December 20, 2013

2013-2014 trends to take to the bitcoin bank

The following are some key observation points as old-man-2013 steps aside for newborn-baby-2014.

The global economy: The U.S. is reclaiming its traditional role as leader of the world economy. This is of benefit to Canada. In both countries, third quarter annualized gross domestic product (GDP) growth was just under +3.0%.

There’s one enormous caveat. Please see the sub-heading Politicians at the end of this article.

Retail: U.S. retail giants are continuing their efforts to establish beachheads in Canada. Some have been finding the environment here colder than they expected. Customers’ expectations of lower prices have been hard to realize. And local competitors have “upped their game” to hold onto or improve market share.

Bitcoins: Bitcoins began life as virtual money created to pay for such things as games and virtual objects on the Internet. This form of currency has since evolved to the point where it can be used to buy both ethereal items in cyberspace and actual products and services in the real world.

“Bricks and mortar” financial branches are now being opened in a number of locations to handle back-and-forth transactions between bitcoins and everyday cash (i.e., “loonies”, greenbacks, euros, yen and pounds). The dollar value of a bitcoin has increased astronomically.

There are no controls on the exchange of bitcoins. There is no central bank responsible for their oversight. Transactions freely and instantaneously cross international boundaries. Someday, somewhere, they’re going to be the source of a great deal of heartache for somebody.

By the way, Canada’s major banks will continue to make a lot of money going forward. I say this with confidence because they always do.

Stock Markets: NASDAQ’s level is presently three times higher than it was in February 2009. Investors have rediscovered their love for high-tech firms. The IPO launch of Twitter in 2013 was a huge success. The DJI and S&P 500 have also performed valiantly.

While the U.S. indices have been rocketing higher, the Toronto Stock Exchange (TSX) has been skipping along barely above ground level. The TSX will only begin to fly again when world trade picks up and commodity prices improve.

Pension Plans: Firms, especially in the auto and airline sectors, that have been able to move a significant portion of their staff — usually new hires for starters — from “defined benefit” to “defined contribution” pension plans have seen turnarounds. They’ve been able to renegotiate debt with lenders. Loan repayments at lower interest rates have helped improve profitability.

Population: In the latest 12 months, Alberta’s population has risen 3.5%, or almost three times as quickly as for the nation as a whole, at +1.2%. Saskatchewan, at +1.9%, has also done well.

There are three natural population groupings in the country. Ontario sits in the middle with nearly 40% of the total. East and West are on either side, each with slightly more than 30%.

Earlier in our history, the tilt of the “teeter totter” had the East closer to the ground and the West stuck up in the air. Lately, the slope has become horizontally flat. In the years to come, the West will become more heavily weighted.

Storms: The world’s eco-system has been bruised by an excess of carbon emissions from the frenzied activities of mankind. The frequency of devastating storms seems to be on the rise. On the front lines, providing aid to victims, are insurance companies and governments.

They’re already being tested financially. This may be the tip of the iceberg. I worry about how long they’ll be able to cope and whether the day will finally come when they say to all of us, “You’re on your own and you take your chances.”

Infrastructure: The heightened level of storm activity has exposed the need for more spending on infrastructure. Better flood control measures and improved water drainage systems are a priority. Railway disasters are highlighting the need for grade and track improvements and tougher safety regulations. More and better rapid transit systems are a “must” to ease congestion in our fastest-growing cities.

There are two billion-dollar-plus bridges slated for construction starts relatively soon — the second crossing between Detroit and Windsor (i.e., to offer an alternative to the Ambassador Bridge) and the Champlain Bridge in Montreal. The former is being fast-tracked by politicians on the U.S. side of the border, with up-front money to be supplied by the Canadian government.

The latter is enveloped in uncertainty. Ottawa wants a simple structure that can be financed with tolls. Civic leaders in Montreal have other ideas. They want to see a light rail transit system included in any new concept. They’d also like to invite architects to submit exciting design proposals in the hopes of acquiring a striking new landmark for the city.

Bubbles: U.S. house prices are currently moving up in a range of +10% to +15% year-over-year. Canadian housing starts are hovering just under 200,000 units seasonally adjusted and annualized. The major U.S. stock market indices have been setting all-time record-highs.

There’s an obvious reason that bubbles are allowed to develop and persist. It’s in almost everyone’s best interests that the good news keeps coming. Few anticipate the exact timing of the downturn. Regret over the burst that eventually occurs is simultaneous with hearing the “pop”.

Ontario Electric Power: The cost of electricity in Ontario is already high. Queen’s Park is warning that it will be climbing further over the next five years. A contributing factor will be the province’s commitment to costly wind and solar projects as a means to generate electricity.

This will place an increasing burden on the residents of Ontario, especially those in the growing proportion of the population aged 65-plus. The oldest post-World War II baby boomers are entering their retirement years and learning how to live on fixed incomes.

It’s also not a winning formula for the province that is home to the nation’s most prominent and important manufacturing sector.

Politicians: Surely, politicians at all levels in both the U.S. and Canada can’t possibly behave worse in 2014 than they have in 2013. Considering some of their antics this year, the words “you have to be kidding” and “oh, the embarrassment factor” come to mind.

Of course, I also said the same thing at the end of 2012 entering 2013.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.

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