Weekly Review - 10.15.2012

·      Starting off with Canada this week, it looks like the Bank of Canada will continue to keep interest rates low even though the housing market continues to cool off, the number of employed continues to increase, inflation remains at a historic low and business confidence remains almost non-existent. In a new report, CIBC predicted that Canadians might experience low interest rates into 2014 as economic and global conditions will probably worsen and risks will rise in the short-term.

·      Following up on last week’s update on the Venezuelan elections, now that Chavez has won another 6-year term as president, we can be confident that his country will continue to have the world’s best performing stock market until the end of the year. In the last year of his prior term as president, Chavez increased fiscal spending by 41% in real terms beating all growth expectations and making Venezuelan equities seem safer than they really are, but for how long?

·      Today the German finance minister addressed the second Bank of Thailand Policy Forum in Bangkok with an update on the situation in Europe. Wolfgang Schaeuble ruled out a Greek exit as the E.U. remains divided on how and whether to aid Greece climb its way out of the massive hole it is in right now. Spain finds itself in a similar situation as bonds slumped today. With Greek’s debt having been restructured in March, still not much has improved in the E.U. region.

·      Last quarter, the total money spent on IPO’s fell down to $21.3 billion. This is the second-lowest this number has been at since the market crash of 2008. One of the biggest contributing factors for the above is the poor performance of Facebook’s stock since its IPO in May. The Facebook stock has lost half of its value since then as its major growth instrument, the smartphone, is still the principal risk to its stock. The pessimistic global growth forecasts are of course another reason for the declining numbers of the last quarter. 

·      Ending this update with news from the United States, last week the national debt dropped to a six-year low as borrowing by homeowners and businesses both fell relative to the size of the economy. This leads us to question whether the credit rating agencies were right in downgrading the credit rating of the United States. The red, white and blue now has a GDP which is 30 percent of the nation’s debt.

Ali Kazerani