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Oh Canada! With the strongest economy in the G 20, we really are the true North strong and free! Our banking system has been used as a model around the world. During the financial crisis, our banks took some losses yet remained relatively stable. And as of late, our income taxes are lower than many US States!

Much of the stability in our financial system is due in part to fairly strict regulation. Granted toward the tail end of the real estate boom, Canadian lenders were becoming more lax in their lending standards. Fortunately for us, we didn’t get sucked in to the liar loans and no obligation, walk away loans that our friends South of the border became famous for.

Our dollar has remained close to par with the US dollar for some time now. Initially, we were thought of as a commodity currency, very much tied to the price of oil. While this still holds true, we’re starting to see a departure from being strictly a commodity based currency to a substitute currency for foreign investors looking to preserve wealth.

We’ve certainly racked up our share of debt as a nation, however not nearly to the extent of many other G8 nations. In fact, our current Federal Debt is lower now than it stood in 1996/97. See the chart below:

Year Gross. Debt in Millions [1]
1961-62. $14,825
1970-71 $20,293
1980-81 $91,948
1990-91 $377,656
1996-97 $562,881
2001-02 $511,946
2007-08 $457,637
2008-09. $463,710
2009-10 (projected) $492,437
2010-11 (projected) $522,337
2011-12 (projected) $535,237
2012-13 (projected) $542,537

Servicing our debt will also be less of a burden moving forward as our resource rich and stable economy, combined with a stable and strong dollar will undoubtedly draw in foreign capital in droves.

I expect a fair amount of volatility over the next several months as it becomes blatantly obvious that there is no sustained recovery taking place. If the United States decide to throw more stimulus into their economy, problems will likely only become worse.

They can’t lower interest rates further, however they can and will increase their purchases of US treasuries. This will keep help keep mortgage rates low, and will likely cause a short term rally in the stock market.

Longer term however, the bond market will begin to force yields higher, causing the Fed to accelerate their buying. A tail leading the dog scenario will begin to unfold until the debt levels become even more staggering and the bond market runs out of control.

Canada is highly dependent on the US economy. I believe however, that China will become an increasingly more active trading partner. I foresee China evolving into more of a consumption based economy as exports to the US and Europe fall.

The Yuan, if allowed to strengthen further, will solve two major issues currently facing China. First, it will tame inflation and stabilize wages for factory workers(major news as of late with all of the strikes over there). Second, it will increase the purchasing power against other currencies. Inputs such as steel, coal and oil will become more affordable to Chinese and allow them to profitably manufacture and sell products into their own economy.

As the Chinese see their purchasing power increase, they’ll likely start to spend more on recreational and entertainment. This will allow a healthy service based economy to emerge, creating many new jobs and increased standards of living.

Canada stands to benefit as we’re a resource rich nation. China will buy more of our products, services, and companies. Asians will also likely continue to purchase real estate in BC as it has a desirable culture and familiarity over many other provinces. All of this will help sustain our real estate market, mining and forestry sectors, agriculture and related industries. It will also serve to keep our dollar stable and reduce our debts as Asians buy up our Treasuries.

Obviously I’ve made some bold statements. As with everything, these are just my opinions based on observations and my train of logic. I could be wrong and events could evolve very differently though!

Thoughts?

It appears that China has called the Bluff of the US policymakers as it signalled an end to the Yuan’s peg to the US Dollar a week before the G-20 Summit. China said it will allow a more flexible yuan.

President Barack Obama and his poster child, Treasury Secretary Tim Geithner, along with other G-20 leaders have blamed China for manipulating their currency and keeping it artificially weak to promote exports. It’s ironic however that the real currency manipulators are the United States of America. For all of the talk and politicking, it’s abundantly clear that the US are enforcing a weak dollar policy at all costs.

In reality, Geithner and the mainstream media who decry the “cheap” yuan reveal a shocking misunderstanding of what capital actually is and how free exchange really works. It’s unfortunate that Americans and the rest of the world economy all stand to suffer their false notions about money.

Capital is not money, nor is money wealth.

Simply put, capital constitutes access to human and physical inputs which enable producers to innovate or create. Money is simply a yard stick used to assign a value to the inputs that they’re accessing. Money is not wealth. It’s a simple way to measure the true wealth that producers and investors exchange.

A stable currency is therefore important in order to consistently and accurately measure the value of both physical and human inputs. When money prices fluctuate, so do the prices of investments and goods. That’s why Gold is currently breaking all time highs as investors seek stability in its nonproductive but stable store of value.

World leaders arguments that a weak currency aids a country’s economic growth is on the face, false. Realistically, when money is devalued investment flows away from small business and the entrepreneur. Without the creation of new businesses and jobs, real productivity decreases. Consumption is not growth. Inflation is anti-growth.

China doesn’t have a modern central banking system. As a result, it’s monetary authorities have duplicated the actions of numerous other countries around the world, which is to define their yuan in terms of dollars. This is logical as the dollar is 90% of the time the unit of account on the other side of any currency trade. The dollar is the world reserve currency thus many countries want a tight currency relationship with the dollar.

If we look at how the yuan is pegged to the dollar, and not the other way around, if the yuan is cheap then so must be the dollar! Since the yuan has risen over 20% against the dollar since 2005, if there’s a cheap currency to speak of, it’s the dollar. Yet we rarely hear our leaders or mainstream media mention how little the debased dollar has done for the U.S. economy.

The yuan is tied to the dollar and it’s inexpensive because the dollar is. It’s simple logic! If U.S. policy makers were really pursuing a “strong dollar” policy, they wouldn’t be worried since if their currency is strong the yuan would also be strong. China isn’t the currency manipulator here, it’s just mimicking U.S. manipulation of the greenback.

Now that China has agreed to strengthen the yuan versus the dollar they are in fact escaping the inflationary U.S. monetary policy. This will help tame inflation in their own country and lower the price of imports to China.

Chinese producers will not be hampered by a stronger yuan. As I stated earlier, money is simply a yard stick, and a stronger yuan means that the imported inputs that Chinese producers rely on to create exports would become cheaper in terms of the yuan. In addition, the yuan would buy far more dollars that would in turn buy more imported goods. These lower costs of inputs can translate into lower export prices regardless of the fact the yuan is stronger in relation to the dollar.

The U.S. should be careful what they wish for. It seems for now that China has called their bluff and will begin to escape the inflationary effects of the greenback. U.S. economic growth is likely to be compromised. All of the criticism that both Geithner and President Obama have given China for a weak currency signals that the Treasury Policy is in favour of a weak dollar. As they continue to devalue, investment will flow to other countries like China and into gold where inflation won’t erode returns. If the U.S. continue to listen to Geithner, Americans will be shocked at how weak their dollar becomes relative to China in the near future.

Thursday May 6th, traders breathed a sigh of relief when the Dow ended the day down 348 points. On any other day, this would be terrible! But today was special.

Around 11:40 am Pacific time, the Dow suddenly plummeted by a thousand points as the result of a trade that, according to the rumour mills circulating around the market, entered a sell order for billions when it was supposed to be for millions of Procter & Gamble (PG) stock. “Doh!”. The stock was trading around $62.00/share and plummeted to $39.37 before almost immediately rebounding again to close at $60.75, down 1.41 or 2.27%. In addition, Accenture (ACN), went from over $40 to just $0.01 in the same few minutes before eventually recovering to $41.09, for a total loss on the session of $1.08 or 2.56%.

Trades that were more than 60% above or below levels at 2:40 PM EDT will be cancelled, Nasdaq said late Thursday. Yet that doesn’t compensate all that was lost so far.

According to the Wilshire 5000 (the broadest measure of the U.S. stock market, which reflects closing prices.), the overall market has lost around $1 trillion of value in the past three trading sessions.

Joe Average investors were directly affected today by computers selling stocks using high-frequency trading algorithms that kicked in with the sudden plunge in the market.

Thursday has been a blatant example of what Wall Street has become. Instead of being a provider of capital to finance growth in the economy, days like this make Wall Street seem as if it’s really just a casino; designed to separate the client from his money.

Even after Homer’s thousand-point drop was reversed, the major US averages still ended down more than 3% and holders of equities are left $1 trillion poorer than they were just three days prior. Something more than the careless actions of legendary trader Homer Simpson are at play here. Someone must have gained handsomely from the punters losses!

“Those losses, led by financials, were no glitch, but a clear reflection of the fact that sovereign debt woes due to indiscriminate Keynesian deficit spending is outrunning tepid global recovery and threatening the next financial blowout,” asserts Uwe Parpart, Cantor Fitzgerald’s chief economist and strategist for Asia.

“A machine or bad entry may have been the catalyst, but the scene was set for a big fall,” he continues. “The fact that gold prices jumped and barely came back down; that the euro dropped one big figure [that is, more than a full cent against the dollar] and stayed down; that oil tanked — and all that accompanied by a sharp unwinding of carry trades…amply proves the point.”

Beyond the monster, momentary glitches that sent the equity markets into freefall momentarily, it is the reemergence of the credit stresses that were at the core of the 2008 meltdown that is important.

In 2008, that was the result of funding difficulties by institutions left on the hook for errant credit decisions. In the case of Lehman Brothers, the U.S. authorities claimed they didn’t have the power to step in to stop the panic resulting from its collapse. When it came to AIG, they found the necessary authority to stanch the bleeding.

Ultimately, the federal government came to the fore with the much-criticized TARP, or Troubled Assets Relief Program. The Federal Reserve followed with its massive purchases of Treasury, agency and mortgage-backed securities totaling $1.75 trillion. The recovery in the markets roughly dates from the March 2009 Federal Open Market Committee when that program, commonly referred to as quantitative easing.

Now, with civil unrest in Greece instead of the collapse of US financial institutions, the ECB Thursday declined to take the same decisive actions that the Fed took in March of last year. For better or worse, the ECB refused to step in to monetize the debts of the beleaguered nations even as civil unrest continued in the Streets of Athens.

The aggressive actions to counter the credit crises in the US and the UK have been roundly criticized on the Right and the Left of both countries.

British authorities worried about civil unrest had they let Northern Trust fail. The run on banks and especially money-market funds could have been destabilizing in the US. Moreover, the steps taken to counter the crisis by the outgoing Bush administrations were continued and extended by the Obama administration.

The lesson is this goes far beyond some computer glitches, Homer Simpson’s trading skills or other technical difficulties. And the Greek crisis is no more just a European problem than the subprime mortgage collapse was solely an American problem. In sum, to think that this is only a momentary downdraft is a delusion. Hold on to your hat because we’re in for one wild ride!

When Apple announced their latest product, the iPad, I scoffed at the name (which quickly became the bunt of so many jokes) but decided to give them the benefit of the doubt and watch the Keynote address to find out more about this revolutionary device. To be honest, it left me feeling disappointed.  Revolutionary?  It’s basically just an over sized iPod Touch!  I was convinced that it’d be a major flop and had no desire whatsoever to purchase it.  I already owned a Sony eBook reader for my eBooks, along with 2 iPhones, an iMac, Apple TV and a Macbook Air.  I saw no place for the iPad.  I figured that Apple would have a really hard time convincing people to replace their Kindles and eReaders for the iPad.  I was wrong.  As always, the magical Steve Jobs has somehow done it again.  He’s created yet another must have product.  As time went on, the more I learned about iPad along with the positive reviews flowing in from those using it, I became convinced that I needed one!  But I still had a couple of doubts.  When they advertised a battery life of 10 hours I thought ”yeah right! Under lab conditions while in a fridge with the contrast all the way down and WiFi turned off!”  Actually, people are reporting getting 11-12 hours of use on a single charge!  And they claim to be continuously using the device for apps, web surfing and reading books.  That’s 1 for Apple, 0 for the critics!  But won’t using the device for extended reading cause eye strain compared to the eInk on the Kindle and other readers?  Nope!  Independant tests have shown no conclusive evidence of reduced eye strain reading on an eInk screen.  Turns out that it’s more of a sales pitch than a reality!  In addition, iPad has a sensor that automatically adjusts the screens brightness based on the surrounding ambient light!   iPad 2, critics 0!  Then I saw how I could still read my existing eBooks and Kindle books from my iPhone on the iPad, along with downloading any other eBook (say from my local library) in the ePub format.   My biggest beef with the Sony eBook reader is the crappy and buggy software that comes with it.  Plus the fact that I have to plug it in via a USB cord to transfer books.  With the iPad, I could do this through the familiar and easy to use iTunes interface and do it wirelessly!  As I explored the other possibilities with iPad, I decided that I could likely sell my MacBook Air as well!  I could eliminate 2 devices and replace them with the iPad!  Not only that, I’d get a longer battery life using my iPad over the Macbook Air!  I didn’t see a need to wait for the 3G version to come out as I can tether via WiFi to my iPhone and use my existing 6GB/mo 3G data plan instead (my phone’s always with me anyhow!)  So I went onto eBay and placed a bid on a 16GB iPad with the case and a 2 year Apple care plan.  Brand new.  I won!  I ended up paying $20.00 more than I would have paid in the store, but still cheaper than what they’ll likely charge in Canada when you consider most other apple products in Canada have a 10% premium plus 12% tax on top of the sale price.  It should arrive next week and I must say I’m more than a little excited.  Will I be able to get by without my laptop?  I think so but time will tell.  The windows Remote Desktop app will allow me to access our company servers so I can use all of the software I currently need.  Most of my documents are stored in the cloud so the storage capacity doesn’t concern me either.  No camera or USB, but I don’t need them on this device anyway!  I’ve got an iMac for that! 

What are your thoughts on the iPad?  Do you plan on buying one?