A week of roiling markets and rivers

by Diane Francis

Wall Street and NYSE

CALGARY — This city of hustle and bustle was a ghost town yesterday just as though the Keystone XL Pipeline had been rejected by the U.S. President. But the streets were empty due to the force of nature as Calgary’s rivers roiled and flooded as they surged from the mountains.

By 8 a..m., the city’s office, hotel and condo towers were dark and residents were advised to evacuate. Stores, offices, transit and schools were closed and cabs were few and far between. Police cordoned off the river banks from curious residents and visitors and by 9 a.m. everyone realized they should head for higher ground because the flooding was not abating but worsening, at least into the weekend.
Calgary’s crisis paralleled the catastrophe underway this week as markets around the world roiled like mountain rivers gobbling up trees, houses, cars and living standards. Lightning struck at the beginning of the week, signalling the financial storm that followed. when Federal Reserve Chairman Ben Bernanke announced that Qualitative Easing, or printing mounds of money, was eventually coming to an end. Market experts called this “tapering”, but, in drug clinic terms, this meant there would be a slow withdrawal from the “heroin” that has lessened the economic pain since the financial system went bust in 2008.
The overall trigger for this flood of selling was Bernanke’s announcement that the U.S. would stop printing it like crazy. That was bad news for cheap money fans, but for those who desire long-term sustainable growth it was welcome news indeed and will be gradual. Market hedge guru, David Tepper said on CNBC yesterday interest rates would remain where they are until U.S. unemployment rates sink to 6 percent. So in that context, it’s not a catastrophe but a needed correction. Of course, that doesn’t make it any easier because markets took everyone prisoner: Bonds, stocks, foreign exchange rates and currency values. The weaning was inevitable because addicts cannot continue to live this way nor can global economies. So cast in this light, the good news is that The Fed is confident that recovery is strong enough that tapering can be imposed to avert bond or other bubbles.
But there has been a cascading effect and other regional problems that have arisen:
— The US dollar went higher, thus affecting the value of other currencies and a lowering in value of commodities, which in turn drove down the Australian and Canadian dollars.
— The higher US dollar and slowdown in China is also affecting the C$ and A$
— The slowdown in China, still a galloping 6% GDP growth, is also hobbled by worries about a debt bubble caused by China’s dramatic stimulus program since 2008.
— Emerging markets also tumbled due to lower growth prospects in Europe, China and elsewhere but also due to special circumstances in some countries. There have been riots this week in Turkey and in Brazil organized by protesters who are pushing back from austerity measures, either financial in Brazil’s case or religious in Turkey’s. They are also the result of youth unemployment which afflicts the global economy.
— Commodities, and therefore the Toronto and Australian Exchanges, were punished this week too as prospects that prices will continue to soften and that shale oil and gas will drive down fossil fuel prices. Commodities have been dependent on roaring output from China and others, now slowing as the cost of money will eventually rise as promised by Bernanke.
— The squabbling by OPEC in recent days is also a dampener when it comes to oil prices as its members — which include countries on both sides of the Syrian civil/religious war — cheat on quotas designed to prop up prices.
— Finally, the G-8 agreement to globalize tax collection, and stop arbitraging tax rates by the world’s thousands of gigantic multinationals, could prove to be a slight dampener on global trading patterns. This is far from final and the agreement is only the beginning of a long overdue correction, but some market experts may be building in higher tax rates for these giants in years to come in their models. This too, has contributed to lower stock prices.
But Americans have nothing but good news. Stock players may be over-reacted but The Fed is confident and they should be too. The shale revolution and re-industrialization of the American economy is real and will provide an engine of growth for jobs, trade and the neighbors such as Canada and Mexico.

Meanwhile here in Calgary, the only good news will be when the rivers recede and, goodness willing, Washington permits the Keystone XL Pipeline to be built. Just in case, however, thousands of trainloads are carrying bitumin to U.S. refineries and the White House knows that cheap, plentiful energy self sufficiency has to include the oil sands and is a guarantee of its economic pre-eminence for decades.