Monday, October 24, 2011

The weekend in review -- Canadian style

Autumn in Canada usually brings good excuses to stay at home and watch old movies.  The trees bear of leafs and the usual gray skies allow procrastination. Although this year the weather has been unusually balmy -- we are expecting a high of 15c today.

Canadian economic news is slow, not much going on.  The one item of interest it seems that Mark Carney is a shoe-in as the new head of the FSB (the guys who decided on the banking capital).   The Canadian banking system (which was laughed at during the early part of the past decade), proved that Too Big to Fail can work -- if well regulated.  Canada has six banks that account for 95% of all deposits, effectively control the banking system.  Yet all theses banks are profitable (less so this day -- still) and risk averse.  There is no concept of Level 3 assets, and Canadian banks have no equivalent to the FASB157 (where banks can dictate the value of their assets).  So that was the big news, confirmation, that Carney was now in line to take over the shaping of the world's largest bank's risk capital.

Aside from that the world is in "Melt-up" mode.   Some good stats out of China (why does anyone trust Chinese statistics is beyond me) have helped and the absence of news out of Europe -- it will take until Wednesday for the EU's leader to decide what they're going to do with Greece, Spain, Portugal, Ireland, and Italy... As the FT alluded to this weekend -- the problem now is that the EU seems close to finally addressing the problem, investors will soon realize what this really means.  Confidential documents are showing that Greek 2010 and 2011 GDP growth was/will be -5.5% and -3.5% respectively.  There is hope for some minimal growth between now and 2030 (yeah not a typo..) but if you are Greek, you get out now -- there is no future in that country.  The Irish, used to periodically leaving their homeland over the centuries, will restart their emigration...not a surprising outcome, the best and brightest will get out of town.

The economic news flow peaks on Wednesday with the release of the National Bank Teranet House Price Index -- another increase in Canadian house prices seems to be baked in the cake (at any rate if you look at the other Canadian house price indexes!).  Aside from that not much of interest, the one remarkable aspect of the weekend is how little was discussed about the situation in Europe and what will emerge there, the FT had a commentary that the leveraging of the EFTF was a very bad idea, but that's about it.

As I said last week, plan for the market to melt up a bit more, rumors of QE3 are emerging, but it could be just that since QE1 and QE2 proved to be short live success (if we can call them that).  One thing for sure the US government is monetizing the debt right now with the rise in money supply.

Good week ahead

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