"The government revised its figures because imports dipped more than expected in the first quarter, narrowing the nation's trade deficit. Smaller demand for imports meant less money flowed out of American businesses into foreign countries, pushing up domestic bottom lines and, in turn, the overall growth rate. But demand for imports fell because Americans are buying less. The bleak economic outlook has made many Americans more hesitant to spend, especially on large-scale purchases like cars and dishwashers. Though this trend helped nudge up the GDP estimate in the first quarter, it is likely to lead to a retrenchment in the business sector in the coming months."

That's your idea of "good news," Kate?

Um QE- I guess when you get told over and over and over and over and over and over again that the economy is tanking and you are not spending like you did before, you start to psychologically spend less. It becomes a self fulfilling prophecy, but you are obviously not thinking for yourself if you can't see what that what is happening is recession by a thousand cuts.

Sigh.....

Absolutely, AG. Remember, support your local economy. Buy GM, Ford or Chrysler whenever the mood strikes and the bank account supports.

Well, there are lots of things going on here, and in a complex situation there will always be things that can be spun to the max to support one point of view.

The Canadian dollar is high compared to US money. That's good for Canadians in the short term -- it means you have more money to spend. But it also means difficulties, one of which is that Canadian automobile production costs more from the POV of the car companies; the result is fewer imports to the US, to avoid the costs. That's less income for Canada. The same thing happens across the board.

"Activists" shouting America delenda est! are in for several rude surprises. The United States is a huge fraction of the world economy, not just its own production and consumption but also as a nexus for money flows not directly related. An adjustment, taking the damned Yanks down a peg, may be necessary (as an American chauvinist I naturally don't think so, of course) but one thing for sure: it won't be painless for Canadians, Chinese, Britons, and the rest, either. Leftist politicians around the world are going to be scratching their heads and wondering where the Hell the money went, and scratching around for people to blame. As here.

Regards,
Ric

It is my humble opinion that the US economy is going to grind its way out of this little blip quite nicely. The current bubble in oil will presently burst, and things will get on as normal.

"How naive!" you say? Consider that the price of gold topped out at just over $1000USD not long ago and now hovers around $850ish. Where's my $2000 gold? Vapor for the rubes.

Now we are hearing whinging about the changes $200/barrel oil will bring. So what's going to be the cause of $200 oil? It costs maybe $40/barrel to dig it out of the ground, crack it and ship it from Alberta. Oil sand the the worst pain in the @ss source of oil presently being used, everything else is CHEAPER. Meaning most of that $130+ oil price is speculation. Bubble. It will pop, probably sooner than later.

So short term, assuming no Liberal government is elected, Canada is looking pretty good. Alberta will keep making money, we will keep digging stuff out of the ground and selling it to the Chicoms, and maybe even sell some more cars to the Yanks.

Longer term, while oil is going to make the West well off, Ontario is going into the dumper. Pretty much all economic activity left in this province is related to cars sold at export. The rest is people selling stuff to each other in Toronto.

For the life of me I cannot see how any new manufacturing operation could be set up in Ontario right now, without some kind of super special no-tax deal from the provincial government. I can't even set up a friggin' woodworking shop around here with any expectation of success, the overburden of regulation and tax is ruinous.

Phantom,

haven't you head? ON & QUE just signed an emissions cap & trade agreement which will ignite a new era in the green industrial movement. It will be a world leader in developing and exporting the next generation of green products and technology. You will have to double the number of immigrants to those provinces just to satisfy the demand for the green manufactoring jobs that will accompany said industry.

Dion, McGuinty and Charest and all the green proponents all agree this theory is a win win. Don't you believe them? :-))

Oh joy. A cap 'n trade deal. I bubble with enthusiasm for this new tax.

Why take half when you can make off with three quarters of everybody's income, and not a word of complaint anywhere?

We sooooo have to defeat these Liberals. They have so got to go.

All this news must be frustrating for the Banks. I've been told for years now by some finance people I know that interest rates are going up to 8%. These guys sound very much like the crowd that's been preaching a return to $30 oil (as late as last spring!). It's a nice dream of theirs - but reality is getting in the way.

Canada's banks have been desperately trying to push up interest rates since 2001 using any excuse they can. Inflation will clearly increase for a couple of quarters due to oil demand, which is a great excuse to hike rates. However with an already high dollar and our princess province, Ontario, becoming terminally uncompetitive, the Bay Street boys are VERY reluctantly delaying their dreams of easy profits from higher rates to keep eastern Canada's economic house of cards from collapse.

Interest rates will have to be kept low until the Feds get their cabon tax in place. That way tax subsidies from the oil rich west can replace the "bank subsidies" of low rates for eastern Canada. The push for the holy 8% rate continues and a Liberal majority in Ottawa is the ticket. Suzuki and Co. are just useful idiots for the banks.

I still say a recession is upon us. Both in the US and Canada.
- There is more mess that the financial sector has yet to come clean on (more cdo, cd, etc debt) as well as writedowns on commercial, vehicle and credit card;
- So much of the US GDP is based on the American consumer that has lived beyond his means for too many years;
- As mentioned above, recessions can be mostly psychological, and there is some real fear out there.
- Commodity prices will continue to be high mainly due to increasing demand from India and China and the US will continue to, policy wise, devalue it's dollar.
- Still more environmental policy suicide yet to be played out in Congress (and Ottawa).

As far as the USD, come 2009 if the Democrats control all three houses, you will see competing influences; a rising USD based on a US world police pullback (Iraq and other stationed locals) and a falling USD because of a severe lack of confidence due to a bunch of new social program spending at home.
Cheers, (honest, I'm not entirely pessimestic).

Kate, Alberta Girl, Phantom, and others:

I have said this repeatedly here. US government statistics are purposely manipulated to keep the reported CPI lower than it actually is. Since billions of dollars of CPI-indexed government pensions, labour contracts, and Social Security/Medicare payments hinge on this figure, the US government will do everything it can to keep this figure low.

As I reported earlier, in March and April, when the price of oil on international markets, and the price of gasoline at the pump, was rising daily, the US government reported that energy prices *FELL* because, in the words of the pointy-headed economists, "prices did not rise as much as predicted". When you subtract REAL inflation from GDP growth (as opposed to the manipulated "official" inflation), you get a negative number, not growth of 0.9%. Same thing for Q407. Don't drink the government Kool-Aid!

Google "US MZM" = that's "money of zero maturity", which is the broadest measure of the US money supply available. Again, as I noted earlier, the US Fed under Easy Al stopped reporting M3 money supply figures a few years back so that they could continue inflating the money supply while hoping no one would notice. MZM - the closest proxy to M3 - is up over 16% year-on-year. (Kate: is there a way to embed charts in these posts? A picture is worth a thousand words..) Despite this massive increase in liquidity, and enormous short term rate cuts by the Fed, the bond market will have none of it - US long rates are higher now than they were at the beginning of the year.

And, again as I have noted earlier, you have accepted the "flash" and "preliminary" estimates of GDP growth as if they are the real numbers, when history has shown that these numbers are usually subject to large revisions when the "actuals" come out. I have already posted links that showed how this happened in employment; I'd do it for GDP numbers if I didn't think the effort would be wasted.

Now I'm sure with record oil, grain, and potash prices that the economies of Alberta and Saskatchewan are doing quite well. I'm happy for you. But just because it's sunny in your corner of the world, don't project that to the rest of North America. When millionaires are defaulting on their Hampton retreats, when even Toyota is announcing falling car sales in the US, when the US economy has shed close to half a million jobs in the last six months, it's not a pretty picture.

Ironically, Helicopter Ben announced this morning that the next step for the Fed may be to raise interest rates. This has provided momentary support for the US$, and sent oil and gold tumbling. This is the classic central banker's bluff - talk tough, but do nothing. Yes, the US trade deficit is falling, as one would expect with the dollar in a tailspin, and companies like Boeing and Caterpillar cashing in on the booming Asian economies, but the important point is the trade deficit is still huge by any standard. This means the current account deficit is equally big, and this means, combined with the Fed's constant inflation of the US money supply, that the overall trend for the US dollar will continue to be down.

As I've said before, I'm not happy that this is the way things are, but I'm not happy that David Miller is mayor of Toronto, that the BC kangaroo court - er, HRC - is still in session, or that you still can't buy any thing on Toronto's streets other than hot dogs, but that's the way it is.

I am reminded of a story about the opening night of George Bernard Shaw's play, Pygmalian. When it finally opened in London, Shaw himself was the director. The performance starred two of the biggest stars on the London stage, Sir Herbert Beerbohm Tree and Mrs. Patrick Campbell. The opening night performance was a smash hit, multiple standing ovations. Except for one young man who stood and booed loudly until the crowd went silent. He booed again. Shaw looked him over and said, "Young man, I quite agree with you. However, who are you and I against so many?" The crowd went wild.

Must have been KevinB's great great grandfather.

Well, Mr. Mallard, I noticed that, your amusing anecdote notwithstanding, you didn't (and of course, could not) dispute a single fact that I posted. Isn't this the type of behaviour we criticize when it comes from the left - when you have no case, make fun of your opponent?

Oh, and by the way, it's "Pygmalion", not Pygmalian as you stylized it. If my correction of your spelling offends you, please accept my apologies in advance; it's just the lingering after-effects of actually having had an education.

KevinB thank you so much for the spelling lesson. My spell checker failed to pick that one up since it seems to have both spellings in its dictionary. I have corrected this problem. It was late last night when I put my Shaw tale together. I had just returned from NYC yesterday having spent 10 days meeting with a variety of money managers and economists. I failed to see you at any of the meetings. Your arguments regarding US inflation have been discounted in this blog before by me and others yet you continue to adhere to this demonstrably wrong point of view. You have made your point that the US economy is a failed experiment in capitalism and so be it. I choose to look at this current situation as an opportunity to add to my asset base and my clients. There are many bargains to be had. This is a time for bold strategies not pessimistic platitudes.

I would ask you to reflect on this scenario. Imagine that the price at the pumps hits $10 in the US. The population will become very restive and demand action from their politicians. Some pols will suggest that profit controls and further government regulation will alleviate this. Any thinking person knows this is not the answer. The solution to the price at the pumps is to allow for drilling and exploration within the US including Alaska. This along with the facilitation of additional domestic refining capacity and a sensible approach to the nuclear alternative would go along way to addressing the energy needs of the US and the price at the pumps. News of this kind of initiative would send a message to OPEC that the current price is unsustainable in the medium term. A substantial drop in crude would ensue piercing the energy bubble. The $USD would rise against all of the major currencies and another spin of the economic merry go round would ensue. This may or may not happen but something will and the energy bubble will burst just like the residential real estate bubble, the NASDAQ bubble and all of the others in history. Pessimists will predict the end of the world while optimists will buy cheap stocks. I am an optimist.

Dear Mr. Mallard,

"Your arguments regarding US inflation have been discounted in this blog before by me and others yet you continue to adhere to this demonstrably wrong point of view." Oh? When and where?

"You have made your point that the US economy is a failed experiment in capitalism and so be it." Oh? When and where? I believe in capitalism; however, the US economy is suffering the aftermath of Easy Al's policies (debasing the currency, pumping up the money supply, fudging the statistics, which I don't think fit any definition of capitalism as I know it). If Paul Volcker had been running the Fed for the last 20 years, I think the US would be in much better shape.

Now, to your second paragraph. I doubt it would take $10/gal gas to get the public response you predict; $5-6 might be enough. And here's a shock - I agree with you that opening up more areas for exploration, expanded refinery capacity, and more nuclear energy would all be good for Canada and the US. I also believe in the longer term (5-10 years), these things will happen as the realities of huge price increases in electricity and gas will override NIMBY and the Dr. Fruit Flies of the world.

But, as an engineer, I have to ask: are you aware of how long in real time it takes to bring these things on stream? Let's assume President McCain can suspend the EPA, OSHA, and other impediments to the changes you suggest. A new refinery takes about three years to bring on-stream. A new nuclear reactor takes longer. Exploration is more of a crap shoot - you could get lucky with your first hole - but if it's North Slope Alaskan oil, how long will it take to get a pipeline built?

I'm not preaching doom and gloom forever; I'm preaching doom and gloom for RIGHT NOW. You think you're buying cheap stocks (with a 16% P/E on the SP500?); I think you're trying to catch a falling knife. Let's face it - in three trading days this week, the DJIA has wiped out all of last week's gains, despite a 10% drop in the price of oil.

I fully expect a significant buying opportunity to arise for US stocks later this year (which I've also said here before). I don't think the US economy is doomed to failure, but I think it's going to take more than a 5% fall from the 07 highs to shake out the problems. I'm not the only person who's preaching "Keep your powder dry" at this time; grizzled vet Richard Russell of Dow Theory letters, who has over 50 years experience watching markets, is saying roughly the same thing. Of course, markets are unpredictable; you may well be right. Let's compare notes at the end of September, shall we?

Three days of trading? Are you serious? As to compare notes at the end of September, please specify what year. If you mean this year, you are a speculator not an investor. Comments like this just underline how little you know.

I'm with you Kevin,probably before you.
I started buying oil stocks at 27 dollars.
Brian,good luck to you but you have a very flawed view of things.
Your DOW stocks are denominated in us dollars.
Those dollars have lost over 40% purchasing power in the past five years.
These are conservative numbers not measured against something like gold or oil.
Attending meetings does not qualify you as a market guru.