Economy to rebound by 2010: Bank of Canada

[jdobbin]

http://ca.news.yahoo.com/s/capress/081023/...l/bank_forecast

In its fall Monetary Policy Report, the bank said Canada's economic growth will be sluggish through the first quarter of next year, but will then start to pick up and will hit 3.4 per cent in 2010. It predicted real economic growth of 0.6 per cent this year and next.

It said lower world demand, lower commodity prices and tight credit will all contribute to sluggish growth.

The weaker Canadian dollar, however, will help, by lowering the cost of the country's exports and making them more attractive to foreign customers.

I certainly hope what they forecast is true but it seems awfully optimistic.

A weaker dollar is fine for exports so long as the economies we are selling to are not in a major recession.

[Topaz]

How many Canadians will be unemployed by then?? Of those who do lose their jobs how many can be trained to make as much as they did before they lost their jobs? How many of those same people will start to lose their homes and what in the hell is the Harper going to do about it. It would help if those collecting EI could get that $4000. the Feds keep back from Ontarians! It seems to me, that if Canada was going to have the same problems with mortgages it will be because of job losses.

[August1991]

I certainly hope what they forecast is true but it seems awfully optimistic.

In July 2008, the world price of oil was almost US $150 per barrel and some were predicting that it would reach $200 per barrel. People talked about "peak oil".

Now, in November 2008, oil is about US $ 60 per barrel.

----

Ambitious people at the Bank of Canada should not be allowed to use the Bank's name to publish such predictions as you posted, Dobbin . They just make themselves look ridiculous and the Bank of Canada will lose its valuable, precious credibility.

At the moment, no one knows what will happen in 2009 - let alone 2010. I don't mean that the economic situation will be bad. Indeed, it may be good. I just mean that no one now knows and anyone who claims to know is either confused, or has an ulterior motive.

Edited November 7, 2008 by August1991

[jdobbin]

In July 2008, the world price of oil was almost US $150 per barrel and some were predicting that it would reach $200 per barrel. People talked about "peak oil".

Now, in November 2008, oil is about US $ 60 per barrel.

Back in July, I agreed with some of the few who said it looked and felt like a bubble in terms of the oil price.

I said that I thought it was possible that it could go down to $70 again, especially with an economic downturn.

It is funny that some said that $150 a barrel was the wrong time for a carbon tax. Now at $60, it is also a wrong time for it.

Yes, Harper is desperately trying to get a deal with Obama on climate change even before the man swears in.

Ambitious people at the Bank of Canada should not be allowed to use the Bank's name to publish such predictions as you posted, Dobbin . They just make themselves look ridiculous and the Bank of Canada will lose its valuable, precious credibility.

I don't mind the predictions but in situations that are so fluid, those predictions can change fast.

[msj]

Sheesh, what some people don't understand about a "forecast," especially when they spend so much time minimizing the effects of the current recession due to not understanding how statistical methodology is slow to show the true picture until revised numbers start to show up months and years after the economic fact, is beyond me.

[August1991]

Sheesh, what some people don't understand about a "forecast," especially when they spend so much time minimizing the effects of the current recession due to not understanding how statistical methodology is slow to show the true picture until revised numbers start to show up months and years after the economic fact, is beyond me.

For someone who is so doom-and-gloom, I appreciate msj your effort to be positive.

Of course msj, as you say, this is only a "forecast". The Bank of Canada is not saying or predicting that there will be growth in 2009. It is merely forecasting that there will be growth.

----

My point is broader. If you could accurately predict the future, would you publicize your knowledge? Or would you use your knowledge more carefully, for your own benefit?

[msj]

For someone who is so doom-and-gloom, I appreciate msj your effort to be positive.

Of course msj, as you say, this is only a "forecast". The Bank of Canada is not saying or predicting that there will be growth in 2009. It is merely forecasting that there will be growth.

----

My point is broader. If you could accurately predict the future, would you publicize your knowledge? Or would you use your knowledge more carefully, for your own benefit?

Well, given my alleged "doom and gloom" has come through and that I have been preaching this in other threads for quite a while now, I guess you know my answer.

[August1991]

Well, given my alleged "doom and gloom" has come through and that I have been preaching this in other threads for quite a while now, I guess you know my answer.

Fair enough.

Let us all know when the market touches bottom, and then if you're right, we'll appreciate either your perspicacity or your acumen.

Then again, doom and gloom. Will the market go to, uh, zero?

[msj]

If you bothered to read any of those blogs that I have linked to on numerous occasions then you would already know how long a typical recession lasts, what makes this recession worse than the last two, what that likely will mean for the stock market and then you can make up your own mind on the matter.

[August1991]

If you bothered to read any of those blogs that I have linked to on numerous occasions then you would already know how long a typical recession lasts, what makes this recession worse than the last two, what that likely will mean for the stock market and then you can make up your own mind on the matter.

Well, I have looked through your links msj. In general, they are good but entirely one-sided. msj, you clearly do not believe in the scientific method. Your mind is made up and you now seek evidence to support your belief.

But then, were your previous beliefs held in practice or only in words? Did you post here one way but invest otherwise? Did you walk the talk? IOW, let us all know when the market has touched bottom so that we can buy in. (Similarly, Noubini has been predicting a collapse for ages. That strikes me as a scam. Can he predict when the market hits bottom?)

[msj]

Well, I have looked through your links msj. In general, they are good but entirely one-sided. msj, you clearly do not believe in the scientific method. Your mind is made up and you now seek evidence to support your belief.

But then, were your previous beliefs held in practice or only in words? Did you post here one way but invest otherwise? Did you walk the talk? IOW, let us all know when the market has touched bottom so that we can buy in. (Similarly, Noubini has been predicting a collapse for ages. That strikes me as a scam. Can he predict when the market hits bottom?)

The only thing more suspicious than people claiming to know when the market will/has hit bottom are those who ask others to predict it for them.

If you followed the blog rolls on The Big Picture and Calculated Risk you would find a diversity of opinion (at least as compared to the cheer leading from the MSM). Also be sure to read John Mauldin on a regular basis.

I cannot account for what you have read, not read, understood and failed to understand.

All I know is that these guys provide substance to their arguments and you can take them or leave them as you want. They, and I, can only do so much hand holding.

As for investing - the specifics are no ones business. Only a fool would take advice from others on a forum. Nor is this relevant to the arguments at hand.

Given that I have been calling for a recession for a long time then how would knowing that I bought, say, put options on the market at various points mean anything? [This is entirely hypothetical]

How about if I bought, say, call options at other turning points? [Once again, hypothetical]

Let's say my timing was perfect? Or how about imperfect?

Completely meaningless to the substantial arguments I have provided here and elsewhere.

Attack my arguments and Roubini's arguments rather than my alleged investment strategies and his alleged "scam" and then we can discuss these issues further....

[August1991]

The only thing more suspicious than people claiming to know when the market will/has hit bottom are those who ask others to predict it for them.

Yet, that is what Noubini and you have been doing for ages.

You can predict a fall, deflation. Can you predict a rise? When?

A stopped clock is right twice each day, and many so-called analysts have predicted nine of the last five recessions.

----

msj, when should we all buy in? When will the market rise?

Edited November 23, 2008 by August1991

[msj]

Yet, that is what Noubini and you have been doing for ages.

You can predict a fall, deflation. Can you predict a rise? When?

A stopped clock is right twice each day, and many so-called analysts have predicted nine of the last five recessions.

----

msj, when should we all buy in? When will the market rise?

I have been predicting a recession since earlier this year (or, perhaps late last year).

Given that it is likely that the NBER is going to announce the start of the recession as late 2007 or early 2008 (and given my prediction of Feb. 2008 as the start date in the other thread) I would hardly call myself doom and/or gloom. I also thought the recession would be mild but that has been shown to be wrong.

But at least better to be wrong to a certain degree than entirely.

As for Roubini (not sure why you keep getting his name wrong), I started listening to him as it became evident that he understood the underlying reasons for this mess.

No one is going to time anything perfectly and anyone who thinks they can is an idiot (and anyone who expects a person to time things perfectly is ...).

I have provided substance to my posts regarding why the US is in recession and, as things have gotten worse, why they have gotten worse.

Whether one can perfectly predict when the economy is going to head up is also a mugs game.

Nevertheless, just like the stats are slow to show the downtrend into recession (unemployment stats in particular) so will they be slow to show the uptrend back into economic growth.

As already explained elsewhere on numerous occasions, this is due to statistical methodologies, where at least some are questionable (but that is for a much more intelligent debate than pointing a finger at someone over whether or not they can time turning points).

No one knows what the future will hold but it is always interesting to read forecasts about the future when they have plausible reasons attached to them - it is not so much the outcome of the forecast that is important so much as the method that arrived at the forecast and then, once the actual results are in, to compare the forecast methodology to the actual results to see what assumptions were flawed, what was surprising, what wasn't surprising etc....

That is where intelligence is shown which is why your focus on getting the timing right is so... anti-intellectual, to say the least.

[msj]

Here's an interesting article that touches a bit on what has been discussed here:

The vision thing

People who worried before 2000 that the “new economy” was a bubble, or warned of the terrorist threat before September 11 2001, or saw that credit expansion was out of control in 2006, were not popular. They were killjoys.

Nor were they popular after these events. If these people had been right, then others had been blind or negligent, and the latter preferred to represent themselves as victims of unforeseeable events. As John Maynard Keynes observed, it is usually better to be conventionally wrong than unconventionally right.

[August1991]

Here's an interesting article that touches a bit on what has been discussed here:

The vision thing

msj, that is a good article. In particular, I found interesting the list at the end about how so many missed this current collapse. For the most part, one would find a similar list after most other financial collapses - with possibly one exception, given as the first:

First is the unforeseen, but now evident, fragility of the global economy in the face of a systemic banking collapse. Jim O’Neill, chief economist of Goldman Sachs, says the failure of Lehman Brothers was “a game changer”, before which his forecasts “were panning out OK” and after which “we have been scrambling to keep up”.

It seems to that we now have global financial markets in way that we didn't before. Information flows with a very low transaction cost. I recall reading that Holland's tulip bulb bubble was a consequence of the printing press and broadsheets. This collapse seems to be a consequence of the Internet.

I don't agree with those like Roubini (to the extent I understand what he says other than predicting doom-and-gloom) that this collapse was caused by a lack of government regulation or by complicated financial instruments that are unstable.

Derivative markets including various options, future contracts, swaps will only fluorish in the future. People will devise different and better ways to exchange real assets and to trade risk. In the future, ever more complex contingency obligations will be traded in anonymous markets. Financial markets will be deeper and involve instruments far more complex than what we have now. Such markets (as now) will be well beyond the ability of governments to regulate. (Compare stock markets today with those 200 years ago. How many more people trade today?)

So, no. I don't think the "sophistication" or complexity of financial markets caused this collapse.

What caused it?

I liked Greenspan's testimony because it stated plainly that we don't understand well how humans deal with another. I particularly liked a short article by Kenneth Arrow in The Guardian:

The current financial crisis, the loss of asset values, the refusal to extend normally-given credit and the great increase in defaults on obligations ranging from individual mortgages to the debts of great investment banks presents, of course, a pressing challenge to the fiscal authorities and central banks to take measures to minimise the consequences. But they also present a challenge to standard economic theory, a challenge all the more important since the development of policies to prevent future financial crises will depend on a deeper understanding of the processes at work.

...

The second strand of analysis was a growing recognition of the importance of information in governing reactions to uncertainties. If individuals in the market have different degrees of information, the ability to create securities or engage in other forms of contracts becomes limited; the less informed understand that the more informed will take advantage and react accordingly.

So, what caused this collapse?

IMV, the collapse of a housing bubble in the US lead to problems in credit markets and this in turn caused a fall in equities. Or something like that. About 50% of North America's financial sector is designed to allow young people to have the use of a house that in fact is "owned" by some one older and richer. We call it a mortgage. Problems in the housing market are bound to lead to probelms in the financial sector and then throughout the economy.

Something else. The financial sector has undergone large technical changes in the past 20 years or so. Banks rely on computers to a greater degree than most other sectors of the economy. Technical change is like a shift in tectonic plates and this financial crisis is like an earthquake.

IMV, there's a political aspect to this in that many people wanted to make Bush look bad so that Obama would get elected. But I'm not arguing that this recession is a fiction created by the MSM.

----

How bad will this recession be in Canada and how long will it last? I dunno.

Canada's banking sector is rock solid since English Canadians are basically small-c, constipated conservatives. Moreover, Canada's housing market (even in the west) has not indulged the kind of bubble behaviour seen in the UK or Nevada.

OTOH, the world no longer wants what Canada has. The glaciers of 15,000 years ago exposed Canada's (and Russia's) riches. When the world (ie. the US) wants easily accessible resources, Canada (and Russia) are the go-to guys. Unfortunately, the world doesn't want our stuff right now.

Edited December 12, 2008 by August1991

[bush_cheney2004]

So, no. I don't think the "sophistication" or complexity of financial markets caused this collapse.

What caused it?

No, but it did provide unprecedented velocity to the collapse....large magnitude over a short duration = earthquake

So, what caused this collapse?

IMV, the collapse of a housing bubble in the US lead to problems in credit markets and this in turn caused a fall in equities. Or something like that. About 50% of North America's financial sector is designed to allow young people to have the use of a house that in fact is "owned" by some one older and richer. We call it a mortgage. Problems in the housing market are bound to lead to probelms in the financial sector and then throughout the economy.

Perhaps, but the US and Japan have had such real estate bubbles before, notably in the 1980's. The so called "perfect storm" added very leveraged instruments of many types (not just mortgaged backed securities) coupled to the previous removal of financial firewalls. Hedge funds may have seemed exotic and risky compared to the boring mutual fund managers chasing a mere 10% annual return, but they had a lot more to invest in overvalued equities as well. The Dot.Com bubble wasn't that long ago.

..in the end...a haircut for everybody!

[Oleg Bach]

Just got one and feeling better all ready....not only informed - but smart...remember the days of the shoe shine..that was helpful also. Shinny shoes for all!

[msj]

I don't agree with those like Roubini (to the extent I understand what he says other than predicting doom-and-gloom) that this collapse was caused by a lack of government regulation or by complicated financial instruments that are unstable.

Derivative markets including various options, future contracts, swaps will only fluorish in the future. People will devise different and better ways to exchange real assets and to trade risk. In the future, ever more complex contingency obligations will be traded in anonymous markets. Financial markets will be deeper and involve instruments far more complex than what we have now. Such markets (as now) will be well beyond the ability of governments to regulate. (Compare stock markets today with those 200 years ago. How many more people trade today?)

Just because these instruments are beyond you comprehension is no excuse to throw up our hands and say we can't do anything about it and we might as well just let them do whatever they want.

So, no. I don't think the "sophistication" or complexity of financial markets caused this collapse.

What caused it?

I liked Greenspan's testimony because it stated plainly that we don't understand well how humans deal with another. I particularly liked a short article by Kenneth Arrow in The Guardian:

So, what caused this collapse?

IMV, the collapse of a housing bubble in the US lead to problems in credit markets and this in turn caused a fall in equities. Or something like that. About 50% of North America's financial sector is designed to allow young people to have the use of a house that in fact is "owned" by some one older and richer. We call it a mortgage. Problems in the housing market are bound to lead to probelms in the financial sector and then throughout the economy.

Something else. The financial sector has undergone large technical changes in the past 20 years or so. Banks rely on computers to a greater degree than most other sectors of the economy. Technical change is like a shift in tectonic plates and this financial crisis is like an earthquake.

You obviously still do not have a clue as to the real problems in the economy and the main reason I think your hero (now zero) Greenspan deserves so much blame:

It comes down to moral hazard.

Greenspan always claimed to be blind to asset bubbles and he loved running them up (stocks, credit and housing all happened mostly under his watch).

There was no market he wasn't willing to ignore (in terms of regulation) and no amount of risk that he wasn't willing to wash away with the easy Al "put."

Why does that matter?

Simple: when you let any idiot run a private bank (Mozilo for example) or other idiots run investment banks (Bear Stearns, Lehman Brothers, Goldman Sachs, Merrill Lynch, Morgan Stanley - none exist anymore as investment banks) or hedge funds, or operate as mortgage brokers or appraisers or allow the big three rating agencies rate mortgages as "investment grade" when they clearly were not, well, when your system allows this type of behaviour (among other behaviour) then it is no wonder the Fed and Treasury Secretary are up the creek to the potential tune of $8.5 trillion (not counting $5 trillion from Fannie and Freddie guarantees).

Some say this is simply an ethical thing.

There are good points on that front.

But it all comes back to a competency crisis (as opposed to a confidence crisis).

When a system relaxes regulations over decades, allows any idiot to leverage 40 times equity, and the Central Banker of the day continuously bails out the market (interest rate cuts, backed down on his "irrational exuberance" speech in the mid 90's, long-term capital etc...) then you are simply inviting incompetent people to come into the system, make big bets, and simply assume that the risk is mostly mitigated away thanks to the Greenspan "put."

To let this happen in the stock markets and real estate is one thing, to allow it to happen in the debt market is disastrous - as we are finding out.

IMV, there's a political aspect to this in that many people wanted to make Bush look bad so that Obama would get elected. But I'm not arguing that this recession is a fiction created by the MSM.

Yeah, I noticed you and BC2004 denying the recession until the US election was over.

Leads one to conclusions about one's lack of credibility when they taint substantiated arguments with such conspiracy minded nonsense....

How bad will this recession be in Canada and how long will it last? I dunno.

Canada's banking sector is rock solid since English Canadians are basically small-c, constipated conservatives. Moreover, Canada's housing market (even in the west) has not indulged the kind of bubble behaviour seen in the UK or Nevada.

Canada got lucky. If the US managed to put off this crisis for another 5 or more years then it is likely that Canada would have found itself in a similar situation as the US or the UK.

Canadians are very fortunate that the CPC, after foolishly opening the gate in their 2006 budget, wisely stepped back in October, 2008:

How high-risk mortgages crept north

[bush_cheney2004]

Yeah, I noticed you and BC2004 denying the recession until the US election was over.

Leads one to conclusions about one's lack of credibility when they taint substantiated arguments with such conspiracy minded nonsense....

By you own definition (and mistaken estimate as well) there is no determination of recession until the NBER says so. Pretending to be wise after the fact isn't wisdom at all.

Canada got lucky. If the US managed to put off this crisis for another 5 or more years then it is likely that Canada would have found itself in a similar situation as the US or the UK.

Canada will not be lucky.....it has already started to pay the piper.

[msj]

By you own definition (and mistaken estimate as well) there is no determination of recession until the NBER says so. Pretending to be wise after the fact isn't wisdom at all.

Canada will not be lucky.....it has already started to pay the piper.

I said (after being asked by you back in June/July) the recession started in the US in February.

The NBER stated, just recently, that it started in December 2007.

That is pretty close.

Certainly closer than your estimation that the US wasn't in one at all in June or July (which looked silly at that point in time but is absolutely hilarious in hindsight).

As for Canada, well, when your biggest trading partner and closest neighbour shoots himself in the foot multiple times, it should not be a surprise that Canada will follow the largest economy, and even the rest of the world, into a recession.

Edited December 14, 2008 by msj

[bush_cheney2004]

I said (after being asked by you back in June/July) the recession started in the US in February.

The NBER stated, just recently, that it started in December 2007.

That is pretty close.

But still wrong...by circumstances of your own making. There is no prize for guessing either way.

Certainly closer than your estimation that the US wasn't in one at all in June or July (which looked silly at that point in time but is absolutely hilarious in hindsight).

Not wrong at all for the benchmark of two consecutive quarters of negative growth in GDP.

As for Canada, well, when your biggest trading partner and closest neighbour shoots himself in the foot multiple times, it should not be a surprise that Canada will follow the largest economy, and even the rest of the world, into a recession.

Pretty stupid to speak of luck then, eh?

[msj]

But still wrong...by circumstances of your own making. There is no prize for guessing either way.

Sure there is - you are wrong and I am right (or at least more right - I knew the US was in recession I just wasn't sure on when it would officially start). It's a small prize but a prize nevertheless.

Not wrong at all for the benchmark of two consecutive quarters of negative growth in GDP.

That is not the benchmark at all as I have demonstrated elsewhere ad nauseum.

If that was the only criteria then the NBER would not have called this a recession until January 2009 (i.e. after Q3 and Q4 2008 are shown to be negative.

But they have for reasons outlined here (for those besides BC 2004 who may be interested in such things).

[eyeball]

Derivative markets including various options, future contracts, swaps will only fluorish in the future. People will devise different and better ways to exchange real assets and to trade risk.

Only because the margins in the real world economy have become so slim that the pace of growth we've become accustomed to can only be achieved by reaching for yield in places that are virtually theoretical - an imaginary make believe world that is only accessible by quantum scientists, super-computers and shysters.

OTOH, the world no longer wants what Canada has. The glaciers of 15,000 years ago exposed Canada's (and Russia's) riches. When the world (ie. the US) wants easily accessible resources, Canada (and Russia) are the go-to guys. Unfortunately, the world doesn't want our stuff right now.

...easily accessible resources? What resources are you talking about? I live in a supposedly resource-rich region and most of the fish are gone, the biggest trees that are left are all perched on cliffs, steep slopes and mountain tops, and the mining of mineral rich seams is being replaced by open-pit mines that need to literally sift through entire mountains to glean a nugget or two.

There's hardly anyone living around here who makes a living from natural resources anymore, tourism and developing property developments that cater to tourists are the mainstay of the economy now and tourists were down by 50% in most places this summer past. Next summer should be a real hoot.

I understand the local hydroponic stores are doing a booming business though.

[eyeball]

Now I'm off to poach another load of firewood.

The few of us that are still ekeing out a living cutting firewood have to do so at night or on weekends when the forest police are at home.

There's lots of second growth fir around here, hundreds of square miles were planted with fir because that is what was worth money when they logged the area. Unfortunately fir doesn't grow very well right on the coast because its too wet here. It makes dandy firewood but lousy lumber and pulp. The big logging companies aren't interested and most have left or shut down their operations herabouts. The authorities however don't seem to like the idea of small independant wood-cutters still going about their business at least not without packing a heavy load of regulations around on our backs. I guess with the downturn in forestry the regulators don't have anything else to regulate so they're wiling away their time chasing us around. To comply with all the rules they've dreamed up I'd have to basically cut half cord to just to pay for the cord I sell. This is to meet the cost of all the paperwork, fees, licences, permits, damage deposits, insurance and yadda yadda yadda... its a reach for yield of a different sort and its just as completely unsustainable as the bulk of today's economy.

I'll probably just keep at it under the table until I'm finally shut down and then...I guess I'll do some research into hydroponics... If the state is that determined that I become a criminal to make a living I might as well reach for something that provides a better yield. That's the name of the game right?

Edited December 14, 2008 by eyeball

[msj]

I'll probably just keep at it under the table until I'm finally shut down and then...I guess I'll do some research into hydroponics... If the state is that determined that I become a criminal to make a living I might as well reach for something that provides a better yield. That's the name of the game right?

Yes it is the name of the game.

But I'm pretty sure you will never get a bail out.