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

The end of Tesla?

 it takes a special kind of idiot, to think that he can antagonize his entire customer base, and think that it will not impact his business. When Elon Musk went to work for Donald Trump, and created the doge department, he antagonized every liberal, and these people represent 90% of his client base.That’s not a brilliant move. Now Elon Musk is worth hundreds of billions of dollar, so he shouldn’t care a great deal, however, he needs to care because of several other issues. The cyber truck has been a disaster, most have had to be recalled because of defective glue, it’s not a truck, it’s not a car, it’s noisy, relatively uncomfortable, but great as a development platform. What Tesla has learned in making car manufacturing more seamless is truly amazing. The problem was that Elon Musk was so pissed with the Democrats, and with Joe Biden, in particular because of some slight, which were just plain stupid too. By the way, that he decided to support with hundreds of millions of dollar, ...
Post a Comment
Read more

what people get wrong about tariffs

 The issue is simple. What percentage of the economy is dependent on tariff goods? The truth, is that the US economy is far more closed than people understand. People genuinely believe that all manufacturing has ceased to exist in the United States all given to China on the altar of woke policy the truth can be further from That statement. Only about 15% of US GDP is related to foreign trade. Of that amount, slightly more than half is from Canada in Mexico. And half of that is energy. What that means, is that about 7% of US GDP is tariff dependent. The proof in the pudding, is how little money tariff generates. People think that 30 or 50 billion is a lot it’s not in an economy that has $3 trillion. The impact on the US economy will be less visible but not absent. Inflation hasn’t occurred yet first because tests have hardly started to bite, but more importantly it’s such a small percent of the economy. Now certain things are critical. The rare earth metals from China were critical....
Post a Comment
Read more

Demographics

 I am preparing a kind of family tree for our children so that they know where they came from.  In my family I am the only survivor, although my brother and sister died recently they were both in their seventies (a story I told already).    It was a fun process, but it provided more than that.  First, I married relatively young I was 26 when I married and nearly 30 when our first child was born.   I was looking at my ancestors.  On my mother's side, she had 6 siblings, Four died before the age of 30, two in war, and two from illnesses.  Only she and a single sister survived.   The two boys had a child each but they died in WWII, and the other sister died as an infant.   what is interesting is that every one of my mother's siblings had children in their early 20s.   I know that my mom was hardly 20 when my brother was born.    What is remarkable is that among our friends, we are the only ones to have fou...
Post a Comment
Read more