David Rosenberg on Canada vs. the US

Debate rages on about how sustainable or even real the economic recovery is in the US.

David Rosenberg, former chief economist at Merrill Lynch, showed a presentation at one of John Mauldin’s recent conferences. It is entitled: “The Fed Is Trying Like Crazy, But Nothing It Does Can Save The Economy.”

The presentation consists of 60 slides that collectively devastate the case for expecting serious economic recovery in the US. The charts are extremely convincing. The argument he builds with his evidence seems irrefutable.

You can see the entire presentation here. It is worth your time.

While Rosenberg is very bearish on the US, he seems optimistic about Canada. He thinks the “short Canada” trade is a huge mistake.

He draws his conclusion about Canada mostly by looking at 2013 Q1 data, but overall he underestimates Canada’s problems. Canada’s housing sector is more distorted by intervention than he realizes, and our employment data is terrible.

He also downplays the interventions of the Bank of Canada. He says Canada has performed better than the US “without nearly as much … expansion of the central bank balance sheet.”

Is this actually true? The BoC deflated in the immediate aftermath of the financial crisis, but it has been busy making acquisitions in the last couple years. In two years, the BoC has expanded its balance sheet by about 30%, whereas the Fed has expanded by about 20% in the same time.

The Fed:

FRED Graph

Here is the BoC monetary base (this chart uses data from here):

boc chart

I think Rosenberg is right on the US and a bit off-base for Canada.

We Are Close to the Top of the Market

Here is The Economist‘s May 11 cover.

Uh oh.

When you are watching gold prices, remember this chart.

A little while back Casey Research provided this chart:

Why do you care?

Maybe you don’t, because you don’t own gold and you think it’s a barbarous relic like that Roubini, so you would never want to buy it.

But if you aren’t like Roubini (and most other people), you should care.

Basically, this chart shows that during the last two years of gold fever in the 70s, there were seven corrections that averaged 10%. You have to remember that at this time, gold interest was really intense. At present, gold interest is still very low.

The important point is that although we are in a significant bull market for gold, volatility is not abnormal. I wouldn’t necessarily be alarmed if gold fell 15-20% — in fact, such a situation would present a great buying opportunity.

This doesn’t mean you should sit and wait for such a correction — it might not happen to that extent. The biggest correction we’ve seen in 2011 was 6.2% in January. Instead, the main point of this chart is that while we are in troubling economic times, there will be moments where weaker players are nervous and eager to sell their gold. Just don’t sell yours.

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