2011, Where Will the Fire Be This Year?

Into 2011It is always a cottage industry to write about our predictions for any new year.  The key of course is to become so esteemed that you actually get paid to make those wild guesses.  In the agricultural genre I suppose I am one of those individuals.  Needless to say, it is not those things that we can see that will change the world.  Its always those unexpected things that come along on some common Tuesday that rock our world.  In 2011, I don’t see that being any different.

Rewind for a moment to the fall of 2008.  During that year we saw oil crash from $147 a barrel down to $32 a barrel.  We had investment banks being liquidated over weekends and the US federal government stepping in to prop up the US economy.  Yes, the sky was falling and I remember at the time saying we were getting out of this recession very soon.  I said maybe late 2010 we might see a bit of improvement.  Yes, we’ve seen that but we are still a ways away from getting back to those heady days in 2007 and the first part of 2008.

Of course if I could I would reduce the employment level in southwestern Ontario to about 5%.  It troubles me that I often write about the Canadian economy but my home district of southwestern Ontario continues to lag behind other parts of the Canadian economy.  If I could infuse some high-tech industry into this region plus install a university in Chatham-Kent, maybe I could jump start a few industries.  Top it off with a new refinery north of Wallaceburg which was canceled in 2008 and we’d have everybody working.  The problem is the cold hard truth called reality.

For whatever reason southwestern Ontario is having a hard time catching up with the rest of the Canadian economy.  The Canadian dollar at par is welcome for Canadian day-trippers going to the United States but its completely redefine our manufacturing world in Southwest Ontario.  Even the agricultural world has been hit by the par loonie.  The difference there is agricultural commodity prices are at record levels and the foreign exchange component is hardly noticed.

The real growth in the Canadian economy continues to come in Western Canada where commodities are king.  For instance oil is fluttering around the $92 mark and lots of analysts are talking about breaking through $100.   Despite the pain at the gas pumps, high oil prices are always good for Western Canada.

There will be many questions this year about interest rates, the value of the Canadian dollar and what inflation will do.  I always look at the value of the Canadian dollar in a complete inverse relationship with the US dollar.  While we’ve had quantitative easing in the United States, which should be negative for the dollar, it hasn’t quite worked out that way.  Sure, the US greenback has been weak but I thought it would be weaker.  If the world wants a safe haven in 2011, look for the greenback to gain value despite the quantitative easing.  If that puts the Canadian loonie down to $.90 it would make my day.  However, nobody is making that argument.  So maybe, in an offhand way there is hope.

At a certain point this year Canadians will surely start feeling the pain from a federal government that will need to control its rising deficit.  That will either mean severe cutbacks or higher taxes and it cannot be avoided.  The only way that we might see some avoidance of higher taxes is that oil prices skyrocket into high triple digit territory.  The federal government has spent so much money stimulating the economy since 2008 and the bill is coming due.  Watch for how our federal government handles that this year.  It will have a major impact on the politics of this country.

For political types, that should lead to some very interesting times.  I don’t know if the Conservatives will win again despite what the polls say.  Yes, I think a majority is almost impossible for anybody based on simple electoral map.

What I will predict is the unpredictable.  For instance who could’ve predicted a year ago that Russia would have a once in a century drought, which effectively jumpstarted the big rise in commodity prices around the world in 2010?  Of course the answer is nobody saw it coming.  It got hot and dry and the fire started burning.  The question is, where is it going to burn this year?  I don’t know, but when you least expect it, it’ll happen.  I just hope we’re well-positioned to deal it.

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