Please bear with me while I briefly indulge in one of my rants…
One of my biggest peeves is the self-righteous grandstanding of partisan politicians and their zealous constituents, regardless of which side of the aisle they occupy. When it comes to the national debt, both sides vehemently blame one another for America’s fiscal albatross. It has become more than exasperating to watch the same old arguments and criticisms unfold.
To illustrate my point, below is a graph which I believe sums up the root of our nation’s debt problems. For the simple-minded and you know who you are, I am not implying that government pension salaries are the underlying cause. Instead, they reflect the self-centered values of special interest group bonded politicians whose hypocrisy will never allow them to do what is right, just or fair on behalf of the American people.
Another sad truth is that many of our leaders after serving their terms often continue productive employment lives in the private sector and have ample financial resources to make it on their own outside of government assistance. These are pretty generous annuities contrasted against the typcial scenario for military veterans and/or senior citizens who are squeezed to make ends meet.
Anyway, I can almost guarantee you that whenever we get around to seriously negotiating a budget and debt reduction plan for America you will not see either side of the aisle proposing to cut these fat pension salary benefits. Just saying…
The Wages of Sinners Equal Debt (click to enlarge)
The markets are pleasantly up while I write this current post. It’s 12:44 pm EST and the SP-500 is up +25.97 (+1.94%) while the DJ-30 is up +231.33 (+1.91%) and the Nasdaq Composite is up +61.90 (+2.22%). It is a much welcomed relief rally after seeing the major stock market indexes plummet 12 out of 20 trading days during May-2012. With more than 80% of stocks technically oversold, investors are certainly entitled to to some sort of relief rally and now they are experiencing it.
Meanwhile, I am rereading a commentary news report on the Bank of Canada’s most recent interest rate policy decision (http://business.financialpost.com/2012/06/05/bank-of-canada-interest-rate-decision-what-you-need-to-know/) and cannot find anything remotely inspiring of relief for the roads ahead. Canada, mind you, has been one of the more credible and sober central banks when it comes to monetary policy and has demonstrated that it does not get high on its “own supply” (unlike the Fed’s Uncle Benny and his eightball posse of governors). So when I hear remarks like “European crisis materializing” and “risks remain skewed to the downside” while holding rates at a steady 1% stimulus level, I take notice.
Furthermore, the bank’s comments on accelerated slowdown in emerging-markets, which have been driving demand for commodities and counterbalancing the modest economic growth in the U.S. and weakness in Europe, could signal cyclical bearish pressure on commodity prices (note that from a secular perspective, I remain bullish on commodities).
If the performance of the Canadian dollar is an indication of trade conditions, then this certainly seems to be the case (see chart below). The Canadian dollar has been weakening against the dollar, which has broken its intermediate downtrend vs. the Canadian Dollar and may now be consolidating. Should the Dollar break out above the the highlighted resistance levels, then this price action would support the case for further emerging market slowdowns and lower commodity prices.
click to enlarge
At the end of the day, Canada is a natural resource based economy reliant upon exports. Therefore, it only makes sense that one can regard it as a canary in the economic global coal mine when it comes to projecting investment trends for the capital markets.