Guest writer: Mark Pretorian at Manulife Securities Inc.
What should Canadians worry about most? According to current monetary policies, deflation is the nearest and greatest monster intimidating the economy. Interest rates remaining at historical lows, regardless of the recent market rallies, indicate the Central Banks believe our economy is still sick. However, all the government prescribed medicine will also likely lead us to inflation in the future.
President Obama warned on November 18th that if government debt keeps piling up, a double-dip recession is likely. When combining the US unemployment rate reaching over 10%, a 26 year high; and the current extreme government debt levels, the prospect of another downturn appears very real.
On the other hand, Berkshire Hathaway CEO Warren Buffet recently stated ‘The financial panic is behind us’. According to the famed investor, the worst of the financial crisis is over and the US economy is still the largest of all, an optimism in stark contradiction to President Obama’s warning of trouble ahead.
So who do you believe? The President? The Investor?
Although neither has a crystal ball, some facts can shed some light into our near future:
- Leading indicators have improved.
- Global banks are repairing their balance sheets.
- China, India and the emerging world continue their growth.
- Governments remain in stimulus mode.
These four themes point towards a slow moving recovery albeit not without problems. Unemployment, increasing debt levels and concerns over the US dollar are among the most notable threats. It appears that our economy has narrowly escaped the worst case scenario and is nervously making a comeback to normalized levels. Inflation is now in the horizon. Interest rates are expected to increase to reflect a return to a normal economic cycle.
We are certainly living in interesting times. An opportunity for many to review, amend and improve their own finances- A chance to better manage risk. Learn what risks your investment portfolio is exposed to by seeking out a second professional opinion.
Investors looking for more information are encouraged to contact Mark Pretorian at Manulife Securities Inc. (514) 421-7090 ext 270 or mark.pretorian@manulifesecurities.ca