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Trendlines Recession Indicator (Nov/2010 Canadian update)

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Housing Bubble & Near-Par Loonie have Decimated Canadian Recovery ... as Predicted

Nov 30 2010 ~ The Trendlines Recession Indicator continues to infer a complete decimation of the economic recovery. Real GDP is estimated to have been 0.6% in November, down from October's probable 1.4% pace. Today, StatCan confirmed September (Q3) GDP was a mere 1.0%.

Last November, the TRI was the first mainstream analysis to indicate the Recovery was exceeding 5% GDP growth rates. But within mere weeks the Indicator began to already project its serious deterioration. By December 23rd 2009, the TRI signaled the first alert of a potential double-dip. As North American news became worse, the date for a downturn was accelerated. But then in late April - all signs of future negative GDP vanished. TRI today projects 1.4% GDP in Q4, 1.7% in 2011Q1 & 1.5% in Q2.

The Summer/Autumn dismal activity represents a significant plunge from the heady 6.1% GDP days back in January. Because it flies in the face of six months of fiscal stimulus spending still to be distributed, we are confident the downturn reflects our March 5th 2010 warnings that Bank of Canada may have to ratchet back if it raised interest rates too quickly in light of: a probable double-dip in the USA, an export killing near-par Loonie & an imminent bursting of Canada's Housing Bubble. Carney has since raised rates three times. Only nine months ago, the Central Bank & the Minister of Finance had assured Canadians that there is no realty bubble up here. Then we watched valuations plunge $22k from June to August!

Factors contributing to sub 3% weakness in the outlook continue to be: (a) waning Fed/Prov fiscal stimulus cheques; (b) an assault on exports by a "par-plus" Loonie; (c) the consequences of deteriorating "wealth effect" associated with the ongoing correction of the $76,000 Canadian Housing Bubble - including a probable assault on consumer/commerce confidence; and (d) renewed threat of a collapse of New Car Sales in North America should crude oil breach $89/barrel (see our Gas Pump & Barrel Meter analysis). In time GDP will resume its 2.7% norm, but ramifications of these issues should prevent growth rates from surpassing the trend in any sustained fashion prior to the probable conclusion of the current business cycle in 2017.