Friday, March 25, 2011

Steady as she goes

The 'correction' in the stock market augmented by the Middle East crises and Japan's Earth Quake was not really much of a correction. It suggests that this bull market has still a lot of 'umph'. U.S. fourth quarter GDP was just upgraded to 3.1%. In Alberta, retail sales are on the rise while interprovincial in-migration and foreign immigration as well as job creation are accelerating. All this bodes well for the Alberta and for the Canadian economy.

However, potential rising interest rates, political uncertainty regarding the coming Federal election and uncertainty regarding Alberta's political leadership detract from the good news. Coming May a new Federal government will be sworn in. Who will win? Your guess is as good as mine, Canada's electorate has proven to be easily distracted by side shows such as the poor communications skill of a federal minister or cuts in cultural subsidies. But...

How likely is it that the Liberals and their potential coalition partner(s) will increase their seat count to the level that they can form a minority government kept alive by Block support while opinion polls suggest that Liberal support has fallen as low as 24% of the popular vote?  If, as the Globe and Mail claims that 'thrustworthyness' is the Tories' Achilles heel, than how about the lingering anger over the Liberal AdScam?

In my mind it is more likely that we end up with another Conservative minority government, so what is the real reason that this election was called?

My guess is that Mr. Ignatief is running out of time as a Liberal leader. If he does not make good progress his days are probably numbered. This election is likely his last shot at becoming Canada's Prime Minister and if he does not make it, it will be 'goodbye Iggy!".  Jack Layton is also running out of time. These gentlemen are the ones to loose this election, while Stephen Harper is in a position to finally reach majority status.

Will Iggy and Jack be able to fire up the masses? I doubt it, more likely they will be running out of fuel. Fiscal hawks may be getting what they are asking for: "Fiscal restrained and debt reduction", if Harper gets his majority or even with a strong minority government complemented by two nearly politically dead opposition leaders.

That is my forecast (which will likely require a lot of updates over the coming months). It explains the tame budget because how would you expect the Conservatives to win their majority if they announced severe budget cuts and possibly even a tax increase?

Economic leadership in the coming month will be from the U.S. while Canada will be drifting rudderless going from spring into early summer. Then everyone is on vacation which is not good for the Canadian stock market either. So expect extended summer doldrums with here and there a little boast from a recovering U.S. economy.

The real power of this stock market will likely be unleashed after the summer and in the 4th quarter. I don't see many well priced investments in the stock market right now. Valuations in the U.S. are somewhat more attractive.
Typically, real estate markets lag stock markets and I expect that here we may see some hot action over the summer. With in-migration picking up its pace and vacancies already low, expect rent increases and a hot rental market over the spring and summer, especially in Alberta.

If you have not bought your Alberta real estate yet, this is time to take action because we're about to turn from a buyers to a sellers market. In the mean let the stock market ride don't buy expensive stock investments. Just sit back and count your increasing net worth. It is not yet time to start significant profit taking and cash building; yet the buying opportunity for stocks is over for now.

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