Investors today are constantly bombarded with contradictory theories on the status of the North American economy.
Are
we at the beginning of a new bull market or are we just experiencing
a brief rising market within a long-term bear market? With all the
money the United States, Canada and many other industrialized countries
have pumped into their economies, are we going to have worldwide
inflationary problems, or is deflation still the major concern for
central governments?
Does Canada have a strong currency or has
our currency risen due to a weak U.S. greenback? Should the U.S. put
forth a second stimulus package or will the first stimulus be enough?
Should
investors try to aggressively take advantage of the current market
conditions, or should they wait for further signs that the economy is
getting better before they invest more of their hard-earned dollars?
These
are issues are among the headlines dominating the financial world, and
with commentators on both sides of these arguments are contradicting
what the other is saying, how is an investor to know which point of
view is correct?
Is this the next bull market? Investors will not know the answer to
this question for months, after they have had a chance to look back on
when the stock market began its rise and how strong and consistent that
rise was. Usually if investors wait for the official word that this is
indeed a bull market, it will likely be too late for them to take
advantage of it. Therefore, whether we are in a bull market or not, it
really doesn’t matter. What does matter is that we try to take
advantage of current market growth as we rebound from the worst
recession since the Great Depression.
Many analysts are nervous about inflation in the U.S. — they claim
that with all the money being printed by the federal government,
inflation is inevitable. If this does occur, it would have a
devastating effect on our economy because the U.S. is both the most
influential economy in the world and our number one trading partner.
Those
predicting inflation in the future are basically saying that the United
States Federal Reserve will not be able to remove stimulus funds from
the economy when it becomes necessary.
However, ff the U.S.
government was astute enough to save the economy from total disaster
this past year, why would they not know how and when to turn the
stimulus taps off? Inflationary doomsayers are ignoring the most recent
American statistics that show the lowest year over year inflationary
numbers since 1950.
They are also not paying attention to
recently released Capacity Utilization numbers showing that only 68 per
cent of American workers are being used, which is one of the lowest
rates ever recorded. If there is this much of a gap between maximum
capacity and current productions levels, inflation in the U.S. seems
unlikely.
The Canadian dollar is considered by many to be a petro-currency driven
primarily by oil and other commodities. Canada’s recent GDP numbers
look quite poor, showing a significant decrease in GDP for the month of
July while the U.S. reported a modest one per cent decline for the
second quarter. One would think this would cause our currency to fall,
but it has not. For most countries, its currency reflects the strength
and stability of the the economy. In Canada, our currency seems to
reflect the rise and fall of a barrel of oil.
One of the biggest questions making its way through American media is
if the government should spend more money on a second stimulus package.
However, it’s absurd to consider a second stimulus when the first is
not even a quarter spent yet. Some feel that the economy is improving
without the stimulus, and yet others are asking for a second one. As it
stands, it is highly unlikely the U.S. government will push for a
second stimulus without knowing the full effects of the first one.
With all these contradictions and differences of opinion floating
around, investors are quite confused. Simply put, I see the investment
world right now as a world of opportunity. Investors that have the
means to take advantage of these conditions would be foolish not to.
Record low interest rates, worldwide government stimulus packages, low
inventory levels for many large corporations, a bottoming in the U.S
housing market, and the U.S. consumer getting back on their feet once
again to drive the worldwide economy higher is what makes me excited
about today’s investment environment.
If you have any questions regarding the above article or are
looking for an Investment Advisor to help you with your portfolio,
please send me an email at asmall@dundeesecurities.com. I will be glad
to speak with you!
Allan Small is an Investment Advisor with
Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not
an official publication of Dundee Securities and the author is not a
Dundee Securities analyst. The views expressed are those of the author
alone, and are not necessarily those of Dundee Securities or Metro Canada.
