Monday, September 20, 2010

Are Canadians Living in a Bubble?

I just realized that my last few posts had a consistent negative skew to them, and, well, this one does too.

With most of my posts I look for some global issue, some concern, some trend forming that has the possibility to allow Canada to shine - and this usually surfaces on discussions about global commodities (or lack thereof), our impressive banking system and the positive conditions of our government's fiscal house, to name a few. In many ways, we are becoming the envy of the world. And for good reason as we have much to offer and we 'have our sh@#$%! together'.

But when I do look abroad, I sometimes see gleaming issues unresolved or developing. Issues that may and likely will come home to roost in our back yard. One such effect of the overall gloomy state of the US consumer and US small and medium business - the heart of an economy. So lets hope that the old adage, "when the US sneezes we catch the cold" is not true.

NATIONAL FEDERATION OF INDEPENDENT BUSINESSSMALL BUSINESS ECONOMIC TRENDS

The NFIB put out its Small Business Economic Trends report last week, and although the Optimism Index eked out a modest gain (though still mired in recessionary terrain), much of the commentary was downright depressing:

There is no life in the jobs market.
The environment for capital spending is not good.
The weak economy continued to put downward pressure on prices.
Those looking for loans predominately are looking for cash flow
support, not funds to expand or hire (see Small Business Credit in a
Recession, 12/09).

Overall, 91 percent of the owners reported all their credit needs met
or they did not want to borrow, unchanged from July.

The first two comments are fairly obvious to anyone with a pulse living in the United States. The third comment — supported by two inflation-related releases last week — argues that a deflationary scenario is not out of the question. The fourth comment is very troubling, in my opinion. It is disheartening to see that those businesses seeking credit are doing so to support their cash flow needs. Over time, without a more sustained recovery, that will not end well. While it is encouraging to see that 91% of small businesses either do not want to borrow or are having their borrowing needs met, it does call into question the talking point that “banks aren’t lending” or “credit is not available.”

Finally, I would note that Poor Sales continue to be the Number One problem cited by small business — above Taxes, Gov’t Regulation/Red Tape, or any other issue: “What businesses need are customers, giving them a reason to hire and make capital expenditures and borrow to support those activities.” So for all the rhetoric about “uncertainty,” the simple fact of the matter is a lack of demand.
Barry Ritholtz

www.saveriomanzo.com

Source: Abby Joseph Cohen ‐ Goldman Sachs, Morgan Stanley, Michael Hartnett‐ Bank of America Merrill Lynch, RBC Capital, Donald Coxe ‐ Coxe Advisors, BMO Capital Markets , David Rosenberg ‐ Gluskin Sheff + Associates, Barry Ritholtz - The Big Picture, T. Rowe Price, Federated Investors, Brain Fabbri ‐ BNP Paribas, Sherry Cooper – BMO, Kurt Karl ‐ Swiss RE, Investment Postcards, Barry Ritholtz, Peter Grandich, Nouriel Roubini, Marc Faber, Bill Gross ‐ PIMCO, Barton Riggs, Eric Sprott – Sprott Capital, Jeremy Siegel, Steven Leuthold, Jeremy Grantham; Merrill Lynch Fund Managers Surve and Gordon Pape.

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