The R Word

Well after seeing most of my investments being hit hard this week after the massive 900 point slide over three days on the TSX, I think it is actually starting to settle in my mind that we could be seeing the start of a recession. With over 80% of our trade going to the US, economists who argue that our economy and housing market is strong and we will ride the "low pressure system" from the south, should take a second look at our financial picture.

It is simple; The American People are losing money at an alarming rate. Jobs are being cut, housing prices are dropping, bankruptcies are a record high, credit card debt is the highest it has ever been....the list goes on. The only saving grace these days in the US is they are still at war in Iraq and as they scale back there, they will just move their troops over to Afghanistan to replace the Canadians who are leaving in 2009. America has always been a War economy. Their big "break" was of course WWII and corporate America made a killing with their merchant shipping fleet, which of course most of those who made a fortune have since "apologized". I highly doubt Blackwater will even say they are sorry for being in Iraq, no matter how many they kill or buy out.

So here we have this false economy feeding the money market in the States and what does Bush Jr do to try and save his families political legacy? Hum...throw money at it. Well you can't stop a leak in the hull by stuffing paper money into it. You have to get the boat out of the water. 1.45 billion dollars a day is already thrown at the economy each day, so you think another 397 million a day into the economy will save it? Too little, too late. Domestic Capital investment should have been his response, infrastructure mega projects, heck it worked for Truman. And any Keynesian would agree.

Now what will happen to Canada? That of course is the story these days in Canadian Media..what does this mean to our bottom line. If the purchasing power is in decay down south, will that erode our trade-train? Well I will go out on a limb here and say what I think:

(1) Most of our trade, besides the manufacturing sector and car sector, is in power, water and commodities. Of course we will be hit by this storm, no question, especially in Quebec and Ontario who trade manufactured goods, but America will always need our power supply, our uranium, our water and our oil. And the commodities index has been strong due to the fact that it is a "safe-haven" for investors. People will ALWAYS need oil, gas, minerals.

(2) Our housing market and land values are strong...still. I think they will of course be hit, but not to the tune of billions a day lost like the States. Maybe in some regions, like Ontario-South and the East will drop faster and deeper than the West. In the West though we have the problem of home owners over-extending themselves with high mortgages and we could see an increase in default mortgages. This is a result of the super-heated economy here in BC and Alberta. I mean who can afford a 340,000 mortgage for a studio apartment these days....argh.

(3) Canada already has an economy that has Federal programs and public capital involved at all levels of the economy. This will aid on our fight against a recession, as people start to lose money, they still do not have to worry about health care, school for their kids, increases in utilities, as most of these are moderated by the state. In America, you lose your job, you lose your health care, then a family of 4 has to fork out 2600 a month for health care coverage. Hum I think I have that lying around for a rainy day...

So yes we will be hit, yes we will see some home owners default, but we will weather this storm. I think that increased public spending would be a good response, and reduced business costs for the manufacturing sector (tax reduction) would help "shore up our dam". And I believe we really need to look at our trade networks, we need to diversify and expand our market share to other countries in the EU and Asia. This would offset the lower trade we will see into the States.

What do you think? Are you going to be ok? Do you save 40% of your income each month?

Note to my fellow classmates at SFU: I will not buy you beer...you're not of age!

Well, my first full week of school has just ended, and I am breathing a sigh of relief. There is something to be said about going straight to a degree program BEFORE you start living your life. For one thing (and anyone in high school or first year university take note) you DON'T remember anything from high school after 10 years. I have a really great Math professor, and during one of his lectures a few days ago he was working on a function of some sort, and paused to tell the class: "so you do this and then that, but I don't have to explain, you all learned that in grade 11". Note to my teacher, grade 11 was...um let me see if my math is right...11 years ago???

Now I did return for 1 semester at Thompson Rivers University in Kamloops 2 years ago, and like this semester now, it sure is a culture shock. After living on my own, running restaurants, and now running Exploration Mining projects, I notice I have a VERY different outlook on life than the rest of the student body. I had a rather funny thing happen in one of my classes yesterday which involved a few other students. 3 students were involved in a very serious conversation beside me, during our break in class, about doing their first loads of...Laundry. Oh the trails and tribulations of fabric softener and oh no...the dryer may not dry all your cloths 100%. But we all were at their point, just for me I felt one of my first and probably not last moments of feeling "old".

But hey, my last 10 years were a lot of fun. I think I made good choices in my life, and I don't regret finishing my degree before I seriously entered the workforce. My time with Milestone's was great, met some amazing people, and of course the last 4 years in the Mining Exploration industry has been unreal. Plus all the traveling I have done to China, Chile, Mexico, England and the States I think was very rewarding.

So to all my 18 year old classmates: I will not buy you beer. Sorry. I will however ask for your help with my homework from time to time!