The Sky Is Falling?

This is not a Pollyanna piece. I look around and see many short-term issues that seem to be coalescing into an economic tsunami - a double dip recession if you will. I'm surprised that it hasn't already happened .. I think all the signs are there. I think the single biggest factor in all of this, is no matter how a government tries to stimulate spending (remember, the economy only moves when people and businesses spend money), we aren't. This has been called a jobless recovery in the USA (a few more jobs here in Canada). Business is making money by saving money. Payroll money. Doing more with less. At some point, they can't do this anymore - you run out of people to cut from their payroll. People who are afraid for their jobs, or are saving for retirement, don't spend a lot of money. These two factors alone are the prime movers (or lack thereof) in our economy today.

In Canada, the picture seems a bit rosier that to our neighbor to the south. I don't think we're immune, though. Here are some other reasons for my short term hedging:


Baby-Boomers
The baby-boomers are now in their late 40's to early 60's. They are not supposed to be buying stuff. They are already in the largest home their likely to own, have acquired most everything they want, and are now thinking about their retirement (if they haven't already retired). What does this mean? Saving. They shouldn't be spending like they used to, and are expected to save like never before to make sure there's enough for a secure retirement. All this sounds pretty compelling, right? But when you actually look at the data, what you see is a different story. Our personal savings rate has gone down (last year and last quarter). It was between 4 and 6%, but now it's 3.3%. Our personal expenditures on consumer goods are up as well, even though our disposable income has gone down. This doesn't make sense, unless you think that the average baby-boomer Canadian still thinks the good times will continue and keeps on spending?

Transportation
The price of oil is now $91.66 per barrel. The price at the pump (average in Vancouver) was $1.21/liter in January 2011. It's gone up last last day or two to over $1.25/liter. The forecasted price of oil in the next several months sees further increases. This will have an impact on our driving culture, much as it did in the summer of 2007 (when everybody was buying a hybrid) - actually, the price should exceed those of 2007.

Unemployment
Canada seems to be shockingly immune to the rampant unemployment south of the border. But for how long? Although the unemployment rate seems relatively steady around 8%, this is still a statistically high number. Many of the gains in new jobs are split (almost 50/50) between full-time and part-time, and the winners tend to be women over 55. I think, that as this recession continues on without real improvement in the economy of our largest trading partner, we'll see an effect on the jobless rate.

Debt
We all know the disastrous debt that countries like Italy, Greece, Iceland and Portugal have. We also know about the USA and Britain. But what about Canada? Did you know, that measured as public debt per person ($36K) or public debt as percentage of GPD (82.5%) that we're worse off than the UK or the USA? Not as bad as Iceland or Italy - but we're on our way.

Bank Earnings

As he says in this Calgary Herald piece today, Reuters reporter Cameron French talks about "sluggish lending growth and weaker trading revenue" with the big six Canadian Banks. While commercial lending remains robust, personal loans are almost non-existent, with higher interest rates and low demand - people are paying off debt, not acquiring more.