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Showing posts from August, 2010

Canada’s growing trade deficit; an early warning system?

Is the drop in Canadian export an early sign of a big slowdown in American consumer demand (PCE), and is the U.S. economy slipping back into recession (or very low positive growth) and will set the stage for additional quantitative easing?
Statistics Canada released revised current account data for Q1/2010 and new data for Q2/2010.  The results conform to Canada’s continued economic health (at least in the first half of 2010), and the continued weakness abroad.  The "bright lights" in the numbers revolved around equipment & machinery import – which speaks volume about future potential increase in labor productivity (although since manufacturing is only 25% of GDP…the overall impact on labor productivity will be limited).  
Source: StatsCan
It would seem that foreign investors have finally quenched their appetite for Canadian assets.  There appears to be a marked slow down in investment: of course this data predate the offer by BHP to acquire the assets of Potash Corp.  On a…

The ending of the Bush tax cuts is equal to 2% of the US GDP. What is the impact of the non-renewal on Canada’s economy?

As a strict monetarist I believe that deficits do matter, that has always been my position, government should, like everyone else, live within their means. That means that borrowings are OK, as long as they are repaid out of the revenues they have created (eg a new bridge or power station -- these thing generate economic activity).It’s not OK to use deficits to pay for healthcare or teachers salary; these are general expenses and as such should come out of tax revenues. Government will operate in deficit during recession, but it should be a rule that as the economy recovers, the government seek to reduce these deficit (yes I know that this is recessionary).
Over the past few days I have spoke to 4 bank economists in three institutions (don’t ask) and they all came across as optimists on the Bush tax cuts!All their base models assumed that the Obama administration will “continue” to Bush tax cuts for another 3-4 years.At first, I wondered if there was something that I missed, but then …

Economic Data points to BoC restraint -- maybe!

The news out of the U.S. continues to be dismal, yet the market feels like celebrating!  Up here in Canada the news is OKish.  The big date is September 8th when the BoC will have another chance to raise interest rate from 0.75% to 1.0%.  For Carney and friends the incentive to raise rates is high because it would provide the BoC with some ammunition in the event that the Canadian economy starts to tank again.
The reasons for not raising rates are numerous:
(1)Canadian inflation is already in the lower target range:  Core CPI at 1.6% and total CPI at 1.8% -- Canada’s interest rate range is between 1% and 3%. – Inflation was affected by the introduction of consumption taxes in three provinces. (2)Housing “seems” to have slowed down – although the hard data points back to June (National Bank Teranet Index) July and August “sale” data is much lower than it has been in the past few months. (3)Corporate profitability of Canadian firms is down (4)The American economy appears to be slowing down …

Data Points in a slow week:

A very quiet beginning of the week, with no news until Thursday and Friday. As I often stated my “thing” is Canada and its progress/failure in progressing as an economy.First the bare facts:Canada is by historical standards in poor shape, but compared to almost everyone other OECD country else we are doing amazingly well. Historically, our oft cited weaknesses (strong industrial and mining basis) are today considered strength. No doubt that in a resource challenged world (where demand increase but were supply are becoming constrained) being a resource rich one is attractive. However this richness is not a quality, it’s a state of being, quality arise from the human element:peace, rule of law, little corruption, well educated population with interesting demographics.
Ok end of preaching!The rest is stuff which has been accumulating in my inbox:
Interesting statistics on Gold producer, as the price rises the impact on the share price (throughout history) has been very positive, with …

Trade: Bumpy road ahead

Watching Mark Mobius this morning was somewhat surreal; in effect Mark was saying that if the economy tanks, the U.S. government will prime the pump with stimulus II or QE II, and if the economy is OK, then its OK, so in a nutshell Mark’s prediction is that its all positive for stocks, even if the news is bad, it will be good because of Keynesian intervention by the U.S. government (and China I presume). Funny enough Mark was not challenged, possibly because the numb nuts permabull cheerleaders in CNBC don’t know what to say to a money manager who is always such a bull.
Trade numbers came out yesterday for Canada, and the number were poor, the market anticipated a reduction in the trade deficit in the range of $300 million instead the trade deficit rose by $700 million, a $1.1 billion expectation gap. Exports dropped more quickly than import.The only good news from the report was the rise in impost of machineries – a potential sign that productivity will continue to rise…. (Again, our …

Canada -- a Great story according to the data

This morning, David Rossenberg provided interesting insight as to what is "turning foreign investors on" in Canada.  The entire document is worth a read, but there are two diagrams that say it all:

Only the Netherlands and Germany have a lower cyclically adjusted budget deficit -2.7% and Canada has by far the lowest level of net debt at 32.6%.  The second issue is that Canada not only is a better risk, but its risk is mis priced, it offers better yield premium than the US.

Finally, and this is just chart porn, since there is no honor in being "Natural Resources rich", Saudi Arabia is not a better people or economy because they sit on great oil and gas properties.  This in fact, has always been a Canadian weakness, we are not so good in trans formative industries we are good at extraction.  This implies that the value added is created elsewhere.

However, for foreign investors looking to increase their exposure to natural resources, Canada is an obvious investment de…

Canadian Dollar, Interest Rate and Economic Growth

The Canadian dollar is back near parity, it’s been all over the place over the past few weeks, down to 0.92 and all the way up to 0.97 today.Why the currency gyrations?:First, we are in the middle of the silly season, there is little depth to the markets, second the market is looking for good news, even when it doesn’t exist, and finally oil price are on the war path again – around $81/bbl.The Canadian dollar is heavily correlated to oil prices (around 90%).
I always worry when the Wall Street Journal starts having articles about Canada – and over the past few months the number of articles (rarely do they get their facts right) have been written – first our banking system, now its our taxation system with Canada: the Land of smaller Government. First, insisting that Canadian corporate income tax 18% (don’t worry its not) then making the point that all budget cut initiative have been initiated by “Liberal” administrations), and finally, to say that Canada is the land of smaller governme…