billions of dollars that the government might collect from the tax — all of which it says will be returned to taxpayers — equates to a sliver of Canada’s $2.2-trillion gross domestic product.

The hedge funds betting against Canada have a slightly better case. Bloomberg reported that Denver-based Crescat is shorting bank stocks because the Big Six “will be the ones to suffer from what is likely to be a major economic recession” brought on by a housing bust, according to Tavi Costa, an analyst at the firm.

Maybe. The problem with that hypothesis is it forgets that Canada’s banks are too big to fail; under no circumstance would Ottawa allow any of the largest lenders to get near the brink. Much of the housing debt is backed by the government anyway, and the banks must now keep plenty of cash on hand to act as a cushion during a financial crisis. Odds of a calamity are low.

Moody’s Investors Service estimates that a housing shock of the size of the one in the U.S. that triggered the Great Recession would be contained in Canada because the banks would absorb the pain, and because the construction industry is relatively smaller. Losses on mortgages might equal five per cent of GDP, which wouldn’t alter Canada’s credit rating, Moody’s said in its latest country assessment.

The credit-rating agency did acknowledge that a “sharp decline” in housing prices would hurt consumption, which gets to Mylonas’s outlook. The BCA analyst told Bloomberg that Canadian households are carrying too much debt to power through higher interest rates. “We’re now at the point where the Bank of Canada is going to be flirting with triggering the next recession if it hasn’t already,” Mylonas said.

For sure, all that debt has left Canada vulnerable. Just how vulnerable depends on your outlook for interest rates. Mylonas and others who share his view are convinced that the Bank of Canada will trigger a consumption-led recession by raising interest rates too high.

Yet Poloz, the former BCA analyst, indicated earlier this month that borrowing costs are on hold until the Bank of Canada is confident households can handle higher borrowing costs. The central bank sees what the pessimists see. The question is, does Morneau? It seems unlikely he’d tell us even if he did.

• Email: kcarmichael@postmedia.com | Twitter: CarmichaelKevin

Groww, an investment app for millennials in India, raises $6.2M

Groww, a startup hoping to make saving and investment opportunities more widely available to young people in India, has closed a $6.2 million Series A to grow its business.

Founded in 2017, the Bengaluru-based company was part of Y Combinator in the U.S. last year and it went on to raise a $1.6 million “pre-Series A” round in June of last year. Groww was started by four ex-Flipkart staffers — Lalit Keshre, Harsh Jain, Neeraj Singh and Ishan Bansal — who realized how difficult investing in India is, particularly among young people.

This new money is led by Sequoia India with participation from Y Combinator, Propel Venture Partners and Kauffman Fellows. The company also counts Singapore’s Insignia Ventures Partners, Lightbridge Partners and Kairos among its backers.

Groww lets its users invest in mutual funds, including systematic investment planning (SIP) and equity-linked savings scheme. It claims over one million registered users, most of whom are aged under 40 and mobile-first, according to the company. Currently on Android only, it offers over 5,000 mutual funds which can be invested in directly from its app.

Keshre, who is Groww’s CEO and previously led Flipkart’s logistics platform, told TechCrunch that the new money will be spent on hiring and developing tech to support the launch of new products. That could include direct investments and ETFs while, further down the line, Keshre said there’s an ambition to offer insurance and more.

“We’re used across India not just in metros,” Keshre said in an interview. “Our users are spread across all the major cities… [they’re] working-class, young millennials straight across India.”

Groww’s founding team [left to right]: Ishan Bansal, Lalit Keshre, Neeraj Singh and Harsh Jain

Keshre said the focus is on keeping the app and its design simple but, like Robinhood in the U.S, he said that the broader goal is to democratize investing, particularly among younger segments of the population in India. For now, he added, there is no plan to venture overseas since Groww is just scratching the surface of what it could become in India.

“There are 200 million people with investable income in India, but only 20 million investors. The only way to bring the next 180 million onboard is by making investing simple,” he said in a statement.

Stocks tumble on growth and trade-tension pessimism, again

Stocks fell the most in almost three weeks as rising pessimism that trade tensions with China will persist helped send technology and multinational companies tumbling. Treasuries climbed, oil fell and the yen strengthened.

Chipmakers plunged more than 3 per cent, with every member of the Philadelphia Semiconductor Index in the red. Caterpillar and DowDuPont led declines in the Dow Jones Industrial Average of more than 400 points at one point. The S&P 500 briefly pared losses after presidential adviser Lawrence Kudlow said a Financial Times report that the U.S. canceled a preliminary meeting with Chinese officials was untrue.

After the close of U.S. trading, Senate Majority Leader Mitch McConnell scheduled a vote for Thursday on Democratic-backed legislation to reopen the government, the first sign of a possible way out of the shutdown. IBM also reported results that topped analyst estimates. sending the company’s shares up in after-hours trading.

“Investors obviously are still a little bit edgy and therefore we would expect periods of volatility to continue,” said Mark Hackett, chief of investment research at Nationwide Funds Group, which manages US$60 billion. “As the headlines continue to get more nerve wracking with regards to a global slowdown and trade wars and government shutdowns, it’s easy to spook investors, but we think those are temporary versus permanent.”

The Stoxx Europe 600 Index dipped after Switzerland’s UBS Group AG delivered disappointing results. Earlier, shares retreated across Asia after Chinese President Xi Jinping stressed the need to maintain political stability, comments which hinted at growing concern over the country’s slowing economy.

After stocks and many risk assets kicked off the year with a stellar rally, investors now find their conviction tested anew as a familiar litany of concerns weigh on sentiment. The IMF’s dour forecast for global growth, fears of slowing momentum in the world’s second-largest economy and uncertainty over trade are all combining to spook markets.

Elsewhere, the pound rose after U.K. data showed the jobs market remains resilient and as Labour leader Jeremy Corbyn backed a plan that could open the door to a second Brexit referendum. Oil retreated from a near two-month high in New York. At the World Economic Forum in Davos, billionaire investor Ray Dalio chastised monetary policymakers for an “inappropriate desire” to tighten faster than the capital markets could handle.

These are some events investors will be watching out for in the coming days:

Earnings season is in full swing: IBM, United Technologies, Texas Instruments, and Ford are among companies posting results this week.The World Economic Forum, the annual gathering of global leaders in politics, business and culture, continues in Davos, Switzerland.There are monetary-policy decisions for the Bank of Japan (Wednesday), the Bank of Korea and the European Central Bank (both Thursday).

And these are the main moves in markets:


The S&P/TSX fell .78 per cent to 15,233.76. The S&P 500 Index fell 1.4 per cent to 2,633, while Nasdaq Composite Index tumbled 1.9 per cent to 7,020 and the Dow Jones Industrial Average declined 1.2 per cent to 24,405.The Stoxx Europe 600 Index declined 0.4 per cent, the largest drop in a week. The U.K.’s FTSE 100 Index dipped 1 per cent. Germany’s DAX Index declined 0.4 per cent.The MSCI Emerging Market Index declined 0.9 per cent, the largest drop in more than two weeks.


The Bloomberg Dollar Spot Index rose less than 0.1 per cent, the sixth consecutive gain.The euro was little changed at US$1.1360.The British pound increased 0.5 per cent to US$1.2960.The Japanese yen gained 0.3 per cent to 109.30 per U.S. dollar, the biggest rise in more than a week.


The yield on 10-year Treasuries sank five basis points to 2.74 per cent, the largest decline in more than a week.Germany’s 10-year yield fell two basis points to 0.23 per cent, the biggest fall in a week. Britain’s 10-year yield rose than one basis point to 1.32 per cent.


West Texas Intermediate crude declined 2.3 per cent to US$52.57 a barrel, the largest drop in more than a week. Gold rose 0.7 per cent to US$1,285 an ounce.

Bloomberg News