I have made the case on a number of occasions that the Canadian real estate market, or at least parts of it, have been in a bubble. As someone who grew up in Saskatchewan, it was mind-boggling to me to see the prices of homes in Saskatoon - a city surrounded by prairie with -40C temperatures in the winter - double in two years such that Saskatoon became a more expensive city to buy a house than any city in the United States outside of the pacific coast, New York City and Boston.

I do not often agree with the columnist Murray Dobbin, and I am not sure if I agree entirely with the conclusions in this article, but relying on a report issued by the National Bank of Canada, Dobbin argues that Canada may not be as different as America as some Canadians think.

From the conversations I have had with investment professionals over the past while, it is my belief that the biggest surprise in the market would be if economic growth was strong and sustainable for some time.

It would surprise the heck out of me. Though I believe economic growth will beat estimates over the next few quarters as inventories are rebuilt and companies re-hire as demand picks up, I expect growth to be substandard for several years.

Academics in the social sciences rely on theories and models of human behavior. For academics whose entire career and livelihood depends on their theories, events that challenge their theories threatened their existence. Thus, there are powerful incentives for those whose theories are challenged to explain away the events that undermine their credibility.

A foundation of classical economics is that people make rational decisions, or at least enough people make enough rational decisions such that their rationality nullifies the irrational. From time to time, however, real events challenge this assumption. In financial markets, these events are known as “bubbles,” which seem to be occurring with greater regularity. (And given the recent actions of the authorities, there is no reason to suggest this will change anytime soon.)

From Bloomberg:

Pacific Investment Management Co., which runs the world’s biggest bond fund, said the dollar will probably fall as it loses its status as a reserve currency.

Most of my focus on the bubbly Canadian real estate market has been on Western Canada. This is primarily because over the last 10 years, Eastern Canada, i.e. everything east of Manitoba, has not much mattered in the global scheme of things as global investor demand has been focused on Western Canada, where things can be dug/mined/drilled etc. out of the ground. It is out west where the bubbly activity in the housing market has occurred.

Worthwhile Canadian Initiative - one of my favourite economics blogs - cites data from Teranet to bolster their argument that Canadian home prices are not in a bubble. It is an index akin to the Case-Shiller index in the US that tracks the changes in home prices in six Canadian cities - Vancouver, Calgary, Toronto, Ottawa, Montreal and Halifax. According to the Teranet index, home prices rose 8.9% per year from 2003 through 2007 across the six cities in the index.

Investing in farmland is becoming in vogue these days so I wanted to see how well prices of farms have done as of late. Below are the growth in farmland values for Canada, which were attained from Farm Credit Canada. I will address American farmland in a future post.

S&P 500 Earnings Per Share: $1

Well, $1.27 actually.

These are the reported earnings per share from Standard & Poor's for the S&P 500 index. The last two quarters of 2008 and the first quarter of 2009 are actual earnings. The second quarter of this year is comprised of roughly half reported earnings and half expected earnings from companies yet to report.

Even though earnings have been beating estimates, sales per share for the market is still falling from a year ago.

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As stocks rise, volume has been trending lighter. You can see the trends in volume declining from the March lows.

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A couple of months ago, we here at Running of the Bulls were pounding the table on the generational opportunity to buy stocks as equities were trading at multi-decade low valuations.

Since that time, stocks have risen over 40% off the March 6 bottom.

Despite all the gnashing of teeth regarding the dollar ...

The IMF's authoritative Currency Composition of Official Foreign Exchange Reserves (COFER) report last week indicated that the dollar's share of global reserves (where the allocation is reported) rose to 65%, to stand at its highest since 2007.

I believe that investment funds have had a disproportionate effect on commodities markets over the past five years. Restrictions on the holdings of commodity futures and swaps by investment funds could have an enormous effect on commodity prices and the stocks of commodity companies as well as resource-based economies if the US government restricts trading in commodity futures.

From Bloomberg:

The expansive staff here at Running of the Bulls have been of the opinion that if the national residential housing market was not at the bottom, then it is closing in on one.

However, we have been at pains to note that even though the national data may be in the process of bottoming, the regional data bore wide disparities. Florida and California, for example, were probably at a bottom. Manhattan, however, was just at the beginning of their descent.

Yes, it will end badly. But in the meantime, there is a lot of money yet to be made. From Saturday's Wall Street Journal.

I caught the last snippet of Barney Frank's interview on CNBC Thursday morning. I wanted to track it down and watch the whole thing, so I went to the CNBC website and dug it up, which you can watch here. I would highly suggest you watch it.

Frank acts like a jackass at the end of the interview. Mark Haines was asking legitimate questions, and Frank responds like a petulant, teenage Prima Donna and storms off. However, he is absolutely bang on in his argument, and is correct when he says that shareholders should have increased power over corporate boards.

The following are links to several articles I found interesting over the past week or so.

First, a comment on the market.

When the yield curve is this steep, it is usually a good time to invest in stocks.

Why?

The economy and the markets have gone through a traumatic shock unlike anything we have seen in seven decades. You know the story by now - housing bubble collapse, Lehman bankruptcy, subprime mess, credit market implosion, deleveraging, etc.

I believe the market had priced all of this in, and more, given the record spreads in credit and dirt cheap valuations in equity. If we are to break to new lows, then another convulsive shock must occur to the economy. There must be something as big or bigger than what has already been experienced to send the market into a free-fall once again.

I continue to hedge down my positions and am now primarily in cash, with some long exposure remaining. Over the next few days, if the market plays out the way I think it will, I will get net flat or perhaps even short. If I am wrong, then I will reverse my positions and become more aggressive. I have not sold any of my stocks bar one, and expect to add to positions on a downdraft.

This is just a trade, and I might change my mind Tuesday. I do not believe this is the beginning of a new leg down to lower lows. To hit lower lows, another cataclysmic event must occur, probably even bigger than what has already happened, an event I believe is unlikely. (There is one thing that worries me immensely, which I will address over the next few days.) I think the economy is repairing itself, and economic growth will surprise to the upside in the not too distant future.