Tuesday, December 4, 2007 0 comments ++[ CLICK TO COMMENT ]++

News of Canada's Decoupling from USA Greatly Exaggerated

Well, I think today's surprise interest rate cut by the Bank of Canada pretty much puts a nail in the coffin of the Canada decoupling from the US theory--a theory I never really believed. I put a lot of emphasis on this move because Canada isn't showing as much stress as the US (export-oriented industries and manufacturing are getting hit badly but it's not that bad yet; real estate really didn't develop into a huge bubble here; etc). So a cut really means that the Bank of Canada, which is highly respected and generally considered to be more transparent than many other central banks, really feels that there is a big crisis that's unfolding.

The next dominoes to fall in the decoupling argument will be Europe, followed by Latin America (particularly Brazil) and then China. Once all this is done, everyone throughtout the world will know the word "subprime"...

The interesting thing is that, due to the huge run-up in cyclicals and comodities, equity investors really aren't feeling any real pain. Even with all the chaos in the derivatives, mortgage companies, financial firms, and so forth, the S&P 500 is still positive for the year (in US$ terms).

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