Tuesday, June 29, 2010

Out there in the universe there are an infinite number of copies of you

Cosmology’s dirty little secret, the thing the scientists don’t like to tell you because, well, it’s embarrassing. But, according to the standard picture of our Universe combined with the standard picture of physics, quantum theory, there may be an infinite number of other domains like our Universe in which all possible histories are played out. It could be that there is something wrong with the standard picture of cosmology or physics or both. Or it could be that there really are an infinite number of copies of you out there in the Universe! 

If that doesn’t blow your mind, nothing will!
(I got this somewhere, but I don't remember where!  How fitting.)

Wednesday, June 23, 2010


And free. Free of the dramatic fiscal retrenchment and tax rate increases that are going to be plaguing much of the rest of the industrial world. Shortly after reading Miners Agree to Higher Royalties in yesterday’s WSJ on a story out of Australia, we saw Canada Seeks to capitalize on Australia’s Resources Super-Tax in the FT. Canada is one of the few countries with a low primary budget deficit and as such is in the process of lowering corporate tax rates, which will be below 25% for the combined federal-provincial levy in most parts of the country by 2012. The one thing we know about capital is that it flows to the jurisdictions that treat it the best.

We are still reeling over that article in the Economist that showed how more market- and business-friendly Canada has become, especially in relation to what is happening south of the border. Canada has a Finance Minister who delivered a credible plan that balances the books and cut taxes in the next five years, and is resisting calls for a special levy on the banks. Meanwhile, the White House only has a plan that involves higher taxation and no intent on eliminating the deficit even for the longer-term, and the U.S. Budget Director (Orszag) just resigned (see After Orszag, Red Ink and Hard Choices on page A4 of the WSJ).

Two-years ago, the Canadian dollar approached par as oil was about to hit $140 a barrel. In the latest go-around, the loonie approached par with oil nearing $80 dollars. In other words, the Canadian dollar was behaving strictly as a commodity currency back in 2007 and 2008 (in both directions). But this rally in the Canadian dollar has a different feel to it; it’s much more than just a commodity story this time around. Canada has basically been re-rated coming out of the credit crisis as a bastion of stability in an increasingly unstable world, and for a variety of reasons:•

The federal government actually deserves the AAA credit rating that it receives on its debt.

  • No Canadian bank failed.
  • No Canadian bank even cut its dividend. Canadian banks spin off a dividend yield of just under 4%, compared to a little less than 1% in the USA.
  • he Bank of Canada is now raising rates in the face of a solid domestic economy, while the Fed is on hold for a long time. So, global investors who are looking for a place to park money in liquid short-term securities get a yield premium over U.S. alternatives.
  • Top marginal tax rates are already higher in New York City than they are in Toronto.
  • On a global scale, real estate in Toronto, Montreal and Vancouver is cheap as borscht (as my Bobba used to put it). This may be why property prices have been heating up. It may come as a surprise to many Torontonians that when American high net worth investors visit the city, they can’t believe how inexpensive the Bridle Path is -- especially considering its proximity to downtown (New Yorkers can’t get anything like that south of White Plains).
  • It’s not just about oil any more, but also natural gas – whose price has carved out a bottom – and precious metals, which command a 13% share of the TSX’s market cap versus less than 1% for the S&P 500.
It was fascinating to see the Canadian dollar only correct down to 92 cents during this most recent round of global financial turbulence and flight-to-safety. That is a far cry from the correction down to 78 cents following the Lehman aftershock, not to mention the move down to 62 cents after the tech wreck a decade ago.

At the current time, the Canadian dollar is moderately overpriced but the fair-value line is moving up two to three cents a year, which means that within the next half-decade, it could easily be worth 15% more than it is today. This is something for global investors in general and Americans in particular to contemplate for in any given year, half of the total return differential between Canada and the U.S., whether it be in stocks or bonds, is derived by the direction of the exchange rate.

For the birdwatchers among us, this may well be the time when the loon beats up on the eagle.

Is the Canadian economy really that strong?

Is the Canadian economy really that strong?

After exhibiting very strong signal for the past 6 months, Canadian consumer decided to stay home in April.  Consumer sale (seasonally adjusted) fell 2% in April (vehicle, clothing were the worse) with 10 of 11 sectors showing a marked drop off.  It could be a reaction to the retailers attempt to increase prices (a reflection of their increased costs, but desire to maintain margins) again illustrating that it is easy for retailers to confuse being price giver and price takers.  BTW the 2% drop wipes out eh March increase in retail sales.  

The auto sector saw its biggest drop at new car dealers down 5.3%. In terms of regional distribution the worse affected province was Quebec (-4%) – but it is the province that has been the least affected by the crisis.  Ontario, Canada’s bellwether, saw a 1.3% drop in sales.  For completeness sake, Canadian retails sales have been on an uptrend since early 2009.

April retail sales were down in all provinces, but Quebec saw the biggest fall, 3.9 per cent, after five consecutive increases. Ontario also dropped 1.2 per cent following three positive months.
National retail sales have seen an upward trend since early 2009. Few months have seen decreases since the stock market first plummeted in the fall of 2008.  Over the past 12 months retail sales are up 6% in Canada.

For those interested on a "unadjusted" basis sales were up 7% on March 2010.  Weather is a very important factor in Canada.

Tuesday, June 22, 2010

The UK budget as a blueprint?

Today the Chancellor of the Exchequer announced his special budget for the UK.  Overall, the plan is to reduce the government’s deficit from STG 149 billion to STG 20 billion over a 4 year period.  In percentage from 10.1% of GDP to 1.1% of GDP. 

The cuts are severe, and actually are somewhat similar to what Canada did in the mid 90s, with one big difference, for Britain this will be actual spending costs, in Canada the expenses were effectively shifted from the central government to the provincial ones.

Bottom line a 25% reduction in government expenditure in all but two departments:  healthcare and foreign aid.  Also increases in taxes:

  • Capital gains tax rise by 10% to 28% (with a STG 5 million lifetime exemption)
  • VAT rise of 2.5% to 20%
  • Corporate tax down from 28% to 24%, but dramatic reduction in exemptions
  • Bank tax

The impact on the economy will be mixed, the reduction in corporate taxes will be balanced out by an important reduction in certain deduction, so the impact of the cut is less obvious then it first appears.  However, there is no doubt that at the headline level; the UK budget is a carbon copy of what the Canadian government did in 1995 (aside from the bank tax – all though a Capital tax was introduced at that time for all companies in Canada).

Worrying is the bank tax, which can be seen as a “piggy bank” by various governments – France and Germany appear poised to imitated the UK government.  On the other hand many of these financial institutions benefit form implicit government guarantees.

The Chancellor anticipates that GDP growth in 2011 will be below 1.5%, so the government is bracing for the worse.


Monday, June 21, 2010

Yuan, Inflation and Expectations

The big news is that China will be going off the peg to the U.S. dollar.  Studies indicate that the Chinese currency is between 25% and 40% undervalued in dollar terms.  Of course this doesn’t help since the implication is that the undervaluation of the Yuan against the Euro was even more extreme!  

China is Canada’s third largest trading partner, overtaking Japan in 2008, to take on about 3% of all Canadian trade (62% of all trade is with the U.S.).  So what is the impact of a re-valuation of the Yuan on Canada’s trade position?  First, a revaluation of the Yuan (lets say the authorities allow a 5% appreciation) is almost meaningless since the Canadian dollar over the past 5 years has gained approximately 30% against the U.S. dollar, and by the same amount against a pegged Yuan.

It will affect Canada’s producer price index (PPI), but its unclear how much of this production cost increase will pass on to the consumers.  Overall, the link between China and Canada is too inconsequential to mean anything to the Canadian economy.  The pressures on the Canadian dollar are driven by the energy complex (and the S&P 500).  

Aside from that very little economic news out for Canada this week.  Inflation is the big number, and will feed the flame for additional increase in interest rates.  Although the bank of Canada has been sounding the alarm on global economic conditions:

  • 21 Jun 2010 15:29 BST *DJ BOC: Overall Level Of Risk To Financial Stability Has Increased
  • 21 Jun 2010 15:29 BST *DJ BOC: Risk Of Another Period Of Severe Stress In Financial Markets, Global Banking Sector
  • 21 Jun 2010 15:29 BST *DJ BOC: Steps Taken In Europe In May Fall Short Of Lasting Solution To Fiscal Woes
  • 21 Jun 2010 15:29 BST *DJ BOC: Countries Need Realistic Plans To Achieve Sustainable Fiscal Positions
  • 21 Jun 2010 15:29 BST *DJ BOC: Europe Fiscal Woes A Risk To Timely Resolution Of Global Imbalances
  • 21 Jun 2010 15:29 BST *DJ BOC: More Flexible Exchange Key In Resolving Global Imbalances
  • 21 Jun 2010 15:29 BST *DJ BOC: Sees "Transitional Challenges" Form Implementation Of Bank Capital Rules
  • 21 Jun 2010 15:29 BST *DJ BOC: Downside Risk To Canada Financial System From Global Downturn Has Risen
OK someone is clearly not staying on message.  But then as I have often indicated, Canada’s “good-ish” economic health allows the authorities to be a bit more honest than in Europe or South of the border.  

The jury is out on what will happen over the next few months.  

CAD at parity (consistently by Q4/10)
GDP growth for 2010 3.2% -- implication is that Q3 & Q4 will be very weak.

Thursday, June 17, 2010

Canada's exchange rate -- beyond parity in 2011

Scotia Capital’s monthly foreign exchange strategy conference call is a great piece of research.  Sutton and Tihanyi do an excellent job on providing both S/T and L/T flavor to the foreign exchange market.  When Canadians talk foreign exchange they talk about the US Dollar, since the vast majority of Canada’s trade flows are with the U.S.

Scotia Capital’s thesis is that over the next 18 months:
(1)               The Canadian dollar will settle slightly over parity with the US dollar, and
(2)               That Canadian short term interest rates will range around 2.25%.

According to Scotia Capital, the factors with the highest level of correlation with a stronger Canadian dollar are:

(1)               Performance of the S&P 500
(2)               Oil Prices
(3)               Direction of the Euro
(4)               Copper prices

In terms of negative correlation the US S&P 500 volatility index presents an almost perfect correlation of -0.95

According to Scotia Capital, the drivers for higher interest rates are inflation and a recovering domestic economy. Interest rates at 0.5% are too accommodative, since real interest rate is now -1.5% (0.5% less 2.0% inflation).  However, despite a broad recovery our economy remains subject to external shocks.  Although housing was the dominant GDP driver over the past 12 months it is now falling back.  The March 2010 GDP growth sources were very well diversified with manufacturing (which had been lagging in the pervious 12 months), mining and energy, wholesale and agriculture.  

Scotia Capital is in the same crowd that believes that interest rates differential between the U.S. and Canada will exceed 0.75% by the end of the year.  However, this is not a sure thing as the Governor of the Bank of Canada said on June 16th: 

While “[r]ecent activity in Canada is unfolding largely as expected”, Mr. Carney emphasized that the “outlook is subject to considerable uncertainties. In most advanced economies, the recovery remains heavily dependent on monetary and fiscal stimulus.” Perhaps the key comment, which is not new, is that “[i]n light of the scale and volatility of these conflicting forces, it should be evident that no particular path for monetary policy is preordained

Part of the problem for the Bank of Canada is that the U.S. is a fiscal mess.  The numbers are daunting. 

The risk then becomes that Canada falls off a cliff because of the neighborhood!

Wednesday, June 16, 2010

When Politics gets in the way of investors' best interest

Several years ago Visa (the credit card people) did an Initial Public Offering (IPO) the banks were selling off a majority of their interest in the credit card company.  Investors across the globe participated in this IPO, this joyous example of capitalism, everywhere but in the Province of Quebec.

You see Quebec has some strange rules, first is the fact that virtually all form of "giveaway contests" are illegal here.  The province of Quebec has a monopoly on gambling and makes it very expensive for companies to do these contest.  The Quebec government also insist that all prospectus be fully translated into French.

Most people don't realize but French language prospectus do not use capitalized language.  You guess the result they become thick bricks that absolutely nobody reads.  Most people don't read prospectus anyway -- they are made to be incomprehensible, but in French its even worse because you have to "guess" as to the defined terms (bankers speak).  

In virtually all other countries, the full prospectus is only available in English with a brief summary -- which by the way tends to be a lot clearer as to the intent of the investment 5Ws.     The reality is that a confluence of politics and lobbying has insured that Quebec based investors will never be able to invest in most of the world's IPO -- although they can buy in the secondary market where no French documents are available...  You see Quebec had the option 4 years ago to switch from "legalese" to plain language prospectus (as is found in Australia by the way).  Instead of 200 page onion sheet boring run-on sentences that work hard at saying nothing, plain language prospectus are short and to the point.  they give investors a clear reason for the transaction what the money is going to be used for, what the company is doing and how well its doing.

Politically the shift in Quebec is impossible, the funny side is that most Quebecers are too poor anyway to participate in IPO, and the rich folks and investment funds set up Ontario based subsidiary that can purchase the IPO.  Once again the poor get screwed for political expediency.  BTW, and this is the funny part, Quebecers don't get it... 

And of course the latest example of Quebec exclusion:

For Immediate Release toCanada News Wire and U.S. Disclosure CircuitTSX SYMBOLS: GTU.UN (Cdn. $) and GTU.U (U.S. $)


TORONTO, Ontario (June 15, 2010) - Central GoldTrust of Ancaster, Ontario announced today that it plans to offer Units of Central GoldTrust to the public in Canada (except Québec) and in the United States under its existing U.S.$800,000,000 base shelf prospectusdated June 8, 2009 and filed with the securities commissions in each of the provinces and territories of Canada, except Québec, and under the multijurisdictional disclosuresystem in the United States pursuant to a proposed underwritten offering by CIBC.

Central GoldTrust will only proceed with the offering if it is non-dilutive to the net asset value of the Units owned by the existing Unitholders of Central GoldTrust.

The entire original amount of U.S.$800,000,000 provided for in the base shelf prospectus is available for this offering.

Substantially all of the net proceeds of the offering will be used for gold bullion purchases, in keeping with the asset allocation provisions outlined in Central GoldTrust’s Declaration of Trust and the related policies established by its Board of Trustees. Any additional capital raised by the offering is expected to assist in reducing the annual expense ratio in favour of all Unit holders of Central GoldTrust...

Tuesday, June 15, 2010

Recent Canadian Economic News points to a slowdown

Three important Canadian data points over the past few days:

Canadian housing starts were down 6.3% well below consensus expectations. However, we have to keep in mind that the rebound in housing starts observed since April 2009 has been strong. This month’s numbers could be the first signs of the end of a frontloading of the purchasing process by Canadian home buyers. Another important development is related to the multiple segment where there appears to exist excess stock. Residential construction has been a determinant component of the Canadian GDP growth. Initial data therefore (only 2 months of the Q2 period) seem to confirm that housing will not be a net contributor. Although housing only accounts for 6% of Canada’s GDP, its contribution to GDP growth has been disproportionate (think of all the related segments).

The trade picture is not very rose, although Canada produced a trade surplus +200 million in April (-200 MM in March) the news was not all good, insofar as that the reason for the surplus was a greater drop in import than in exports – (both in price and volume) which speaks weakness of the Canadian economy.  

More “poor” economic news on the Canadian auto segment which has seen a (widely anticipated) drop in sales in April (-4.7%).  This is the second month of weak sales, and StatsCan has indicated that preliminary numbers for May are flat.  Automobile sale are considered a minor data point, but added to the other economic news the 6.1% print for GDP growth in the first quarter is unlikely to repeat. 

The trends are troubling and is adds to the growing list of weak Q2 data — trade, housing starts and resale starts. We are tracking 3.3% QoQ at an annual rate GDP growth, below consensus estimates of 3.6% (the Bank’s at 3.8%) and we continue to think that the risks are to the downside.

Finally, and just as a form of “chart porn”, the U.S. freight volume has been one of the primary source of proof of a “V” shape recovery.  This morning the new numbers came out and they are simply terrible, down 25% on an annualized basis.  By far the worse retracement yet.  I cannot say that I have much of an opinion on the US economy, but the V shape is starting to not look like a U shape recovery but like a “hockey stick”, where the US economy operates for several year below its potential, with anemic growth rate, insufficient to absorb the mass of unemployed Americans.

One think for sure that the hockey Stick theory fits a deleveraging economy!

Friday, June 11, 2010

Canada Trade -- Not that good but better than a kick in the face

From David Rosenberg:

Canada posted a very small surplus of $200 million, which was below the $600 million consensus estimate and again, two-way trade deflated with exports down 1% and imports down a sharper 2.2% (these are in nominal terms). In volume terms, imports were flat while exports fell 1.6% in what was the second contraction in the real trade balance in a row. Upside growth risks for Canadian Q2 GDP are subsiding — if fact, we are at 3.3% (annual rate) right now versus 3.6% as per the consensus and we believe the risks are to the downside, especially in light of the weak May housing data.

Bottom line is that Canada's economy is doing okK, internal demand is good, oil price around $75 is keeping the CAD near the 1.03/97 level (again the Petro-currency effect).  But with 40% of the GDP depending on exports the signs are poor for export demand.

The Chinese numbers for May trade were excellent (up 48%) so we may be seeing a decoupling of the Asian economies (I wish) although in my heart I know that things just don't work out that way....Canada's dilemma is that  all levels of governments have (rightly) undertaken economic tightening which will impact GDP growth.  Q4 2009 and Q1 2010 were extremely strong, but already the numbers for Q2/2010 are looking more "iffy" we shall see.

In November 2009 my prediction was for Canada's GDP to grow by 3.2% in 2010, based on a number of factors (healthy financial sector, housing market strength, and raw material demand stable to strong).  The first half of the year has more or less delivered to goods (steel, aluminum, copper are still relatively high).  Still this is an illustration of the weakness of the recovery, that every Canada which has no suffered nearly as much as the other G7 countries, sees its GDP second half target growth probably around 1%.

Aside from that have a good weekend

Wednesday, June 9, 2010

You want Crazy, I’ve got Crazy:

S&P 500 is up 1.2% today

At the same time:

  • TED spread is 0.65% -- the highest in a long time
  • European banks are not lending to each other
  • Spanish interbank market is effectively dead.

That’s crazy, we have in Europe a major clusterfuck and the boys in the states are singing Up! Up! Up

Did the Hitchhiker's guide to the Galaxy predict the mini crash & BP's epic failure

Douglas Adams' Hitchhiker's Guide to the Galaxy series explaining how things that we've decided won't go wrong not only do go wrong, but are invariably made worse by our overconfidence. When I went back and found the passage, though, it turned out to be an almost breathtakingly perfect summation of not just the financial crisis, but the innovations that preceded it.
The Great Ventilation and Telephone Riots srDt 3454 of had started out as just a lot of hot air. Hot air, of course, was the problem ventilation was supposed to solve and generally it had solved the problem reasonably well up until the point someone invented air-conditioning, which had solved the problem far more throbbingly.
And that was all well and good, provided you could stand the noise and the dribbling, until someone came up with something even sexier and smarter than air-conditioning, which was called in-building climate control. Now this was quite something.
The major difference from ordinary air-conditioning was that it was thrillingly more expensive, and involved a huge amount of sophisticated measuring and regulating equipment which was far better at knowing, moment by moment, what sort of air people wanted to breathe than mere people did.
It also meant that, to be sure people didn't muck up the sophisticated calculations that the system was making on their behalf, all the windows in the building were built sealed shut. This is true. While the systems were being installed, a number of people who were going to work in the buildings found themselves having conversations with Breathe-O-Smart system fitters that went something like this:
"But what if we want to have the windows open?"
"You won't want to have the windows open with the new Breathe-O-Smart."
"Yes, but supposing we wanted to have them open for just a little bit."
"You won't want to have them open even for a little bit. The new Breathe-O-Smart system will see to that."
"Enjoy Breathe-O-Smart!"
"Okay, so what if the Breathe-O-Smart breaks down or goes wrong or something?"
"Ah! But one of the smartest features of the Breathe-O-Smart is that it cannot possibly go wrong. So. No worries on that score. Enjoy your breathing and go about your day."
It was, of course, as a result of the Great Ventilation and Telephone Riots srDt 3454 that all mechanical or electrical or quantum-mechanical or hydraulic or even wind-, steam-, or piston-driven devices, are now required to have a certain legend emblazoned on them somewhere. It doesn't matter how small the object is, the designers of the object have to find a way of squeezing the legend in somewhere, because it is their attention that is being drawn to it rather than the user's.
The legend is this: "The major difference between a thing that might go wrong and a thing that cannot possibly go wrong is that when a thing that cannot possibly go wrong goes wrong it usually turns out to be impossible to get at or repair.
Source: Ezra Klein & Douglas Adam

Monday, June 7, 2010

Why Canada's mid 90s solution will not work for others today

Canada faced similar problems to the U.K. back in 1993. The Wall Street Journal: describes how:
Taking over as finance minister in 1993, Paul Martin inherited a looming disaster. The government was running a deficit worth 6.6% of GDP. By the following year, gross government debt had hit 101% of GDP, while net debt was over 70%, even as GDP registered a strong rebound–it grew 4.8% in 1994–from the recession of the early 1990s.
Canadian government spending was cut by 15% (considering inflation) from 1994 - 1996. The budget deficit achieved a surplus in just three years. Canada's crisis disappeared was solved quite easily in retrospect, once tough austerity took place.
So will the Canada model work? Can the U.K., or Eurozone nations for that matter, follow Canada's early 90's play book and fix their debt problems just as easily? The WSJ explains why it will be far more difficult for them.
Canada had some key advantages back then:
  1. A strong global economy in the 90's.
  2. Massive consumer demand from a large neighbor like the U.S..
  3. Positive immigration trends which supplied a young and growing population.
  4. An era of booming leverage elsewhere compared to an environment of private de-leveraging today.
  5. We'll add another -- Canada benefited handsomely from the China-driven global commodities boom.
  6. A strong newly elected majority government...
Taken together, these were some enormous advantages relative to where debt-ridden nations stand today. Nothing is impossible, but we shouldn't expect the smooth ride Canada had.

Wednesday, June 2, 2010

This is what China’s commentator believe about the G7 countries

A year and half after the first shock waves of the global financial tsunami, Western economies - including the US and the European Union (EU) but excluding Australia and Canada, which are big natural resources exporters - are marching toward economic failure. I base this assertion on just one thing: Their governments are afraid to do the right thing.

With the full knowledge of what their fatal policies will lead to, their politicians do not seem to have the political courage to rally the support of the people to accept the necessary pain and make the sacrifices as preached by the Washington Consensus. Instead, Western governments have taken the other direction.

Much attention has been focused on the stagflation effect of spawning banknotes from helicopters, a metaphor for monetary quantitative easing.

That was bad already. Worse, the money has been given to a bunch of rich crooks who created the present quagmire in the first place. This is more than robbing the poor to pay the rich.

It is a typical case of grave moral hazard, especially in the US, where those who follow the rules are being punished for the benefit of those who destroy them. The world is now turned upside down, and it clearly spells trouble.

This is bad, not that China is itself blame free of this bubble mentality, but still…The one nice”er” aspect to this commentary is that Canada and Australia are outside the mix.

On other issues it seems that Bay Street is more divided on the ability/desire of the BoC to raise rates in July (at its next meeting).  The statement that announced the rate increase also included a bit about the global economy, and its impact on Canada.

I mentioned before that the health of the Canadian economy is a first derivative exposure to global GDP growth.  Its not so much that the world buys what Canadian companies make, rather we provide many of the building blocks (or as Dennis Gartman mentioned – things that are heavy and hurt your foot when you drop them) of international trade.  Should demand in Europe and America decelerate, then Chinese and Taiwanese manufacturers would need less of the raw materials that Canada (and Australia) producer.  Already raw material prices are dropping, with the copper king leading the way.  


Rumors are that China’s appetite for copper has dropped dramatically over the past few weeks – too early to say if this is a trend, but it would appear that early signals are for a Europe/America slow down that will eventually impact raw material prices – this is bound to affect Canada’s growth, and Mr. Carney’s ability to increase interest rates.

Not entirely sure what the impact on the CAD will be, right now our currency is behaving as a Petrocurrency, with a very high correlation with petrol prices... on one side a recession will lead to a reduction in consumption, on the other side US domestic supplies are constrained after the BP disaster.  Nuclear power has been sidelined in the US since the Three mile Island disaster of 1976.  Considering the importance of deep sea drilling on US production, the overall impact on oil prices is difficult to ascertain.

Tuesday, June 1, 2010

Where do you start? First, I was wrong!

Clearly the Bank of Canada saw an opportunity by raising rates by 0.25% this morning.  The press release seem do indicated that this rise should be viewed in the context of global financial turmoil and this may not presage an aggressive strategy of raising rates going forward.  But of course what else were they going to say within the context of an

The question that needs to be asked is why?

The BoC gives a few reasons:

  • The Bank has decided to raise the target for the overnight rate to 1/2 per cent and to re-establish the normal functioning of the overnight market.
  • Activity in Canada is unfolding largely as expected 
  • The economy grew by a robust 6.1 per cent in the first quarter, led by housing and consumer spending. Employment growth has resumed.
  • Going forward, household spending is expected to decelerate to a pace more consistent with income growth. 
  • The anticipated pickup in business investment will be important for a more balanced recovery.
  • CPI inflation has been in line with the Bank’s April projections. The outlook for inflation reflects the combined influences of strong domestic demand, slowing wage growth, and overall excess supply.
  • This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery
There you have it I was wrong.  The BoC took this opportunity to raise rates, because it could.  The economy is far from strong, inflation is under control and global events (which affect a trading nation such as Canada) are volatile.

As David Rosenberg said yesterday, interest rate hikes are like potato chips – you never have just one!