Skip to main content

Turns out I was wrong! (Review of 2011 predictions)

IN late 2010 I made the following predictions:


  1. 2011 growth would be around 3%
  2. 10y T-Bond would price around 2.95/3.30 (because of inflation)
  3. 30y T-Bond would price below 4% but remain above 3.3%
  4. Inflation would be higher than BoC wants but Carney & friends have few options
  5. Oil would remain around $100/bbl
  6. CAD/USD would trade in the 97/101 range.
How did I do?

Turns out not so well on the important stuff, the 10y and the 30y fell dramatically during the year, in fact as an investor the 30y has been a spectacular investment if you consider that yields have dropped from nearly 4% in January 2011 to 2.57%, nearly 1% below my lowest target price.  The same is true for the 10y that fell from 3% in January to 1.75% this morning.

Growth:  the numbers are not all in, but while the first half was a disaster the second half of the year saw an explosion in GDP growth that could take Canada GDP growth rate within spitting distance of my 3% target.  Better yet, growth has been countrywide and relatively equal.  Most will not know, but Canada's car manufacturing capacity is working at capacity -- there is little slack in the economy, and Canadian companies have invested massively over the past 2 years -- allowing for large productivity gains (would be my guess).

Inflation:  That was the easiest to figure out, as long as the global economy didn't implode oil price would be higher than in 2010 (and a massive contributor to inflation this year).  There is no doubt that the BoC has wanted to tighten all year, but there is simply no scope with every other country experiencing serious dislocation (economic & political).  Canadians may not agree with the current government's objectives but one thing for sure is that Canada doesn't suffer from political gridlock!  Anyway inflation is above the BoC's confort zone.

CAD;  The only exchange rate that matters for Canadian is with the USD -- where the bulk of our exports end-up (moreover, the great bulk of Canada's exports are priced in USD), that was the easiest call I could make.  The CAD is clearly overvalued (it should trade in the 92/94 zone).  Earlier in October it seemed that the CAD was heading back into that zone, but it lasted for a few days.  Canada has an effective political system (at all leves), its financial institutions are in excellent shape (at least they have not been tested by a falling property market...yet) and foreigners see Canada (rightly) as a safe haven.

So overall, disappointing, I was of the opinion that because of inflationary pressures and solide economic growth the BoC would raise interest rates (January futures market had a 1% increase in base rate "baked in the cake"), but the BoC's incredibly negative view of the global financial system  forced Carney's hand -- no rate hikes.

My view of the Canadian economy (for investors) was neutral/negative, while I "predicted" stable yield on the sovereign bond market, a weak currency meant that Canada was not a destination of choice -- in fact, the opposite turned out to be the truth!  A foreign investors in Canadian fixed income instruments saw little or no currency fluctuation (at least against the USD) and massive yield drop -- the impact on bond prices has been massive.  You win some you loose some!


Comments

Post a Comment

Popular posts from this blog

Spray painting Taylor Swift G650 aircraft (updated)

 First, a bit of paint will not harm anyone.  These climate activities are going to learn two things in the next few days:  (1) Trespassing at an airport is a felony almost anywhere in the world.  That means criminal prosecution.   (2) removing paint from an aircraft is expensive.   So these climate activists are about to find out the reach of the British criminal system and it will not be pleasant, the UK has very strict laws about that, I would be surprised if cleaning the aircraft of all the paint will cost less than $100,000.     I am sure that when they planned (premeditation) this little show they had a very valid logic to doing this.  Tonight, they are probably realizing the depth of their troubles.   I understand that in the UK it's a minimum one-year jail sentence.    Also, good luck travelling with a criminal trespass charge against you.  I am relatively certain that the airline industry will ...
Post a Comment
Read more

Tariffs on inhabited Island

 Two seldom-visited islands, part of Australia, saw a massive increase in the tariffs they will face when exporting to the United States.   The 32,000 residents did not have much to say...being Penguines.   NO kidding, massive tariffs were imposed on Heard Island and McDonald Islands.  According to the Australian government, the last visitor to Heard was about a decade ago.   Never mind the 47% tariff on Madagascar, where the principal export is Vanilla and the GDP per capita is less than $500 a year. Not only a Stable Genus but evidently an administration that took all of two hours to proof the list of countries.    They also treated St Pierre & Miquelon, two islands part of France in the middle of the St Lawrence Gulf...
Post a Comment
Read more

Britain, France and Egypt

 The voters realize now that the Conservative Praty desire to return to 19th-century dominance has driven its hatred of the EU.  The voters realize now that departure from the EU has accelerated Britain's decline and may soon make it irrelevant.  At best it will have to kiss American arses to maintain its standing.  For this, the conservatives were punished.  The decline of Britain was inevitable, competition from Frankfurt and Germany in Finance was bound to grow.  The core of Europe (aka Germany) is aging quickly Macron seems to be winning his bet, the left alliance that won the legislative elections will not remain united for long, since they disagree on about everything.   The Far right though it was about to assume power is once again relegated to the back of the bus.   It may draw its own conclusions, but not all of these are good for France.  The far-right has won nearly 1/3rd of the electorate, that is not something to be ig...
Post a Comment
Read more