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Dogs Breakfast With Dave 011211

Dogs Breakfast With Dave 011211

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Published by: richardck61 on Jan 12, 2011
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01/12/2011

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David A. RosenbergJanuary 12, 2011
 Chief Economist & Strategist Economic Commentarydrosenberg@gluskinsheff.com+ 1 416 681 8919
 
Please see important disclosures at the end of this document.
Gluskin Sheff + Associates Inc.is one of Canada’s pre-eminent wealth management firms. Founded in 1984 and focused primarily on high net worth private clients, we are dedicated to meeting the needs of our clients by delivering strong, risk-adjusted returns together with the highestlevel of personalized client service. For more information or to subscribe to Gluskin Sheff economic reports
,
visit www.gluskinsheff.com
 
MARKET MUSINGS & DATA DECIPHERING
A Dog’s Breakfast with Dave
While Bob Farrell’s rule number nine warns us to be wary of widespreadconsensus opinions, it may well turn out that all the bullish Wall Street analystsend up being correct that 2011 proves to be another wonderful year. But theone thing we can assure you, as was the case in 2010, is that it will not be astraight line up. In fact, we would argue that there are more headwinds,potholes, and event risks this year than there were last year.Enjoy the picture show.
CALL IT THE WILE E. COYOTE MARKET
Source: “The Road Runner and Wile E. Coyote," celluloid painting by Chuck Jones, 1980
 
January 12, 2011
– A DOG’S BREAKFAST WITH DAVE
 
Page 2 of 13
THE FED IS VERY CONCERNED
“The staff forecast incorporated the assumption that new fiscal actions, some of which hadnot been anticipated in its previous forecast, were likely to boost the level of real GDP in2011 and 2012. But, compared with the November forecast, a number of other conditioning assumptions were less favorable:
House prices
and housing activity were likely to be lower,while interest rates,
oil prices
 , and the foreign exchange value of the dollar were projected tobe higher, on average, than previously assumed. As a result, although the staff projection showed a higher level of real GDP, the average pace of growth over 2011 and 2012 was littlechanged from the November forecast, and the unemployment rate was still projected todecline slowly.Indicators of production and household spending had strengthened, and the tone of the labor market was a little better on balance. The new fiscal package was generally expected to support the pace of recovery next year. However, a number of factors were seen as likely tocontinue restraining growth, including the
depressed housing market 
 , employer’s continued
reluctance to add to payrolls
 , and ongoing efforts by some households and businesses to
delever 
. Moreover, the recovery remained subject to some downside risks, such as thepossibility of a more extended period of weak activity and lower prices in the housing sector and potential financial and economic spillovers if the banking and
 sovereign debt problemsin Europe
were to worsen.Others pointed to downside risks to growth. One common concern was that the
housing  sector 
could weaken further in light of the considerable supply of houses either on themarket or likely to come to market. Another concern was the ongoing deterioration in thefiscal position of 
U.S. states and localities
 , which could lead to sharp cuts in spending andincreases in taxes. In addition, participants expressed concerns about a possible worsening of the banking and
financial strains in Europe
 , which could spill over to U.S. financialmarkets and institutions, and so to the broader U.S. economy.”
(The Minutes from the December 14, 2010 Federal Open Market CommitteeMeeting, released on January 4, 2011)
CHART 1: LOOK AT THIS — THE TWO-YEAR MOVE IN OIL PRICES
Oil Price: West Texas Intermediate
Shaded region represent periods of U.S. recessionSource: Haver Analytics, Gluskin Sheff 
-100-5005010015020025070 73 76 79 82 85 88 91 94 97 00 03 06 09(2-year percent change)
 
January 12, 2011
– A DOG’S BREAKFAST WITH DAVE
 
Page 3 of 13
 
CHART 2: OIL IS BEING DRIVEN IN PART BY SPECULATIVE FERVOUR
Net Long Speculative Position on Oil
Source: Haver Analytics, Gluskin Sheff 
CHART 3: RECORD LEVEL OF VACANT RESIDENTIAL REAL ESTATE
United States
 
Source: Census Bureau
-100-50050100150200250'95 '97 '99 '01 '03 '05 '07 '09(thousands of contracts)
89101112131489 91 93 95 97 99 01 03 05 07 09101112131415161718192089 91 93 95 97 99 01 03 05 07 09
Total Vacant Housing Units
(million units)
Total Housing Vacancy Rate
(percent)
Record High!

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