David Rosenberg shares his thoughts on the Bank of Canada's decision to leave its policy interest rate at 0.25% possibly until next summer. This seems like a common sense move, considering the detrimental effect that a prolonged strengthening of the Loonie would have on Canada's export and manufacturing sector.
[CSSBUTTON target="https://ems.gluskinsheff.net/index.ncl.html" color="002266" textcolor="ffffff"]Sign Up for David Rosenberg's Market Musings Newsletter[/CSSBUTTON]BoC POLICY ANNOUNCEMENT — BULLISH FOR RATES; TAD BEARISH FOR THE CAD
For a country that is a play on the global economy, what struck me about the Bank of Canada’s latest policy announcement on the global outlook were the words “significant fragilities remain.” Quite a bit different from what Caterpillar (CAT) had to say in its 2010 guidance.
The Bank of Canada took a knife and cut its 2011 real GDP growth forecast, to 3.3% from the earlier view of 4.7% (2010 seen at +3.0%), though it acknowledged what the data has made clear of late is that “a recovery is also under way.” The BoC also pushed out, by a quarter, to 2011 Q3, its expected timing of when the output gap closes. The expected return of inflation to the 2% target was also pushed out one quarter, to 2011 Q3. Note, the Bank reiterated that even with the recession behind us, “the overall risks to its inflation projection are tilted slightly to the downside.” In other words, a BoC rate hike is not coming for a long, long time — the tone of this press statement seemed to deliberately part ways with the Reserve Bank of Australia.
Advertisement
CAVEAT EMPTORThe only thing we really learned in this extremely flashy, seven-month, 60%, nine-point multiple expansion-led rally, is that momentum investing never did become extinguished this cycle. It is really a fascinating commentary on human behavior that so many “investors” are lamenting about how “the train has left the station” without them. Please, give us a giant break! The train has left the station countless of times in the last 10 years but obviously none of these trips lasted very long because the reality is that equities have failed to generate any positive return over this time interval.
As for the here and now, there is another reality. Price gains in the stock market have generally occurred with low volume. There are limited buyers — hedge funds and flash traders — but no sellers (not yet, anyway). And, we saw in yesterday’s decline that volume climbed across the board, and the number of high-volume selloffs is a major red flag that should not be ignored. See the front page of the IBD for more.
