Thursday, November 06, 2008


The Economist said this week, "The economies of the rich world seem to have fallen off a cliff." Are we now in the false security of freefall - the "pre-splat" period?

My alma mater, the University of Waterloo, is nailing plywood over their windows and hoarding supplies. ...That is, they've instituted a hiring freeze and enacted an austerity program. It's a very well-managed place, and they don't want to be caught off-guard if enrolment plummets and foreign students start dropping out. In addition, the UW pension plan, which is so well invested that they've had to suspend contributions in some years, is down 15%.

That drove home to me, more than all the doom and gloom in the media, that while the sun is still shining, there may be a hurricane just over the horizon. But it still just doesn't seem real to me. There are so many reasons to be optimistic.

My province, Ontario, has been in crisis for a couple of years, ever since the Canadian dollar rose precipitously, because our manufacturing sector was mostly based on exports. Now that the dollar has fallen again, it feels like we should be on an upswing.

There are also conflicting reports. Last week everyone was talking about the danger of inflation; now they're talking about the danger of deflation. Everyone's saying that even though Canada has strong fundamentals, it will fall when the US falls, but Stephen Gordon points out here and here that that does not always happen. I have come to believe that the US will emerge from this crisis stronger than ever, and throughout the crisis I've seen contradictory economic indicators.

I have investments and they're down, but I don't have to sell them now so there's no loss to me - unless there are bankruptcies or they stay down for 10 years, in which case I'm in trouble. But I also work in the hedge fund industry and my pay cheque is late this month.

So what will it be... splat? Or no splat?


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