Canada in the near future
Philippe Bérubé
Ottawa, Canada
A lot of buzz has surrounded the topic of commodity prices in North America for the past couple of weeks. Most will agree that many commodities, including precious metals, could be on the rise along with a soon-to-happen climb of our countries' respective interest rates (Canada usually following the U.S. lead). The impact of future raises of our commodity prices on our standards of living is debatable.
A couple of weeks ago, Deputy Prime Minister John Manley issued a warning to Corporate Canada, stating that uncompetitive companies this side of the border are so hooked on a cheap dollar that they could not survive without it. At the time, his comments helped send the loonie sharply lower. It hasn't regained much since, but to repeat Mr. Manley's main concern: I too worry that many Canadian firms are profiting temporarily from a 62 cents dollar and would be hard-pressed to compete at 80 cents, since they currently neglect investing in research, development, technology and innovation. Bottom line: If the dollar ever gets back to that level (and I doubt this will happen in the short term) the lack of Canadian investment in process improvement, new technologies and the training of knowledgeable people at the same pace as their U.S. counterparts (that have recognized the competitive advantage Canadians have had through their low dollar and are heading for a win in this race) means they risk going out of business.
Some of my friends have thrown at me that Ottawa is the main culprit for this situation and I agree. Our national debt is being paid off, but it is bigger than the U.S. debt when compared to the size of our economies (and that, even with the U.S. going back to massive deficit spending, we'll see how this plays out in the long run). I also would like to point accusing fingers at our heavy tax burden (now is the time of year for me to shell out) and our latest 20% increase in government spending (very bad for the Canadian dollar's prospects in the long run). They all paints a grim future for Canada. With no personal income tax cuts in sight, improved productivity and the prospect that Canada's standard of living (which has been dropping for the past two decades compared to the U.S. will rise significantly is weak. Add to that our sempiternal argument that any small increase in our standard of living is based on increased credit spending by Canadian citizens and we could see big trouble down the road.
It is true that higher commodity prices are improving our corporate profits. But again, I disagree with Canada's mainstream media which persist in throwing at us that raw materials will account for the main percentage of Canadian exports (they also say that this is the main contribution to our 3 billion trade surplus, an edge we have on the States for now, but how long ?). Our currency may fluctuate heavily based on the outlook for commodity prices now, but if deflation follows this brief pending period of inflation we should encounter, why set our hopes of escaping the carnage that high ? Again, I may sound overly pessimistic, but aside from our national bankruptcy stats (mentioned in the first part of this article), let me add that our industrial capacity utilization rate in the fourth quarter of 2001 fell to 80.3%, down from 81.5% in the third quarter. For all 2001 it was 82.4% down from 86% in 2000. I think both of these sets of stats are a big warning flag for our currency. If you think the 13 cents drop next to the U.S. dollar of the past years was drastic, brace yourself. The continuing fall (or "story" for all my fellow Beatle fans out there) of our Bungalow bill was deliberate and we are right to put all the blame for it's ongoing weakness on our fabian/socialist government. Core inflation was up 1.8% last month (this is considered high), so it is with great fear that I watch what the next two months will bring.
Personally, I want to express my gratitude to the "gold" community for opening my eyes to the fact that the recession was far from over. Thanks to you, I didn't fall in the credit trap of all my fellow citizens who contributed to the latest 4% jump in department store sales, and instead invested more heavily in my favorite commodity (gold and silver) when its price was still floating around $280 U.S. With the current unrest in the Middle East, it is more than ever wise to hold your share of precious metals. I couldn't be more pleased with the recent success of precious metals (I even wrote a song about it - and with a little luck, I'll published it before the crash). I still believe precious metals are a better insurance against inflation than oil or other commodities. The looming shortage of gold supplies will be important, as well as the growing need for citizens of countries in financial crisis for the metal. With the Canadian dollar going down the drain, I turn my sight to Argentina, Venezuela, South Africa, Japan, Turkey, etc. and see how far all this fiat-money nonsense can go. When our national currency turmoil worsens, you'll be glad to have invested in time in precious metals, before their prices go up dramatically.
As for the success of oil (another popular commodity) and energy stocks in the wake of Middle Eastern troubles, I would be cautious. I always stir up my own recent memories of the Enron failure when I get tempted to invest blindly in that sector. I feel that the big guns of this industry rely too much on "futures" prices of oil, gas, and electricity and thus are more prone than gold to "creative accounting". I'd look into more investments in silver or even perishable commodities before investing in the volatile market of oil, although in the long run, the sound concerns may make the wise petroleum investor rich. I guess I'm secretly hoping that the oil cartel loses the battle to alternative energy sources in 10 or 20 years, but it would take a mighty paradigm shift in government thinking, that's for sure. I doubt it will happen in my lifetime. So please ask yourself this question before investing in any commodity: Do I trust this person or this company in selling me speculative shares in the future price of a said commodity , even if it's in the business of selling the commodity itself ? Some companies out there can be trusted, some can't (i.e. look at Enron). The opportunities for rigging the price of the commodity are just as huge as the importance in size of the said concern. If you can rig that changing price, you can obviously rig the future price. As always: keep a watchful researching eye and make your own opinions.
Philippe Bérubé
M.A. Political Science
Ottawa, Canada
epb1886@hotmail.com
8 April 2002
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