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Whoa Nelly!

Man this market is insane.  Up here in Canada we are watching as spectators, unclear of what our role is in this financial ballet taking place in Europe and in the U.S.  The Canadian stock market is off by nearly 2%, the Canadian dollar dropped 3¢ today – which is a lot.  

On a global basis what we do know:  Energy, metals and other raw materials prices are dropping fast.  WTI crude that was flirting with $85/89 bbl in April is now trading just north of $65/68 per bbl (-24%).  




What we don’t know:  rumors of a German bank in trouble are all over the “blogosphere” after the government there prohibited the shorting of bank stocks, this morning the German Minister of finance indicated that the EU needs to have a mechanism in place if country needs to restructure their debt burden (Greece is not a solution going forward)… what do they know that the market doesn’t?  

Economic indicators (south of the border as usual) are downright horrible, deflation seems to be the problem now, unemployment is up, and housing demand is falling.  Apparently, 10% of all mortgages are behind in their payments.  It turns out that when the money supply drops (as does credit) there are real consequences to the economy.

Anecdotal evidence in Canada is that the real estate market is cooling down; several reports are emerging of a dearth of buyers for condos in Toronto… There is no doubt that the new permits are drying, but then last months number were so large, it is easy to conclude more out of the data the exists.

One thing for sure is that prices are dropping for natural resources, on the other hand manufacturers in Canada just got a massive break, the Canadian dollar has droped nearly 6% on the past two weeks, and energy costs are down 25% in Canadian dollar terms  

Most Canadian economist are taking the view that inflation will breach the BoC’s comfort zone of 1.00% to 3.00% range, others look at the trend line and come to a different conclusion.  That inflation is under control, and if raw material prices are dropping in price then inflation should be tame in Canada – reducing the pressure on the BoC to raise interest rates


My GDP growth estimate remains unchanged at 3.2% for 2010.  Q1 was very strong (first report) but at the very least a slowing in global economic activity and the fall raw material is bound to affect Canadian GDP growth.  Moreover, a slowing housing market will impact GDP growth.  Q3/Q4 will be much slower but still growing.  Giving Canada a positive overall growth rate of slightly more than 3% is still on the cards. 2011 is another story…

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