Mining & Money is Live
Katherine:
Opinions seem unanimous: the Canadian economy will be protected from following the US slide into recession because we don’t have the same subprime mortgage problems. But what fewer people know is that Canada is protected as well, because of growth in the resource sector. CIBC World Markets senior economist Avery Shenfield was quoted in a March 13 article saying, “The commodities world doesn’t sound like a recession. It sounds like, in fact, the kind of numbers that you see amidst a global economic boom.” He was saying that the Canadian dollar has become tied to the oil price, which we all know is soaring over $100/barrell at the moment. Robert Plexman, managing director of oil and gas for CIBC world markets said that the oil price is expected to continue to rise although he did caution that rising labour and materials costs are creating a drag effect for some oil projects in the oil sands.
We know gold and oil are doing great and most people are calling for that to continue, what do you think the effect will be on other metals, Doug?
Doug:
It’s hard to say which of the US’s policies are having the greatest effect on its economy right now, but it’s clear that the overall trend is down in the US, in spite of some positive signs, too.
The NY Times Leon Hardt wrote a feature today on just how confusing the meltdown has been not just for all the Moms and Pops in the US who have had to move in with Auntie Betty and Uncle Bob after the mortgage they couldn’t really afford was foreclosed by a bank that couldn’t really afford to give the mortgage in the first place.
The result of the “Trillion dollar Meltdown” has “shocked Wall Street into a state of deep conservatism” according to Hardt. The double whammy situation here is that lenders are suddenly scarce and investors are pulling their funds from high-risk investments, so a little $70 stock like Bear Stears is suddenly paddling shit creek without a paddle in a wire canoe.
The US is now paying the price of a number of short-sighted and (frankly) idiotic policies: Borrow, borrow, borrow & print, print, print, when it comes to fiscal policy is as outmoded as a three piece suit.
So the US economy is scrambling, trying to stick borrowed bandages onto a gaping head wound, while the only way out is to wait till the housing sector wakens from its slump.
But what’s the effect on other metals and commodities? In a sense, it seems not a lot. As Katherine hinted, we’re in the middle of a global boom in demand for petroleum, coal, copper, nickel, moly, silver, gold, platinum, uranium and others. The US economy may have a looming question mark overhead, but not so for the rest of the world. Asian, European and South American countries are seeing growth, and in some cases that growth is unprecedented.
For example, China is buffered from a slowdown in US imports by the fact that the majority China’s exports go to Asia, not the US. In fact, less than 20% of Chinese exports make it to the US. So as housing and other demands grind down, the overall effect on other economies is not necessarily catastrophic. And as you pointed out, the overall picture is to some degree looking more “bullish” than “bearish”.
